Tuesday, March 4, 2008

The Law of Unintended Consequences

I've been meaning to write a piece on this topic for a long time. Too many do-gooders and policy-makers think that they have the "right solution" for a multitude of problems. The unintended outcomes as a result of actions are often not carefully thought out and weighed into the decision-making process.

Let's look at some examples that I have thought of, and then you add some to the list in the comments section.

1. Ethanol- the government has been POURING money into ethanol subsidies in an effort (albeit a weak one) to decrease our dependency on fossil fuels. Well, what are the consequences? Food prices are going through the roof, because now corn has become such a valuable commodity. Big deal about corn, you may say, as you only buy some ears of corn in the summer to have at BBQs. WRONG! Corn is used to feed animals, thus the price of meat has increased. Corn syrup is used as a sweetner in many dessert products, thus these are more expensive. Finally, now farm land, farm equipment, fertilizer, etc are much more important and valuable. Thus, the price of wheat has DOUBLED in the past year. That means breads and cereals are more expensive.

2. CAFE standards- Congress enacted higher fuel economy standards by auto makers a few months ago. Nice move to decrease the consumption of gas and fossil fuels, right? Probably not...people will just drive more often and for longer distances in their fuel-efficient vehicles. To wit, a recent study has demonstrated, that for the first time since 1980, Americans are driving less.


3. Minimum wage increases- Congress gets all hopped up on passing minimum wage increases. Great, people will make more money? Wrong...smaller employers will probably hire less people since the total payroll costs will increase. Larger companies will decrease the rate or size of annual wage increases for their employees. Or, they may cut back on other 'perks' for their existing employees.

4. Afghanistan- Covert funding of the mujahideen by the CIA helped the Afhanis defeat the Russians. However, the mujahideen did not establish a united government, and many of the larger mujahideen groups began to fight each other over the power in Kabul. After several years of devastating infighting, a village mullah organized a new armed movement with the backing of Pakistan. This movement became known as the Taliban.

5. Rats- In India, a program paying people a bounty for each rat pelt handed in, intended to exterminate rats, led instead to rat farming

6. Higher taxes to increase revenues- big deficits generally push law-makers to think about increasing taxes on individuals and corporations to increase revenues to the IRS and decrease the deficit. What happens? Corporations move "off-shore" to avoid taxes, or get lawyers to devise sneaky tax-saving schemes. Individuals have less incentive to work as hard or as long, since ever dollar is taxed at a higher amount. Thus, tax increases may actually lead to a decrease in revenues.

7. No Child Left Behind- laws passed to "improve" the education system in the US mandate schools to improve to certain levels as measured by standardized exams. Are kids getting smarter? Probably not, since it appears that teachers are just teaching towards the test.

I will post more as I think of them in the next few days. Post some of your favorite examples.

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