The Inevitability Of Unintended Consequences

Tyler Durden's picture

Submitted by Adam Taggart via,

"No plan of operations extends with any certainty beyond the first contact with the main hostile force."

~ Helmuth von Moltke the Elder


"Shit happens"

~ Anonymous

Anyone involved with managing projects, people or systems knows that the only thing that can be planned with absolute certainty is that things will never go 100% according to plan.

This is true even in exceedingly simple situations, which we've written about at length here at Peak Prosperity (the uncontrollable nature of the straightforward Beer Game detailed in this post on the Bullwhip Effect outlines this well). And it's one of the truisms that gives us the most confidence that the world's central planners will eventually lose control of the global systems they are trying to manage via increasingly heavy-handed intervention.

History is full of examples where governments' best-laid plans failed in spectacular fashion, exacerbating the very problems they were intending to solve. Here are a few of our favorites:

Hoy No Circula

In the late 1980s, the air pollution in Mexico City had reached concerning levels. City planners decided that reducing the number of cars on the roads would have a material impact on improving air quality via reduced emissions, so they launched the Hoy No Circula ("today [your car] does not drive") program.

Hoy No Circula mandated that only certain cars could drive on certain days of the week. The rules were based on the last digit of a car's license plate. If your license plate ended in a 5 or 6, you couldn't drive your car on Mondays. If it ended in 7 or 8, Tuesdays were out. And so on.

The expectation was that people would commute via public transit more and, on any given day, there would be 20% fewer cars on the road. 20% fewer cars meant 20% fewer emissions, leading to improved air quality.

But... that's not quite how things worked out.

People, being people, didn't want to change their behavior. Having to find alternate transportation plans every few days proved a frustrating inconvenience. So how did the public respond? By buying a second car, with a license plate ending in a different digit than their primary vehicle.

This was bad for several reasons. Not only did it prevent the number of cars driving on the roads each day by dropping by the expected amount, but these secondary cars were predominantly cheaper, older "beater" cars -- which were much more pollutive automobiles.

Even those who chose to commute instead predominately took taxis instead of public transit (Mexico City had, and continues to have, insufficient options for public transport). Most of the taxis in use when Hoy No Circula was first implemented were Volkswagen Beetles, one of the worst-emitting vehicles in circulation at the time.

So air quality actually in Mexico City worsened after the implementation of Hoy No Circula. And traffic congestion, which was already bad, got worse, as well.

The Cobra Effect

Such misguided policy-making isn't anything new. In our recent book Prosper!: How to Prepare for the Future and Create a World Worth Inheriting we share a fine example dating from the Crown rule in India era:

During British colonial rule of India, the government became concerned about the large number of cobras in Delhi. So it issued a bounty on the poisonous snakes, paying a ?xed sum for each dead cobra brought in by the public. It didn’t take long for things to start going sideways on this plan. In order to receive more payments, enterprising residents began breeding cobras.


Clearly this was not what the British rulers intended. Once they discovered how their program was being abused, they terminated the bounty scheme. And what happened next? Yep, with no incentive left, the breeders set their now-worthless snakes free. And the cobra problem in Delhi skyrocketed to much greater heights than before the bounty program began. The “solution” had the exact opposite effect as intended.


An Inexhaustible Supply

Sadly, the inability of the central State to recognize its vulnerability to the law of unintended consequences is mighty. Each generation of policymakers refuses to learn from the errors of the preceding ones, and remains confident that as long as it has good intentions (at least publicly), success is inevitable.

But instead, we get bungle after bungle.

The economy is slowing? Fill the banks newly-printed capital! They'll lend it out, thus increasing the velocity of money, spurring consumer spending and re-igniting economic growth. This was the thinking in the wake of the 2008 slowdown -- but what happened? The banks realized it was much safer to hold on to that new money, lever it up and buy 'safe bet' instruments like US Treasury bonds -- thereby making risk-free profits. The money that the banks did deploy largely went into the assets that most favored the banks and their richest clients, resulting in the widest wealth gap our country has ever experienced in its history.

