Unintended Consequences

by Mr. Cheap

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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