Henry
Hazlitt, probably this century's greatest journalistic expositor
of the economic way of thinking wrote that:
He went
on to say that nine-tenths of the economic fallacies that
work harm in the world today are the result of ignoring this
lesson. While Hazlitt's Lesson is not exactly a separate economic
principle, it is a form of mental discipline that must be
exercised when constructing or analyzing policy. The Gwartney
and Stroup book provides excellent examples of how rent control
laws destroy urban housing, protective tariffs and quotas
harm American consumers and workers, and jobs programs fail
to create a single job overall. In each case the counter-intuitive
result is found by consistent application of Hazlitt's Lesson:
look not just to the immediate effects on one group, but the
long run effects on all groups.
Hazlitt's book, Economics in One Lesson, is still one of the best examples of the economic way of thinking put into practice. Each chapter of only a few pages traces the surprising, but inescapably logical effects of a different government policy and explains why "the law of unintended consequences" has so plagued interventionist attempts to control the economy or engineer society. More often than not, the harm of these policies falls not only on people who were never considered at the time, but on the supposed beneficiaries of the programs.
Debaters
and extempers are advised to spend time with each of these
books to get a feel for the way Hazlitt's Lesson is put into
practice. Examples are the best teacher, here. A few words
of practical advice: use three ideas to help you think of
unintended consequences that your opponents may not have:
opportunity cost, substitutes, and competition. Opportunity
cost reminds you that when government creates a beneficiary
somewhere there is a cost being paid. Who pays it and how
does it affect their choices? The idea of substitutes reminds
you that people are born circumventers -close off one avenue
or make it more costly, and they will leave that activity
and switch to another. How will this adjustment affect other
people? Competition reminds you that helping one group harms
others that compete with that group. (This, by the way is
a useful consideration not only for analyzing the impact of
policy, but for evaluating the credibility of evidence sources!)
Today
there is great concern about the ease with which medical records
can be accessed through computerized networks by people who
have no business knowing this sensitive information. Confidential
medical information is gathered and consolidated into vulnerable
centralized databases partly as an unintended consequence
of government policy concerning health insurance. For decades,
tax policy has rewarded people who pay for health care through
employer-provided health plans and punished them when they
pay out of pocket. Employers rationally substituted generous
medical benefits for monetary pay as a way to compete for
good employees. Soon more than three fourths of all health
care spending was paid not out of the pockets of patients,
but by third-party payers -insurance companies and government.
When the
opportunity cost of visiting a doctor or getting the most
costly treatment for a problem was low because someone else
was paying, patients tended to make unnecessary trips to the
doctor and doctors provided unnecessary treatments. Insurers'
natural response to this behavior was to impose restrictions
that regulated and rationed the kind of care that would be
covered, and to require doctors and hospitals to document
their compliance with these rules. Only then did medical records
become data to be entered into centralized computer databases,
a practice generally resisted by the medical profession.
Although
Hazlitt's law is the basis of the economic way of thinking,
it provides a useful framework for evaluating foreign policy
decisions as well. No where has the "law of unintended consequences"
been more distressingly apparent than in American foreign
policy since World War II. As we consider expanding the membership
in the North Atlantic Treaty Organization (NATO) to put ever
more of Europe under the protective umbrella of American and
European military forces, we would do well to consider the
way such alliances have worked out in the past. The history
of post-war U.S. foreign policy in the Middle East illustrates
what happens when we fail to look to the long term and to
the consequences for all groups.
In 1953
America allied itself with the Shah of Iran to help him overthrow
the government of Mohammed Mossadegh and preserve (we thought)
security in the region -security for access to its oil and
against Soviet influence. Failing to consider the hostility
this act might foster against America, the U.S. watched with
dismay as a revolutionary torrent built up in Iran converting
it's strategic alliance into a violent cauldron of anti-Americanism.
By 1979 the Islamic fundamentalist revolution of Ayatollah
Ruhollah Khomeini had swept the Shah out of power and taken
Americans hostage in the U.S. Embassy in Tehran.
Within
a year, Iran went to war with neighboring Iraq, a centuries-old
rival. In the early 80s America formed a new de facto alliance
to "correct" the errors of the last -this time providing critical
aid and legitimacy to Iraqi leader Sadaam Hussein. With the
help of the U.S. and American allies who armed Hussein with
fighter planes and missiles, Iraq was to become the world's
new guardian against Muslim fanaticism. Yet, two years after
Iran accepted a cease-fire from Iraq, the huge military establishment
that Sadaam had built during the conflict was used to invade
Kuwait. To protect the secure flow of Arab oil, America went
to war with Iraq, which had been a de facto ally only a few
years before.
Since the Persian Gulf War, the U.S. military presence on the soil of Arab allies such as Saudi Arabia has ignited still more hostilities from forces opposed to the American-friendly governments there. The recent devastating bombing of the U.S. Embassies in Tanzania and Kenya were apparently organized and funded by Saudi Osama bin Laden in retaliation against U.S. military presence in his country. While nothing can excuse such acts of terrorism, the failure to understand their origin in America's penchant for "entangling alliances" can only ensure repetitions of this sad history.
In considering the question of enlarging NATO are we taking into account the long-range effects this might have on conflicts in which our new allies could easily become involved? With Bosnia-style ethnic conflicts already brewing between Hungary and Serbia, the loose cannon of Russian-backed Belarus on Poland's flank, and Russia itself touchy about the proposed encirclement of its Kaliningrad enclave by an expanded NATO, security commitments in this region have all the dangers of our Middle East alliances of the past. But where the stakes in the Middle East were mainly about oil, in the Russia/NATO interface there is an even greater concern: the vast, poorly controlled nuclear arsenal of a highly unstable ex-superpower.
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