Monday, November 3, 2014
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.