People respond to incentives

Life on the dole in Britain.

The price of sex

From "Cheap Dates" in the New York Post:

“Every sex act is part of a ‘pricing’ of sex for subsequent relationships,” Regnerus said. “If sex has been very easy to get for a particular young man for many years and over the course of multiple relationships, what would eventually prompt him to pay a lot for it in the future -- that is, committing to marry?”
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So, what can women do to return the balance of sexual power in their favor? Stop putting out, experts say. If women collectively decided to cross their legs, the price of sex would soar and women would regain control of the market. Like a whoopie cartel.
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“Let’s be realistic: It’s not going to happen here,” Regnerus says. “Women don’t really need men and marriage -- economically, socially, and culturally -- like they once did. What I hear in interviews with women is plenty of complaining about men or about the dating scene, but their annoyance is seldom directed at other women.”

There is a prisoner's dilemma problem involved--what looks good to the individual may not be good for the group. Plus it is arguable that the end effect of the women's liberation movement of the 1960s and 70s may have been to make many women worse off, not better.

Cracked

The website for Cracked Magazine has some good economics--explaining how laws based on good intentions backfire and cause harm. Their six examples are: Smoking bans in bars cause more drunk driving,; sex offender laws make them harder to track; fishing restrictions mean smaller fish; the Endangered Species Act endangers species; boxing gloves mean more head injuries; and the Paperwork Reduction Act does nothing of the sort.

Good intentions are not enough

From a commencement speech from Justice Scalia's, cited in Commentary's blog:

More important than your obligation to follow your conscience, or at least prior to it, is your obligation to form your conscience correctly. Nobody — remember this — neither Hitler, nor Lenin, nor any despot you could name, ever came forward with a proposal that read, “Now, let’s create a really oppressive and evil society.” Hitler said, “Let’s take the means necessary to restore our national pride and civic order.” And Lenin said, “Let’s take the means necessary to assure a fair distribution of the goods of the world.”

In short, it is your responsibility, men and women of the class of 2010, not just to be zealous in the pursuit of your ideals, but to be sure that your ideals are the right ones. That is perhaps the hardest part of being a good human being: Good intentions are not enough. Being a good person begins with being a wise person. Then, when you follow your conscience, will you be headed in the right direction.

A lot of evil can be done by good people pursuing bad causes. A lot of harm can be done by people with good intentions but who do not understand basic economics, which is why the notion of unintended consequences is central to the subject.

Outsoucing and Obamacare

An effect of Obamacare:

Mumbai – With 22 pen strokes, President Obama signed into existence not just a historic healthcare reform law but also monumental piles of paperwork: New member registration forms. More claims. Ever-expanding databases. And on top of that, pressure to cut costs.
The bulge in administrative work may look like a nightmare to American insurance firms and government employees. But to outsourcing executives here in India, it’s heaven-sent. A number of Indian companies are already anticipating an increase in workload thanks to Obama's healthcare law.

The minumum wage

A blog post at the Washington Post suggests that the recent increase in the minimum wage was a bad idea.

Back in 2007, Congress enacted a three-stage increase in the minimum wage from $5.15 to $7.25, the last installment of which took effect just last July. This was done with the best of intentions, of course. But what it meant in practical terms was that, at the height of a savage recession, the government essentially imposed a substantial tax increase on hiring. No wonder the unemployment rate among black teenage males is at an all-time high of 57 percent.
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If Obama and Congress were really as serious as they say they are about reducing unemployment, they would at least be willing to discuss rolling back last July’s minimum wage increase. It would create some jobs for those who need them most, and it would not cost taxpayers a dime. Yes, those who get hired at a reduced minimum wage would have to work for less. But at least they'd be working.

