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The Law of Unintended Consequences
Dubner and Levitt have an article in the NYTimes with three examples of the law of unintended consequences, the Americans with Disabilities Act made it more costly to hire people with disabilities and reduced their employment, ancient Jewish sabbatical law intended to help the poor has made them worse off, and the endangered species act has resulted in habitat destruction.
In light of this Andrew Gelman asks a deep question, What kind of law is the "law of unintended consequences?"
The law of unintended consequences is what happens when a simple system tries to regulate a complex system. The political system is simple, it operates with limited information (rational ignorance), short time horizons, low feedback, and poor and misaligned incentives. Society in contrast is a complex, evolving, high-feedback, incentive-driven system. When a simple system tries to regulate a complex system you often get unintended consequences.
Unintended consequences are not restricted to government regulation of society but can also happen when government tries to regulate other complex systems such as the ecosystem (e.g. fire prevention policy that reduces forest diversity and increases mass fires, dam building that destroys wet lands and makes floods more likely etc.) Unintended consequences can even happen in the attempted regulation of complex physical systems (here is a classic example involving turbulence).
The fact that unintended consequences of government regulation are usually (but not always or necessarily) negative is not an accident. A regulation requiring apartments to have air-conditioning, for example, pushes the rental contract against the landlord and in favor of the tenant but the landlord can easily push back by raising the rent and in so doing will create a situation where both the landlord and tenant are worse off.
More generally, when regulation pushes against incentives, incentives tend to push back creating unintended consequences. Not all regulation pushes against incentives, some regulations try to change incentives but incentives are complex and constraints change so even incentive-driven regulations can have unintended consequences.
Does the law of unintended consequences mean that the government should never try to regulate complex systems? No, of course not, but it does mean that regulators should be humble (no trying to remake man and society) and the hurdle for regulation should be high.
Posted by Alex Tabarrok on January 24, 2008 at 07:47 AM in Economics | Permalink
Comments
I don't want to hijack this thread, but this is as good a place to ask as any: has anyone written a book/article about what the consequences, intended or unintended, would be of returning to a world of 5% tax rates and far fewer agencies? For instance, what would happen if the labor department, ag, social security, ADA, etc. were dismantled. That seems like a crucial thought experiment, but I've never seen anybody consider it.
Posted by: bjk at Jan 24, 2008 8:35:57 AM
The Tacoma Narrows failure was due to resonance, not turbulence.
Posted by: Dave at Jan 24, 2008 8:39:58 AM
The simple fact is that almost all of the time markets make the right decisions and consequently government interference with markets can't avoid making things worse. Put simply, markets tell the truth and governments lie. Hence the ironical effects of government regulation.
Posted by: critic at Jan 24, 2008 8:49:05 AM
Critic, I might rephrase that with something from Marginal Revolution and one of its friends earlier this month: markets make unfortunate decisions all the time, but governments have even worse records. Markets usually do well and rarely do worse than the leading competitor, hence the last paragraph of the post.
Posted by: Zubon at Jan 24, 2008 9:03:07 AM
Yes, the percentage of disabled people holding jobs has fallen since enactment of the ADA, but that's not necessarily because lawsuit-wary employers are reluctant to hire the disabled. An alternative explanation is that more and more healthy but lazy people are falsely claiming to be disabled in order to get Social Security disability and avoid having to work. I don't know if there's any way to prove this. One possibility is to see if easy-to-fake, hard-to-disprove disabilities (psychiatric, back pain, maybe others) have increased as a proportion of all disabilities, though even a significant increase wouldn't necessarily be conclusive.
Posted by: Peter at Jan 24, 2008 9:22:42 AM
The general point about unintended consequences is of course important, but there's some good reason to think that Levitt and Dubner might not really know what they are talking about in this case. See, for example, this:
http://michaeldorf.org/2008/01/unintended-consequences.html
This in turn ought to make us go very slowly in accepting that unintended consequences mean we should not try to make some change. Such things are hard to get right, and if you mostly just ignore a lot of factors and evidence (like Levitt and Dubner seem to have) you'll also get some pretty bad results.
Posted by: Matt at Jan 24, 2008 9:25:20 AM
Isn't this effect largely the result of looking at 'marginal' regulations, regulations whose use is most disputed? there are enormous amounts of regulation that pretty mcuh achieve there goal, but these are rarely discussed.
Take aircraft safety regulations and the FAA. Goal: keep aircraft safe and the public trust in aircraft high. Works like a charm. Industry likes it because it gives them clear safety targets, airlines like trust the public has, passengers of course end up paying for the safety measures, but without regulations they probably wouldn't dare to fly.
Is it perfect? No. There are constantly disputes, these get solved most the times but sometimes they linger on. Does it achieve the social optimum between cost and safety? Probably not, but few people are complaining. Could it be done without the government? Perhaps yes, an S&P type organization giving out AAA ratings to airliners might be possible. But that organization would just produce its own regulation, most likely very similar to the present one.
Of course, FAA regulation is hardly 'simple', it has lots of experts backing it up and good feedback channels. That's the whole point. Good regulation can be useful, even if isn't perfect. There's loads of regulation around us. Some of it made by the government, some of it by private organisations. Ever heard of ISO norms?
Posted by: GreatZamfir at Jan 24, 2008 9:32:05 AM
I disagree that the political system is simple. It is also a complex (adaptive) system with its own dynamics, heterogeneous agents, non-linear interactions, adaptation, positive and negative feedback etc... However, this only serves to increase not decrease the chance of unintended consequences. The resulting regulation or policy coming out of this complex political system is usually the simplistic thing that usually leads to the unintended consequences that make economist knowingly smile.
Posted by: GoodneesOfFit at Jan 24, 2008 9:33:02 AM
Isn't this effect largely the result of looking at 'marginal' regulations, regulations whose use is most disputed? there are enormous amounts of regulation that pretty mcuh achieve there goal, but these are rarely discussed.
Take aircraft safety regulations and the FAA. Goal: keep aircraft safe and the public trust in aircraft high. Works like a charm. Industry likes it because it gives them clear safety targets, airlines like trust the public has, passengers of course end up paying for the safety measures, but without regulations they probably wouldn't dare to fly.
Is it perfect? No. There are constantly disputes, these get solved most the times but sometimes they linger on. Does it achieve the social optimum between cost and safety? Probably not, but few people are complaining. Could it be done without the government? Perhaps yes, an S&P type organization giving out AAA ratings to airliners might be possible. But that organization would just produce its own regulation, most likely very similar to the present one.
Of course, FAA regulation is hardly 'simple', it has lots of experts backing it up and good feedback channels. That's the whole point. Good regulation can be useful, even if isn't perfect. There's loads of regulation around us. Some of it made by the government, some of it by private organisations. Ever heard of ISO norms?
Posted by: GreatZamfir at Jan 24, 2008 9:33:11 AM
I didn't mean to double post,must be some bug in the system?
