Freakonomics in the Times Magazine: Unintended Consequences

In their Jan. 20, 2008, “Freakonomics” column, Dubner and Levitt explore one of the most powerful laws in the universe: the law of unintended consequences. They tell three seemingly unrelated stories – about a deaf woman in Los Angeles, a first-century Jewish sandal maker, and a red-cockaded woodpecker – that illustrate how well-meaning laws can end up hurting the very people (or animals) they were created to protect. Here is some of the research that went into the column.

1. The Americans With Disabilities Act was passed to give disabled people better opportunities in the labor market, in transportation, healthcare, and other arenas. But the economists Daron Acemoglu and Joshua Angrist found that the A.D.A. actually worsened the job opportunities for disabled workers. Their seminal paper is called “Consequences of Employment Protection? The Case of the Americans With Disabilities Act.”

2. The ancient Jewish sabbatical law called for debts to be forgiven every seventh year (Deuteronomy 15:1) and for the land to lie fallow, with the poor allowed to eat whatever still grew (Exodus 23:10). Although the debt relief was meant to help the poor, creditors responded by making credit scarce when the sabbatical year grew near. The sage Hillel came up with a solution, known as prosbul. For a look at how prosbul melds the religious and legalistic, see Solomon Zeitlin‘s 1947 paper “Prosbol: A Study in Tannaitic Jurisprudence.” Another loophole, meanwhile, called heter mechira, was developed in response to the fallow-land portion of the law.

3. The Endangered Species Act is one of the most controversial U.S. laws ever passed. A paper by the economists Dean Lueck and Jeffrey Michael, “Preemptive Habitat Destruction Under the Endangered Species Act,” argues that the E.S.A. has actually hurt the plight of the red-cockaded woodpecker by incentivizing property owners to make their land uninhabitable to the bird. More recently, the economists John List, Michael Margolis, and Daniel Osgood found a similar dynamic in their working paper, “Is the Endangered Species Act Endangering Species?” Their animal of concern was the cactus ferruginous pygmy owl.

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  1. g p burdell says:

    “Stimulus package actually hurts economy”

    “Heath care plan makes health care more expensive and scarce”

    “Drug laws create more crime”

    Headlines I’d like to see more of in national mainstream media.

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  2. Biker Bob says:

    I have to groan when I see a trite observation elevated to
    “one of the most powerful laws in the universe: the law of
    unintended consequences.” Is this the most powerful
    generalization the social scientists can come up with:
    legislators sometimes fail to anticipate every contingency?
    Anyway, isn’t it a corollary of the more fundamental law “to
    err is human”? Now a column on that law would be really
    interesting.

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  3. D.R. Shaw says:

    Did you guys even research the ADA? This is my field and I know it. The physician could have raised the defense of an undue burden to the requested accommodation, which defense would have surely prevailed if the outcome was that he spent so much on the interpreter that he would have lost, rather than made, money treating the woman. This is the kind of argument made all the time against discrimination laws, by people who don’t even understand what discrimination laws say.

    But I do agree that laws can have unintended consequences; for example, when thoughtless lawmakers rush to jump on the easy political haymaker of punishment for sexual predators, and end up passing laws that put 18-year olds on permanent internet watchlists for having consensual sex with their 15-year old girlfriends.

    As for your thesis here, I’d suggest that we have had almost 30 years of unfettering of the “free market” and of allowing corporations and the wealthy to have it their way, and all we get are more apologists swearing if the government would just let them be, the whole country would be a shiny example of trickle-down prosperity. Well, you can’t get much more business-friendly and regulation-hating than the Bush admin, and what have we got from it?

    Tell it to the people whose children are dying from lack of insurance, who can’t afford to move out of a rat trap motel on their minimum wage jobs, or who sleep under bridges at night because the shelters are full. Fat cats whose bellies are full every night have had a chance to try out their economic experiments for decades already, and the only ones who have benefitted are the fat cats.

    But that’s how it was meant to be, wasn’t it boys? BTW, what are YOU having for dinner tonight?

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  4. Davey says:

    I guess I’ll wrestle with the righteous here, D.R. @ #3. It’s rainy and nasty here, so why not?

    “Tell it to the people whose children are dying from lack of insurance.” How many children died in the US last year from lack of insurance? I’ve never seen a headline saying that “X Number of Children Die from Lack of Insurance in the US Each Year”. That would seem to be a natural for the media to jump on. You want insurance for everyone? Get government out of the insurance business. Government drives the cost of insurance and insurance compliance through the roof with its excessive administrative requirements (for Medicare and Medicaid). Government requires coverages that aren’t necessary. Government provides for a tax credits to businesses that provide health insurance to their employees, thereby supporting the current system. Eliminate the credits, or better yet, extend them to individuals, and a giant chunk of the uninsured will be able to afford insurance.

    “Tell it to the people…who can’t afford to move out of a rat trap motel on their minimum wage jobs, or who sleep under bridges at night because the shelters are full.” Um, every person in the US has access to 12 years of free education and can then move on to gain more education relatively inexpensively. How many under the bridges tonight chose to ignore that opportunity? News flash: if you are an adult in this country and the best you can manage to do is get a minimum-wage job, you can’t be helped.

    Years ago I overheard a great piece of wisdom. I was in Miami and an old-style deli when 2 guys straight out of The Sopranos sat down at the table next to me, along with one much younger and very good looking woman. One of the guys tells her, “It’s no sin to be poor in America. But it IS a sin to STAY poor in America.”

    I will be having pot roast for dinner tonight.

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  5. Justin G. says:

    This article a good advertisement for systems dynamics thinking: there are no side effects, only effects.

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  6. sam says:

    What all your examples had in common seemed to me to be an assumption that in every case people are going to choose their own advantage (making money, hiring a worker they can fire, not having their land use restricted,making interest from loans, whatever) over everything else. I guess you’re right that no amount of ingenuity in regulation is ever going to lead to the best possible outcomes in an economic system that elevates selfishness over all other motivations.

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  7. Brian Schmidt says:

    The woodpecker paper measures pre-emptive habitat destruction while failing to estimate how much existing habitat would have been destroyed in the absence of the ESA protections. In other words, it measured costs only and ignored benefits. What conclusions does Freakonomics think we should draw from it?

    Also, while the paper mentions the ESA Safe Harbor provision that fixed this incentive problem, Freakonomics doesn’t, probably because they don’t know anything about it.

    The law of unintended consequences also applies to writing about subjects you’re not very familiar with. Oh well.

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  8. Bucky says:

    Dear Brian: Yes, but you should mention that the Freakonmics guys also mention a second ESA study, List et al., which does measure that counterfactual. In fact, the cockaded paper really cannot speak to the most important issue facing species right now–frontier land destruction occurring on an urban fringe. The other ESA paper does, and has the calculation–both in land unit terms and dollar terms–of the ESA provisions.

    Earlier Levitt wrote about this paper and some commentator mentioned that these results were obvious. After you read them the qualitative results are predictable, but what the various elasticity estimates themselves equal does not seem to me to be obvious ex ante.

    Bucky

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