The conventional wisdom in policy circles is that the best way to grow the digital economy is by increasing consumer trust. Privacy regulations, we are told, will boost trust and more trust will lead to more technology adoption — more apps downloaded, more time spent online, more e-commerce. For regulation-inclined lawmakers, this scenario is a win-win: They can regulate online companies as they please and still claim credit for growing the digital economy. Unfortunately, they are wrong: Policies designed to increase trust would likely weaken the U.S. digital ecosystem and lower consumer welfare.

Many privacy advocacy organizations justify their calls for European-style privacy regulations by arguing that strong privacy regulations will boost consumers’ trust and therefore use of digital services. For example, Marc Rotenberg, president of the Electronic Privacy Information Center, writes, “Trust exists where data protection is established and enforced.” Similarly, advocates from the Center for Democracy and Technology have argued, in the context of health information technology, that “enhanced privacy and security built into health IT systems will bolster the public trust and confidence that are critical to the rapid adoption of health IT and realization of its benefits.”