Reading Whitman's essay “The Role of Incentives in Creating Unintended Consequences” this paragraph jumped out at me:
“What distinguishes good economic thinking from bad is recognition of the subtle, creative, and often unforeseen ways that people respond to incentives. Ignoring the complex operation of incentives is a recipe for unintended consequences.”
One of the coolest things about this nifty little apparatus of the mind we call economics is its ability to cut to the bottom of things. To confront people with the constraints limiting their utopias and the unintended consequences of their actions. Whitman and others rightly note that the main difference between a great economist and a lousy one lies mostly in their respective abilities to look past simple first-degree linear causalities like cause and effect and look instead at cause and effect... and effect... and the effects of other effects ad infinitum.
Bastiat wrote about this distinction and the importance of predicting unintended consequences over 150 years ago in his essay “What Is Seen and What Is Not Seen”
“An act, a habit, an institution, a law, gives birth not only to an effect but to a series of effects. Of these effects, the first only is immediate; it manifests itself simultaneously with its cause—it is seen. The others unfold in succession—they are not seen: it is well for us if they are foreseen"
Most politicians, voters, pundits, journalists, etc. would only like to concern themselves with what is seen. A good economist will look ahead and attempt to illuminate what goes unseen.
Slave redemption, “fair” trade, or car allowance rebate schemes might seem like fantastic ideas when you're shortsighted enough to only look at their immediate intended effects, but the economic way of thinking allows us to look deeper into the potential consequences of these well intentioned, and usually popular policies. Often we look back and find that the intended effects of such actions are quite different from the effects that we actually get. Sometimes we find that our good intentions result in outcomes that end up doing even more harm to those we were originally trying to help.
The Law of Unintended Consequences is one of the most important principles one can take away from their study of economics. That said, what are some of your favorite unintended consequences?