The Law of Unintended Consequences

My worst exercise experience happened the one day I decided to try an aerobics
class. It was taught by a tireless young woman who insisted on changing movements
every five seconds. It took me that long to figure out what I should be doing, and by that
time, she’d moved on. And so basically I just stood there and looked confused. What I
needed was a few variations repeated over and over. I simply couldn’t adjust to the
‘Now we’re going to do this! Now we’re going to do that…”
Which, oddly enough, brings us to The Law of Unintended Consequences.
According to Andrew Gelman in the Seeking Alpha web site: “The law of
unintended consequences is what happens when a simple system tries to regulate a
complex system.”
Referring to my brief aerobics experience, I was the simple system. My aerobics
instructor was the complex system.
But what if the aerobics instructor is the simple system and she says, “Other
exercises are bad! Pushups are good for you! I will have you do pushups for the entire
hour.”
Others in the class might suggest alternative routines, but she won’t budge. “No
variations! Just pushups! Pushups are good for you!”
Her zeal to make us do “good exercises” would have the unintended
consequence that before long nobody would be in her class.
Returning to Andrew Gelman again, “The political system is simple. It operates
with limited information, short time horizons, low feedback, and misaligned incentives.
When simple systems try to regulate a complex system, you often get unintended
consequences.”
Here’s an example of an unintended consequence produced by a political
system. According to the Google Answers website, “In India, a program paying people a
bounty for each rat pelt handed in, intended to exterminate rats, led instead to rat
farming.”
Another example from the same web site: “Prohibition, intended to suppress the
alcohol trade, drove many small-time alcohol suppliers out of business, consolidating
the hold of large-scale organized crime over the illegal drugs industry.”
Here’s an example of a positive unintended consequence. The Library of
Economics and Liberty website says that “…the law of unintended consequences is one
of the building blocks of economics. Adam’s Smith, invisible hand, the most famous
metaphor in social science, is an example of a positive unintended consequence. Adam
Smith maintained that each individual, seeking only his own gain, ‘is led by an invisible
hand to promote an end which was no part of his intention,’ that being the public
interest. It is not from benevolence of the butcher or the baker that we expect our dinner
but from regard to their own self interest.”
In other words, the butcher’s main goal is to make money to provide for his
family. Because he wants customers to return to his shop, he strives to provide the best
meat at a reasonably low price. We the consumer just want a nice steak for dinner. The
steak the butcher sells comes from a rancher who likewise only wants to provide for his
family. All of this self-interest of millions of people provide for a healthy economy with
hopefully very little unemployment. And yet a healthy economy for the nation was never
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the goal of the butcher or the rancher. It is an unintended consequence of free
enterprise.
In terms of our economy, self interest is what has made America great! We shop
for bargains. If enough people don’t buy a product, the company goes out of business.
Some of those who used to work in that company start another business. If it succeeds,
we buy the product, the company prospers, and more employees find work. If it fails,
that individual may start another business until he finds something that will be
successful. Sometimes failure is essential for success.
And so a positive unintended consequence of self-interest is prosperity and jobs.
(Although, certainly, of course, it has also brought social problems as well.)
In terms of Gelman’s definition, free enterprise is a complex system. Think of all
the decisions that take place in the stock market each day! People buying, people
selling, just wanting to provide for their families. Some companies prosper, some don’t,
but life goes on.
Just as an aerobics instructor who only allows a class to do push-ups, the
Federal Government is very good at imposing regulations. Is it possible that some of
these regulations may have the exact opposite result than that intended? Let’s look at
recent events.
In regard to the recent Gulf of Mexico oil spill, Charles Krauthammer in the May
28th Washington Post writes: “Here’s my question: Why were we drilling in 5,000 feet of
water in the first place?
“Many reasons, but this one goes unmentioned: Environmental chic has driven
us out there. As production from the shallower Gulf of Mexico wells declines, we go
deep (1,000 feet and more), and ultra deep ( 5,000 feet and more), in part because
environmentalists have succeeded in rendering the Pacific and nearly all the Atlanticcost
off-limits to oil production. And, of course in the safest of all places, on land, we’ve
had a 30-year ban on drilling in the Arctic National Wildlife Refuge. Why have we
pushed the drilling from the barren to the populated, from the remote wilderness to a
center of fishing, shipping, tourism and recreation? Not that the environmentalists are
the only ones to blame. Not by far. But it is odd that they’ve escaped any mention at
all.”
On May 11, Louisiana officials asked permission to build temporary sand islands
or berms to block the flow of oil into fragile wetlands and marshes. No action was taken.
Why? According to the AOL news website, “…Louisiana Gov. Bobby Jindal said he was
frustrated that the U.S. Army Corps of Engineers has taken too long to approve his
state’s plan to construct sand berms in an attempt to block oil from flowing into the
wetlands. As Jindal said, ‘We have been frustrated with the disjointed effort to date that
has too often meant too little too late to stop the oil from hitting our coast.’”
Jindal first requested the construction of the berm on May 11. It finally received
approval on June 2, after the oil had contaminated the wetlands.
In the June 14 issue of Time Magazine Bryan Walsh writes: “On June 2
he (Admiral Thad Allen) announced that he had approved five additional sand berms
and that BP would foot the bill. Anything, it seems, is better than waiting helplessly for
the oil to envelop the wetlands completely.”
It took nearly a month for the Federal Government to decide that erecting
sand berms along the coast of Louisiana would cause less environmental damage than
letting the oil get into the wetlands. Is it possible that regulations and procedures
designed to save the environment at least partially contributed to the unintended
consequence of damaging the environment for years to come?
Just as we expect that an aerobics class will give us a variety of exercise
routines that will exercise all our muscle groups, we should expect the same multifaceted
approach to the nation’s energy development and production. For some federal
agency to say that some energy sources are good, such as solar and wind, but other
energy sources are bad, such as nuclear, coal, or oil production in the Alaska National
Wildlife Reserve (ANWR), is short-sighted. Most reasonable people would say, “Let’s
do it all and see what we can do to protect the environment at the same time.”
And that is what I’ve learned from participating in one aerobics class!
I may go back. We’ll see.