The reaction of the commenters is interesting. The majority berate the idea with invective with comments like these:

Mr. Lane, I would suggest that you experience of joy and comfort of living on a minimum wage salary for a few months, and then write an article about it. People like you are what got our country where it is now economically. President Obama, with the grace of God, will heal your years of abuse.
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I agree with the other posters. How can this guy even write this crap? Lower the minimum wage when it took so long to get it raised? Of all the suggestions on increasing jobs in this country, this has got to be the most stupid one yet.
The minimum wage was low and employers still weren't hiring and the employees had to get government help just to eat.
Easy for an idiot like this to make this claim when he doesn't have to feed a family on the minimum wage.

I wonder if they have any idea of how stupid they appear to those who actually know some economics.

Meanwhile, Tigerhawk is worried about the increase in costly regulations and its effect on hiring:

Already our economy is struggling against health care "reform," massive new regulation and/or taxation on any business that emits carbon, the proposed "Employee Free Choice Act," new regulation in financial services, new corporate "governance" requirements, fiscal catastrophes in all the large states controlled by the Democrats, and huge new tax increases for the people who actually decide to hire people (whether they are corporate tools or individual entrepreneurs). Do we really need "an array of 90 rules and regulations" from the Labor Department on top of all that?

Just when you think "they can't keep making it harder," they do.

I thought this comment especially interesting:

I just bailed out of a deal to buy a company which has gone from a money-making position to a money-losing position in the past two years and is in need of a turn-around. The services provided by this company are extremely carbon-intensive. There is just no way I can justify risking capital on a business like this in this regulatory environment.

There are no other buyers on deck. I suspect this business will be liquidated within 6 months. Another 150 jobs gone. Way to go, Obama.

This is what you get when nobody in the Administration has any private sector experience.

Killing trees with kindness

From the New York Times:

Investigators are trying to determine who drove six-inch nails into hundreds of red pine trees near Backus. They think the vandals might have thought they were saving the trees from logging; about 100 of the 600 trees were slated to be cut down and sold this month. But now the entire forest will be cut down because of safety concerns, the authorities said. Mike Diekmann of the Cass County Sheriff’s Office said that if a saw hit one of the nails, “it would explode like a gun going off” and could cause serious injury.

The report from Minnesota is here.

Football helmets and unintended consequences

Economists have long recognized that when some activity is made safer by improved equipment, people compensate with more risky behavior. For example, making cars safer lets people take more risks behind the wheel. People respond to incentives. The phenomenon of moral hazard is another example of how a reduction in risk changes behavior.

An article in The Wall Street Journal asks if football helmets have made football more dangerous. That possibility seems counter-intuitive to noneconomists who usually do not consider that changes in risk will change in behavior.

Andrew McIntosh, a researcher at Australia's University of New South Wales who analyzed videotape, says there may be a greater prevalence of head injuries in the American game because the players hit each other with forces up to 100% greater. "If they didn't have helmets on, they wouldn't do that," he says. "They know they'd injure themselves."
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"Without the helmet, they wouldn't hit their head in stupid plays," says P. David Halstead, technical director for the Nocsae, the group that sets helmet-safety standards. But without helmets, the game "wouldn't be football," he says.

Distortions caused by regulations

The Wall Street Journal tells how Ford assembles vehicles in Turkey, ships them to the U.S., and then drastically alters them here as a way of avoiding tariff regulations that grew out of a chicken tax imposed by Europe on U.S. chickens. It is a good example of the mess that tariffs can cause. What are the costs of practices such as this one:

With the globalization of the auto industry, American companies have joined the game. Until recently, Chrysler Group LLC imported Dodge Sprinter vans made in Düsseldorf, Germany, by former owner Daimler AG. The engine, transmission, axles and wheels were removed, allowing the truck bodies to cross the border as auto components, which aren't subject to the tax. Daimler then reassembled the vehicles at a factory in Ladson, S.C.

Staffing the government

The New York Times reports that only 43% of the senior positions in the Obama administration have been filled.