Posted by: GreatZamfir at Jan 24, 2008 9:45:59 AM
When a simple system tries to regulate a complex system you often get unintended consequences.
Thank you, Alex, this is an excellent definition and I agree with everything you've written above. I wish more libertarians would realize that it applies to deregulation as well as new regulation. The law of unintended consequences is one reason I distrust the Fair Tax and abolishing the FDA (sorry, Alex!). I think the law requires that libertarians and de-regulators be more humble, too!
Posted by: MostlyAPragmatist at Jan 24, 2008 9:55:14 AM
Markets rule! Let's bring back slavery!
Posted by: ES32 at Jan 24, 2008 10:02:54 AM
this sounds similar to a black swan which are the highly improbable expected these consequences are kinda expected.
Lively Money
Posted by: Lively Money at Jan 24, 2008 10:07:07 AM
Peter:
"An alternative explanation is that more and more healthy but lazy people are falsely claiming to be disabled in order to get Social Security disability and avoid having to work."
A theory is based on evidence; an accepted theory is the best explanation of how things work based on evidence.
Where is the evidence to support your claim?
Posted by: George at Jan 24, 2008 10:07:36 AM
"I wish more libertarians would realize that it applies to deregulation as well as new regulation."
I don't follow this. Removing the regulation will restore the original complex system. Maybe there will be a period of adjustment as people get used to the return to the old regime... is that what you're saying?
Posted by: Cliff at Jan 24, 2008 10:09:07 AM
Critic: "The simple fact is that almost all of the time markets make the right decisions..."
Fun statement. Any proof? Like decisions made by cabals of the rich somehow defy the law of unintended consequences. Right.
Posted by: converse at Jan 24, 2008 10:20:22 AM
When a simple system tries to regulate a complex system you often get unintended consequences.
I don't see any evidence for this beyond the anecdotal. Lets try not to rely so much on an inferential distance that you assume your readers to have, but that make statements like this cry for real evidence and not just a collection of stories.
Posted by: rtsevo at Jan 24, 2008 10:27:02 AM
And who passed this disastrous unintended consequences law? GEORGE W BUSH AND THE REPUBLICANS
Surely examples of unintended consequences are just as numerous in unregulated/market interactions. I holiday somewhere to enjoy the native charm, my tourism contributes to the destruction of that traditional charm. and so-on.
It's the old argument about how extensive externalities are...
I don't buy the idea that a complex system necessarily leads to better outcomes than a simple one, and I also would suggest that the way political regulation is designed is a vital factor.
Posted by: Tim at Jan 24, 2008 10:36:55 AM
Have unintended consequences been studied for congestion pricing? Does anyone know if there are any studies showing examples?
Posted by: bronxilla at Jan 24, 2008 10:39:03 AM
I think the name "Law of Unintended Consequences" is a bit misleading. It's a bit like having a "Law of Low-Probability Events" which says they occur -- of course they occur, with frequency matching their low probability, by definition!
"When a simple system tries to regulate a complex system you often get unintended consequences" sounds nice. But what would an example be of a complex system regulating a simple one? In other words, aren't our regulations always much simpler than the real world? The same is true in the physical realm, gardeners try to control an ecosystem using a shovel.
I agree that the lesson from all these examples is for regulators (and gardeners) to be humble. We don't understand most things, so imagining how things will change if we take a certain action is no substitute for actually trying it in the real world. (In fact this is really what the scientific method amounts to.)
Posted by: improbable at Jan 24, 2008 11:07:28 AM
Superb, Alex!
Posted by: Matthew at Jan 24, 2008 11:07:37 AM
Political action is not amenable to this kind of analysis. Regulations are often imposed in an unserious manner, as self-sufficient gestures of political theater, with vastly less enforcement than they would require to be effective. Every actor who is affected by any regulation has an emotional impulse to sabotage it, which they will indulge if they think they can get away with it. This factor overwhelmingly dominates any incentive-based analysis.
Regulations should only be imposed when there is an absolute determination to enforce them and a thorough understanding of all the costs of doing so.
Posted by: Frank Wilhoit at Jan 24, 2008 11:11:03 AM
Cliff: Have you lived under such a low-tax, low-regulations system? Even so, would you have a perfect memory of it? There are many reasons such systems were abandoned, and a lot of such reasons will lurk invisible until someone attempts to (re)create such a system.
Posted by: Leo Petr at Jan 24, 2008 11:21:14 AM
I'm with Andrew Gelman on this one. To put it more strongly than he does: The "law" of unintended consequences is not a scientific law at all. It is a very important social sciences concept the knowledge of which should be compulsory for policy makers. But I have yet to see a falsifiable hypothesis with respect to unintended consequences which has empirical support. (If I read Alex correctly, he seems to be suggesting the following: "The more complex a regulated system is relative to the regulating system, the more unintended and unwanted consequences relative to intended consequences will be observed." Sounds hard to test.)
To the posters above who praise market solutions: Ever heard of externalities?
Posted by: LemmusLemmus at Jan 24, 2008 11:24:12 AM
When a simple system tries to regulate a complex system you often get unintended consequences
While true, I think this is inherent to the overall complexity of the combined system and not a result of a simple system interacting with a complex system. Further, I would expect more unintended consequences as the regulatory structure becomes more complex.
Posted by: Jody at Jan 24, 2008 11:24:29 AM
Markets don't always make good decisions. There are lots of distortions and displacements due to market forces. The only thing free markets have to offer is that they demonstrably perform far better than any command and control economy.
Perhaps a key to avoiding unintended consequences is to regulate less, therefore incurring less risk.
Read "The Best Laid Plans" by Randall O'Toole - a polemic against government planning in general that is full of real-life examples of unintended consequences.
Posted by: Steveo at Jan 24, 2008 11:26:22 AM
The flip side of this, of course, is that properly selected set of simple "regulations" or rules can create a complex adaptive system.
In other words, simple rules created by a simple system can create complex order.
Posted by: PrestoPundit at Jan 24, 2008 11:29:01 AM
GoodneesOfFit asserted that the political system is also complex. That's probably not true, strictly speaking. Complex systems live in a very narrow range between ordered systems and chaotic systems and are characterized by self-organizing behavior and high adaptivity. I suspect that the political system is actually an ordered system, in that it is only partially self-organized and has extremely low adaptivity.
The real issue is not whether political meddling will cause economic (or societal) unintended consequences, but rather will it cause the economy to stop being complex. If you do a fairly modest regulation, the system merely adapts, exhibiting complex behavior. That adaptation is almost certain to be "unintended" unless you happen to regulate in an area that happens to have more-or-less linear behavior. But if you do extensive regulation or too many point-regulations, you can ultimately restrict the ability of the system to adapt. At that point, the system either becomes ordered or chaotic. We have seen examples of both in recent history. Both are bad.
