Unintended consequences.  An often used phrase for almost every piece of legislation pushed our politicians.  Whether it’s McCain-Feingold’s chilling effect on free political speech or whether bailing out banks which are “too big to fail” has actually decreased our long term viability instead of supporting it; the term seems to connote any consequence which wasn’t expressly mentioned by proponents of the bill.

Technically, that’s correct.  The definition of unintended consequences does not require the consequences to be unforeseen, though in common language we generally use the base meaning of “intention”.   Therefore the phrase has come to mean those consequences which were neither  intended nor unforeseen.

I submit however, that we should start changing our language and call known consequences intended consequences, because like the citizens in the face of the law our politicians should be held to the same standard: ignorance is not a defense.

Regardless of the human failing that pushes people to believe they, or their elected leaders, can ultimately control behavior which is already constrained by the marketplace, acting as if the results weren’t readily understood is disingenuous.

Looking more closely @ McCain-Feingold effects, we see the chilling of free-speech (here), where citizens can’t create a documentary on their beliefs about Hillary Clinton without it being subject to regulation:

…The case before the court, Citizens United v. Federal Election Commission, originated over whether a 2008 feature-length movie critical of then-presidential candidate Hillary Rodham Clinton could be classified as an “electioneering communication” subject to regulation.

The FEC contended it was, and that its sponsor, a conservative advocacy group called Citizens United, was barred from promoting the film. While nonprofits can be exempt from campaign-finance regulations if they limit their fund-raising to donations from individuals, Citizens United fell under McCain-Feingold because it accepts business contributions….

Now.  I haven’t seen the movie nor do I care to, but when individuals get together to use their own money, their own resources, to produce their own political speech, the government has absolutely no right to be involved.  In the marketplace of political ideas, that whole “congress shall make no law” thingy, seemed pretty straight forward.

Regardless of your reading of the 1st Amendment, some will contend this is an unintended consequence.  I contend it was a known consequence and therefore must have been intended.

I will even go further and say this was like a consequence well enough known by politicians who voted for the bill, that they had incentive to pass restrictions on others as this would help them secure the current balance of power.

Using banks too big to fail (here):

…Increased concentration is vexing for regulators. Because systemically important firms can borrow more cheaply thanks to implicit state backing, small and medium-sized banks struggle to compete. A recent Fed study put big banks’ funding advantage at more than 30 basis points. That leads to another possible problem: indiscipline. Private firms with a low cost of funds and the taxpayer behind them are prone to recklessness: just look at Fannie Mae and Freddie Mac. America’s leading banks were too big to fail before the crisis. Now they are bigger still….

This was not only easy to foresee, but libertarians, conservatives, small business groups, think tanks, economists, literally, tens of thousands of people wrote and discussed that this is exactly what would happen.

Once you’ve effectively told the market that they will not be responsible for their failures, you’ve written them a blank check to become much more reckless than they would have otherwise.

Not only this, but that action, more reckless businesses, will have it’s own well understood consequence.  The banks will continue to make stupid decisions due to a perceived lack of risk.  As long as people allow it, the government will continue to bail them out until it becomes just too expensive.  Then during that emergency, we will see much greater regulation and control of the financial industry which might include a government takeover.

As Hayek stated and history has shown:

‘Emergencies’ have always been the pretext on which the safeguards of individual liberty have been eroded.

Maybe it’s time to start holding our politicians & leaders accountable for the known consequences & not just the stated ones.

In an effort to make sure Paul Krugman isn’t the most incoherent economics writer working for the New York Times, Thomas Friedman comes out with an oped yesterday titled Our One-Party Democracy.

You see, in Mr. Friedman’s world, the only party working towards effective reform is the Democrats, therefore democracy has failed:

Watching both the health care and climate/energy debates in Congress, it is hard not to draw the following conclusion: There is only one thing worse than one-party autocracy, and that is one-party democracy, which is what we have in America today.

Not hard for him maybe, but for those who like freedom, we only see the worst example of governance ever conceived… except for all the others.

Why stop there?  According to Mr. Friedman, the real problem here is that the US isn’t more like China:

One-party autocracy certainly has its drawbacks. But when it is led by a reasonably enlightened group of people, as China is today, it can also have great advantages…

I’m pretty sure even the leadership in China just laughed out loud at being called  enlightened – they are probably laughing just as hard as I am confused in trying to figure out how Mr. Friedman could come to such a conclusion.

After all, China is a country that continues to jail dissidents, persecute the religious, deny access to a free press, ignore basic contracts rights, and many, many other anti-freedom atrocities, all of which are well documented and easy to find.

Just a couple years ago, in 2007, multiple reports held that Chinese officials had displaced (read: kicked out without recourse or compensation) 1.5 million Chinese nationals to make room for the Olympic Village.

