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.


Davey

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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sam

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.

Bucky

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

JND

Imagine people resisting the coercive actions of do-gooders in governement! No problem, though. Hillary, Barack, or John will make sure it never happens again.

rini

Where do you guys live? Opposite land?

Of course laws have unintended consequences. However, what do you suggest in their stead? Pinkie promises?

Please,

We need legislation. The "free" market does not solve everything. As the past several decades have unfolded, we have seen more and more evidence of this. Legislation is the product of our elected representatives. Ideally, it should be democracy at work. If it is not, then we should work on creating a fairer system of election and a bigger say for the average person.

Don't throw out the baby with the bath water.

Thanatos Savehn

One side seeks to improve the human condition by changing human nature. The other side seeks to understand human nature and exploit it for the good of everyone.

The former never succeeds in its alchemy but unleashes many calamities through its efforts. The latter never fails of its promise but its progress is slow and uneven.

The former invariably turns to the State to bring about the change it seeks by way of coercion. The latter to liberty - more freedom and more information for the individual.

The former accuses the latter of being coldly rational and heartless. The latter accuses the former of being emotional and stupid.

Apparently there's nothing new under the sun.

Dan

The opportunity cost of "clearing land for development" ahead of its compulsory preservation under the ESA depends on many factors, including but not limited to the real estate market at the time, whether the land owner has lots of cash, etc. The ESA is only one of many factors a land owner will consider.

Conscience also plays a role in every human decision.

Everything (not just every law or regulation) has a potentially negative effect if considered in a vacuum. Even the Ten Commandments are ambiguous when contemplated in the context of the bible stories that surround them!

DanC

How much of the sub-prime crisis is a result of the changes in the bankruptcy laws? Did lenders take greater risk because they thought borrowers would have a harder time escaping debts?

flummoxed

How bout a nonwhimsical study, namely: How can ALL the financial wise-guys glom onto a concerted egregious greed, a la subprime loans, to point of world wide depression. Economic bubbles have been popping since economics was fabricated. So how did the phenomonem of concerted economic blindness hit all the wise-guys at the same time? Did none feel even an iota of concern? If not, WHY NOT? Economics or psychology? Is economics controlled greed? Psychology uncontrolled?

Would love to see a joint study with you two and Naomi Klein on the subleties behind it all. Not that the results would head-off future dalliances. Especially as long as we reward the perps with golden parachutes instead of prison - OR EXTRAORDINARY RENDITION.

Steve Bassett

"...and the expense wasn't covered by insurance".

Why not?

Why did the A.D.A. let insurance companies skate away from the expense? What are the consequences, intended or otherwise, of insurance companies with the ability to deny payment for a service required by law?

Cliff Adams

I recall when all the sidewalks (at street corners) were being carved up to create ramps for wheelchair users... As I remember, the first day the first ones were unblock because the concrete had hardned and dried, a blind person with a white cane (no guide dog) walked into the street and was struck and killed, because he never felt the curb of the sidewalk to give him a clue where the sidewalk ended. Now all the ramps must have a texture to indicate the edge, where a curb would be.

Unintended consequences accompany every act. To imagine otherwise is to overestimate your imagination.

Robin

Thought you might find interesting the effects of the negative publicity surrounding exports of used computers to developing countries.

http://retroworks.blogspot.com/

I've posted film of the professional factories which buy used computers in very high volumes. They are very particular which monitors and PC chassis they can use; the one in the photos buys 5000 monitors per day and operates 3 shifts.

When publications like National Geographic (Jan 2008) show non-acceptable, junk computer dumped in villages with barefoot children, some groups call for bans on exports (California SB20 subsidizes computer recover and requires them to be broken). This creates a shortage. The villages import loads of computers NOT sorted by type, and even more bad ones wind up on the ground.

Mr. Dubner, by the way, you were wrong about curbside recycling on Good Morning America. If you eliminate the recycling truck, another truck has to replace it driving through forests. Yes, these are tree farms. But an acre of tree farm cut down yesterday has a different economic value than one not yet cut down. Eliminate the General Mining Act of 1872, and we will have recycling rates like countries which do not have the same raw material subsidy.

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SciEd

I agree with comments by Thanatos Savehn (#12)

"One side seeks to improve the human condition by changing human nature. The other side seeks to understand human nature and exploit it for the good of everyone.
....
The former accuses the latter of being coldly rational and heartless. The latter accuses the former of being emotional and stupid."

This is also described by the adage if you are not a liberal when young, you have no heart, and if you are still a liberal when old, you have no head.

The law of unintended consequences does work. On the other hand, that does not mean that we don't pass regulations. It means that we need to examine each proposed regulations, try to identify the unintended consequences before promulgating the regulation, and modify the proposed regulation as appropriate. Since we can never fully identify all the consequences, we should strive for a minimum of regulation, but not quite no regulation.

