Courtenay email -
Hey everyone! Go ahead and get your UNINTENDED CONSEQUENCES questions in the line-up. They will appear along with Dr. Coyne's answers during the live discussion.
Courtenay email -
Welcome to Ask the Professor! We are pleased to have with us Dr. Christopher Coyne from the West Virginia University. Please remember to refresh your browser regularly to see the new comments.
Luis A. Berlanga-Albrecht email - www.economia.unam.mx
The act of forcing out a dialogue among different abilities, even opposite ones, to think about on what safe grounds the construction of a society should been supported has a long tradition in the occidental way of thinking.
This tradition was first cut by the 17th-century western philosopher Baruch Spinoza in his "Theologico-Political Treatise", first published anonymously in 1670. In this work Spinoza’s statement is that all "revealed" religion had to be analyzed on the basis of reason, not simply blind faith.
By rejecting the “Providence” as the only explanation of human accounts, Spinoza opened us a door for the understanding of the causes of human social interaction, the same door that is closed now when an “invisible hand” is putted forward permanently in economic education.
In our current era in which both the astrophysics laws of Newton and the microphysics have been found as relative thanks to the genius of Einstein in the former case and due to quantum mechanics in the latter, the free exchange of ideas is defenestrated when any position is defended with aspirations of definitiveness, with a spirit of a final reality (things use to get worse when an attitude of arrogance is added).
In order to build up a good balance for discussion, I would like to ask you for examples of negative unintended consequences of the "invisible hand".
Respectfully yours.
Dr. Coyne writes:
Hi Luis,
Thank you for your question. Examples of negative unintended consequences associated with the ‘invisible hand’ would be ‘negative externalities.’ Negative externalities occur when costs spill over onto people outside the transaction/interaction. Pollution is a typical example of a negative externality. One potential solution is establishing/clarifying property rights so that people internalize the full costs of their behaviors. Another solution is regulation through taxation or quotas. However, we must be cognizant of the potential of the negative unintended consequences associated with such taxes and r
Luis A. Berlanga-Albrecht email -
Luis A. Berlanga-Albrecht
The act of forcing out a dialogue among different abilities, even opposite ones, to think about on what safe grounds the construction of a society should been supported has a long tradition in the occidental way of thinking. This tradition was first cut by the 17th-century western philosopher Baruch Spinoza in his "Theologico-Political Treatise", first published anonymously in 1670. In this work Spinoza's statement is that all "revealed" religion had to be analyzed on the basis of reason, not simply blind faith. By rejecting the "Providence" as the only explanation of human accounts, Spinoza opened us a door for the understanding of the causes of human social interaction, the same door that is closed now when an "invisible hand" is putted forward permanently in economic education. In our current era in which both the astrophysics laws of Newton and the microphysics have been found as relative thanks to the genius of Einstein in the former case and due to quantum mechanics in the latter, the free exchange of ideas is defenestrated when any position is defended with aspirations of definitiveness, with a spirit of a final reality (things use to get worse when an attitude of arrogance is added). In order to build up a good balance for discussion, I would like to ask you for examples of negative unintended consequences of the "invisible hand". Respectfully yours.
Dr. Coyne writes: Hi Luis,
Thank you for your question. Examples of negative unintended consequences associated with the ‘invisible hand’ would be ‘negative externalities.’ Negative externalities occur when costs spill over onto people outside the transaction/interaction. Pollution is a typical example of a negative externality. One potential solution is establishing/clarifying property rights so that people internalize the full costs of their behaviors. Another solution is regulation through taxation or quotas. However, we must be cognizant of the potential of the negative unintended consequences associated with such
Edward Podritske email -
Could you comment on how the merging of the disciplines of politics and economics leaves discretionary power in the hands of a few politicians and/or bureaucrats, leaving large segments of the population at the mercy of their failure to consider the unintended consequences of their economic policies and legislative decrees? And, how can this longstanding tendency best be curtailed in the future?
Dr. Coyne writes: Dear Edward,
You raise an important issue. Good economics does not equal good politics. This means that what gets politicians elected does not necessarily contribute to ‘good’ economic outcomes. You are correct to point out that when control is in the hands of politicians and/or bureaucrats we should expect the persistence of negative unintended consequences. Ultimately, it is an issue of feedback mechanisms.
Errors and mistakes occur all the time so what is important are the presence or absence of mechanisms that allow people to recognize and correct those mistakes. In markets we have the profits/losses mechanism to guide the error correction process. Profit/loss is absent in politics and voting is a weak constraint on behavior.
As for curtailing the persistence of negative unintended consequences in politics, the solution lies in constraints on the behavior of politicians and bureaucrats. Nobel Laureate economist James Buchanan emphasized the importance of constitutional constraints which, ideally, would align the interests of those in the public sector with private citizens. Of course this is an ideal, but it is a good goal to strive for.
If you are interested in this, I suggest Buchanan’s book, The Reason of Rules.
Chris
Alex email -
What are the potential unintended consequences of government control of health care? Could this lead to more waste and inefficiency?