Posted by: TheRadicalModerate at Jan 24, 2008 11:33:21 AM
GreatZamfir ariline safety is an interesting thing, because if it increases expense on flying and that causes more people to drive you could get more deaths.
BTW Does anybody know if any lives been saved in the last 20 year by using commersial jet seats as flotaion devices? IMO that spiel is a waste.
Posted by: Floccina at Jan 24, 2008 11:45:28 AM
I think one conclution of this could be that regulation should be as close to ultimate goal as possible. I.E. do not legislate scrubbers on elecetric power plants but tax polution from as many sources as possible.
Posted by: Floccina at Jan 24, 2008 11:58:50 AM
Yes, almost any action will generate unintended consequences. But the relevant question is not do government regulations generate unintended consequences--that is a given. The relevant question is what is the cost of the unintended consequences versus the cost of doing nothing and the benefits and/or cost of the regulation.
For example, many libertarians strongly favor imposing tolls to reduce congestion. They list many benefits from such a move and the may be right that the benefits may outweigh the cost. But they also ignore the possibility that such tolls could have unintended consequences that are worse then the original congestion or that all the toll would do is shift the congestion elsewhere.
Posted by: spencer at Jan 24, 2008 12:24:06 PM
> The law of unintended consequences is what happens when a simple system tries to regulate a complex system. The political system is simple, it operates with limited information (rational ignorance), short time horizons, low feedback, and poor and misaligned incentives. Society in contrast is a complex, evolving, high-feedback, incentive-driven system. When a simple system tries to regulate a complex system you often get unintended consequences.
None of these is what defines a 'simple system' with respect to the law of unintended consequences.
A 'simple system' is a system where linear cause-and-effect relations hold. A 'complex system' is one in which the same cause may have multiple effects.
This clarification is important because the 'contrast' in the quote cited above in fact includes a number of simple systems. 'high-feedback' and 'incentive-driven' systems are types of simple systems - they suppose that a certain cause - feedback, or incentives - will produce the desired result.
Posted by: Stephen Downes at Jan 24, 2008 12:28:35 PM
Another problem with the article is that Levitt and Dubner confound three aspects: unintended, unwanted and unanticipated. I have gone into more detail on that here.
Posted by: LemmusLemmus at Jan 24, 2008 12:29:29 PM
Unintended consequences for decisions that are not due to random factors are simply unanticipated feedbacks. They demonstrate a lack of understanding, and argue for mechanistic models.
Certainly some systems are extremely difficult to characterize, but the types of situations described here are more an issue of not carefully and systematically thinking through the processes, or consulting with experts (understanding how managers make basic hiring decisions isn't that difficult and fire ecology has good explanations).
The unintended consequence label is often more of an I-told-you-so response from people who suspected the effect, had good theory/data to suggest the effect, ex-post realize that it would be an obvious conclusion from existing knowledge if someone had put in the effort, or just don't like the policy goal in the first place. Using it as an argument that we should do nothing is a cop-out or straw man. There's plenty of room to think more strategically about policy design.
For unintended consequences from human behavior, if policy-makers think a little bit harder about how people are likely to respond to changing conditions (rather than how they hope people will respond), much of the unwanted can be avoided.
The real brilliance comes from differentiating the situations that a more thoughtful approach will be successful from the situations where current knowledge really doesn't justify one approach over another.
Posted by: markb at Jan 24, 2008 12:46:51 PM
Take aircraft safety regulations and the FAA. Goal: keep aircraft safe and the public trust in aircraft high. Works like a charm. Industry likes it because it gives them clear safety targets, airlines like trust the public has, passengers of course end up paying for the safety measures, but without regulations they probably wouldn't dare to fly.
This is a remarkable statement to me, the daughter of a GA pilot who liked to call the FAA the Federal Anti-Aviation Administration. One regulation in particular he thought was stupid was that penalizing pilots without instrument ratings for getting into bad weather. He said that it incentivized these inexperienced pilots to try and land on their own at little municipal airports, instead of flying to larger airports where they could be guided in safely by air traffic control, but stood to lose their licenses once they had landed.
I should mention that this was the rule years ago when my dad was flying (1940s - 1980s) so I can't say whether the rule is still in place, or if it even still matters now that there's much improved technology for weather monitoring.
Posted by: Christina at Jan 24, 2008 1:08:47 PM
While regulation can certainly have unintended consequences, having no regulation leads to nothing but unintended consequences.
In any case, arguing over quantity of regulation is rarely relevant - there will always be some amount of regulation, so the only thing that counts is quality.
Posted by: Dan Moore at Jan 24, 2008 1:10:04 PM
markb, the point is that you can think as much as you want about non-linear, complex systems and you'll still not understand what's going to happen. (For that matter, you can simulate as much as you like and still get the wrong answer--it's that fun butterfly effect.)
What you're arguing for works fine in linear systems. The economy/society is not, never has been, and never will be a linear system.
Posted by: TheRadicalModerate at Jan 24, 2008 1:21:50 PM
Fun posting, fun comments. One further question? Is there any way of predicting when unintended consequences are going to happen? (Always?) Or how? Or what they might be? Or is the Law of Unintended Consequences simply one of those general life-laws that it's worth keeping in mind ...? A reminder to be humble, etc.
Hey, a general life-law that seems to work well for me: 9 out of ten times, nothing really needs to be done. Good to know, generally useful, etc. Of course, it can get mighty hard figuring out which time it's worth doing something ...
Posted by: Michael Blowhard at Jan 24, 2008 1:26:00 PM
Speaking of habitat destruction, I thought this one was funny:
http://www.treehugger.com/files/2008/01/habitat_destruction_deers_trampoline.php
Posted by: Michael G.R. at Jan 24, 2008 1:34:28 PM
I think some commenter might be complicating the point (or what I, not being Alex, see as the point) of this post unnecessarily.
Regulators, as Hayek pointed out, do not have the information necissary to regulate effectively. Caplan has shown that voters don't have it either. If you don't understand what you are trying to regulate, of course the results you get aren't going to be in-line with what you wanted. The public choice school has pointed out that regulators rarely have the incentives to regulate well either. So not only does government regulation often end up doing something other than what the voters and government might have wanted it to, there often times aren't even incentives for politicians to fix what they've broken.
To me, the answer seems obvious: Let markets regulate themselves. Any market (such as eBay, or Walmart) has the incentives to regulate itself in such a way as to attract both buyers and sellers. It also is much more likely to possess the knowledge to regulate itself effectively. As spencer points out, this doesn't mean there won't be unintended, undesirable consequences in a firm's actions. But if there are, the important thing is that the firm will pay for those consequences. Even if they do not understand why their action A resulted in X instead of Y, they will reap the rewards or face the consequences of X. eBay, for example, might not even know that X was caused by A at all, but the system would evolve without the need for human understanding.