Measuring the progress in appointments depends on what positions are counted and who is doing the counting. The White House Transition Project counts 543 policymaking jobs requiring Senate confirmation in four top executive ranks. As of last week, Mr. Obama had announced his selections for 319 of those positions, and the Senate had confirmed 236, or 43 percent of the top echelon of government. Other scholars have slightly different but similar tallies.

Much of the problem is the vetting process:

“Anyone who has gone through it or looked at this process will tell you thatevery administration it gets worse and it gets more cumbersome,” Mrs. Clinton said last month. “And some very good people, you know, just didn’t want to be vetted.” She added: “You have to hire lawyers, you have to hire accountants. I mean, it is ridiculous.”

Isn't there a lesson here, that trying to solve one problem with ever more regulation can create a new, more serious problem elsewhere?

4-Block World

Found via Carpe Diem, the website 4-Block World.

How not to reduce bastard births

Found via a HotAir link to Bookworm, an article in the Daily Mail explains the results of a British program to reduce out-of-wedlock births:

A multi-million pound initiative to reduce teenage pregnancies more than doubled the number of girls conceiving.

The Government-backed scheme tried to persuade teenage girls not to get pregnant by handing out condoms and teaching them about sex.

But research funded by the Department of Health shows that young women who attended the programme, at a cost of £2,500 each, were 'significantly' more likely to become pregnant than those on other youth programmes who were not given contraception and sex advice.

A total of 16 per cent of those on the Young People's Development Programme conceived compared with just 6 per cent in other programmes.

The unintended consequences of reform

In all the posting done about Governor Palin's resignation, few have noted the irony that she was a victim of her own ethics reform measure. A post from HotAir makes the point better than I could:

A legal device like Alaska’s drive-thru ethical complaint system will always do more damage in the hands of political operations, than good in the hands of well-meaning individual citizens. Organized groups with agendas to push have abundant time, energy, and discipline to exploit such mechanisms. If the Alaskan system was adopted in the fabulously corrupt political climate of Chicago, the likely result would be the elimination of the last few reasonably honest politicians, who would be buried under a flood of bogus ethics complaints mass-produced at the local union halls. The lovely dream of the lone citizen crusader, using his lunch hour to file a complaint against an untouchable crook in high office, fades into the ugly reality of groups like ACORN, issuing target lists to their foot soldiers.

Sarah Palin supported the ethics reforms that were used to mummify her in legal paperwork. John McCain was hamstrung by the elaborate campaign finance laws he helped design, even as his opponent cheerfully ignored them, disabling minimal security from his campaign donation website to accommodate a flood of shadowy cash.

Taxicabs and medallions

Found on Carpe Diem and traced back to its source at The Washington Examiner:

The soaring number of taxicab operators in D.C. -- roughly 8,000, most of whom own their own cars -- is a "pressing and urgent problem," Graham said. There are more licensed drivers in D.C. per capita than any place in the world, he said, and new applicants continue to take the required class, giving them access to the driver exam administered by the D.C. Taxicab Commission. A glut of drivers could jeopardize the chances of any cabbies making an adequate living, Graham has said.
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New York City's medallion system, established in 1937 during the Great Depression in response to a ballooning number of unregulated taxis, artificially capped the number of cabs on the road, to what is now about 13,000.

The medallion program, however, made it very difficult for the average New Yorker to join the industry as an owner: The May 2009 price for an individual medallion, those held by owner-operators, was $568,000. The cost of a corporate medallion was $744,000.

D.C. Taxicab Commissioner A. Cornelius Baker said during a recent meeting that the city must move "toward a regulated taxi force" and create a system "that sustains our drivers and also creates wealth for them in the long term."

When the ordinary workings of a competitive market are seen as a problem, what chance does capitalism have? (The New York medallion program was being used as an example of the problems of regulation forty years ago when I was a student. It is amazing that other cities want to emulate it.)

Greenpeace and unintended consequences

I found this rather old post about dolphin-safe tuna fishing from on link on Newmark's Door:

By trying to help dolphins, groups like Greenpeace caused one of the worst marine ecological disasters of all time. Few other fisheries are as bad for groups like sharks and sea turtles as the purse seine fishery, and none are as large in scale.

