Monday, November 3, 2014

The Unintended Consequences of Public Policies

Note to all legislators and regulators: don’t do anything until you’ve thought through all the consequences.

One of the most important things I learned as a student of public policy was the difference between static and dynamic analysis. Static analysis looks only at the immediate consequences of a change. Dynamic analysis looks at the long-term consequences of a change, taking into account how people will adjust to that change.

If I tell my students they must write a 50-page paper by Friday or fail, most of them will at least try to write the 50-page paper. That’s the static effect. But no one will ever take my Business Associations class again. That’s the dynamic effect.

For some people today, including an increasing number of politicians on both sides of the aisle, neither static nor dynamic effects matter. It’s enough just to have good intentions. “Don’t you care?”, those people ask. “We need to do something.”

Even when policy makers do consider the effects of their policy choices, many of them consider only the immediate effects—static analysis—and don’t think about the long-term consequences. That’s unfortunate, because legislation and regulation often have unintended consequences.

That’s the point of Thomas E. Hall’s new book, Aftermath: The Unintended Consequences of Public Policies. Hall, a professor of economics at Miami (Ohio), looks at the unintended consequences of four policies: (1) the federal income tax; (2) cigarette taxes; (3) minimum wage laws; and (4) Prohibition.

None of the evidence Hall lays out will surprise anyone familiar with these four policies, and the results are predictable to anyone familiar with economics. But the book is a great introduction to the idea of unintended consequences, and an illustration of the need for dynamic analysis (although Hall doesn’t use that term).

The book is short; it won’t take you long to read it. And Hall writes well, using non-technical language, so the book won’t put you to sleep. I recommend it to anyone interested in public policy—which should cover most of the readers of this blog.

https://lawprofessors.typepad.com/business_law/2014/11/the-unintended-consequences-of-public-policies.html

Books, C. Steven Bradford, Law and Economics | Permalink

Comments

Sounds like another of your recommendations that I need to add to my list. Thanks!

Posted by: Haskell Murray | Nov 3, 2014 2:57:50 PM

I second Haskell. Of course, I come with a predisposition to the premise of the book. I think viewing Ken Burn's series on Prohibition should be mandatory to curriculum for high school students.

Posted by: Tom N | Nov 4, 2014 8:11:45 AM

Tom,

I think the Prohibition example makes it clear that this is not a liberal-conservative issue. Hall's arguments would support the legalization of drugs, which is hardly a conservative battle cry.

Posted by: Steve Bradford | Nov 4, 2014 8:59:02 AM

Steve:

I absolutely agree that Prohibition is directly analogous to legalization of drugs. Prohibition is a lesson we still have not learned – seem incapable of learning. I do not, however, believe my posting inferred a conservative or liberal perspective – but merely that of the immutability of human nature. My predisposition is that legislators rarely consider anything but the “short term” effect (whether in their 2, 4 or 6 year terms) and even more rarely are capable of plumbing the architecture of their acts to cracks in the foundation.

In recent times, we have had no better environment to watch delay and deferral of effective dates related to legislation and regulation timed for effect “after” the next short-term – all the time knowing the “bill will come due” but to be worried about later.

Prohibition pointed out that (1) people are going to obtain that which they wish regardless of law/regulation and that (2) public policy and law contrary to the desires of the body politic only diminish respect for and authority of the institution of government (underlying basis for repealing Prohibition).

Where, for instance, New York has placed such a substantial tax on cigarettes it was without regard for the consequences. I’ve seen estimates that over 60% of cigarettes in that State are black/gray market. Thus, the policy not only incentivized leakage (purchases from surrounding States) but stoked a black/gray market. Thus, neither the underlying social and revenue policies are effective. It does not limit those who wish to obtain the product (or product growth use) and only raises revenue for those “captive” to the market. In lockstep, do we think that “moonshining” has disappeared with the legalization of alcohol or that “homegrown” is fading in jurisdictions legalizing pot?

As lawyers – students of human behavior as well as law - we should acknowledge that our system cannot succeed where legislation/regulation is disconnected from the prevailing disposition of the body politic. Re-reading the Federalist/Anti-Federalist Papers, are we not continuing to argue about the same issues hundreds of year later? The premise of the posting is that rarely are the consequences and permutations of legislation considered in detail before implementation. No doubt!

Posted by: Tom N | Nov 6, 2014 7:16:55 AM

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