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Members: Unintended Consequences - Join CiVL.COM · Words & Numbers

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  This is very typically called the cobra problem.
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  And the story goes that at some point in India there were too
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  many cobras moving about and the British authorities or some such
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  thing declared there would be a bounty on the cobras.
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  And and you, you had to kill a cobra and then you had to bring
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  it on into some office to get your pay and a bounty on said
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  cobra. But the the problem here is,
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  well, let me continue. So what happens?
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  People go out and they kill cobras left and right and they
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  bring them to the office and they get the money and, and then
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  lo and behold, it gets much more difficult to find cobras, what
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  with the success of the bounty program at all.
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  So what would smart, enterprising people do under
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  such circumstances? Why, they would start breeding
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  cobras in, in their homes, in big gigantic fish tanks and the
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  whatnot. And, and then the program was so
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  successful that the British authorities said, well, there'll
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  be no more bounties on cobras. And all the people who had
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  started to breed the cobras said, well, damn it, that's not
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  what we wanted. And we certainly don't want to
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  live with these cobras in our houses.
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  And they all, at a roughly the same moment, dumped them back
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  into the streets. And there were more cobras than
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  ever. And I don't remember, Aunt,
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  frankly, if the COBRA problem is in our book cooperation.
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  And coercion. I, I, I could take the story
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  from here because James and James and I, when we talked
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  about unintended consequences, we would talk about this.
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  And people love this story. And it's a beautiful story and
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  I'm so good at telling it. Except.
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  Except one of our one of our listeners, we had talked about
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  it on one of our podcast episodes and one of our
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  listeners wrote and said the cobra problem is a myth.
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  And we just laughed and said, no, clearly it's not.
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  And so I went back because I, for all of these examples of
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  unintended consequences we're going to go through, I keep
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  source material. So I went back and I looked at
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  the source material and sure enough it, you know, this
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  publication said, you know, cobra, cobra problem, blah,
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  blah, blah, incited some original research.
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  So I went to that original research and looked at that
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  citation and Oh my God, that citation cited the first one.
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  And it was a circuit. It was a circular argument, a
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  sided B&B sided A. And we said, Oh my God, because
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  we had, I kid you not, we were within hours of our, of them
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  closing the chapter on our book and sending it to the publisher.
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  And we, we frantically called up the publisher and said, look,
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  we've got this chapter that starts with the copper problem.
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  We find out the copper problem isn't a thing.
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  It turned. I remember this now.
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  It turned out to be 1 hell of a no shit moment it really.
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  Was yeah, yeah, because we were. We were together at the time
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  putting the final touches on the book and and Ants and I don't
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  live anywhere near each other. We're rarely together unless
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  we're working on something important.
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  And I started going. I said, all right, well, maybe
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  ants original sources just lousy.
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  But there's going to be lots of other information out there.
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  No, every source was was lousy. This COBRA problem never
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  happened and and the and the very category of unintended
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  consequences is known broadly throughout economics as the
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  COBRA problem. Right, it's the poster child for
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  unintended consequences. Literally thousands of
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  economists refer to this as the COBRA problem, but it's really
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  well, you go ahead. Well, what what?
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  Let me finish the story about the book.
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  So what happened is the book is, is enough in process that we
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  really can't make that many changes because the changes
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  alter how many, how, you know, spacing the paragraphs.
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  And that's now going to mess with the next page that's
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  already typeset. So the publisher said, OK, you
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  can make changes, but you can make change like 5 words or
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  something like that. So we frankly went in and looked
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  for change things like is to is not put in hypothetically.
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  But it turned. It turned turns out there is a
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  cobra problem. It's just, and I don't know, I'm
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  sure you've got this is one of your examples and can I, can I
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  steal it? By way of.
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  By way of introduction, it's it's the Vietnamese rap problem
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  and it's almost point for. Point the same.
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  Exact thing and it happened. It happened in 19 O 1 and it was
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  with the the the French occupiers in Vietnam and there
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  were rats everywhere. And and this is not too terribly
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  long after people figured out that rats brought the plague
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  with them. So there is every reason to want
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  to get rid of your rat population.
