HR1207 and the Law of Unintended ConsequencesSubmitted by bobbyw24 on Tue, 06/30/2009 - 07:03
HR1207 and the Law of Unintended Consequences
Everyone is aware of the Law of Unintended Consequences. Most members of Congress understand that government actions can have unintended consequences, yet few quit voting for government "solutions" – always hoping there won't be any particular unintended consequences this time. They keep hoping there will be less harmful complications from the "solution" that they currently support. Economics teaches that for every government action to solve an economic problem, others are created. - Ron Paul, September 9, 2006
After eleven terms in congress, Ron Paul finally has a bill before the House of Representatives that is popular with other congressmen as well as their constituencies. As of this writing, HR1207, a bill to audit the Federal Reserve Board of Governors has 245 co-sponsors and a possibility of passing through the House.
But, of all congressmen, Ron Paul knows that each government "solution" comes saddled with unintended government problems. HR1207 is one of those government actions that has unintended consequences even if never enacted into law, which it certainly never will be. Dire unintended consequences have already hinted at themselves, and may well be irreversible now regardless of the fate of HR1207.
The law of unintended consequences, often cited but rarely defined, is that actions of people—and especially of government—always have effects that are unanticipated or unintended. Economists and other social scientists have heeded its power for centuries; for just as long, politicians and popular opinion have largely ignored it. - Rob Norton, Concise Encyclopedia of Economics
The Law of Unintended Consequences recognizes that the unanticipated or unintended effects may create problems where before there were none, or that a "solution" may exacerbate the situation the action was intended to alleviate.
For example, in areas of hurricane evacuation and cleanup, price controls are often enacted so people can access the gasoline and plywood they need without "price gouging". The result, every time, is shortages of gasoline and plywood, with no incentive for suppliers to rush in and replace stocks.
It is important to note that the unintended consequences are not caused by supporters of the government action; the consequences they create are intended. The unintended consequences come from those who consciously, or even unwittingly, react to the new incentive matrix in unexpected ways.
Sarbanes-Oxley isn't such an overwhelming failure of legislation due to the companies that support and welcome it. It's failure comes from companies who can't or don't afford the costs of compliance and take their business to stock exchanges in London and Asia.
The War on Poverty increased poverty because otherwise gainfully-employed persons found a benefit in quitting their employment and going on the dole. Rent control left the Bronx literally scorched because building owners couldn't or didn't afford the upkeep on their buildings. Prohibition fails abysmally at, well, prohibition because it puts massive amounts of money in the hands of people willing to defy it, as well as prohibitionists and law enforcers.
Because they come from the opponents, the unintended consequences of legislation aren't simply a matter that can be overcome by writing the legislation differently. You can't "play" the unintended consequences to your advantage as the author/proponent of the legislation. An attempt to do so merely moves the incentive matrix around to create other unintended consequences.
The stated intention of HR1207 is to audit the operations of the Fed's Board of Governors. An audit has a very specific purpose: to strengthen the operations of the audited agency by ensuring accuracy of information and compliance.
Anyone who has any management experience of an accounting office knows that an audit, and the sunshine it brings in, is indeed a powerful disinfectant. While an audit may uncover malfeasance, more often it uncovers lax or inefficient operations and technical noncompliance. In addressing the concerns highlighted in the audit report, the operatio