Bryan writes,

Couldn’t you just as easily say that consumers benefit from the peace of mind of Capital One’s payment protection products, even though the products make little financial sense?

Now it’s my turn to raise some hypotheticals.

(a) If I tell you to give me all the money in your wallet or I will break your thumbs, then couldn’t one say that by giving me the money you benefit from the peace of mind that I will not break your thumbs?

(b) Suppose that I say that if you give me all the money in your wallet, you will be blessed by a deity that most of us agree does not exist. That belief that you will be blessed confers peace of mind.

(c) I tell you that a tree is about to fall on you, but if you give me all the money in your wallet, it will not fall on you. In fact, the tree is not about to fall on you, and I know it. But the relief from the fear of the tree (a fear which I put into your head in the first place) gives you peace of mind.

(a) is considered coercion, and I think it is fair to say that it violates our notion of voluntary exchange.

(b) might confer benefits to the consumer, even though the belief is false. When I say that false religious beliefs sometimes confer benefits, I could use examples of people who were able to overcome alcohol addiction or deal with stressful circumstances because of their faith. Rightly or wrongly, we have adopted the social and political convention of cutting slack to many “sellers” of religious beliefs. Generally, we treat this sort of transaction as voluntary.

(c) is what I see as pretty close to what Capital One did. I think it is pretty difficult to defend the view that this transaction was voluntary. You have to say something like, “The consumer should be smart enough to know better than to listen to a customer service representative saying that a tree is about to fall. Given the consumer’s stupidity, it was a voluntary transaction.” I don’t buy that, in part because I think that this is a company that has vast resources to invest into training its staff to convince consumers that a tree that is about to fall.

Many libertarians speak as if it were possible to come up with a clean way to separate voluntary transactions from involuntary transactions. Once you have defined a transactions between parties A and B as voluntary, then you have a presumption that party C should stay out of it. What I am suggesting is that defining voluntary exchange may not be quite so simple.

I would not try to draw a line in the sand in front of something called “voluntary exchange” and fight to defend that line. Instead, I would allow for the possibility that C may be morally justified in interfering between A and B. From a libertarian perspective, I would emphasize the many ways that C can get involved without using coercion or monopoly government. I would emphasize that no single individual or institution has omniscience with respect to these situations, and that this fact is what argues against conceding a large role for government.