Surely Mr. Friedman understands this, so why go to such lengths as to spot light China for being enlightened?  Well, to Mr. Friedman, it seems obvious that with all of China’s current evils, they don’t rank with the evils being perpetrated on US society  right now by Republicans.  Thanks to Mr. Friedman, the Republican’s evil nature has been identified and it is startling.  Yes, the Republicans have dared to oppose Mr. Friedman’s Mr. Obama’s legislation:

…The fact is, on both the energy/climate legislation and health care legislation, only the Democrats are really playing. With a few notable exceptions, the Republican Party is standing, arms folded and saying “no.” Many of them just want President Obama to fail. Such a waste….

What should we do when people dare to demonstrate such blatant use of their individual rights by going against the One True Way?  Well go to one-party autocracy:

…The only way for us to match them [China] is by legislating a rising carbon price along with efficiency and renewable standards that will stimulate massive private investment in clean-tech. Hard to do with a one-party democracy….

…Well, to compete and win in a globalized world, no one needs the burden of health insurance shifted from business to government more than American business….

I know when trying to follow such flawless logic, sometimes we lose the forest for the trees, so for those playing the Analogy home game:

In the past 200 years, the United States, with a fairly free economy, slowly became and then maintained economic dominance in almost all areas, while China, Russia, and other controlled economies have done much worse.  Recent history is different with China, India, Russia, and others becoming emerging economies, but only as they progressed towards market reforms and away from command economies.

To Mr. Friedman however, little things like historical evidence and current human rights’ abuses aren’t part of the equation.  The only part of the equation seems to be “China is doing things I like, the US isn’t, therefore the US is bad and China is good.”

The most amazing thing is how he isn’t even trying to hide his desire to control your lives.  Without a hint of irony, he is telling you directly he’d prefer that those who disagree not be given rights to control the government,  while those who agree with him should be shown the keys to the kingdom.

Yes, like all worthless dictators before him and all totalitarian idiots who will come after him, Mr. Friedman is more than willing to give up your rights in search of his goals.

For those who don’t know, usury laws are used by governments around the world to prevent lenders from charging others “excessive” interest.  These laws are in use in most countries around the world including the United States.  They are usually sold, as they are today, as vehicles to promote social well being by restricting predatory practices against the poor.

& when you have a champion of the poor such as President  Obama, this is right up his alley (here):

Last Thursday executives of the nation’s leading credit card companies were summonsed to the principal’s office and told to clean up their act….

From the President’s post-meeting remarks:

“…we want to preserve the credit card market. But we also want to do so in a way that eliminates some of the abuses and some of the problems that a lot of people are familiar with — people finding themselves starting off with a low rate and the next thing they know their interest rates have doubled; fees that they didn’t know about that are suddenly tacked on to their bills; a whole lack of clarity and transparency in terms of the terms and conditions of their credit cards.

And so there’s going to be action in Congress. Our administration is going to be pushing for reform in this area.”…

Of course we should all be for transparency as obfuscation by lenders is just another word for fraud, however the idea that the government will know what makes a risk and be able to set ceilings or adjustments of interest rates is crazy.

You may ask, “But if it’s for the poor?”

And therein lies the problem – a recent paper published by the Harvard University Economics Department tries to answer the question (here):

…Understanding the economic motivation and impact of financial regulation in this setting may aid understanding of regulation and development today.

…Our investigation into the causes and consequences of financial regulation entails answering who and what determines regulation and who benefits and loses from it….

They note in their research:

…The evidence we uncover appears most consistent with financial regulation being used by incumbents with political power for their own private interests—controlling entry and competition while lowering their own cost of capital. By limiting the maximum legal interest rate, usury laws cause credit rationing that increases the cost of entry in the market. Since wealthy incumbents already have access to capital via their reputation, relationships, creditworthiness, and collateral, they are relatively immune to such restrictions…

As with other such government attempts to control the market, it not only fails to do what was expected, but it in fact moves to the opposite corner.

Don’t think that business leaders don’t already know this however.  Knowing that motives aren’t completely discernible, the research certainly suggests the wealthy fully understand these laws and their impact to their interests:

…As further corroboration of private interests, we find a positive relation between wealth-based suffrage restrictions and other forms of economic regulation designed to exclude certain groups, such as general incorporation laws that permit free entry of firms. Usury laws are tighter when incorporation restrictions are also tight. The combination of these two policies restricts free entry further and implies financial regulation is adopted in conjunction with other exclusionary policies designed to limit access to outsiders. This evidence seems to conflict with the public-interest motivation, which is supposed to include or help underserved or disadvantaged groups rather than limit access….

Meaning only that IF these laws were used as social support to the poor, then it would stand to reason that they would not be used in conjunction with other barriers to entry such as licensing, incorporation statutes, and other regulations.