Someone mentioned externalities. Is there any reason to believe that markets do worse at handling externalities than governments? On the local level where transaction costs are lower, there are obviously many examples of externalities being dealt with (such as homeowners associations). At the national level, people commonly turn to government to deal with externalities. Is this a symptom of a cultural bias, or is the culture bias a symptom of the failure of the market to deal with these large-scale externalities? I have no idea, but I wouldn't be surprised if the answer wasn't very clear.
The Internet has obviously been massively successful in dealing with its own externalities (such as spam, which is all but gone from decent email providers nowadays), but the Internet benefits from lower transaction costs than most other industries.
Posted by: Grant at Jan 24, 2008 1:37:26 PM
I like what you wrote--that is, the information is interesting, but nothing above tells us what kind of law the law of unintended consequences is. You have established a definition, not what class the law is a member of, if there even is a class.
Posted by: at Jan 24, 2008 1:45:10 PM
"Someone mentioned externalities. Is there any reason to believe that markets do worse at handling externalities than governments?"
I mentioned externalities, and I think the answer is clearly yes. To take a simple example, imagine two brothers agreeing that the best way to make their living is to kill other people and then steal their purses. The death of those people is the externality. How would a market system deal with that?
Posted by: LemmusLemmus at Jan 24, 2008 2:18:35 PM
PrestoPundit said:
"The flip side of this, of course, is that properly selected set of simple "regulations" or rules can create a complex adaptive system. In other words, simple rules created by a simple system can create complex order."
How about:
1) Do all you have agreed to do, and
2) Do not encroach on other persons or their property.
Extremely simple rules with complex applications can create amazingly complex adaptive rules.
Posted by: i_am_a_lead_pencil at Jan 24, 2008 2:30:50 PM
The anti-regulation arguments of libertarians often seems to me to be one of their biggest inconsistencies.
They argue that it is to firms self-interest to sell a safe product, and to a great extent that is true. But there is also a market for cheaper, unsafe products that some firms will spring up to serve profitably. Regulation prevents this and provides an additional incentives to other firms to sell a safe product because they know they are not taking the risk of having to compete with the firm that sells a cheaper unsafe product.
The entire libertarian argument is based on the premise that no capitalist will take advantage of the profitable opportunity to sell a cheap unsafe product in an unregulated market. That seems to be completely inconsistent with other libertarian beliefs about free markets.
Sometimes there really is a $20 bill laying on the sidewalk.
Posted by: spencer at Jan 24, 2008 2:56:54 PM
I agree with the overall idea of the thread, but there is one looming problem with all of it: it cannot be helped. The world may not be a zero-sum game, but in almost every instance in the real world someone is hurt in some way, predicted or not.
The government, for example, is forced to make overly-simplistic laws and regulations to deal with something that is really out of their control. Overall we just try to help as many as we can with what we can do, to equalize the externality.
Posted by: Quill at Jan 24, 2008 3:01:34 PM
Alex,
Your assessment of the law of unintended consequences, and its relation to nonlinear system dynamics seems accurate to me. However, it's not clear to me why this law would be any less likely to apply to unregulated market behavior, because unpredictability inheres in nonlinear dynamical systems. If markets, however one choose to segment and categorize particular markets, are nonlinear dynamical systems -- which seems hard to deny -- then I see little reason for concluding that behaviors undertaken by private actors would be any less likely to lead to unintended consequences then those imposed as a part of a regulatory scheme.
Posted by: Daniel Goldberg at Jan 24, 2008 3:17:16 PM
The Tacoma Narrows collaspe was actually driven by a combination of resonance and aeroelastic flutter.
Posted by: Anon at Jan 24, 2008 3:52:12 PM
LemmusLemmus,
To take a simple example, imagine two brothers agreeing that the best way to make their living is to kill other people and then steal their purses. The death of those people is the externality. How would a market system deal with that?
Murderers would create a market for police services. Typically, market anarchists say that crime insurance is a way give people the incentives to purchase the semi-public good of police protection. However, I wasn't talking about externalities in police services (market anarchy). I was more referring to externalities in normal markets (housing, etc). I think they are a challenge for both governments and markets to deal with.
I don't see why its so clear that the political process handles these problems better than the market process.
spencer,
The entire libertarian argument is based on the premise that no capitalist will take advantage of the profitable opportunity to sell a cheap unsafe product in an unregulated market. That seems to be completely inconsistent with other libertarian beliefs about free markets.
Well, not really. Capitalists do currency take advantage of the profitability of unsafe products currently, and they surely would with less regulation as well.
What most libertarians believe is that the risk/reward of a product cannot be judged by a 3rd-party. It has to be judged by the consumer. They realize that some consumers will err in their judgment of a product's risks and their own future needs, but they tend to believe consumers will err less frequently and with less severity than government regulators (mostly due to incentive and informational reasons). The typical argument that I've seen for regulation is that because information is a public good, it will be under-funded and consumers will not be able to make informed decisions. However, in my opinion many things such as the Internet, brand names and consumer loyalty call this conclusion into question.
In practice, consumers who are adverse to risk just do business with reputable (often large, with a lot to loose on bad PR) firms. Market-driven self-regulation also spurs development of cheaper regulatory practices, which can't really happen with political regulation.
Most businesses I know of fear the disgruntled customer on YouTube far more than the legislator.
Posted by: Grant at Jan 24, 2008 4:22:38 PM
While perhaps not a perfect explanation of the Law of Unintended Consequences, this is the best and most succinct I have seen. The "real world" is complex beyond the power of humans to imagine or, these days, model with a computer. So a political system may indeed be complex, but this complexity pales in comparison to the world that it would regulate.
Posted by: Rob at Jan 24, 2008 8:48:09 PM
If you do believe Bryan Caplan's premise that the voter is irrational - and 'voter' in this case is more or less proxy for 'consumer' - what makes you think that the market is rational? There is absolutely no evidence to support the notion that markets are rational - though it does all sound like a wonderful bedtime story which is why so many of you believe it to be the case.
Posted by: meter at Jan 24, 2008 10:24:36 PM
spencer - I don't think all libertarians are against regulation of any kind. More likely, they oppose regulation by government agencies. Nothing wrong with groups like Consumer Reports. All kinds of non-government regulation available free on the web, so we also don't have to dismiss it as a public good no one would pay for. That plus self-regulation plus the market/legal responses to bad behavior (company X sells a pill with poison in it, gets sued and no one buys their pills anymore so they go out of business) add up to a fair amount of regulation.
meter- Maybe a less dramatic way of saying it would be to say, "There is evidence that consumers and/or markets are not always rational." The way you phrased it is a bit of hyperbole, don't you think? Are you saying markets never ever provide what consumers want? Also, I think your nonchalant equation of politics with consumer economics is poor at best.
Posted by: elbita at Jan 24, 2008 11:11:40 PM
"No, of course not, but it does mean that regulators should be humble (no trying to remake man and society) and the hurdle for regulation should be high."