Science Editor
www.polijam.com
Your Guide to News Around the Web

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Ben Franklin

If your solution to a problem is to replace a system based on free will and mutual cooperation (the market) with one of coercion and forced servitude (government) then you are on the short end of the moral argument from the start. No amount of sermonizing or good intentions will ever make you anything other than what you are... a fascist. Men of conscience and goodwill will fight you every step of the way by ignoring and circumventing every rule and regulation you can invent that strips them of their rights as free men. It is only right and proper.

Good luck with that left-wing fascism thingy though. It never seems to work very well anywhere other than on the editorial pages of party organs such as the New York Times. That's why most people give up those type of control fantasies once they leave adolescence.

misterb

I wonder why unintended consequences are only attributed to laws that attempt to help people. Aren't there unintended consequences of actions such as invasions, occupations, invasions of privacy?

@Ben Franklin - You seem to be ignorant of history. Capitalism has only been the economic system of a small fraction of the world's population for an even more minuscule fraction of the time humans have been a social species. Up until the 17th century, property was either non-existent (hunter-gatherer societies), held in common (tribal communities) or owned at the whim of the sovereign. In fact, humanity has shown a predilection for "socialist" schemes since time immemorial. The "free market" is a historical anomaly. I personally prefer it to the alternatives, but I can see no moral justification for my choices.

Blahdiblah

And another thing - the so called free market. There never has been a free market as there has always been government intervention in how it operates. On a very basic level this will be standardised weights and measures, checked by the government, to stop consumers being short-weighted, or on an even more basic level government issued coins and notes. On a more sophisticated level this will be monopoly and cartel laws, and legislation to regulate the working of the "free market" so theoretically it is as free as possible. On an individual level of transaction the most basic unit of free market thinking is the freedom to contract which assumes both parties are in an equal position. Is there anyone who believes that government legislation can't contribute to equalising what would otherwise be unequal parties to a contract, however that inequality arises?
As said above, I am British and we seem to be moving towards an American way of allowing business to create or block legislation and/or regulation through its economic power (expressed through campaign contributions, lobbying, tax deals, etc) which actually decreases the efficiency of the free market as it is aimed at eliminating competition.
Anyway - here is my unintended consequence poser for the week - Have anti-sex discrimination laws and policies raised house prices disproportionately and made it harder, in comparative terms (in Britain at least) for a couple to buy a home? And if the answer is yes - does it matter?

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Louis

"Employers, concerned that they wouldnt be able to discipline or fire disabled workers who happened to be incompetent, apparently avoided hiring them in the first place."

This may be faulty reasoning. The ADA specifically does not require an employer to retain an employee who cannot perform the essential functions of their job.

Justin G.

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

Brian Schmidt

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.

AF

I thought I'd take a few of the criticisms of Dubner-Levitt's article and summarize why I think they're silly:

Post 2, Biker Bob: 'this is just an extension of "to err is human".' But that adage probably shouldn't forgive someone for performing the opposite of what they set out to do.

Post 3, D.R. Shaw: "30 years of market deregulation culminating with business-friendly Bush has shown trickle-down prosperity to be an illusion." There are two different things: the government ceases to be the sole provider of a public service, while at the same time heightens its interference and control of the private providers of services. The government would never 'deregulate' an industry without somehow increasing its own control of it, for the profit of those within government.

Post 6, sam: "you can't avoid such problems in an economic system that elevates selfishness." That's the point of the article: those who pursue selfless goals wind up causing more harm than if they did nothing. Maybe changing the entire environment that these attempts take place in would alter their outcomes. But why would you pin your hopes on that happening?

Post 7, Brian Schmidt: "the environmental laws may have caused some harm but you don't look at the benefits they've provided." The studies are not designed by idiots: the point was to quantify the net effect, good vs. harm. See Bucky's post 8.

Post 10, rini: "the free market does not solve everything, and legislation should benefit the average joe." The article highlights the problems with attempts at tempering the free market. And again, the last few decades have seen only increasing interference by governments in businesses because this is so lucrative to legislators and their donors.

The point I'd like to make is that people will always try and better their life. Those that the free market rewards start trying to pass legislation to help themselves and strangle the same free market that enriched them. This cycle is something that a lot of free market fans don't consider: a free market inevitably reattaches the shackles of government due to the rich people trying to improve their situation even more through politics.

What's the solution? Perhaps there is none. You do the best you can to place yourself on the most favorable side of all the unintended consequences.

Or perhaps something like "economic democracy" will be the next big thing, after political democracy, and both of those combined will move us off this cycle!

Great article guys, I like the adage "the road to hell is paved with good intentions" more than this law.

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