Economists, especially those of us who criticize government interventionist policies, often point to bad unintended consequences that many of these policies lead to. Sometimes people say that we delight in pointing to such policies, but that verb certainly doesn’t apply to my attitude. There is typically nothing delightful at all in these consequences, many of them tragic. In this piece, I’ll cover six cases, but they’re a tiny fraction of the cases that exist and even a tiny fraction of the cases I know.
We need to distinguish between unintended and unpredicted consequences. Many unintended consequences can be easily predicted. Others might not be. An example of an unintended consequence that I never would have predicted, and that the highly paid “experts” at the Food and Drug Administration didn’t predict, came about because of an FDA regulation that, on its face, looked reasonable. The regulation was an FDA mandate that food containing sesame be labeled as such. Almost instantly, food producers predicted the consequences and acted accordingly.
Mandates typically carry penalties for non-compliers and the sesame mandate was no exception. Many food producers reacted by adding sesame to products that previously contained none and noted that on the label. Why? In a December 21, 2022, news item, appropriately titled “New label law has unintended effect: Sesame in more foods,” Associated Press reporter Jonel Aleccia explained:
Food industry experts said the requirements are so stringent that many manufacturers, especially bakers, find it simpler and less expensive to add sesame to a product—and to label it—than to try to keep it away from other foods or equipment with sesame.
As a result, several companies—including national restaurant chains like Olive Garden, Wendy’s, and Chick-fil-A and bread makers that stock grocery shelves and serve schools—are adding sesame to products that didn’t have it before. While the practice is legal, consumers and advocates say it violates the spirit of the law aimed at making foods safer for people with allergies.
People don’t typically get charged with violating the “spirit of the law.” They get charged with violating the law. The unintended and awful result is that many people who are allergic to sesame now have a tougher time avoiding foods that contain it.
Bad Economist, Good Economist
For a few centuries now, economists have discussed unintended consequences of government policies. One who systematically noted them was Frederic Bastiat, the early nineteenth-century French economist and economic journalist. In Bastiat’s view, being able to think through even subtle consequences of various policies was what distinguished a good economist from a bad one. Economic journalist Henry Hazlitt shared Bastiat’s view. In his modern classic Economics in One Lesson, published in 1946, Hazlitt said it well:
The bad economist sees only what immediately strikes the eye; the good economist also looks beyond. The bad economist sees only the direct consequences of a proposed course; the good economist looks also at the longer and indirect consequences. The bad economist sees only what the effect of a given policy has been or will be on one particular group; the good economist inquires also what the effect of the policy will be on all groups.
Lives Lost Due to Unintended Consequences
Two modern economists who did pathbreaking work that uncovered some fatal unintended consequences of a particular government policy are Robert W. Crandall of the Brookings Institution and John D. Graham, then on the faculty of the Harvard School of Public Health. They considered the effects on 1989-model cars of the 1975 law that imposed Corporate Average Fuel Economy (CAFE) requirements on auto manufacturers. One of the surest ways to improve fuel economy is to reduce the weight of a car. Crandall and Graham, taking account of other factors that would affect weight, found that for cars produced in the 1989 model year, weight was on average 470 pounds less due to CAFE.
All else equal, cars that are lighter do less well in accidents. Crandall and Graham concluded that CAFE would be responsible for 2,200–3,900 excess occupant fatalities over ten years of the 1989 model year. Notice that that range bounds the number of people murdered in the 9/11 attacks.
Another economist who found large negative effects of government regulation is Sam Peltzman of the University of Chicago. Peltzman studied the effects of the 1962 Kefauver-Harris amendments to the Food, Drug, and Cosmetic Act. The background here is interesting and rich with irony. The amendments, which were introduced shortly after the thalidomide disaster, required evidence of efficacy before drugs could be approved. But thalidomide was prescribed as a treatment for pregnant mothers with morning sickness and it worked. That is, it was efficacious. So a requirement for evidence of efficacy would not have stopped it from being approved. The problem was that when it was widely used in Europe, it led to thousands of babies being born without some limbs. Note, though, that that’s a safety issue and the FDA had been requiring evidence of safety since 1938. Thalidomide had not been approved in the United States, because Frances Kelsey, the FDA’s reviewer of the drug, took time to make a decision and turned it down.
Peltzman hypothesized that requiring drug companies to give evidence of efficacy would make it more costly for drug companies to develop drugs and get them approved. That would mean fewer drugs approved. So Peltzman looked at the evidence of approvals of new chemical entities (NCEs) in the years before 1962 and after. He found that in the decade before the amendments, an annual average of forty-three NCEs were introduced, whereas an annual average of sixteen NCEs were introduced in the decade after the amendments. Of course, this could be coincidental. Peltzman, using various measures, ruled out coincidence. One measure was the difference between the United States and the UK. From 1960 to 1961, the number of NCEs for the United States was 1.13 times the number for the UK. For the years, 1966 to 1971, this ratio flipped: the number of US NCEs was only 0.52 times the number of UK NCEs.