Money velocity still not perking up? Take the bold step of charging negative interest rates on bank deposits! That's sure to get money out into the larger economy, where it can seek a positive return. This is what a growing number of countries are experimenting with today; but like Japan and the EU are realizing, imposing negative nominal interest rates actually boosts demand for cash, gold and safes to store them in. Turns out, desperate and bizarro-world tactics like NIRP cause investors to prioritize return OF capital higher than return ON.

Workers not able to get jobs paying them enough to live on? Double the minimum wage! This sounds noble, but places a heavy cost burden on the already-beleaguered small employer. As we've recently discussed, dramatically boosting the minimum wage without any commensurate relief for small and medium-sized businesses simply adds to the incentive for these companies to shed as many jobs as possible and to invest in long-term non-human solutions like automation. We are permanently destroying the supply of jobs available to our workforce.

The point here is that in many cases (if not most), governments' cures are often worse than the disease they are treating. Or as my favorite de-motivational poster puts it:


And very likely compounding these unintended consequences is the basic principle of uncertainty. In his article Why Our Central Planners Are Breeding Failure Charles Hugh Smith opined on how unknowable much of the results of current monetary policy will be, despite the Fed et al's assurances that they have everything well under control:

As noted above, any policy identified as the difference between success and failure must pass a basic test: When the policy is applied, is the outcome predictable?  For example, if central banks inject liquidity and buy assets (quantitative easing) in the next financial crisis, will those policies duplicate the results seen in 2008-15?


The current set of fiscal and monetary policies pursued by central banks and states are all based on lessons drawn from the Great Depression of the 1930s. The successful (if slow and uneven) “recovery” since the 2008-09 global financial meltdown is being touted as evidence that the key determinants of success drawn from the Great Depression are still valid: the Keynesian (or neo-Keynesian) policies of massive deficit spending by central states and extreme monetary easing policies by central banks.


Are the present-day conditions identical to those of the Great Depression? If not, then how can anyone conclude that the lessons drawn from that era will be valid in an entirely different set of conditions?


We need only consider Japan’s remarkably unsuccessful 25-year pursuit of these policies to wonder if the outcomes of these sacrosanct monetary and fiscal policies are truly predictable, or whether the key determinants of macro-economic success and failure have yet to be identified.

It's this concern about the failure of the current strategy our central planners are pursuing, paired with the tremendous magnitude of the impending cost of that failure, that motivated Chris to issue our report The Consequences Playbook last year, which begins:

What’s really happened since 2008 is that central banks decided that a little more printing with the possibility of future pain was preferable to immediate pain.  Behavioral economics tells us that this is exactly the decision we should always expect from humans. History says as much, too.


It’s just how people are wired. We’ll almost always take immediate gratification over delayed gratification, and similarly choose to defer consequences into the future, especially if there’s even a ridiculously slight chance those consequences won’t materialize.


So instead of noting back in 2008 that it was unwise to have been borrowing at twice the rate of our income growth for the past several decades -- which would have required a lot of very painful belt-tightening -- the decision was made to ‘repair the credit markets’ which is code speak for: ‘keep doing the same thing that got us in trouble in the first place.’


Also known as the ‘kick the can down the road’ strategy, the hoped-for saving grace was always a rapid resumption of organic economic growth. That’s how the central bankers rationalized their actions. They said that saving the banks and markets today was imperative, and that eventually growth would return, thereby justifying all of the new debt layered on to paper-over the current problems.


Of course, they never explained what would happen if that growth did not return. And that’s because the whole plan falls apart without really robust growth to pay for it all.


And by ‘fall apart’ I mean utter wreckage of the bond and equity markets, along with massive institutional and sovereign defaults. That was always the risk, and now we’re at the point where the very last thing holding the entire fictional edifice together is beginning to give way. Finally.

When credibility in central bank omnipotence snaps, buckle up. Risk will get re-priced, markets will fall apart, losses will mount, and politicians will seek someone (anyone, dear God, but them) to blame.

In The Consequences Playbook (free executive summary; enrollment required for full access) we spell out what will happen next and how you should be preparing today for what might happen tomorrow. If you haven't yet read it, you really should. Suffice it to say, a tremendous amount of wealth will be lost if (really, when) the central banks lose control. And standards of living for many will be impacted. A little preparation today can make a huge difference in your future.


