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Unintended Consequences

Prof. Don Boudreaux explains what economists mean when they talk about unintended consequences.  Essentially, unintended consequences are the large outcomes that emerge from the actions made by many individuals.  These outcomes can be good or bad.  Therefore, when analyzing various polices, we must be extremely careful to distinguish between intentions and results.



    • Unintended Consequences [Article]: Rob Norton provides a basic overview of the unintended consequences that arise from all human action.

    • Unintended Consequences [Article]: Steven Horwitz examines the concept of unintended consequences by looking at different institutions and their respective effects on uncertainty.

    • Welfare State's Effect on Private Charitable Activity (Video): Milton Friedman sheds light on the unintended consequences of governmental welfare programs.

    • Minimum Wage (Video): Milton Friedman demonstrates the undesirable consequences that result from well-intentioned minimum wage rates.



 


Unintended Consequences

Economists talk a lot about unintended consequences, and it’s important to understand what we mean. We don’t mean that individuals don’t intend to achieve things when they go out in the world and act. Of course they intend things, good things, bad things. What we do mean is that these actions of many individuals typically come together to create a larger outcome. And it’s that larger outcome that no one intends. Sometimes these are good, beneficial. Sometimes these larger outcomes are undesirable.

One of my favorite examples of a bad unintended consequence is the consequences caused by rent control. Rent control is a policy of government to keep the rental rates of apartments artificially low. Landlords are prohibited by law from charging prices higher than the rent-control prices. Well, one unintended consequence of that piece of legislation, of that policy, is to make rental units more scarce than they would otherwise be. By telling landlords, look, you can’t raise your price to certain levels, that means that some people who would otherwise become landlords don’t become landlords. They choose not to rent out their units. They choose not to rent out some rooms in their house. They choose not to build rental units that they might otherwise have built. So, one unintended consequence of rent control is to reduce the supply of rental units.

Now the people who impose rent control, that’s clearly not their goal, they don’t want to make rental units less available. They want to make rental units more available because presumably they want to increase the availability of rental units to people who rent. But one unintended consequence is the opposite. Rental units shrink in supply.

When I teach Econ 101, I tell my students on the first day intentions are not results. The intentions behind the policy will not necessarily determine what the results of that policy are. One example of an unintended consequence that is exactly the opposite of the intention comes from the Endangered Species Act. The intention of that act is to enable endangered species to flourish. One consequence in many cases is to cause the endangered species to be killed off more quickly than otherwise.

If you’re a landowner and you find an endangered species on your property, you know that the Environmental Protection Agency will, as a result of that finding, impose restrictions on your land. One consequence of those restrictions is it reduces the value of your land, what you can do with it, the price you can sell it for. So what a lot of landowners do when they find what they think to be endangered species on their property is they kill the species and they shut up about it. It’s called shoot, shovel, and shut up. Kill the species, shovel it to bury it, and say nothing about it. Now clearly that’s not the goal of the Endangered Species Act.

The take home lesson from this is that you judge a policy not by its stated goals. It’s easy to state good goals. You judge a policy by the incentives that that policy will likely give to the people that it affects. And it’s a very important one, for policymakers, is to be really modest and humble.

We live in this incredibly complex world. When we take any action, we know that the consequences of those actions are going to extend out very far. We can see those consequences only a little bit in front of us. We can’t trace them out fully. And it applies whether or not you believe in big government, tiny government, and medium-sized government. Yes, it’s difficult in many cases to trace out how the incentives will have real-world effects. But that difficulty does not excuse us from the task of pursuing it. We can’t just simply say, oh the intentions of the policymakers are good, therefore we can be assured that the results will be good. That’s cheating. We just can’t do that. That’s very bad public policy.

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