The power of unintended consequences
February 6, 2008
The road to hell is paved with good intentions! In public policy above all else, I have often found that some of the best intentioned laws end up having the opposite effect and hurt the very constituencies they were supposed to help.
For instance when laws prevent banks from charging high interest rates to relatively poor people (to compensate for higher default risk), they end up removing their access to credit altogether and sending them to loan sharks. Even more morally controversial and ambiguous, I recently read a report showing that in very poor countries, when child labor is banned, a large percentage has to become child prostitutes to support their families.
Stephen Levitt and Stephen Dubner, who wrote the highly enjoyable Freakonomics and write great articles for the New York Times (http://freakonomics.blogs.nytimes.com/), just analyzed the impact of three laws respectively meant to help the deaf, poor borrowers and red-cockaded woodpeckers. In all three cases, the laws spectacularly backfire.