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messystateofaffairs's picture

The best laid plans of men, mice and satanists go astray. Only God's plan will go exactly as He desires.

BringOnTheAsteroid's picture

Does God have dominion over the free will of man.

If no, then God is not omnipotent therefor is not God.

If yes, then the gradual demise of humanity and all the suffering that entails, is gods plan.

So either God doesn't exist or if he does he is a sick fuck.

Cloud9.5's picture

If that position keeps you warm at night go for it.  I find that a small prayer before I pull the trigger steadies my aim.

BringOnTheAsteroid's picture

Spoken like a true christian nut. What are you aiming at? Does god help you blow the living bejeezus out of a deer, a duck, a goose, an otter, a bear. You don't think god has better things to do than improve your aim.

Your prayer is nothing more than a form of extremely egotistical meditation. You think you can use your mind to control the external reality you live in. This is essentially a form of insanity. So long as there are enough equally insane people around you, you feel normal.

While god is helping you kill animals does he give a flying fuck about the doctors, patients killed by US jet fighers?

You people are crazy, lock, stock and smoking barrel, fucking crazy.

Miffed Microbiologist's picture

Well I must admit after Zen meditation and a stimulating class of hot yoga, I shoot like Buddha, Jesus and Lao Tzu rolled into one! I think it's kind of a centering thing.

Prayer implies you are asking for something but the Devine is no Santa Claus. Wishing simply creates a State of Wishing. If you really want to rock your world, form an intention and walk toward it fearlessly. That has always shaken me up, like going through a wormhole but ending up in a place you never imagined. And never what you had in mind. Scary but exhilarating.


BringOnTheAsteroid's picture

Indeed prayer is asking for something, like a child asks a parent for a candy :)

I'm certain the divine is only part of the internal model of our universe constructed by our brains. As it is something constructed by our brains then you could argue it is real. Well, yes it is real but you have to take into account the context. Real inside the mind is entirely differemt to real outside the mind. Humans are simply not smart enough to make this distiction - present company excluded :)

conraddobler's picture

The fundamental question from the start of recorded history is "why are we here" but yeah we're not smart enough to make this distinction.

I've always believed in God but I had questions too about bad things happening in the world, what's the point?  God seems cruel and vindictive and capricious and unfair.

However when I look back on my life at the most impossible moments in the darkest places some light always has shined through and you know it really wasn't looking like any would.

When you get to such a place and be still and be honest I think most of us if not all come to realize that if you look at life as an honored guest then it all makes more sense.

You get what you get and it is either an infinite blessing or a curse of equal magnitude and either way you look at it you're right.

Miffed Microbiologist's picture

My dearest, the Devine is experiential not cerebral. If or when you have this experience you will know it is no construct of the mind. There is no analytical way to get to this understanding I am so sorry to say for I love the intellectual pursuit of everything We are talking of two separate things.

Now you may dub me a crazy loon and I will accept it. But may I ask you consider the possibility, to be determined at some point? Just an open mind without a clenched fist and see where it goes.


conraddobler's picture

I've always thought that those who are confirmed atheists hate other religions so much because atheism is a religion itself.

I don't hate religions I understand that people are just expressing our spriritual nature in a more organized manner and I respect that although I would respectfully decline to join their clubs.

Saying their is no God elevates mankind to a level we are unworthy of and I don't just say that out of hand I say this because any cursory examination of mankind in action or a cursory read of some decent history books more or less destroys the notion that we're the greatest intellects known in the universe at least to ourselves.

I think it's safe to say there is a higher conciousness than ours I feel confident in making that obeservation but if I'm wrong then the world is an utter shit hole and not worth most of our time.

BringOnTheAsteroid's picture

I don't care whether a God exists or not, I don't even have an opinion on it. As much as I don't have an opinion on gravity or the colour of the sky.

