Sunday, April 04, 2010

The Law of Unintended (But Entirely Avoidable) Consequences

Every time Congress passes a law, it reaffirms an old one too; the Law of Unintended Consequences. Writing in The Washington Examiner, Glenn Reynolds illustrates the problem nicely, couchng it in terms of F. A. Hayek's Knowledge Problem, for which he won the Nobel Prize in Economics. The latest example is the recently passed "Obamacare" bill, 2,700+ pages of legislation that no one had read, let alone thought through. The immediate result was that multiple public companies such as AT&T, Caterpillar, John Deere and numerous others did what they are supposed to do and took the costs imposed by the legislation, calculated the impact on present and future earnings and took writedowns to compensate for it. AT&T alone saw $1 billion in shareholder value evaporate instantly. The estimate for writedowns for all corporations that provide prescriptoin drug benefits for their retirees is $14 billion for this year alone. And it isn't the corporation that is hurt. It's the people who own or are employed by it.

The writedowns took Henry Waxman (D-CA) by surprise. This wasn't supposed to happen. Obamacare was supposed to reduce costs, or at least conveniently hide them until later, and he has called the CEOs of AT&T, Caterpillar, Deere and several other companies on the carpet for hearings to be held on  April 21 to answer for why they obeyed the law and Generally Accepted Accounting Principals (GAAP) and took these writedowns. Buffoonery personified.

If President Obama had lived up to his promises of transparency and done everything out in the open with C-Span cameras present and posting the full, final bill on-line well before it was voted on, someone might have been able to point out this problem. There are more lurking in the text that will surface as time goes on. Instead, no one had any more than fragmentary knowledge of what was in the bill, if that, leading to the entirely avoidable screw-up we have now or as Glenn puts it:

"We're governed not just by people who screw up constantly, but by people who can't help but screw up constantly. So long as the government is this large and overweening, no amount of effort at securing smarter people or "better" rules will do any good: Incompetence is built into the system."

Until We the People reign in the government we can expect more of the same, with the corresponding erosion of our rights and freedoms. Reigning it in won't be enough though. The People need to remain engaged in what their purported representatives in Washington are doing. As a wise man once said, "the price of liberty is eternal vigilance".

Read the whole (Glenn's article) thing, of course.
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