Friday, February 24, 2006

Backward Governments

Perverse Incentives by Brad Edmonds is the best article I've read in a while. It's about how government laws usually have the exact opposite effect of their intentions. He cites just a few examples. There are many, many more.

The environment: The EPA and its wetland policies decree that virtually any place where migrating waterfowl decide to break for a snack suddenly becomes by definition a "wetland," and must be protected from development by greedy investors and builders.

The result: Property owners, upon seeing any evidence that part of their property is beginning to look like a "wetland," now destroy that evidence.

Welfare: Tell the poorest, least-educated people that they'’ll get a government check. The poorer the person, and the worse the circumstances, the easier it is to get the check. The purpose this program, of course, is ostensibly to bring people out of abject poverty.

The result: The government, by providing a financial reward to those who can demonstrate poverty, has created far more poverty than we had before, indeed has created an entire class of people with no education and a financial incentive not to pull themselves out of poverty (cf. New Orleans).

High taxes: The higher the taxes, the more an individual will do to avoid them, and the greater the number of otherwise-honest individuals who will break the law to avoid them.

Death taxes and others aimed at squeezing every possible dollar out of every human transaction have created entire industries aimed at dealing with the problem: Estate law and trusts represent an entire industry formed primarily to avoid inheritance taxes. Among law schools, the most common graduate program is the LLM in taxation. People who earn big livings helping others avoid unjust taxes aren'’t creating wealth, as they would be doing in a free society: They'’re working to avoid the destruction of existing wealth. This is taking some of our best and brightest minds out of wealth creation; it is a huge deadweight loss to the economy.

War: Defense contractors lobby Congress, urging them to make war, because this makes defense contractors wealthy. Begging elected officials to make war -– unavoidably, this means killing innocent people - in order to make a profit represents the most perverse incentive possible.


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