I agree with this.
Posted by: Russell L. Carter at Jan 25, 2008 12:35:03 AM
meter,
If you do believe Bryan Caplan's premise that the voter is irrational - and 'voter' in this case is more or less proxy for 'consumer' - what makes you think that the market is rational? There is absolutely no evidence to support the notion that markets are rational - though it does all sound like a wonderful bedtime story which is why so many of you believe it to be the case.
Have you read Bryan Caplan's arguments at all? He believes that voters are irrational because the cost for them to hold irrational beliefs is extremely small; good government is after all a public good. The cost for the consumer of holding irrational beliefs is not at all small; they have strong incentives to consume rationally. Obviously people do more or less act rationally in markets, or the world wouldn't be getting progressively richer every year.
Posted by: Grant at Jan 25, 2008 12:37:42 AM
"Perhaps a key to avoiding unintended consequences is to regulate less, therefore incurring less risk."
Perhaps the real key to avoiding unintended consequences is to stop intending so much. Often, people believe it is a problem that their rules didn't have their intended consequences, but I think often the truth is that their intentions are inefficient results that benefit themselves but don't maximize utility, and thus the newly constrained market will steer its own course around any one person's "intentions".
Posted by: BenjiRaps at Jan 25, 2008 4:12:16 AM
spencer,
Libertarians have it right, but not because they think that the market will provide an incentive to create safe drugs. It is because the market will provide things that people will pay for (if it is worth it). This includes tested, safe expensive drugs as well as untested, potentially dangerous cheap drugs. If a consumer needs a drug, but all the tested ones are too expensive, then it can and often will still be to their benefit to buy an untested, much cheaper drug. In this case, their ability to buy such a product increases total utility/efficiency.
Your problem is that you imagine that safe = good, forgetting that each person knows his own true interests better than any other human.
Posted by: BenjiRaps at Jan 25, 2008 4:26:41 AM
Levitt and Dubner give some example how regulation can have unintended consequenses that are large and unwanted. No matter what we think of their exaples, everyone will agrre that indeed, this can happen. Gelman ad Tabarrok seem to want to extend this to a 'law' that says that regulations will usually have large, unwanted consequences.
It is clear this doesn't follow directly from the examples, so they come up with the idea that "when a simple system tries to regulate a complex system", unwanted large consequenses are likely to happen, as if this is some generally true statement. Just think for a moment to see this is not the case.
Take the weather. Clearly complex. Build four walls and a roof, and you have a piece of regulated atmosphere. This has definitely unintended consequences, but those are usually small compared to intended ones.
Or the combustion engine. Combustion is a prime example of a complex, highly non-linear phenomenon, and still we can control it enough to build engines. In fact, engine electronics get better every year at controlling it, even though its systems and rules are simple compared to the actual process.
Same for humans systems. Traffic codes are fairly simple, but it would be hard to argue that their unintended consequenses are outweighing the intended ones. In fact, all of law and law enforcement is rather simple compared to society, and still most people prefer the rule of law over anarchy.
So, there is clearly no general principle that 'simple systems can't control complex ones'. Still it feels as if Alex is making a valid point here. I would argue that what he really wants to say is that a simple system can't control a self-regulating complex system better than system does itself. And of course the economy is to large extend a self-regulating system.
But this is begging the question. If you assume that a certain system is always self-regulating to, or close to, the desired outcome, then naturally simple regulations are unlikely to improve it. But when people propose regulations, they are not arguing that the economy is 'simple'. They are arguing that is not producing the desired outcome.
Of course, the economy has many self-regulating features, and many possible regulations will have large, unwanted side effects. But the argument given here does nothing to show that this is a general, likely case, and it has no power at all in specific matters.
Posted by: GreatZamfir at Jan 25, 2008 7:00:54 AM
I had a thought last night. The other day, Alex (iirc) was decrying the tendency to take selective examples of irrationality and generalise them to the whole economic field. When the point is these are interesting exceptions.
I wonder if he's making just that mistake here?
Posted by: Tim at Jan 25, 2008 9:23:27 AM
Concerning the FAA example above, it seems to me that airline companies have a tremendous incentive to avoid crashes so it's not clear that FAA regulation has improved the safety record. Also, air traffic control has been privatized in many countries, including Canada, because it's been shown to be more efficient than the government alternative.
Posted by: Chris Crawford at Jan 25, 2008 9:23:31 AM
TheRadicalModerate said:
"I suspect that the political system is actually an ordered system, in that it is only partially self-organized and has extremely low adaptivity."
I suspect that you have not spent any amount of time attempting to model the the entire macro political system form voters all the way to policy. It is an incredibly complex system. Full of all the characteristics of a complex adaptive system with emergent phenomena that I suspect are the "order" you see.
I also agree with Jody. I think that the entire system (both the market economics and the political economy) is one giant complex system that must be analyzed as a whole. This is the major shortfall of the last 50 years of public economics (absent the insights of public choice). This will of course take time to do in a systematic way becuase of the artificial divisions between political science and economics in the academy. I think that the "political economics" promoted by Persson and Tabellini is a big step in the right direction. Their approach is still limited by the modeling conventions of analytical models though. Toss some agent based modeling into their framework and you have one sweet witches brew.
Posted by: GoodnessOfFit at Jan 25, 2008 9:48:07 AM
Chris Crawford, while we all know Alex is talking about government regulation, his argument is about regulations in general. If his argument that 'complex systems are hard to control by simple systems' has any value, than regulations set by a private organization would be just as bad as those by the government.
of course, he could argue that government-made regulations are especially bad. But in this post, he claims regulations are inherently bad, as a result of some unspecified properties of 'complex systems'.
The FAA is a good example. As you mention, airliners have every reason to be safe, and good reason to want an external check on this, to convince their customers of this safety. So there might even be a market for a privatised FAA, if the public would trust such an organization. But the point is that this privatised FAA would still be making regulations, probably very similar to the existing ones.
Posted by: GreatZamfir at Jan 25, 2008 9:56:00 AM
GreatZamfir,
...and the market would punish this private FAA if it made bad regulations, even if it did not know why the regulations were 'bad'. This organization would have more incentives and more knowledge of what regulations are needed, however, than congress. A good example of this would be the numerous sanctioning bodies for all sorts of dangerous sports, complete with safety ratings on gear, licensing requirements, etc.
Posted by: Grant at Jan 25, 2008 10:37:15 AM
But a private FAA would still be a 'simple system regulating a complex system'.
One could argue that both systems are part of a larger system, and that this larger system would be self-organizing. But any system plus regulating system will form a larger system together.
You can argue on lots of valid grounds that the FAA should be privatised, or that government regulations should be diminished. But you cannot do this on the grounds of a 'regulations don't work because a simple system can't control a complex system'.
