The law of unintended consequences, often cited but rarely defined, is that the actions of people—and especially government—always have unintended or unintended effects. Economists and other social scientists have been paying attention to its power for centuries; for so long, politicians and popular opinion largely ignored him.
The concept of unintended consequences is one of the building blocks of economics. Adam Smith's “invisible hand”, the most famous metaphor in the social sciences, is an example of an unintended positive consequence. Smith asserted that each individual, seeking only his own gain, “is led by an invisible hand to further an end that was not part of his intention,” that being the public interest. "It is not from the benevolence of the butcher or the baker that we await our dinner," Smith wrote, "but in consideration of our own interests."
Most of the time, however, the law of unintended consequences illuminates the perverse unintended effects of legislation and regulation. In 1692, the English philosopher John Locke, a forerunner of modern economists, called for the defeat of a parliamentary bill designed to cut the maximum allowable interest rate from 6% to 4%. Locke argued that, rather than benefiting borrowers, as intended, it would harm them. People would find ways around the law, with the costs of fraud borne by borrowers. To the extent that the law was obeyed, Locke concluded, the main results would be less available credit and a redistribution of income to "widows, orphans and all those who hold their property in cash."
- What's seen and what's not
In the first half of the 19th century, the famous French economic journalist Frederic Bastiat often distinguished in his writings between “what is seen” and “what is not seen”. What one sees would be the obvious visible consequences of an action or policy. What you don't see were the less obvious and often unintended consequences. In his famous essay “What You See and What You Don't See”, Bastiat wrote:
" There is only one difference between a bad economist and a good economist: the bad economist is limited to the t-effect; the good economist takes into account both the effect that can be seen and those effects that must be predicted. "
Bastiat applied his analysis to a wide range of issues, including trade barriers, taxes and government spending.
- Five Sources of Unintended Consequences
The first and most complete analysis of the concept of unintended consequences was done in 1936 by the American sociologist Robert K. Merton. In an influential article titled “The Unanticipated Consequences of Purposive Social Action,” Merton identified five sources of unintended consequences. The first two - and the most widespread - were "ignorance" and "error".
Merton labeled the third source "immediate immediate interest." By this he was referring to cases in which one so desires the intended consequence of an action that he deliberately chooses to ignore any unwanted effects. (This kind of intentional ignorance is very different from true ignorance.)
“Basic values” was Merton's fourth source of unintended consequences. The Protestant ethic of hard work and asceticism, he wrote, "paradoxically leads to its own decline through the accumulation of wealth and possessions." His final case was the “self-destructive prediction”. Here he was referring to cases where the public prediction of a social development proves false precisely because the prediction changes the course of history.
For example, warnings earlier this century that population growth would lead to mass famine helped spur scientific advances in agricultural productivity that have since made the grim prophecy unlikely to come true. Merton later developed the other side of this idea, coining the phrase "the self-fulfilling prophecy." In a footnote to the 1936 article, he promised to write a book devoted to history and the analysis of unintended consequences. Although Merton worked on the book for the next 60 years, it remained incomplete when he died in 2003, aged 92.
Examples of unintended consequences
The law of unintended consequences provides the basis for much criticism of government programs. In the opinion of critics, unintended consequences can increase the costs of some programs so much that they make them reckless, even if they achieve their stated goals.
For example, the US government has imposed quotas on steel imports to protect steel and steel companies from lower price competition. Quotas help steel companies. But they also make less of the cheap steel available to American automakers. As a result, automakers have to pay more for steel than their foreign competitors. Therefore, a policy that protects one sector from foreign competition makes it more difficult for another sector to compete with imports.
Likewise, Social Security helped alleviate poverty among the elderly. Many economists argue, however, that it has a cost beyond the payroll taxes levied on workers and employers. Martin Feldstein and others say today's workers save less for old age because they know they will receive Social Security checks when they retire. If Feldstein and the others are correct, it means less saving is available, less investment takes place, and the economy and wages grow more slowly than without Social Security.
The law of unintended consequences is at work always and everywhere. People outraged by high plywood prices in hurricane-ravaged areas, for example, may advocate price controls to keep prices closer to usual levels. An unintended consequence is that plywood suppliers from outside the region, who would be willing to provide plywood quickly at a higher market price, are less willing to do so at government-controlled prices. Hence the scarcity of a good where it is sorely needed.
A last worrying example is the case of the Exxon Valdez oil spill in 1989. Subsequently, many coastal states enacted laws that impose unlimited liability on oil tanker operators. As a result, the Royal Dutch/Shell group, one of the world's largest oil companies, began hiring independent ships to deliver oil to the United States, rather than using its own fleet of 46 tanks.
Oil experts feared that other reputable shippers would also flee rather than face this unquantifiable risk, leaving the field to tanker operators who fly at night with leaky ships and dubious insurance. Thus, the likelihood of spills has likely increased and the likelihood of damage collection likely decreased as a result of the new laws.