But in fact, this is what we find.  We find that businesses know all too well how to protect their interests even as our leaders tell us how much they are protecting ours.

The true irony of this is that liberals who push this type of legislation routinely do so in the name of economic/social justice.  Fairness for the poor.  Help for our downtrodden brethren…

All the while the legislation they implement continues to hurt the poor more and more each day by limiting their chances and protecting already entrenched interests.

Well, we’ve moved from Cash for Clunkers onto Cash for Appliances and politicians everywhere have patted themselves on the back for what a fine job the original program did.

According to most news reports, sales were up a tremendous amount due to this program.  ABC News reports Auto Sales Up in August Thanks to Cash for Clunkers, Bloomberg reports U.S. Consumer Spending Climbs on ‘Cash for Clunkers, and CNN reports 4th UPDATE: Auto Industry Posts Best US Sales Of Year.

If one just reads the headlines and do the normal drive-bys on the news, this is yet another government program which is a rousing success.

This assumes of course you only look on the surface.  Looking further, there were many consequences of this program that probably wasn’t helpful.  Listing the potential and real negatives is a worthwhile endeavor if we truly wish to analyze the situation.  Since I can’t sum up the problems with this program any better than Cato has, Chris Edwards posted on their blog:

* A few billion dollars worth of wealth was destroyed. About 750,000 cars, many of which could have provided consumer value for many years, were thrown in the trash. Suppose each clunker was worth $3,000 at a guess, that would mean that the government destroyed $2.25 billion of value.

* Low-income families, who tend to buy used cars, were harmed because the clunkers program will push up used car prices.

* Taxpayers were ripped off $3 billion. The government took my money to give to people who will buy new cars that are much nicer than mine!

* The federal bureaucracy has added 1,100 people to handle all the clunker administration. Again, taxpayers are the losers….

* The auto industry received a short-term “sugar high” at the expense of lower future sales when the program is over. The program apparently boosted sales by about 750,000 cars this year, but that probably means that sales over the next few years will be about 750,000 lower. The program probably further damaged the longer-term prospects of auto dealers and automakers by diverting their attention from market fundamentals in the scramble for federal cash.

This isn’t to say they’re weren’t positives.  This only mean that using a vision which includes more than the past couple of months to analyze the situation will objectively result in either seeing this as a smaller success than currently marketed, or more likely, seeing this as an actual failure.

This is a continuous issue with basic human thinking.  All humans due to brain wiring and evolution have certain built in biases that cause us to make ineffective decisions.  By better understanding those biases, we can seek to minimize them.  Without minimization though, this thinking results in quick based resolutions that are overreaching and often end with a result much different from intended.

A few easy recent examples come to mind.  Sarbanes-Oxely, the Patriot Act, and McCain-Feingold.

Using SOX, lots of new regulations were added to company finance reports due to Enron, MCI, and other companies.  However the regulations can’t possibly prevent what took place nor can they do any better than what happened.  In Enron’s case, corrupt management ruined a business and they went to jail.  SOX will not prevent another Enron and I think the incentives against doing it again already exist when CEOs, CFOs, and others lose their business and their freedoms.

The true result of SOX?  A new industry of people and millions and millions spent by companies to ensure compliance, which is passed on to consumers that will not prevent future fraud (Bernie Madoff?).

Another example – even small decisions made too fast can turn out to be completely wrong.  Here in St. Louis, MO, they renamed a part of I70 after Mark McGwire due to his home run record.  It was a travesty to begin with as the road used to be named after Mark Twain, but after the steroid scandal included Mr. McGwire the idiocy and quickness of the decision was easy to see.

Additionally, the economy; lots of us still wish for the 90s when jobs were extremely plentiful, pay was high, and the economy was moving forward with lots of momentum.  Long term view?  It turned out to be a ponzi scheme that was mostly paper profits which resulted in a bubble that, as with all bubbles, burst.   Indeed, there was no new business cycle or new business rules that changed the economy in such a way as to guarantee no more downturns.  Several very large companies declared bankruptcy, CEOs went to jail, and millions of individuals lost a lot of their retirement money as their 401Ks nosedived.

In some ways though, making quick decisions makes complete sense.  In our very quick world, we are forced to make decisions quickly and lots of times, make those decisions based upon partial information.  In business, product innovation, management decisions, battlefield tactics, and in many other places this is necessary and having the skill to do this well is a requirement in most aspects of today’s professional life.

However, even though quick decisions on partial information are required in today’s world, we must still be cognizant of potential long term ramifications if we truly intend to leave a world for our children and grandchildren that is better than we found it.

Otherwise, we can continue to only contemplate things in small slices of time and we will certainly continue down the road of bad decisions.

Of course that’s just my two synapses rubbing together… I could be wrong.