Posted by: GreatZamfir at Jan 25, 2008 11:10:36 AM
benjiRaps said" If a consumer needs a drug, but all the tested ones are too expensive, then it can and often will still be to their benefit to buy an untested, much cheaper drug. In this case, their ability to buy such a product increases total utility/efficiency.
That is one hell of an assumed conclusion that you can not support.
you have no idea if an untested drug will provide any benefit, let alone if it will provide a greater benefit per dollar of a tested drug. I'm sure there are cases where that is true. But I'm also sure that there are just as many cases where it is not true.
One of the reasons doctors feel free to experiment with approved drugs to treat a disease that is not on the approved list is that they are confident that it will not have severe unintended side effects. If it were not approved they would be much more reluctant to experiment with it.
Moreover, I can not accept this assumption:
Your problem is that you imagine that safe = good, forgetting that each person knows his own true interests better than any other human.
elbita -- Consumer Reports is not a regulator.
All libertarians have established is that there are cost to regulations. I agree with that. But it does not justify the conclusion that regulations are bad.
To establish that the libertarians would have to establish that the regulation is worse then not having the regulation. In no way have libertarians established that.
Posted by: spencer at Jan 25, 2008 2:47:43 PM
Great thread. I have tone to say about this subject in general. Perhaps I will come back and post more later. Some people I think don't quite understand the definition of a complex system - but all the different points of view are great.
One quick note, Lemmus: "The death of those people is the externality. How would a market system deal with that?"
You don't have a market if you don't have laws protecting life, liberty and property - rule of law. A market isn't anarchy. A market exists within a fine structure that allows a complex system to emerge - the rules of the game. Without rules of the game you have chaos - anarchy. Within simple, defined rules of the game that apply equally to all (the rule of law) you allow the orderly system to emerge and then it regulates itself with self-adjustment.
Posted by: liberty at Jan 25, 2008 3:28:10 PM
Liberty, do you see laws and regulation as the same phenomenon, or as distict categories? If the latter, where would you ( approximately) draw the line?
Posted by: GreatZamfir at Jan 25, 2008 3:57:17 PM
Damn. I wrote a long post but then lost it. I will try to recreate briefly.
Laws for the "rules of the game" create the structure within which the freedom for the agents of the system to interact is maximum. Laws or regulations that do this - such as those which punish fraud, breach of contract, theft, murder, slavery, etc - are part of what allows the complex system to self-regulate.
Regulations that break the rules - that allow a force to dominate not bound by the same rules and instead manipulating the agents, giving advantages to some and not others (by taxation or regulation), repressing their freedom of interaction, cooperation and evolution (with anti-trust or monopoly law) or repression exchange (with price controls or quotas) make self-regulation and self-correction of the system impossible.
Posted by: liberty at Jan 25, 2008 7:21:38 PM
"Take aircraft safety regulations and the FAA."
Or banking and the reserve.
Or insurance and the guarantee funds.
Lots of low load regulatory agencies that exist to make it safe to use banks, buy insurance, drink milk.
They are like public roads and airwaves, easy to miss until you go some place without them.
You can always find an anarchist libertarian paradise such as modern post-communist Albania to compare.
Posted by: Stephen M (Ethesis) at Jan 25, 2008 11:19:33 PM
Albania, that sounds like a reasonable example to cherrypick...or not.
spencer - ok, Consumer Reports is not a regulator. That statement doesn't exactly clinch the argument. Is their role not in any way similar? The FDA tells you a drug is safe or unsafe. Consumer Reports, or something similar, could do the same thing. In the absence of the FDA, I suspect there would be a non-governmental organization to test food and drugs. The FDA isn't checking every pill, nor is the government checking every cargo container that enters the country, so there's a ton of self-regulating going on. Drugs are a good example of the seen and the unseen. How many people have lived in pain or died because they couldn't use a drug that hadn't been invented or hadn't been approved? How many more drugs would exist if there were no FDA? These answers are unseen, but they're probably greater than zero.
There are a lot of nutritional and sports supplements on the market that haven't been evaluated by the FDA. I'm not aware of illnesses or deaths resulting from this. There may have been some, but I haven't heard of them.
Posted by: elbita at Jan 25, 2008 11:41:52 PM
Interesting thread. Howver, the 'law' of unintended consequences is as much a 'law' as that of Murphy -- i.e., not a law at all but a collection of observations.
In the case of Murphy's Law the observed phenomona is what happens when the best of personal plans and intentions confronts the probabilities of encountering snags in the volatile and complex real world -- where the probability of 100% success over a long series of sequentially linked, potential single points of failure is seemingly sabotaged by an event in just one of the links in the chain which re-routes the path of the intended plan. I say 're-routes' because the adaptive and persistent human will usually finds ways to accomplish the objective in the face of obstacles and failures along the way -- it is the way that the human will defies entropy much like the auto-immune system maintains a healthy organism.
In the case of unintended consequences, the observations (in the original post and in general) are demonstrably about the side effects (or standing waves) which appear in social systems when so-called regulatory rules or forces are made to impinge on an existing complex system. Classifications of simple or complex cannot themselves be easily made, however, without in fact over-simplifying or over-complicating. As many have pointed out, the regulatory processes of the government are not necessarily simple, and sometimes the objects of regulation are not necessarily complex.
It is perhaps a bit like frequency modulation, to take an altogether overly-simple metaphor. In frequency modulation, a control signal is used to modulate the frequency of the carrier. In situations where the control signal is, say, in the audio range, and the carrier is in the megahertz spectrum ( and carriers of different frequency are kept sufficiently apart from each other in terms of their center frequency) , we have the ability to selectively modulate and de-modulated audio content from a variety of sources in an FM radio. The actual harmonic content of the carrier modulated with the audio signal is itself "noise", with no trace of the audio to the native ear.
If, on the other hand, the frequencies of the control (signal ) and the carrier are not so disparate, but, say, integer multiples of each other, then the harmonic content of the fully modulated wave can itself be perceived by the ear as audio content with natural sounding harmonic content, since the spectrum of the side-bands of the modulated carrier produced in such arrangements of signal and carrier frequencies are themselves integer multiples of each other (owing to the complex Bessel functions behind the spectral content of frequency modulated waveforms). The envelope of the harmonic overtone contour of the spectral content of the resulting modulated waveform is simply a function of the modulation index, or how hard the signal drives the carrier.
In one case we have a complex signal driving a simple carrier producing complex spectral content which is then demodulated back to the original signal; in the other case we have a simple signal driving a simple carrier which produces complex spectral content that is fully recognizable by the human ear. Yet both are examples of the same mechanism of frequency modulation. ( The second example is by the way the basis of FM Synthesis invented by John Chowning at Stanford and which was realized in the Yamaha DX-7 synthesizer).
