Fear The Unintended Consequence

In this era of increasing government control the Law of Unintended Consequences is talked about a great deal. In social sciences, unintended consequences are outcomes that are results beyond or apart from the intended successful outcome of a particular action.

In this context it is the premise that actions taken by government will always have effects which are unintended or unforeseen. These effects may be positive, negative, or even perverse (opposite of the intended outcome).

That the unintended consequences of government action are so often negative or perverse is no happenstance. Governments sole means of affecting outcome is through force. Once exerted, it is exceptionally difficult to take back. As Milton Friedman once said, “Nothing is so permanent as a temporary government program.”

There are many reasons why action taken by government through the political process so often go astray; perverse incentive, cognitive or emotional bias that prevents accurate account of human nature, and more often than not just the sheer inherent complexity of the issues. Chaos Theory is the study of how initial conditions affect calculations involving complex systems. Failure to account for a variable in a calculation, or even minute variations in initial conditions can produce wildly different outcomes, and make long term predictions nearly impossible.

Simply put, the law of unintended consequences is what happens when simple systems attempt to regulate more complex ones. The political process is simple; it operates with limited information, low feedback, and a short time horizons. On the other hand, markets are complex ever evolving, high feedback systems.

Markets aren’t one massive calculation encompassing infinite variables made by individuals with a low incentive to achieve positive outcome. They’re millions of small calculations, millions of decision making processes with few variables, made by people with a very high incentive to achieve a positive outcome. As a result, the market has in general a far better track record than government. That’s not to say that the free market is infallible. Individuals make bad decisions all of the time. But unlike government, they have more agility than governments to correct the error, realigning toward more desirable results very quickly.

Freedom of individuals to choose is preferable to government control.