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  So the French start killing the rats and they can't make a dent.
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  And what they realize is they have to deputize all the
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  Vietnamese to start killing rats.
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  And the Vietnamese? No, hometown fools.
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  In order to prove you've killed a rat, you got to take its tail
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  into the office and they'll pay you one cent per tail.
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  The Vietnamese know better, and they start just chopping tails
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  off live rats, sending the rats back to the sewer.
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  Why? Because more rats in the sewer
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  means more rats with tails later.
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  Later, right? Yeah, yeah.
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  And the the unintended consequence of this policy to
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  get all the the rats killed in Vietnam was infinitely more rats
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  than they started with because they didn't require a rat
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  carcass when I lived in in Utah and coyotes were a problem.
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  They're a problem here in Arizona as well.
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  But the ranchers had a real problem with coyotes in in Utah
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  and where I lived for I think 2 years, you could get a bounty if
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  you brought the lower jaw of a coyote.
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  But you know, they made sure that the thing you had to bring
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  in was going to lead to the demise of the coyote.
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  Learning something from this sort of problem.
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  But the at at a high level, unintended consequences are what
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  happens when policy makers tell you you have to do the following
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  thing. Or alternatively, you may not do
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  the following thing. And people react in what they do
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  is they react in the best way they can given the new
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  constraint that is upon them. And often, not always, but often
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  the way they they act in response to new constraint can
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  bring about the opposite effect of what you're looking for.
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  And I'll, I'll give you the I always start off this discussion
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  of unintended consequences with this picture I found on the
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  Internet a few years ago. And this, this mother posted it
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  and she didn't post it as unintended consequences.
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  It was just a picture of her kid she thought was funny.
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  She post this thing and she with with a footnote that they've got
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  a rule in their house that food isn't allowed in the living room
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  and electronics aren't allowed in the kitchen.
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  So no food in the living room, no electronics in the kitchen.
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  This is. It's.
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  She's imposing constraint on her kids.
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  And understand, I'm not saying the constraint is good or bad.
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  I'm simply saying that the constraint has unintended
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  consequences and the unintended consequence of no food in the
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  living room, no electronics in the kitchen R and takes me 3
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  clicks to do this. This which is exactly what any 3
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  year old would do in response to that rule.
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  That seems right. That's Aunt.
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  I'm considerably older than three and I would do that in
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  response to that rule. Right, right.
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  And of course, you know, we could laugh about it and, you
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  know, kids will be kids. Except that this is more than
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  simply kids being kids. This is a, this is a reaction
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  to, this is an unintended consequence.
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  It's a reaction to a constraint put upon you.
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  I mean, the nice way of saying this is that people find ways
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  around everything. They find, yeah.
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  And some it's more than just that because people will say,
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  well, unintended consequences, this is, this is people trying
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  to get around the law. Some of it is people trying to
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  get around the law. Others of the unintended
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  consequences are not so much people trying to get around the
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  law, just people reacting to the law in ways the lawmakers didn't
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  anticipate. Yeah, Let me, I'll start.
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  I want to start us off with an example of people getting around
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  the law. Yeah.
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  And, and here we go to the Endangered Species Act, which
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  was passed in no small part to protect endangered species.
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  It's right there in the title, right?
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  Real easy to figure out and out West where I have lived for a
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  good portion of my life, the spotted owl was a big big deal
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  in in these respects and so much so that if you found a spotted
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  owl on your property, you could not develop your property
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  literally in any in any way. So if you.
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  Were going to be messing with its habitat.
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  It's habitat. So if you were going to put up a
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  barn on your property, no. If you were going to sell and
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  allow a supermarket to be built on your property, no.
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  If you were going to build a shed on your no.
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  The answer was just a simple no straight across the board.
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  And ranchers in the West developed a bit of a slogan
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  Shoot, shovel and shut up. Right.
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  Yeah, yeah. Because the law was so draconian
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  in terms of intruding on their property rights that it was in
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  their interest to kill every spotted owl that they saw
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  anywhere near their property. And let let me underline that
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  it's ranchers who otherwise wouldn't have had any beef with
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  the spotted owl. No, they wouldn't have carried.
