Friday, November 18, 2011

The Law Of Unintended Consequences

Stephen Gordon talks about fighting inequality in Canada (excerpt):

No, we really don't want to reduce inequality

A few weeks ago, Mike Moffatt wrote an op-ed that ran in the Ottawa Citizen and several other PostMedia papers to the effect that there simply isn't the will on the part of 99% of the population to do much about inequality: if there were, there'd be more popular support for the sort of tax-and-redistribution measures that would actually be effective in reducing inequality. Instead, we get stuff like this:

Ontario’s two opposition parties appear ready to unite to hand the McGuinty Liberals an embarrassing blow just days into a new session.

Progressive Conservative leader Tim Hudak said his party will support an NDP proposal to take 8% off the harmonized sales tax (HST) on home heating bills.

...Removing the HST on heating will cost a certain amount of money - apparently on the order of $350m. The share of those foregone revenues that will go to households in the highest income quintile is almost three times the share that will go to the low-income households that the measures' proponents loudly insist are its focus. More than half of the money will go to people in the top 40%; only a quarter will go to the bottom 40%. As redistributional measures go, it's more progressive than offering free yacht maintenance, but not as progressive as actually giving more money to those with lower incomes.

One of the biggest problems in policy design is that if policies aren't formulated correctly, you'll get some pretty perverse results. In the Canadian case above, what looks like a good idea for helping the poor ends up mostly helping those with much higher incomes.

I could name a few Malaysian examples, like petrol subsidies which disproportionately benefit the rich, or the blanket 7% Bumiputera discount on developer house prices. For the little that you do to actually help the poor, you’re paying over the odds and really helping the rich instead.

Just because something sounds like common sense doesn’t mean it’ll do what you think it does. I’m reminded of what the great Ben Hogan said about the golf swing (paraphrasing from memory), “If you go against every instinct you have, you’ll come close to having the perfect swing.”


  1. Oh yes. The latest one is the RM100 to school children. I think it is a waste on children with rich parents. Besides the fact that they don't actually appreciate it.. they go to another extreme of badmouthing it.

    One comment I heard was RM100 is less than 30 sen a day (divided by 365), not enough to even buy a currypuff. It's mind-boggling that some parents actually expect Govt to support their kids!

    Personally I disagree with that policy. I think the fund shd be used to help poor kids (with potential to succeed). Maybe create more boarding schools.. or pay for their extra tuition or something..


  2. I guess the govn't is banking on those rich parent not bothering to turn up in school to receive the RM100. If they do turn up, that means they really could use the RM100. What can become an issue here, however, is whether there are checks and balances in place to ensure that the unclaimed money is in fact returned back to the govn't properly. What is to stop the teachers or headmasters from forging the signature of parents who did not turn up and pocketing the money? There was no witness or printed receipt issued to show that the parents had taken the money. Just a flimsy signature on a form which can be easily manipulated.