Unintended Consequences

by Mr. Cheap

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I’ve been planning a post on the concept of unintended consequences for the last two years.  I keep coming up with different perspectives on it, put off posting, and continually rework it.  I don’ t think there’s any way I’ll be able to do the idea justice in under 1000 words, so I going to take a friend’s advice and just put a stake in the ground (and hopefully commenters and future post can flesh out the idea better).

I’ve always been fascinated by the concept of unintended consequences.  From an early age we develop an awareness of cause and effect, and as this awareness grows we gain more control of our environment and our place in it.  You touch something hot, burn yourself, and learn that it’s a good idea to figure out the temperature of something before grabbing it.  Eventually however, we begin experiencing situations where cause and effect break down and we don’t get the expected outcome.  Say, as a child you’re being bullied, and eventually one day you’ve had enough and get into a fist fight.  The teacher takes you aside, and instead of being reprimanded (you’ve been told not to fight), they commend you for standing up for yourself.

The fields of ecology and medicine are full of examples of unintended consequences.  Rabbits were originally introduced in Australia as a food animal.  They were more successful than expected, and ended up becoming vermin that were pests to farmer (causing millions of dollars of damage annually) and devastated the local ecology (they’ve driven a number of species to extinction).  Aspirin is primarily used for as a pain reliever, but has a side effect of thinning blood (which makes it also useful in that capacity for people at risk of blood clots).

Because we are so enamored with the idea of cause-and-effect, people are reluctant to acknowledge or consider the multiple levels of effects that can result from any action.  We like to think in terms of absolutes, which may be knowable, instead of potential side-effects which are inherently unknowable.

The father of one of my friends worked for most of his career at environment Canada.  There was a popular phrase there called “environmental management” which used to drive him nuts.  Basically the idea is that the impact of humans on the environment can be predicted and controlled (such as allowing a certain number of trees to be cut annually, deer to be shot or fish to be caught).  For a while he carried around a Rubik’s cube and would hand it to the person using the phrase and say “try to solve it”.  After they’d played with it for a couple of minutes he’d then say “environmental management is like solving a Rubik’s cube made up of thousands or millions of smaller cubes, if we can’t solve this small toy, how will we manage an environment?” As a side note, his position WASN’T that we should ban all human activity that impacts the environment, just that we shouldn’t fool ourselves by pretending we can perfectly predict environmental impact.

Say we decide sweatshops are bad.  We organize a band of activists and put pressure on a company to move its factory to a country with stronger labour laws which will police them and prevent child labour, exploitation and hazardous working conditions.  We are proud of ourselves and happy for having helped the workers at that far-off factory (imagining that they’ll move on to better jobs with better pay and working conditions).  Now, back at the shut-down factory, the workers were barely feeding their family on the low-wages they were receiving, and without that job (since the factory moved out of their community) there isn’t comparable work for the former workers.  The influx of new workers looking for jobs drives down the wages in their community (since there’s more competition for the remaining jobs) and some members of the community starve to death (the ones who were barely making it when the factory was operating).  Say that community had been building a school and source of clean water by reinvesting some of the (relative) prosperity they had had into community development, but with the tougher times members are having they cancel those projects (and focus on more immediate needs).  By trying to help a community, our actions have led to the death of some of its members and permanent set backs in the infrastructure that could have led to a higher standard of living.

I’m not saying that sweatshops are good, or that this is the result from such activism, but this is a situation where a group of people INTENDED to help a community, but instead ended up harming them.  Consider the story of the butterfly and the cocoon, where our intention to help can sometimes harm.

Conversely, taking a knife and cutting someone up is a pretty mean thing to do, unless you’re a surgeon and potentially saving their life (by cutting in the right places).  Sometimes the side-effect of harming someone is to help them long term.

I’ve been quite interested in economics (and almost studied it for my PhD) and have read it described as the study of unintended consequences.  It’s seemed strange to me that personal politics can heavily influence an economist’s work.  Democratic or republican physicists should arrive at the same conclusion, so what is so different with economics?  Perhaps the infinite possibilities and depths of repercussion gives those studying economics the latitude to keep investigating until they find the results they want.