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  The law actually incensed them to go out and hunt the damn
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  things. That's, that's right, because
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  the minute some regulator finds one on your property, it's not
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  your property anymore. So that, that's an example, a
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  pretty advanced example of people getting around the law
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  breaking the law in order to avoid the, the more severe
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  consequences. So what?
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  What have you got by way of example of of people who just
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  act the way they act and unintended consequences emerge?
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  Well, let me give you another one along the lines of of trying
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  to do what seems a good and reasonable thing.
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  And we're not taking issue with the spotted owl, right?
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  Fine. You want to protect it.
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  It's a good and reasonable thing that.
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  But that's the thing about unintended consequences.
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  They're completely, what's the word I'm looking for.
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  They don't give a rat's ass about your intentions.
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  Your intentions can be good. Your intentions can be bad.
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  It doesn't matter. You're still gonna get
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  unintended consequences. So the this example is, and
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  you'll find this in various States and cities, electrician
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  licensing requirements. Yeah, and, and look, what you
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  want to do here is quite reasonable.
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  You want to protect people from injury due to faulty electrical
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  work. And So what do you do?
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  You say, OK, well, if you, you're out there, you know,
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  handyman, you want to be an electrician and hire yourself
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  out as an electrician, you've got to be licensed and tested.
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  So you got to go through his testing thing.
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  We got to make sure you know what you're doing.
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  You're going to get a license and people are going to when
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  they go to hire you, they're going to see, OK, this guy's got
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  a license. So he's he's, he's safe and this
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  is going to be good. And economists have looked at
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  this and what they found is in localities that have more
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  stringent electrician licensing requirements, the incidence of
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  injury due to faulty electrical work goes up.
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  Now be careful because the causality is clear here.
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  It's not that the the locality had a high incidence of
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  electrical injuries, therefore they required licensing all the
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  way around. They started requiring licensing
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  and then after that the rate of injury due to faulty electrical
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  work climbs. The exact.
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  Opposite of what they're looking for.
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  Why might that be it? And therein you lie to you.
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  You ask the right question. And I think this is where policy
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  makers and and people who think like economists diverge because
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  the policy maker has a tendency to only look at the outcome and
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  say, look, we want to keep people safe from faulty
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  electrical work, so we're going to require electricians to be
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  licensed. The person who thinks like an
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  economist, and I'm careful not to say economists here, because
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  this is something anybody who spends a little bit of time
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  thinking about it can come to this conclusion.
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  But people who think like economists are going to ask the
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  question you just asked. What happens next?
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  So you got this electrician licensing requirement and the
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  very first thing that happens is the number of electricians you
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  have out there declines. Because before you had, you can
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  imagine a suite of electricians from the very low quality up to
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  the very high quality. And there's this chunk at the
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  bottom at the low to middling quality that are just either not
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  going to be interested in getting licensed or they're not
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  going to be able to pass the test to get licensed.
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  So they're out of the market. So immediately you have you
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  decrease the number of electricians and then you got
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  asked the question again, what happens next?
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  Hold the phone. Because when you decrease the
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  supply of electricians, the cost of an electrician skyrockets.
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  Yeah. And that's what happens next.
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  The price of electricians goes up, right, Way, way up.
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  So actually, yeah, yeah, yeah, in fact.
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  And that's very interesting because the more stringent the
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  licensing is and the more effort the government puts into
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  enforcing it, the smaller the pool of electricians and the
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  higher the price will be. So you get this, this direct
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  consequence of more of the laws going to give you even higher
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  priced electrician. So what happens when you now you
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  call up an electrician to fix something and he tells you he's,
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  he'll be there, but he charges $75.00 an hour.
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  And a lot of people say, forget it, I'll do it myself.
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  I'm I myself have done this. Right.
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  Yeah, and that's the problem, because your average home owner
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  is a worse electrician than the low quality electricians.
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  You guys just knocked out a labor force.
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  But I wasn't going to pay $400.00 for the installation of
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  the ceiling fan. Right.
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  Yeah, never. I've done the same thing.
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  Never, never going to happen, right?
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  I know where the fuse box is and I know where the fuse box is can
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