Dr. Coyne writes:
Dear Alex,
Thank you for your question. This is a complex question but let my try my best to provide an answer. First off, I can’t comment directly on the current movement in the U.S. since, to be honest, I don’t really understand the details of the bills being proposed. One could envision both positive and negative consequences of government control of healthcare. In theory, government control can provide better and cheaper healthcare to citizens—this would be a positive outcome.
At the same time, we have good reason to expect there will be negative unintended consequences to increased government control (note that in the U.S., the government controls—directly and indirectly—much of our health care system). The proposed healthcare bills are over 1,000 pages and will create a massive bureaucracy (here is an org chart:
http://www.newmajority.com/the-baffling-bureaucracy-in-the-dems-health-care-plan/)
and numerous regulations. These regulations will shift the incentives of both private citizens, public officials, as well as those in the medical industry (insurance, physicians, etc.). I imagine the biggest issue will be rationing the scarce resources associated with medical care.
As a rule of thumb, the more complex the regulation the more likely there will be negative unintended consequences. Very few people, including the politicians voting on the bills, have actually read the 1,000+ pages of the proposed health care bills so we should have little faith that they have even a basic understanding of potential negative unintended consequences.
QuestionAsker email -
The study you cite -- Crandall and Graham -- is now 20 years old. Car engineering has improved greatly since then. Smaller cars, like the Smart Car, pass tough safety regulations, even though they are tiny. Do fuel efficiency standards still result in between 2,000 to 4,000 additional car occupant deaths each year? Do you have up-to-date data on this?
Dr. Coyne writes:
Dear QuestionAsker,
I am not aware of an updated version of the Crandall and Graham study.
It is true that care engineering has improved so an updated study would be interesting. All I can say is that if I were in an accident a Smart Car would be one of the last things I would want to be driving—slightly ahead of a motorcycle or bicycle.
Chris
Courtenay email -
Great questions so far everyone! We've got only ten minutes left, so please get your last questions in...
Katerina email -
Dr. Coyne, There is a big push for "going green" in the U.S. How will this environmental focus affect us in terms of unintended consequences? Some political pundits have said that we will be less competitive with other nations due to the potentially higher production costs. How can economists encourage citizens and politicians to consider unintended consequences of the green efforts, especially since there is still debate in the scientific community about how much our actions may or may not affect the environment?
Dr. Coyne writes:
Dear Katerina,
Thank you for your question. Climate change and the ‘green’ movement is a complex topic. I am going to avoid commenting directly on the scientific debate regarding climate change. However, the concept of unintended consequences is central to the environmental debate.
Like health care, in theory, the government can improve the environment through a variety of tools (regulation, taxes, caps, etc.). As I mentioned in an earlier response, the concept of negative externalities is important here. Many argue that the government has an important role to play in ensuring externalities are internalized.
At the same time, negative unintended consequences are important to consider. Let me provide a simple example. Most kids are taught that recycling ‘saves trees.’ On the face of it this seems to make sense.
If we recycle paper fewer trees will be cut down. Unfortunately, this shows a lack of understanding of basic economics. In reality, supply meets demand. Most people don’t realize that a large majority of trees are planted by tree farmers for the purpose of making paper products.
If we recycle paper it is true that fewer trees will be cut down.
However, this means that tree farmers will plant fewer trees. The main takeaway is that if you want more trees you shouldn’t recycle paper!
The more general lesson is that environmental initiatives based on the best of intentions often lead to perverse outcomes due to negative unintended consequences.
Ch
Scott Weldon email -
Can you outline exactly how it would be possible to align the interests of those in the public sector with private citizens? It seems to be the same principal-agent problem that many businesses face and fix with carefully selected incentives - how can you remove the incentive of politicians to maximize their votes by appealing to interest groups? Thanks.
Dr. Coyne writes:
Hi Scott,
F.A. Hayek provided some insight into your question (see Hayek’s _The Constitution of Liberty_ and his 3 volume _Law, Legislations, and Liberty_ for more).
1. Generality— Hayek argued that rules should be general since they refer to situations that cannot be known in the present. Further, rules should not refer to particular places, persons or object (note that this would help with special interest group issue).
2. Laws should be prospective and not retrospective.
3. Laws must be public, understandable and predictable—laws must be understandable to citizens so that they have a stable framework to act within (note this would force lawmakers to make laws clear and transparent).
4. Equality— Hayek argued that the law should apply to everyone equally.
There should be no distinction based on class. Further, government officials should not be able to make themselves exempt from the law.
These are just some general guidelines and there is a lot more involved with each one. But hopefully they give you insight into some potential solutions to the problem you raise. If you are interested in this I suggest you look at Hayek’s books as well as the collected works of James Buchanan.
Chris
Courtenay email -
Thanks again to Dr. Coyne for the very interesting discussion today. Next time we'll be discussing Why Socialism Fails with Professor Steven Horwitz of St. Lawrence University on Thursday, August 27th at 11:00 am PST.
See you there!
