The lesson I learned in my economic classes in graduate school that has had the greatest impact on me is what economists call “The Law of Unintended Consequences.” This term is credited to sociologist Robert K. Merton (who also coined the term “self-fulfilling prophecy”) and states that contrary to the belief that only the results originally intended by a particular action will occur, unintended results also occur. And usually, these unintended results are unforeseen and undesired.

An unintended consequence of my libertarian world view has been an extremely low tolerance of politicians and government officials who ignore this unwritten law. What really makes me angry is that I suspect they ignore the law out of arrogance rather than ignorance.

I read about a great example of the law of unintended consequences in the Dec. 7 edition of the Wall Street Journal. It seems that in an effort to get more $1 coins into circulation, the US Mint offered free shipping on boxed sets of 250 presidential and Native American $1 coins. Here’s what the Journal’s Scott McCartney had to say in his column titled “Miles for Nothing: How the Government Helped Frequent Flyers Make a Mint.”

“Coin buyers charged the purchases, sold in boxes of 250 coins, to a credit card that offers frequent-flier mile awards, then took the shipments straight to the bank. They then used the coins they deposited to pay their credit-card bills. Their only cost: the car trip to make the deposit.”

The article noted that these “mileage junkies” ordered more than $1 million in coins before the Mint figured out what was happening and cut them off. The program failed in (at least) three ways:

1. It failed to meet the goal of getting more coins into circulation.
2. The US Mint (i.e. tax payers) incurred the cost of the free shipping on the million coins purchased by the mileage junkies.
3. Banks didn’t need/want the excess coins deposited by the mileage junkies and returned them to the US Treasury (you and I incurred that cost too).

So what’s the lesson here? For me it’s that the free market is smarter than all the smart people in all the federal agencies that make up the US Government, and that regardless of one’s intentions, It’s a hell of a lot easier to do harm than it is to do good.

This entry was posted on Wednesday, December 23rd, 2009 at 9:51 am and is filed under Mike's Musings. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.