Unintended consequences happen CONSTANTLY in personal finance (and investing in general).  Interest rates drop, making housing more affordable, which leads to more people deciding they can afford to buy a house, which leads to more competion among buyers in the housing market, which leads to an increase in the sale price, making housing less affordable.  Investors lose confidence in the economy, leading to a stock market crash, which offers shares of a company at a more attractive prices which is more likely to provide a greater return in the future.

Have you had unexpected benefits or perverse results in your life?  What was the most memorable?

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{ 6 comments… read them below or add one }

1 Ron

What’s odd is that we all know about unintended consequences but assume we will be able to manage them (reference my boss). Check out Michael Crichton’s speech on Complexity Theory and Environmental Management (http://www.crichton-official.com/) — go to the speeches section in the left sidebar.

We don’t know what we don’t know. And one of the things we don’t know is the effect of our actions beyond the very short term. Take Social Security for example. Back when it was created, the average life expectancy was only 66 or 67. Yet today life expectancies are 20 years longer and here we are trying to figure out how to keep the system solvent (doesn’t help that the politicians spent all the money on pet projects to get themselves re-elected, either). Today, in the US, we have an oligarchy attempting to set up a healthcare system made up of politicians, doctors, nurses, patients, insurance companies, pharmaceutical companies, researchers, medical equipment manufacturers, hospitals, employers, taxpayers, the intentionally uninsured, and God-only-knows who else. What will be those unintended consequences?

Further, when we DO attempt to predict these consequences, our estimates are wildly erroneous, furthering the evidence that there are unintended consequences. No one debates that there are consequences, it’s the “unintended” part everyone has a problem with!

Genetic scientists formerly believed that single genes were responsible for the production of a single protein, but they’ve discovered that genes may actually work together to produce more than one protein (someone actually did the math and figured out there were more proteins than genes).

Great post. I’ve been thinking about this one for quite some time too.

2 Mike

I’d say another example would be giving aid to poor countries. From what I’ve read there are countries in Africa that are literally worse off for it.

3 Alexandra

How about Canada’s policy of “helping” the Natives? We tried to right our ancestors’ wrongs by compensating them financially. We are trying to allow them to keep their culture intact by promoting Native reserves. The unintended consequence has been a young generation of welfare dependants, often with huge alcohol and substance issues.

4 Alexandra

But in terms of my own life…

Unexpected Benefits: I moved out of my family home when I was 19, and supported myself through university working three part-time jobs. Man, those were tough times – balancing studying with working all the time. If I had to do it now, I couldn’t find the energy it took. And working those jobs merely made ends meet – I was still living in poverty. University is expensive ;-).

The unexpected benefits? I have an almost inate ability to balance my books and manage my finances down to the penny, I realized the value of hard work early, and have never lived beyond my means. This has put me far ahead of my friends of the same age who never went through this kind of trial. Living in poverty gave me the tools it took to become wealthy.

Perverse Results: I got my Master’s degree and was immediately offered an amazing job at Nortel with a great starting salary. At 25 years old, I maxed out my RRSPs and invested it all in the company plan which had a fantastic matching program. I had about 40K invested by the time I was 27. Well, you can just imagine what that is worth now. Starting early in investing did not pan out for me at all.

Of course I made the ultimate mistake of putting all my eggs into the Nortel basket, but that’s another story. My older self wants to shake my younger self for doing that, but it was a lesson better learned while young.

5 Traciatim

“As a side note, his position WASNT that we should ban all human activity that impacts the environment, just that we shouldnt fool ourselves by pretending we can perfectly predict environmental impact.”

Well, of course except for catastrophic anthropogenic global warming… the science is settled the debate over and we must pay tax to gaia . . .er act now!

6 larry macdonald

Topic close to my heart. Of course one of the biggest unintended consequences was the financial crisis of 2007-2008, which resulted from the “Greenspan put.” Economics in One Lesson by Henry Hazlitt is all about this law. An easy read for the laypersons. Unintended consequences is what makes economics interesting — full of rich ironies, of people setting out to do one thing but ending up at cross purposes with their own and others’ objectives.

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