The Law Of Unintended Consequences

Often, well intentioned policymakers pass laws they believe will make the harsh world a bit more warm and fuzzy.  But often the blowback creates more problems than it solves.  This is the Law Of Unintended Consequences.  Consider the Americans with Disabilities Act (ADA) which was intended to safeguard disabled workers from discrimination.  A noble cause, but the data shows that after the ADA was passed, the employment of the disabled dropped.  Why?  Employers where so worried they couldn't discipline or fire bad workers who had a disability that they avoided hiring such workers in the first place.  Then there is the Endangered Species Act.  When landowners feared that their property may be becoming the habitat of a species on the endangered list, they would begin by cutting back on any vegetation that would serve as nesting sites for these species.  The net result was that the species in question would have an even more difficult climb to survival.

But the flagship example is the marriage between The Community Reinvestment Act (CRA) and government sponsored enterprises (GSEs).  It basically led to the housing bubble which broke late 2007 and the Great Recession that followed.  The intent of the CRA was noble.  It empowered federal regulators to pressure banks to make loans to low-income people.  We then had GSEs like Fanny Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corp) buying mortgages from banks.  Without these GSEs buying the mortgages, the banks would be limited on how many loans they could make.  The banks have a reserve requirement of 10%, and when they hit that limit, they stop loaning money.  But if a GSE buys the mortgage, then the bank has more money to lend.  By the end of 2007, government sponsored mortgages accounted for 81% of all mortgage loans in the US (Grant's Interest Rate Observer; May 30, 2008; 3) The seeds of destruction where now in place.  We had more and more money available to be given to sub-prime buyers who if it were not for the CRA would never have been considered for a loan because of the risk of default.  Was there also "predatory lending"?  You bet.  If a 3rd party (GSEs) is going to buy your mortgage, you have off-loaded the risk.  As the demand for housing continued to climb, so did the price.  It was just a matter of time before the bubble popped.

There are many more examples.  Just about every attempt to social engineer has a blowback.  Can we learn from the past to be more cautious  and look a bit more before we leap?  We can only hope.

Why Is The Crime Rate Dropping?

Who can forget the profound statement made by the former mayor of Washington, DC, Marion Barry, when he said, "Outside of the killings, Washington has one of the lowest crime rates in the country."  Criminologists  do tend to divide lawbreaking into crimes against property and crimes against people.  It is interesting to note that since the early 1990s, both have been steadily dropping.  Finally, a happy statistic.  But it is a head scratcher.  What are the reasons for the drop?

Is it stronger gun control laws?  Is it larger police departments?  Is it improved policing with techniques like DNA testing?  Is it a better economy?  Is it a dampening of the crack-cocaine market? Perhaps an aging population?  To some extent, all of these MAY have some influence.  But economist Steven Levitt has the most intriguing theory -- Roe v. Wade....the legalization of abortion.  It began with 20 year old Norma McCorvey.  All she wanted was to end her pregnancy.  But in Texas, as in most states at the time,  abortion was illegal.  Various groups with a cause made McCorvey the lead defendant to legalize abortion.  The defendant was Henry Wade, the Dallas County district attorney.  McCorvey's name had been disguised as Jane Roe, and on January 22, 1973, the court ruled in favor of Ms. Roe, allowing legalized abortion throughout the country.  By that time it was far too late for McCorvey/Roe to have her abortion.  She ultimately gave birth and put her child up for adoption.  Ironically, years later she would renounce her allegiance to legalized abortion and became a pro-life activist.

I'm sure you see where this is leading.  Levitt's thesis is that a child born in an adverse family environment is far more likely than other children to become a criminal.  Exactly 20 years after Roe v. Wade, when the pool of potential criminals had dramatically shrunk, the soaring crime rate took a sudden dip downward, and has continued to this day.  Can we definitively say that Levitt was right?  Perhaps, but the only way we could really confirm his thesis is if we banned abortion, then 20 years hence monitored to see if the crime rate started to spike again.  But waiting 2 decades for an answer requires a lot of patience.  Ergo, it is best to keep an open mind to all possibilities.  On a personal note, I am against the aborting of a human life.  But that is no reason to ignore all possibilities in explaining the world around us.

100 Million Missing Women

Nobel laureate economist Amartya Sen has calculated that based on birth rates of men and women, and the number of men and women alive today, that roughly 100 million women are missing....perhaps victims of early death.  In known demographics, more men than women are born every year, but women tend to be healthier than men.  The upshot is that women outnumber men in the populations of high-income countries by about 105 women for every 100 men.  But in less developed countries this is reversed.  Lower health standards for girls seems to be a major contributor to the rates of missing women.  By the same token, sex-selective abortion is having a major impact.  Higher rates of maternal mortality in 3rd world countries is also having an impact.  In China, the one-child policy has manifested itself in a skewed birth rate of 111:100.  This is one reason that this attempt to social engineer has about run its course in China. Girls are so undervalued in India that there are roughly 35 million fewer fewer females than males.  And if an Indian girl does reach adulthood, she faces a difficult life.  51% of Indian men said that wife-beating is justified.  Amazingly, 54% of Indian women agree.  More than 100,000 young Indian women die every year in "bride-burnings" or other instances of domestic abuse.

Literacy rates and education levels are also a factor.  In North America, Europe, and Latin America, literacy between men and women are about the same.  But in Arab states, South and West Asia, and across sub-Saharan Africa, literacy rates of women are about 20% below those of men.  The direct effect of less education is that women have a lower chance of getting jobs, and lower wages in the jobs they do get.

Globally women are dramatically underrepresented in legislative bodies or as political leaders.  In those countries that have a higher share of female representation in establishing government priorities, there is a greater share of funding going toward health and education.  In the long run this has a positive impact on economic growth.  It expands the life choices available to the world's population and gives people of both genders a better chance to choose the lives they want to lead.  In the decades ahead, the successful countries will be the ones that move more toward market based economies, and improve the status of women.