One of economists' favorite examples of this is the Eighteenth Amendment, which outlawed the production and sale of alcoholic beverages. Besides opening up so many entrepreneurial opportunities for organized crime, its unintended consequences included the country's first nationally marketed RV.
Called the Kampkar, this recreational vehicle was a fitted-out camper body, which bolted on to a Ford Model T chassis. It was produced by Anheuser-Busch, which got into the business when the new law shut their brewery business down. Quite possibly the Kampkar was not the first RV ever built, but selling it through Ford dealers really popularized the idea.
So, the next time you are inching up a hill, stuck behind an RV and trying to see around it to find a safe place to pass, you can thank the law of unintended consequences.
The U.S. Supreme Court's recent ruling on health care has already turned out to have at least one unintended consequence: Economic Stimulus 2.5.
The decision launched an instant cottage industry that has engaged so many analysts, commentators, slicers, dicers, parsers and prognosticators that temporary employment probably spiked. Much of this effort was devoted to the distinction between a penalty and a tax, and was directly caused by the Sophistic logic that the court applied to determining the individual mandate's constitutionality.
To explain why the court went to such lengths to consider the individual mandate constitutional, for example, it made an interesting reference to a case, Hooper v. California, which dates back to 1895.
The court's opinions, of course, are usually loaded with references, citations and quotes. It doesn't make the court's opinions an "easy read," but it satisfies the principle of judicial precedent and gives us an insight into the justices' thinking sometimes.
In the health care decision, the Hooper v. California citation was used to anchor the logic used by the high court. In its opinion, the court quoted from the case that, "every reasonable construction must be resorted to, in order to save a statute from unconstitutionality." In the court's view, this justified its conclusion that the individual mandate could be both a penalty and a tax at the same time. More significantly, the individual mandate could be simultaneously unconstitutional under the commerce clause and constitutional under Article I, Section 8 giving Congress the power to tax.
This argument is quite logical, of course, but then so is Schrödinger's cat, which, in quantum physics theory, could be in two states, dead and alive, at the same time. Something can be logical and still difficult to understand, which explains math anxiety, among other things.
Hooper v. California, though, has more to say. It was also an insurance case, and the U.S. Supreme Court then believed, citing an even earlier case (1869) to buttress its belief, that "issuing a policy of insurance is not a transaction of commerce" and therefore not subject to the commerce clause allowing federal regulation. This kept the federal government out of regulating the insurance business for the next half-century and left the matter to the states.
Looking for support for the health care decision's logic by citing a case whose central argument had been gutted nearly seventy years ago adds an interesting, if puzzling, dimension to the court's opinion on the Affordable Care Act.
Eventually the arguments over what is a tax and what is a penalty will exceed the attention span of all but a few Americans. And the court has made its decision on health care clear, whatever puzzlements remain about the underlying logic.
Clarity of the law is very important, sometimes even crucial, to our economy. And without it sometimes court decisions can have consequences that may be unintended but are predictable and worrisome.
The U.S. Supreme Court decision in the Kelo v. The City of New London case seven years ago was one of those. There the court decided that governments were no longer limited to taking property for public use, such as roads, parks, etc. Instead, the unclear, poorly defined "public good" was enough to justify government's seizure of private property.
Now we are seeing the natural extension of that eminent domain concept into private contracts. San Bernadino County, Calif., for example, is using eminent domain to take over underwater mortgages in the interest of "the public good." an idea also supported by economist, Robert Shiller.
It is very difficult to forecast where the legal decisions on health care and eminent domain will take us. But the federal government's control of close to 20 percent of GDP in health care alone, and local government's efforts to control real estate lending are worrisome developments for the efficiency and productivity of our economy.
James McCusker is a Bothell economist, educator and consultant. He also writes a monthly column for the Herald Business Journal.
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