And frequency modulation, when operated within parameters to accomplish either purpose, is in fact a continuous, linear system -- quite simple in and of itself, whereas the types of systems and behavior surrounding the unintended consequences discussion are themselves complex and discontinuous. So what is FM doing in this discussion ? I did say it was a metaphor, but forgive me if it's use is not apparent.
The key to the metaphor lies in the spectral frequency sidebands which accompanies modulation. Government regulation is an attempt, by definition, to modulate the behavior of the regulated system or sub-system. When the regulated sub-system is fairly well isolated from other sub-systems, like different carrier frequencies in FM radio spectrum, the side-bands of the modulated system are unlikely to bleed over and affect some other sub-system. When the modulating signal or entity is comparable in scope/frequency to the carrier, a tremendous amount of side-band dispersion can be created, depending on how hard the modulating frequency tries to drive the carrier.
I would suggest that systems with relatively small amounts of observed unintended consequences are similar to the use of FM in radio, where the scope of the underlying carrier system is itself more well-defined and constrained. Examples of this in the regulatory arena ? Perhaps controls on the accuracy of devices intended to measure such things as weight, volume, and flow. Pretty basic (and ancient) application of rules and regulations, wouldn't you say ? And very few unanticipated 'side bands'.
On the other hand, where the mapping between the regulating system and the system which is being regulated is many-to-many, the behavioral cross-products of outcomes will be sufficiently robust so as to appear in noticeable 'side-bands' of consequences neither envisioned, anticipated, or intended.
Here is a good example of unanticipated systemic response to regulation: in Northern California, in an intended attempt to promote eco-conservation, consumers who purchased hybrids were awarded HOV fast lane permits even if only one person were driving the car. However, there was a limit of on the order of 30,000 such permits which were provisioned, largely based on a calculation of the degree of under-utilization of the HOV lanes and how much additional traffic they could accommodate. Futhermore, the permit was not transferable (could not use it for another car after getting it for the original hybrid). Guess what ? After the provisioned permits were exhausted, the USED hybrids with the permits are now commanding a higher price in the used-car market than NEW ones, and new permits are unavailable, and the HOV lane utilization has become fully allocated in part to a locked-in set of commuters !! Seemed like a good idea at the time ? In the FM radio analogy, this is like a pirate signal from offshore started to jam the morning talk show ! :^)
Now, a positive example of regulation and control of a complex system, as fashionable as it is to decry poorly thought-out and mixed-message regulation (sadly, the environmental concerns appear to be the biggest culprits ).
The human brain is composed of billions of cells. Much is written and spoken about the 'self-organizing' capability of the brain, but it is easy to overlook a key enabler of the ability of the brain to even function in a coordinated fashion. Decades ago, a remarkable discovery was made in patients suffering from cerebral palsy, a disease that makes it difficult to impossible for an individual to sequence and coordinate muscle activity ( e.g., in order to walk or talk ). When a small mesh of wire was placed on the surface of the cerebellum, and that grid was induced in a very low voltage electrical field at a frequency on the order of the alpha frequency ( 10 cycles/sec ), the subject who was afflicted by the disorder was in fact able to perform acts of coordination without the gross impediments. It turns out that the imposition of the signal allowed the neurons to fire in a reliable pattern, overcoming the chaos of misfires which causes the affliction, turning gridlock into more efficient propagation of signals and information through the neural network. Without such gating and regulation of neural activity, our brains would be a mess of anarchy and cross-purposes. So, let us not disparage the right kinds of regulation in cases where the application clearly meets and addresses the need !
Posted by: TahoeBlue at Jan 26, 2008 4:55:48 AM
There have been many comments or observations that the threat of law suits can serve to influence behavior of a company. While it is true that fear of being sued can be one of many factors directing a company's behavior to avoid sub-standard performace or products, the reasonableness of the threat must also be considered. Down here in south Louisiana, the threat of lawsuits has become so unreasonable in some areas that many companies elect not to conduct business here despite opportunities for profit. There are many other reasons discouraging business, but when the system that is designed to serve as a check is itself unchecked, the unintended consequence may well be that the business that the liability law seeks to keep in check never shows up. So before relying primarily on market factors (threat of lawsuits)to serve as a subsitute form of regulation, it may be reasonable to examine who is watching the "market watchdog"?
Posted by: BananaRepublicSurvivor at Jan 26, 2008 9:38:42 AM
@ liberty:
You said, "Laws for the 'rules of the game' create the structure within which the freedom for the agents of the system to interact is maximum. Laws or regulations that do this - such as those which punish fraud, breach of contract, theft, murder, slavery, etc - are part of what allows the complex system to self-regulate.
"Regulations that break the rules - that allow a force to dominate not bound by the same rules and instead manipulating the agents, giving advantages to some and not others (by taxation or regulation), repressing their freedom of interaction, cooperation and evolution (with anti-trust or monopoly law) or repression exchange (with price controls or quotas) make self-regulation and self-correction of the system impossible."
That sounds good, textbook stuff, but isn't it a bit simplistic? Couldn't a free market system with "rules of the game" lead to situations in which highly empowered entities are able to break the rules with respect to less powerful entities? For example, a multinational corporation buys up some natural resource rights (say water) in a developing country, where most people are poor. The corporation does this because costs of production are lower there, and they wish to make a profit off this resource by selling it in an economy where people can afford to pay a higher price. What is the law, the rule of the "game", that is protecting the poor locals' right to survive? Or would that be a regulation? Note that by your rules, they would not be allowed to drink the water that flows from "their" hills (that would be theft). Shouldn't one of the rules of the game be "Don't take advantage of the weak?" But that would be problematic, wouldn't it? And if, because of the predatory behavior of the corporation, the locals can't afford the means to survive, wouldn't the corporation then be guilty, at least indirectly, of murder? Self-regulation, market adjustments, and disgruntled consumers won't bring people back to life you know. These are things that happen long after the fact. Regulation is an attempt to protect people while they are still breathing--from the predatory practices of other people playing by the rules. Is this not a valid distinction?
Posted by: casey at Jan 26, 2008 10:13:03 AM
I like your post, TahoeBlue. I think your "right kinds of regulation" are not those that are "an attempt to modulate behavior," but an attempt to protect the "weak" from the "strong." This, it seems to me, is the only way to allow for a good balance between equality and liberty. We've evolved a pretty high opinion of ourselves at this point: we shouldn't let the beastly behavior of a few elites make animals of us all. I mean, really, we should be beyond the "Wild West" by now if we truly believe in Progress.
Posted by: casey at Jan 26, 2008 10:41:25 AM
casey,
Who sold the land to the corporation? Did they sell 100% of all the land and food? What did they do with the money they got for it?
Posted by: liberty at Jan 26, 2008 12:44:18 PM
Are there unintended consequences when:
1. a complex system tries to control a complex system?
2. a simple system tries to control a simple system?
3. a complex system tries to control a simple system?
