06 Nov What Causes Unintended Consequences

Sometimes, well-meaning people plan or take actions that they intend to create a social good or results for the betterment of all, but their actions result in undesirable unintended consequences. The people who were supposed to benefit do not do so and, in many cases, are worse off than before the action. There are many examples from economics or politics.  Here are a few:

Rent controls

Rent controls are prevalent in New York City. Landlords raise rents to levels that are unaffordable to many people. So, the political solution is to enact rent controls that limit the amount of rent or increases.  Rent stabilization decreases housing turnover, and tenants are less likely to move. It also deters new development, as builders are less likely to add new units if they know municipalities will set their rent.  The result is that there are shortages, and a “black market” develops.  Current leaseholders sub-lease their apartments at a higher cost to new renters.  Also, some claim that landlords do not make the necessary upgrades and improvements to their apartment units. So, the unintended consequence is that rents are still high, and the units are not well maintained.

Price controls

This is also an attempt to subvert the market for a social good, such as keeping the cost of food or fuel low.  The effect is like rent control, in which a legislature or municipality sets legal maximum or minimum prices for a product.  It usually results in goods shortages, leading to an illegal “black market” of higher prices.  In addition, many producers will not bring their goods to market.  An example was during the Great Depression of the 1930s when some farmers killed and buried their cattle and pigs rather than sell them at the mandated price.² The shortages often result in rationing, in which consumers are limited in the quantities they can purchase, an underground exchange of ration coupons, and inferior quality as producers have less incentive to sell at lower prices.

Wildfires

Many large forest fires in the West have burned millions of acres of trees, killed animals, and destroyed many homes. There are many causes of wildfires, and many are not preventable. Lightning is a major cause, but climate change has also been blamed. Deforestation has also contributed.

Native Americans have practiced low-intensity burns to clear forests of combustible debris for centuries. They view fires as part of the solution, not the problem. But our national and state park services have prevented this practice, perhaps fearing that the burns could get out of control. The result has been that when lightning or a human cause, such as a campfire, occurs, excessive leaves, logs, and twigs fuel the fire and make it more difficult for firefighters to control.

Censorship

Book banning and censorship have been tried successfully and unsuccessfully for years. Today, many books, including classics such as Huckleberry Finn, Lord of the Flies, Catcher in the Rye, 1984, and To Kill A Mockingbird, have been banned by schools and local governments by people seeking to prevent others from having their feelings hurt or reading inappropriate language. The result is that, in many cases, the demand for those books increases.

For example, “In 2003, Barbra Streisand unsuccessfully sued Kenneth Adelman and Pictopia.com for posting a photograph of her home online. Before the lawsuit had been filed, only 6 people had downloaded the file, two of them Streisand’s attorneys. The lawsuit drew attention to the image, resulting in 420,000 people visiting the site. The Streisand Effect was named after this incident, describing when an attempt to censor or remove a certain piece of information instead draws attention to the material being suppressed, resulting in the material becoming widely known, reported on, and distributed.”¹

Political

Lastly, I will refer to a well-known political event to demonstrate unintended consequences.

In 2013, Harry Reid (D-NV) was the majority leader of the U.S. Senate. He wanted to approve some judges nominated by President Obama that were being held up because he did not have the required 60 votes to bypass the Senate’s filibuster rule.  So, Reid chose the “nuclear option,” a parliamentary rule that changed the authority to approve justices to a simple majority of 51 votes.  Then, in 2017, Mitch McConnell (R-KY) used this precedent to approve the nominations of three Supreme Court justices nominated by Donald Trump, who would not have received enough votes had Harry Reid left the 60-vote rule in effect.  If Harry Reid had been able to see the future, I doubt he would have changed the rule.

In summary, sometimes the result is more harm than good when practices or changes or when trying to manipulate the market to create a social good. Before proceeding with the change, it is best to consider the long-term effects and ramifications of what could go wrong. Often, it is best to let the market work itself out.  When there are shortages, more sellers will enter the market, and when there are surpluses, many will close their businesses and leave.  This will result in a true market price.

Steve

¹ https://en.wikipedia.org/wiki/Unintended_consequences

² https://footnote.wordpress.ncsu.edu/2020/08/14/plowing-under-cotton-and-killing-pigs-8-14-2020/

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