Evidence is all that matters, nothing more and nothing less. Theists don't understand the term evidence. To them the bible is evidence. To a scientologist Ron L Hubbards sci Fi novels are evidence. Evidence doesn't have anything to do with a by product of man, evidence is found in the natural world.

conraddobler's picture

How could you have dominion over free will?   It does have the word "free" in it.

The point is I think that God knows what you're going to do and it's all part of the plan but you are going to chose it and are free to do so.

You would sort of have to be for it to mean anything.

As to God existing of course it does.  What it's up to no one knows but I've seen true evil and evil nor good can exist without the other one and if there is real good in the world then there is a God at least as far as I'm concerned YMMV.

SubjectivObject's picture

Read to the tune of "When the Levy Breaks"

adanata's picture


Unintended consequences my ass. If you were doing what they are doing, would you admit it or try to come up with a cover story? Gimme a break.

Trogdor's picture

I wish I believed they were "unintended" consequences ... at least then I could imagine that the fuckers doing all this were just ignorant instead of what I do believe which is that they don't have souls.... I just hope I'm around to see them swinging from highway overpasses ...

boattrash's picture

Remember, Unintended Consequences are a Two-Way-Street.

The best "Novel" I've ever read. Summary link below.

SmittyinLA's picture

Economic collapse from a 400% socialist energy tariff imposed by your own government is not unintended.


skinwalker's picture

The idea that people will avoid moderate pain now, only to experience more severe pain the future, seems to make sense. However, if true, why do people exercise? 

SunRise's picture

Because people will also embrace moderate pain now for low/no pain later.  This is morality.

venturen's picture

I think you meant the law of intented consequences....where the richest buy the influence to become vastly wealthier. THE GOLDMAN EFFECT. Did I miss something...the only unintended thing is wildcard Trump....who has never been a friend of bankers and has gamed them out of millions!

Skeeterworborton's picture

not so sure that the consequenses are exactly Unitended....

DaBard51's picture

To really screw things up requires a bureaucracy.

fencejumper's picture

"What the government is good at is collecting taxes, taking away your freedoms and killing people.  It's not good at much else."

-- Tom Clancy on Kudlow and Cramer 9/2/03

logicalman's picture

Even if the 'brightest and best' went into government this problem would still arise.

Given those who go into government are ignorant, narcissistic psychopaths, you can't hope for much.

Government is the problem, not the solution.


gcjohns1971's picture

Government is a guillotine.

That's all it can do.  Take heads.

The great tragedy of the human condition is that so many people think taking some heads is a solution to anything.

It isn't.  Justifiable? Maybe.

A solution? Never.

Kefeer's picture

It is our nature; exactly what God has warned us about for our good; thus He gave us rules for our good...but man is much smarter and full of pride and the result is in our faces and we have not yet begin to see the worse as He removes His restraining arm.

Muppetrage's picture

I actually really like Chris Martenson's work. You could say there are unintended consequences in every action taken by anybody.  I guess you would have to say that the public water works is a centrally planned system of socialism. I like being able to take a shower or flush the toliet anytime I choose. Its been working pretty dam good for a long time.

VWAndy's picture

 As if the Fed was on our side? Come on people! Stop pretending these are nice well meaning people. They are,,,,

exomike's picture

Taggart, you're another goddamn idiot. You start out with a false premise and try to prove it with long boring logical fallacies. I hope John Galt makes you his bitch in prison.

conraddobler's picture

Government is just the solution of disputes by force.

If you don't have one you are suseptable to another set of lesser evolved people that do have one and they will take all your shit and neatly rationalize it before breakfast.

It's like the mafia.

You pay it protection money and just like the mafia sometimes it's run by people who are less evil than others and sometimes you get real fuckwads in charge.

Fuckwads in charge is basically the bane of our existence if we could solve that we'd be finally making some real progress.

You put a help wanted sign out on a crapload of concentrated power and it's like a bug light for fucktards.  

A. keep the power diffuse and resting with the people to the extent you can.

B. keep the fucktards out.

We'd do infinitely better if we drafted people to run government and made it so they couldn't fucking wait to get out and all those who really wanted to stay we just put on a cruise ship and sailed it out to sea past the point it ran out of fucking fuel.