Messing with the bond holders

There will be consequences for messing with the bondholders of Chrysler and GM, as anyone who thinks like an economist instantly recognizes. From the comments of a post in the Atlantic's business blog:

I hereby nominate Obama for the Pullman-Cleveland Award for Union-Busting, for the most anti-union action in the United States by a U.S. President since Reagan fired the air traffic controllers.

Condoms and AIDS

David Friedman had a post on AIDS and condom use a while back. He took the traditional point of view in economics that when something is made safer, people change behavior. For example, when cars are made safer, people offset some of the effect by driving faster. I posted a comment that did not add much, and then someone else posted a comment to my comment that made no sense to me.

I don’t think anyone’s disputing that reducing risk with condoms will change behaviour. As is said upthread, that’s one of the reasons for opposition to condom use. The outrage at the Pope comes more from the fact that reducing risk with condoms will also reduce the spread of HIV. It’s a bad idea not to acknowledge that.

I thought I had posted a further comment, but it got lost on the Internet.

I remain mystified about what the comment on my comment meant. AIDS is spread in Africa by multiple overlapping sex partners. If condoms make people feel safer having sex, they will be more likely to have more overlapping sex partners, and hence they may undo some or all of the effects of condoms making each sexual encounter less risky. The situation is similar to the question of whether driver's education reduces teenage fatalities. Driver's education makes teenagers better drivers, but it also increases the number of teenage drivers on the road. The second effect can more than offset the first effect.

One way to express these ideas is in the framework of moral hazard. In this framework, things that reduce risk such as insurance reduce the costs of certain events, and therefore people do not have to be as careful about avoiding those events. Another way is in terms of complements and substitutes. Driver's education and teenage driving are complements, so making driver's education more available will also increase teenage driving. Are condoms and sexual intercourse outside of monogamous marriage substitutes, complements, or unrelated? A lot of advocacy of condom use seems to be based on an implicit assumption that they are unrelated. If they are complements, the push for condoms may have consequences quite different from those that are expected. It may, for example, increase AIDS rather than reduce it. The same argument, by the way, holds for teenage pregnancies.

McArdle update

Megan McArdle has a number of interesting recent posts on her blog.

"Whether the topic is war or taxes, telling honest citizens to shut up and do what the government tells them is not the act of a sound democratic society."

Hong Kong was once a light in the darkness. Literally.

Credit default swaps may encourage debtors to force companies into bankruptcy because they lose less that way than by renegotiating the debt.

Why every pension system is flawed.

What happens to a person in debt in a society that does not have bankruptcy, but imprisons debtors.

Paper power

The Nation magazine illustrates an example of private sector ingenuity and unintended consequences of government actions. However, their readers probably will not draw the conclusion that maybe we need fewer attempts from the government to micro manage the rest of us.

No one in Congress seems to have anticipated this creative maneuver. This past fall the Joint Committee on Taxation computed the cost of extending the tax credit for three months and projected it would cost a manageable $61 million. It now appears that the extension (which was passed as part of the TARP) could cost as much as $2 billion before the credits expire at the end of this calendar year.

Update: The always entertaining James Taranto has found this article and writes about it in The Great Paper Caper. Government offers subsidy. Company takes it. Left-wing writer suffers crisis of faith.

Mob rule

From Commentary's Contentions, a link to a letter in the New York Times.

Many of the employees have, in the past six months, turned down job offers from more stable employers, based on A.I.G.’s assurances that the contracts would be honored. They are now angry about having been misled by A.I.G.’s promises and are not inclined to return the money as a favor to you.

The only real motivation that anyone at A.I.G.-F.P. now has is fear. Mr. Cuomo has threatened to “name and shame,” and his counterpart in Connecticut, Richard Blumenthal, has made similar threats — even though attorneys general are supposed to stand for due process, to conduct trials in courts and not the press.