Class Seventeen

I.                    The whole point of law of unintended consequence: when the cause of something changes, it clearly has impact on someone’s behavior.

Eg. New car technology: “after drinking, I wouldn’t have to sleep in my friends’ home” The new technology makes it safer to drive, but it get lower the cost of being bad.

Eg. Mental health facilities in New York: New York State has more mental disease than other states.

Well intention is costing people a lot of money and a lot of freedom.

Eg. BMW smuggle: you can ban something, but you cannot change people’s desire for the BMW.

* I read history; the law of unintended Consequence is not new.

In Germany, when you get married, you got have an interview valuing whether you are able to have and bear a child. The intention of the law is to make sure that marriage is good. But the fact is, more people have child without marriage.

*The incentives are wrong

Why is this keeping happening? The world is a complex system, and you want to apply simple rule to it

*Simple vs. Complex Systems

Simple: political system, church system, any group like residential advisor trying to make a collective choice. Those folks act with limited information, and within very short terms

Complex: Society. You’ll have a problem when you have that limited information to try to regulate the system.

*This is not just restricted to government rules about economic activity.

*When regulations and activities push into incentives, those incentives will push back (Although not every regulation does this)

Does this mean we should never regulate?

—Absolutely not, but it means we should be very careful about knowing the devil we face right now, and figuring out what devil is around corner when we do this side to regulate. Be humble.

II.                  Trade is not zero sum

Individuals within a transaction both better-off. Things are the same internationally. There’s no such entity called “U.S.” trading with such entity called “China” There may be some people deterioted in the short term, but generally, trade makes everybody better off.

*The question is, when some people think about trade, they think about the:

*pie fallacy (which argues that there’s just a fixed amount of wealth in the world)
When we define wealth, it means more stuff was created by the process of wealth creation that before him.

Most transaction that happens show gain of trade, not gain from renting. Most economic transactions are positive sum.

*Most human transactions in human history were zero-sum, think about hunting and gathering.

*The emergence of trust follows the step of commercial growth.

*With commerce itself tends to improve the government.

The consequence of Pie Fallacy:

i.                     If you believe people get rich at others’ expense and want to make policies, you gonna prevent saving, prevent risking, and prevent entrepreneurism. That’s what makes people poor!

ii.                   People misunderstand what true economic power is. Who’s got the power of deciding Windows or Linux? We need to realize the difference between somebody persuading you with something you might value and somebody coercing you.

*Some people say some people don’t deserve the money they have: Assume the Beetles make every people in the U.S. get $1 happiness, it’s a huge number.