Posted by: Art at Jan 26, 2008 2:43:51 PM
How many people have lived in pain or died because they couldn't use a drug that hadn't been invented or hadn't been approved? How many more drugs would exist if there were no FDA? These answers are unseen, but they're probably greater than zero.,/i>
Let's eliminate the FDA: how many people will be serving as guinea pigs for the Elixir of the day?
Even with regulation, you have people like Kevin Trudeau making the rounds with his promises of life-everlasting or whatever. Isn't the proliferation of these sorts of scams a (very) large unintended consequence of eliminating the FDA? And not just scams, but outright dangerous or lethal concoctions?
Posted by: meter at Jan 26, 2008 4:10:01 PM
The cost for the consumer of holding irrational beliefs is not at all small; they have strong incentives to consume rationally. Obviously people do more or less act rationally in markets, or the world wouldn't be getting progressively richer every year.
I don't think you really want to argue that. See the very recent post about wine costs for just one study proving that consumers are anything but rational or consistent.
Also, your second statement is ridiculous.
Posted by: meter at Jan 26, 2008 4:14:43 PM
In the last paragraph of Tabarrok’s original blog, he sums up my gut reaction to rest of his blog. He writes, “Does the law of unintended consequences mean that the government should never try to regulate complex systems? No, of course not…”. My sentiments exactly; don’t misunderstand, I realize what Tabarrok is trying to say or bring to light, but what is the answer… NOT to do anything because when we try we end up making things work? “No, of course not.” It means, we need to reevaluate the original policy or legislation and edit/update it (if possible) to reflect what we have learned.
Seriously, what is the alternative? Give up before we try because we know that we are going to make matters worse? “No, of course not.” What about all the policies and legislation that brought about real change and positive outcomes? If you ask me (which you didn’t) the bar for regulation is already high enough. It takes months and sometimes years for government-inspired/regulated change to occur. I agree that the mark has been missed (as in the examples given), but those misses should only encourage BETTER change, not LESS change.
Posted by: Roy Funderburk at Jan 27, 2008 11:18:30 AM
I think a lot of people seem to be confused as to what government regulations are. They aren't attempts by legislators to protect the poor in third-world countries (Iraq's sanctions made it pretty clear legislators don't give a damn about those people). They are just our legislators reacting to incentives for economic intervention. Voters and campaign contributors (especially special interests) create those incentives, but none of those groups know or care about economics.
We've accepted that prices are incentives that coordinate the world economy. Why can't we accept that government action is also governed by incentives? Power (that is, physical control over others) does not create incentives to help the weak or poor. There is a reason there haven't been many benevolent dictators throughout history, or honest politicians. Regulation needs to created by the people who have the incentives and information necissary to benefit the consumer. Those people are none other than the producers and consumers themselves.
casey, in your example, the fault would be with the seller. In practice though, I don't think a developing country's only source of water is going to be owned by a private individual. A better arrangement would be more of a collective ownership. In most libertarian thought, a large group of people using a public resource would all homestead it, and it would be collectively owned.
meter, so are you saying that most consumers don't consume rationally? They don't choose faster and cheaper computers over slower and more expensive ones? They don't buy reliable cars over lemons? I don't think thats really a defensible statement. Look at any mostly-free market in the USA; cars, bikes, boats, computers, cell phones (although not their service providers), even plumbing; they all get progressively better each year. That couldn't happen if consumers were irrational. No market economy could even begin to function. The World's GDP grew by something like 5.3% in 2006.
Posted by: Grant at Jan 27, 2008 12:18:22 PM
The "law of unintended consequences" is meaningless. All of the things you cite are precisely the consequences that one should expect. Is it truly "unintended" just because the people who hass or favor certain laws are ignorant of their likely outcome, or refuse to see the implications of policies they deem favorable for other reasons?
In a literal sense they are "unintended," but shouldn't there be the equivalent of a "rational man" standard here? The so-called "law of unintended consequences" is just an inartful way of expressing the fact that one can't enact a principle without accepting its implications.
Posted by: Anon at Jan 28, 2008 2:16:03 AM
This is a very interesting idea. I agree with the common observation, however it seems you have missed some points.
The political system is simple, it operates with limited information (rational ignorance), short time horizons, low feedback, and poor and misaligned incentives.
To be short:
1. I do not agree with the first statement. A political system itself is not simple but it has own goals. If we consider short time horizons, low feedback, and misaligned incentives, the correct name for the discussed phenomena would be
"The Law of Unimportant Consequences"
For instance: The official goal is to help people with disabilities, the real goal is to show the electorate that politicians care about people with disabilities.
2. What is simple is not the system that makes the decisions but the model it uses to predict (explain/announce/...) the consequences.
Simple model cannot (and should not) predict the behavior (of all parameters) of a complex system. However it can be used for the specific goals. (f.I. Newton laws in ordinal conditions)
3. It is no fault to use a wrong model. The key of the problem is in the low feedback.
For instance:
The experiments had shown that the Neewton's model is limited and physicist have started to use Einstein's model.
Market participants note that they lose money and they adjust their behavior.
Government introduces new taxes and gathers less money. The politicians blame greedy capitalists, foreign competition and political opponents.
PS: "If a chemical system at equilibrium experiences a change in concentration, temperature, volume, or total pressure, then the equilibrium shifts to partially counter-act the imposed change." (Le Chatelier's principle, also called the Le Chatelier-Braun principle)
Posted by: Vit at Jan 28, 2008 10:47:51 AM
The Tacoma Narrows failure was due to resonance, not turbulence.
Had airflow across the bridge been laminar, would resonance still have arisen?
Posted by: ZenMasterThis at Jan 30, 2008 12:25:33 PM
I can agree with the concept of complex and evolving but would argue that we only know in hindsight what it is evolving into. There may be high-feedback for the system as a whole but we don't have access to that total information system. The alignment of incentives is also something it seems to me that is determined after the event can can involve complex interactions. I also have problems with the implied concept that there is some overall arching system out there which is true and correct and our little political/economic systems are poor and inadequate copies. We also need to look at the alternative options that Andrew Gillman provides, "examples of intended consequences that actually happened? Or unintended consequences which, although unfortunate, were minor compared to the intended consequences," including as well "unforseen adaptions".
Posted by: BrianDRPM at Feb 5, 2008 4:43:41 PM
I can agree with the concept of complex and evolving but would argue that we only know in hindsight what the system is evolving into. There may be high-feedback for the system as a whole but we don't have full access to that total system information so the problem of limited information remains. The alignment of incentives is also something it seems to me that is determined only after the event and can involve complex interactions which are often not always apparent. I also have problems with the implied concept that there is some overall arching system out there which is true and correct and our little political/economic systems are poor and inadequate copies. We also need to look at the alternative options that Andrew Gillman provides, "examples of intended consequences that actually happened? Or unintended consequences which, although unfortunate, were minor compared to the intended consequences," including as well "unforeseen adaptations".
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