Tuesday, October 14, 2014

What Hayek Teaches Us about Unintended Consequences

What Hayek Teaches Us about Unintended Consequences:

In 1974, economist Friedrich A. Hayek won the Nobel Prize for Economic Science, though as George Mason University professors Donald Boudreux and Todd Zywicki explain, Hayek accepted the award with trepidation. He cautioned that economics should not be thought of as "science," being concerned that it created the idea that, with enough knowledge, men could engineer society.

Boudreaux and Zywicki call Hayek's most significant contribution to the economic field the notion that society was more complex than men could realize. He wrote, "The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design."

Yet today, federal lawmakers seem intent on grand designs, which have brought a series of unintended consequences. Boudreaux and Zywicki offer two examples:

  • The Affordable Care Act was intended to insure all Americans, but its series of mandates, taxes and subsidies have only raised premiums, making them unaffordable to many. The law has encouraged employers to cut their workforces or drop them to part time -- again, putting insurance out of their grasp.
  • When the Dodd-Frank financial reform bill was passed in 2010, it was intended to create federal oversight over the financial system, in order to prevent another financial crisis. Yet, the law's 400 new regulations have hit small banks the hardest, despite the large banks being the ones the law was intended to target.
The authors suggest that today's lawmakers remember Hayek's contribution to economics and his understanding that government cannot centrally plan society.

Source: Donald J. Boudreaux and Todd J. Zywicki, "A Nobel Economist's Caution About Government," Wall Street Journal, October 12, 2014.

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