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Thursday, February 24, 2011

Unintended Consequences and Social Policy

In a recent podcast, Freakanomics author Stephen Dubner tells why he wears noise reduction headphones on his morning commute on the NY Subway ("Bring on the Pain"). It isn't so that he can listen to music (he generally doesn't). It isn't because he wants to block out the sound of the subway hurtling down the tracks (he actually enjoys listening to the "clackety-clack" of the trains traveling over the rails). It's because when he arrives at the station, the alarms set off by commuters exiting through "emergency exit only" doors are, according to Dubner, "downright painful" to listen to. At least they are to him.

Why do commuters use the emergency exit doors rather than the turnstiles that they are supposed to use? Because the new turnstiles that NY Metropolitan Transit Authority recently installed to prevent commuters from using the subway without paying aren't as efficient as the old ones, so they take longer to pass through, which causes lines to form and leads impatient commuters to use the emergency exit doors.

This is an example of what is commonly referred to as an "unintended consequence." The new turnstiles were installed to prevent cheating, but in so doing, they created a situation that ultimately generated a tremendous amount of noise pollution not to mention the fact that once an emergency exit door is opened, people can get on the subway for free (so much for preventing cheating).

Another example of an unintended consequence can be witnessed on many (if not most) airplane flights these days. With more and more airlines charging for baggage, more and more passengers have decided to carry their baggage on to the plane. However, because their carry-ons are often quite large, airline stewards spend an substantial amount of time arranging and rearranging luggage in order to get them fit into the overhead bins, and if that doesn't work, they have to gate-check them.  What's the unintended consequences here? Overhead bins are fuller, it takes longer for passengers (and their luggage) to settle into their seats, planes are often late in leaving the gate, and connections between flights are tighter.

Or, consider one of the reasons why the unemployment rate tends to be higher in European countries than it is in the US: it is because the "replacement rate" in Europe is higher. That is, because unemployment benefits are typically higher in Europe than they are in the US, there is less incentive for European workers to seek employment than there is for US workers. Hence, the unemployment rate in the US tends to be lower, which helps the US economy outperform most European economies, which in turn places additional downward pressure on the US unemployment rate.

This last example is why many lawmakers and policy wonks often oppose certain social programs -- not because they think the program's intended benefits don't help people (they almost always do) but because the unintended costs (e.g., higher unemployment, lower economic output) cause more harm than the good the programs generate.

Of course, such criticism are empirical in nature, which means that they can be put to the test. In other words, just because a particular social program has unintended costs doesn't mean that they outweigh the benefits the program confers. However, it does seem to me that if we want to defend a particular social program, we must first acknowledge that there could be costs associated with it that may not be immediately obvious, and then we need to do our best to determine what those costs are. Only then, I believe, can we have an honest debate about whether it is worth keeping or not. My guess is that there are a number of programs out there that appear wonderful on the surface but either do more harm than good or provide few net benefits which means that our money could probably be better spent. But until we do our homework, we won't know. However, in an era of severe budget constraints, this seems like the moral thing to do.

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