The Unintended Consequences by Wheelen
Wheelen calls unintended consequences to perverse incentives. The law of unintended consequences describes a particular policy that is formulated for solving the problem that may just make the problem worse. The law of unintended consequences is also a warning that government, society, and business always lead to the unanticipated as well as undesirable results or outcomes. By unintended consequences Wheelen also means that the acts and actions of government and people comprises of the effects that are unexpected or unintended. Human beings are considered as the complex living beings because they like to do those acts that make them well off, and give them better standard of living. It is sometimes; however, easy to predict their acts but sometimes it is difficult. So, in order to explain these acts economists have explained perverse incentives, which represent unintentional or unintended incentives that can be formed and created when people decided to do something totally different.
There are many instances of good and bad unintended consequences. For example, an example of the bad unintended consequence is that at the end of 90’s there was an increase in the ownership of home, and banks made available easy to access loans for home that paved the way to the improperly managed banking environment. People were not able to get rid of their debts. However, the banks started trading these debts as they were risky that created negative effect on the economy (Badgle).
Considering another example, Prohibition in the United States in the 1920’s, was majorly enacted in order to decrease the trade of alcohol. It helped in driving several small scale suppliers of the alcohol out of the business, and strengthened the hold of the extensive, organized, and large scale crimes over the industry dealing in illegal alcohol. Alcohol remained popular, and the criminal institutions or the organizations that were involved in trading and producing alcohol remained successful in earning their profits, and in order to earn more, they increased their criminal acts of producing alcohol (Blocker). Same is the case with the war on drugs that was intended to decrease illegal trade of the drugs, but as a matter of fact it increased the profitability as well as power of the drug cartels, and these cartels became the major source of the production of drugs.
There are many examples of positive unintended consequences. One example is, in Central Athens, the authorities ordered for introducing catalytic converters in the cars in the year 1993 (Stamatis, Ioannis and Dimitrios). The owner was provided with the incentives if he became successful in selling an old vehicle, which is about fifteen years old. But, the fact is that the subsidies were not with the old products and capital. As a result of this most of the low income families became capable of having a car, and they became owners of car for the first time in their life.
Another example of the positive unintended consequence is that in 1980s-1990s, grants were given for the formation of the clean coal technologies (Bezdek and Wendling). But, this created problem that the subsidies meant for clean technology became focused on the dirty source, but it has paved the way to the building of several new plants, ash mines, and sulphur mines.
Furthermore, the metaphor invisible hand coined by Adam Smith is also an instance of the positive unintended consequence. According to Smith, every individual tries to maximize and look for his own gain. It is the interest of public that majority matters. Every individual cares for his self interest.
Unintended consequences are almost always present at work and everywhere. This is because people face unintended outcome in almost every work. The individual motives, social structures, incentives, equilibrating forces also play their role in the formation of the unintended consequences. The individual motives and interests pave the way to the unintended consequences. This can be considered from the fact that in the system that is not dependable on the markets, the individual motives are not associated with the productivity. The workers and the organizations are not given rewards for the innovation, which decrease the motivation of workers, as their personal motives are not fulfilled, which ultimately lead to the unintended consequences. The government also cares for its personal motives that create unintended consequences. For example, in Silicon Valley, the organizations not contributing to the creation of value in the market fails to conduct business, and have to face shut down (Wheelen). The social structure also plays its role in the creation of the unintended consequences. For example, the social stratification in the society creates upper and lower class, the upper class enjoys the amenities of life, while the lower class remained deprive of these amenities, as a result of which deprived people become involve in crimes in order to get the things of their needs for maximizing their gains. Incentives also play a significant role, and lead to unintended consequences. This can be analyzed from Adam Smith’s explanation that every individual give importance to his/her own self interest in order to get meal, every person is benefitted from his/her own work, the harder he/she work, the more directly he/she will be benefitted from the work. Moreover, a good policy aims to lead to expected and required behavior via the incentives, but the bad policy do not care for the incentives, it ignores them, and it also fails to recognize the change in behavior of individuals for avoiding being penalized.
In order to avoid unintended consequences, Wheelen has explained that the incentives should be used in right manner. The individuals acting rationally for their own best interest can, however, be worse off. Wheelen has given an example that a fisherman who continuously hunts fish without any constraint or restriction can deplete the population of fish. The mere incentive is to kill maximum number of fish when there is no one else for practicing the constraints. Another example of incentive provided by Wheelen that reveals that incentives matter in the unintended consequences is taxes. The imposition of taxes helps in provision of the incentives for reducing the activities that are taxed. Increase in taxes for the provision of the advantages to the disadvantaged and deprived American can, however, dampen the productive investment that can make the country better off. This can be analyzed from the fact that in Scandinavia, black markets emerged as a result of the higher marginal taxes. Economists have preferred the taxes that are fair, broad, and simple. Regressive taxes also paved the way to unintended consequences because these taxes are levied more on the poor as compared to the rich. Deadweight loss is an unintended consequence that arises because of the taxes. The deadweight lo0ss indicates the taxes that play their role in making people worse off, and do not make anyone better off.
The equilibrating forces are also worth considering in this regard because they are also major contributors to the creation of the unintended consequences. The government interferes in order to maintain the market equilibrium. The intervention of government for decreasing the pain and chaos of competition weakens the process of the creative destruction. The competition helps in making the organizations stronger, which ultimately makes economy stronger. The automakers of America could have been stronger if they were exposed to foreign competition rather than looking for the political shield from the imports of Japan in 70s and 80s. For restoring equilibrium, government interferes so that it can regulate the activities, but it paves the way to the creation of the externalities, such as it regulates with the help of the taxes, by imposing taxes on the criminal activities instead of banning them. Every activity leads to the creation of the externality to some extent. Government policies aimed to provide help to the poor may be counterproductive as well as inefficient if it contributes to the destruction of the broader economy. But, it is also a fact that the markets that are left alone are not capable of closing the gap that prevails between the social and private cost if the activities. But, government adopts certain measures such as it protects the property of the individuals, and increases their confidence for making investments in property and expects a good return in order to avoid unintended consequences.
Succinctly, unintended consequences are associated with every work, and they can be positive or negative depending on the personal motives, equilibrating forces, social structure, and incentives.
Works Cited
Badgley, Mathew. "Unintended Consequences of Good Intentions." Version One. 22 July 2013. Web. 6 July 2015.
http://blogs.versionone.com/agile_management/2013/07/22/unintended-consequences-of-good-intentions/.
Blocker, Jack S. "Did Prohibition Really Work? Alcohol Prohibition as a Public Health Innovation." American Journal of Public Health 96.2 (2006): 233-43.
Bezdek, Roger H., and Robert M. Wendling. "The Return on Investment of the Clean Coal Technology Program in the USA." Energy Policy 54 (2013): 104-12.
Stamatis, Kontsas, Mantzaris Ioannis, and Zissopoulos Dimitrios. "An Economic and Environmental Measurement Model on the Greek Passenger Vehicle Market." Innovative Marketing 5.2 (2009): 56-63.
Wheelan, Charles J. Naked Economics: Undressing the Dismal Science. New York: Norton, 2002
