I'm giving a course on economic inequality these days and as part of it I listened recently to an hour-long lecture on YouTube
by Richard Wilkinson and Kate Pickett, the authors of The Spirit Level: Why Equality is Better for Everyone
("Inequality: The Enemy Between Us?" in 8 parts, highly recommended). At one point, Richard Wilkinson mentions the growth of inequality in the UK during the Thatcher years that resulted, in part, from changes in taxes and transfers and a reduction in trade union power. He notes that, according to the evidence put forward in The Spirit Level
, this had long-term consequences that those responsible for those policies did not intend or foresee: a growth in social dysfunction, as reflected in growing problems with such things as obesity, violence, and teenage pregnancies.
The example reminded me of how the textbooks use examples of such unintended consequences in a different way -- to make a rhetorical point of their own in favour of 'free market' policies. Is something like the following familiar? The apparently short-sighted or economically ignorant, policymaker who thought that rent controls were a good idea, but did not realize that it would make it harder to find an apartment as excess demand developed. Or the well-intentioned raising of minimum wages by politicians, not realizing that an excess supply of labour would develop -- at least according to the perfectly competitive model. Or the claim that requiring people to buckle up and use their seatbelts will have a more-than offsetting effect of inducing them to drive more carelessly, leading to an increase in accidents and injury and death. (OK, no text I know of is crazy enough to try that one out, but I could not make it up; it's in the professional literature. See Sam Peltzman, “The Effects of Automobile Safety Regulation,” Journal of Political Economy
83 (1975), 667–725. For evidence that it's not true, see studies such as Anindya Sen, “An Empirical Test of the Offset Hypothesis,” Journal of Law and Economics
44:2 (2001), 481–510, or Alma Cohen and Liran Einav, "The effects of mandatory seatbelt laws on driving behavior and traffic fatalities", The Review of Economics and Statistics
, November 2003, 85(4): 828–843.)
These are cases of what the great economist Albert Hirschman, in his 1991 book The Rhetoric of Reaction: Perversity, Futility, Jeopardy
, called 'The Perversity Thesis'. One form that conservative or reactionary arguments take is to say, in effect, 'Yes, policy X is undoubtedly well-intentioned, but don't you realize that it will have perverse effects leading, in fact, to undesirable outcomes?'
Hirschman comments (pp.39-40):
For example, those who emphasize the perverse incentives contained in unemployment benefits or welfare payments never mention that large areas of social assistance are fairly impervious to the 'supply response' that is at the bottom of whatever perverse effect may be at work: people are unlikely to gouge out their eyes in order to qualify for the corresponding social security or tax benefits.When industrial accident insurance was first introduced into the major industrial countries of Europe toward the end of the nineteenth century, there were many claims on the part of employers and various 'experts', that workers were mutilating themselves on purpose, but in due course these reports were found to be highly exaggerated.
Do some textbooks really offer examples of a 'perversity thesis'? You can see if you can find some examples yourself, but here's a quote from Baumol and Blinder's Microeconomics: Principles and Policy
, 10th Ed. (2006) which I found with no effort:
Any government that sets out to repair what it sees as a defect in the market mechanism runs the risk of causing even more serious damage elsewhere. As a prominent economist once quipped, societies that are too willing to interfere with the operation of free markets soon find that the invisible hand is nowhere to be seen.