· Untintended consequences of laws
o It is what happens when you try to regulate a complex system with simple rules
o Any group of people are going to have a problem:
§ Limited information
§ Limited time to pass laws
§ Little feedback
o Not restricted to government
o When regulations push against incentives, incentives tend to push back
§ Incentives are complex
o Examples:
§ In 1992, the Americans with Disabilities Act was passed to stop discrimination in the workplace
· Two economists from MIT checked if this act worked and found that there was a sharp decrease in employment of disabled workers
· Considered an anomaly
· Reason: you can’t discipline or fire a disabled worker or they could sue you, so they stayed away
· Trade is not zero sum
o In the aggregate, we all end up better
o Related to the pie fallacy (if one person gets a slice, someone must get a bigger and smaller one)
o In economics, both sides in a transaction are better off
o What offends people is that no one plans a market system
o In places where true feudal systems gave in to new model economic systems, greed was diminished because people needed each other to increase their own wealth
o Consequences of the pie fallacy
§ If you believe that trade is unequal, you then believe that the poor are oppressed by the rich and you will stifle the economic activity
§ People want to reduce economic inequality, but it will hurt the economy
§ Wealth vs. income:
· Wealth: “stock and investments”
· Income: “Flow”
§ Wealthy people
· Wealth that some people have is a small share of the value they have given to people
· Example: Paul McCartney has only $1 billion of wealth, but he has probably cost many billions more in pleasure to other people
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