While Peltzman never directly estimated lives lost to drugs introduced late, other researchers have done so. Peltzman reported a finding by pharmacologist William Wardell that the FDA’s approval of nitrazepam in 1971, five years after it had been approved in Europe, resulted in 1,200 deaths during those five years. And that’s just for one drug. Many people my age worry about various cancers and dementias. It’s comforting to know that researchers around the globe, responding to huge potential profits from important drug discoveries, are working night and day to find drugs that will cure us or at least reduce the bad effects of these diseases. It’s much less comforting to know that if such drugs are found to be promising, the now lengthy drug lag means that we might not get access to them for at least another decade.
An example of an unintended consequence that few people are aware of is the formation of OPEC. Energy economist Benjamin Zycher succinctly tells the story in “OPEC,” an entry in David R. Henderson, ed., The Concise Encyclopedia of Economics. In 1959, the US government started the Mandatory Oil Import Quota Program (MOIP). This program restricted imports of oil and refined products into the United States but gave preferential treatment to imports from Canada and Mexico. Preventing oil from the Middle East from entering the US market caused Middle East oil prices to be lower than otherwise. So in response, the governments of four Persian Gulf countries—Iran, Iraq, Kuwait, and Saudi Arabia—along with Venezuela’s government, formed the Organization of Petroleum Exporting Countries (OPEC) in September 1960. (Venezuela was the outlier here, and not just geographically, because the US government had extended its preferential treatment of oil imports to Venezuela.) By 1973, OPEC had picked up eight other countries: Algeria, Ecuador, Gabon, Indonesia, Libya, Nigeria, Qatar, and the United Arab Emirates. That gave OPEC enough of a market share to engineer, in late 1973 and early 1974, an increase in the world price of oil from about $3 per barrel to $11 per barrel. Enough said.
Protecting Pregnant Workers from Getting Jobs
In June of this year, the Pregnant Workers Fairness Act (PWFA) went into effect. Discriminating against pregnant workers was already illegal. But the PWFA took the next step. It requires “reasonable accommodation” to pregnant workers. This could include more time to use the bathroom and rest, flexible hours, and closer parking spots.
Can you show you’re a good economist by spotting the negative unintended consequences for pregnant women? Vanessa Brown Calder, director of opportunity and family policy studies at the Cato Institute, did. Calder, who, coincidentally, was pregnant at the time of this writing, notes that employers, deciding whether to hire someone who’s pregnant and someone who’s not, will know that if they hire the former, they might have substantial added costs to comply with the law. The less-costly option is not to hire the pregnant woman in the first place. That’s illegal too, but much harder to enforce. As Calder points out, the Americans with Disabilities Act, which also required “reasonable accommodation” for the disabled, reduced employment of disabled people.
Of course, pregnancy is short term, typically nine months. But being a woman of childbearing age is longer term. So one effect of the law will likely be to discourage employers from hiring young women, even if they have no intention of becoming pregnant. I’m tempted to ask people who support the law, “What do you have against young women?”
Criminal Background Checks for Housing
Ayanna Pressley (D-MA) and Rashida Tlaib (D-MI) have proposed federal legislation to prevent landlords from doing criminal background checks on prospective tenants. In the writeup on Pressley’s site, I can’t find her addressing why landlords would want to know whether potential tenants have a criminal record. Is it because they don’t want criminals no matter what those criminals did? Hard to believe. I own a small share of a large apartment complex and I know why I want the general partner to do criminal background checks: to see if there’s any evidence that they would fail to pay rent, wreck the apartment, or carry on illegal activities in the apartment. The virtue of a criminal background check is that you can find out specifically what crime the person committed. What if he smoked weed twenty years ago? Who cares? My guess is that the general partner doesn’t.
What would happen if this bill passes? Would landlords say, “Oh, well, I guess I’ll have to take all comers”? No. Instead, they would look for what statisticians call “noisier” data, data that are correlated with criminality. The result would be that some people with no criminal record would get turned down.
Who would be turned down? Two researchers, Marina Mileo Gorzig and Deborah Rho, did a study for the Federal Reserve Bank of Minneapolis to look for the answer. They chose a clever methodology. They sent fictitious e-mails to landlords using names that looked to be those of whites, blacks, and Somalis. After the Minneapolis government banned criminal background checks, they found, “discrimination against African-American and Somali-American men increased.” Moreover, found the researchers, discrimination increased in Minneapolis relative to discrimination in St. Paul, whose government had not imposed the policy.
I’m tempted to ask Reps. Pressley and Tlaib, “What do you have against blacks and Somalis?”
Unintended consequences are all around us. It makes sense, before legislating or imposing a policy, to ask what the unintended consequences might be. If more politicians and regulators did that, and if we insisted that they do that, the world would be a better place.