Unplanned Consequences of Central Planning

Wednesday, November 19, 2014

If you're having trouble buying, selling, or -- like former Fed Chairman Ben Bernanke recently did -- refinancing a home, you might have our paternalistic, "helicopter-parent-from-hell" government to thank. Bruce Bialosky writes about some of the "unintended consequences" of Dodd-Frank including significant impediments to buying and selling houses:

... It used to be that a mortgage broker or real estate agent would contact their reliable appraiser to get a timely and hopefully accurate evaluation of a property. The lawyers behind Dodd-Frank saw that as a means of manipulation and no doubt on some occasions that would occur.

The new system requires a third party service to be contacted that, of course, charges a fee to obtain an appraisal that is added on top of the appraiser's fee. That means out of the box the cost of appraisals have been driven up. Koevary says it is worse than that. He and his fellow professionals used to be able to contact their friendly appraiser and get an idea whether the property will appraise at either the sell price or refinance price. That is no longer possible because of the requirement of using a third party service. Koevary states that often people will incur appraisal fees under the new system and find out the deal will not fly. Thus, his client gets stuck with significant appraisal costs which have done nothing but kill the deal.
The law has also resulted in lots of third-party appraisers falling under the control of "big' lenders; difficulties in obtaining financing for people with unusual sources of income, and an end to discounted fees by mortgage brokers.

I am an advocate of laissez-faire, and I oppose laws like Dodd-Frank on moral and practical grounds. Regulars know this already, and that I consequently never supported this law. That said, on my reading of this column, I am beginning to feel ill at ease with Bialosky's term, "unintended consequences". I am not singling him out for criticism: Many conservatives use the term, and I probably have used it myself in the past. However, my uneasiness lies with the idea that the phrase may be letting proponents of such laws off the hook too easily for meaning well. I am not an economist, but at least two economists I know of have pointed out that central planning is doomed to fail for removing rational thought from the economy. History is also littered with failed attempts at central planning. Perhaps we could use a term like "unforeseen consequences", or "side effects", or even "further ramifications" instead. (Or maybe "unplanned consequences of central planning" would be the ticket.) In any event, I have no patience with the idea that, any time something goes wrong, we should reach to the cabinet for even more government interference, as if that worked the first thousand times. (And I haven't even touched on the question of whether it is the right thing to do with government...)

My question for advocates of government regulation of everything is this: How many "unintended consequences" does it take before I should begin to wonder what it is you intend to do?

-- CAV


John Shepard said...

You're right, Gus. "Unplanned consequences" is much like "good intentions." At some point one cannot appeal to either as an excuse for not having looked at and predicted the likely consequences for actions, for not having thought about or considered the consequences.

One cannot indefinitely hide behind "good intentions" ("I meant well.") or "unplanned consequences." At some point ignorance is no excuse, and claims of good intentions or good consequences impose an obligation of due diligence. Where the line is perhaps shows up after the fact in whether or not the actor(s) take responsibility for their actions and their "unplanned consequences."

Steve D said...

Or maybe 'unspoken consequences' (to highlight the dishonesty), since I'm sure that in some cases they are not just intended, but the entire point of the law. It's all about power.

Gus Van Horn said...

John and Steve,

Your two comments together show me that I was STILL being too easy on advocates of central planning. Thanks for speaking up.


Anonymous said...

Hi Gus,

I've always been partial to describing them as unacknowledged consequences. As Steve points out, they know the outcomes - and in most cases, as Gruber's intermittent spasms of honesty have illustrated, that negative outcome is the point for which they were in fact striving.

"Unintended Consequences" is the Left's form of "Plausible Deniability." Of course the Right uses it as well, but for them it is occasional - eg., The War on Drugs. For the Left, it's Standard Operating Procedure.

So you're right that it's high time we stopped giving them the moral benefit of the doubt the phrase invokes - that these are errors of ignorance - and come down four square on the point that they are motivated by malice and that their foreseen but unspoken ends are evil.

c. andrew

Gus Van Horn said...


Yes. Your phrase covers the whole gamut, from short-sightedness by a man-on-the-street advocate of some measure or other, all the way to the deliberate malice of Gruber or an Obama.


Vigilis said...

Gus, I would add just one more question to your "How many "unintended consequences" does it take before I should begin to wonder what it is you intend to do?"

How well has federal government managed quality in its most efficiently run bureaucracy versus a dividend-paying corporation with equivalent total annual expense?

Lets make the comparison even easier --- How well does federal government manage quality in its most efficiently run national park compared to your state's most frequented park on the basis of annual cost per visitor (not counting any trespassers and transients whose litter obviously tends to diminish quality)?

Gus Van Horn said...


That's an interesting question, but one that must be asked carefully (and within the context of the question, "What is government for?"), since isolated examples of well-run government outfits and poorly-run private businesses can be found.