Attack of the Nanny-State

11/01/2017 03:47 pm ET Updated Nov 03, 2017

One of the insidious consequences of a paternalistic state is that it renders the concept of fraud virtually meaningless.

Our political leaders endorse the idea that government ought to decide what is best for us. It is widely accepted that government’s job is to protect the individual, not from being harmed by others, but from harming himself. So we must be discouraged from, say, freely gambling or buying cigarettes. We cannot live in a home unless it includes a carbon monoxide detector. Our government nannies stop us from being able to buy certain foods that contain “too much” sugar or salt.

All such legal mandates—we are informed—are for our own benefit. We cannot be trusted to make such decisions by ourselves.

Most people understand that government should prevent actual fraud. If you buy a used car and discover that the odometer was turned back, you have been defrauded. You are not getting the product you chose. But the concept of fraud depends on a view of man as an autonomous being, able to think for himself. If, however, you are incapable of choosing rationally, no fraud is possible. The evil of fraud is that it denies the victim the right to make his own choice. To the paternalist, however, we can’t be allowed to make our own choices.

The label of “fraud,” therefore, is often attached simply to whatever our nannies decide is bad for us. For example, many people take out “payday loans,” which are short-term, high-interest (and high-risk) loans collateralized only by the borrower’s next paycheck. The federal government declares these to be “deceptive” and forbids people from borrowing more than a certain amount and from taking out such loans more than a certain number of times—even though there is no misrepresentation and the transactions are made willingly.

Or consider the recent lawsuit against Coca Cola and Pepsi. They are being accused of fraud for labeling a product as “diet soda,” because many people drink it yet fail to lose weight. Consumers are considered unable to comprehend that the isolated act of drinking calorie-free soda does not magically guarantee weight loss. Consequently, the government is called on to protect them by banning further sales of the product.

This nanny-state mentality is pervasive—and because of it, a private college in Colorado is now on trial for its life.

CollegeAmerica is what is known as a career college, offering associate’s and bachelor’s degree programs that provide students with marketable skills. It is being sued by Colorado’s Attorney General, who claims that it dupes students into paying for a sub-standard product. (I should mention that I personally know one of the principal defendants, Carl Barney; we served on the board of the Ayn Rand Institute.)

The school faces numerous accusations—excessive tuition, high default rates on student loans, an “unconscionable” loan program, false advertisements about employment prospects for graduates. A trial is underway in Denver, with the state demanding millions of dollars in penalties and “restitution.”

This is a lawsuit, however, that is driven by something other than a concern for facts.

For example, it claims that CollegeAmerica’s tuition is much higher than at community colleges. But since it takes far less time to obtain a degree at CollegeAmerica, the cost to graduate is actually lower there. And if one counts as a cost the income that students must forgo while attending college and being out of the workforce, the shorter graduation time makes the total cost of a degree substantially lower--$92,000 at CollegeAmerica Denver vs. $125,000 at Community College Denver for an associate’s degree.

For another example, the Attorney General asserts that “CollegeAmerica students are more likely to default on their student loans than students at other schools.” Well, yes—if the comparison is with all other colleges, including the top ones, which have students from far wealthier families. But if the comparison is with public, community colleges, the result is very different. Compared with, say, Community College Denver, the default rate at CollegeAmerica Denver is lower in each of the last three years surveyed. (And when compared with other community colleges in Colorado, CollegeAmerica’s rate is sometimes higher and sometimes lower.)

Now, I don’t know first-hand that all the Attorney General’s factual claims about fraud are invalid. But I do know something more fundamental: his underlying conception of fraud is invalid.

The entire lawsuit is motivated, and colored, by the ideology of paternalism—by the notion that we are helpless ciphers who must be protected, not against real fraud, but against our own inability to know what is good for us.

One of the main charges against CollegeAmerica is that it deceives students about future incomes for graduates. In its promotions the school makes the following statements: the average extra earnings for college-degree holders, based on government data, is $1,400 month; the difference can be as high as $2,000 a month, amounting to as much as $1 million over the course of a lifetime (while “actual earnings could be more or less”); and the average salary for holders of a bachelor’s degree is $57,000 and of an associate’s degree, $44,000. These statements, although factually accurate, are called misrepresentations by the Attorney General. Why? Because historically the average earnings of CollegeAmerica graduates have been “far less than the wages that Defendants advertise.”

So informing someone of the potential he can achieve—telling him he might do better than average--is “misleading.” If a student is told he can aspire to making an extra million dollars, he will assume he is being assured that he will make that much. After all, people cannot be expected to think logically. To tell them that the above-average is attainable is to exploit their cognitive incapacities.

Another major accusation by the government concerns CollegeAmerica’s loan program, which the Attorney General decries as “unconscionable.” Are students being deceived about the interest rate? Or the amount being loaned? Or the repayment schedule? No. Rather, the school “capitalize[s] on students’ inexperience with financial aid and rush[es] them through the process, de-emphasizing the financial burden of enrolling into one of Defendants’ degree programs.” Can’t students simply read the terms of the “financial burden” they are undertaking? No, they “are unable to understand the terms of their student loans because of an infirmity, illiteracy or ignorance.”

This is the human archetype, according to the paternalist—a mindless entity, unable to comprehend what he willingly consents to and needing the guidance of a nanny. And what about the self-responsible students? What about the ones who do think and who judge that they are benefiting by enrolling at CollegeAmerica? They are not real to the paternalist. And if they are real, they simply don’t matter. The strong—the paternalist believes—must always be sacrificed to the weak, the responsible to the irresponsible, the rational to the irrational.

This lawsuit is part of a wider effort by government to remove the competition posed to community colleges by private ones. Since government officials maintain that a public education is better a private one, their premise is that they are simply preventing students from choosing wrongly. The case against CollegeAmerica, in other words, is prompted not by fraudulent behavior, but by the belief that students should not be permitted to make choices that the government decides is bad for them.

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