I remember back in ’07 there was a sudden the interest in corn-based biofuels, and the policy to favor ethanol production as a solution to energy demands. The initiative fizzled when the law of unintended consequences (what Bastiet described as ‘the unseen’) revealed itself as food costs increased with the demand for corn. A policy intended to protect consumers from rising energy costs had the effect a rise in something much more essential to consumers.
I’ve been told that in economics every abundance creates a new scarcity, and I wonder if that’s a factor in answering Diana’s question relating to why public policy can sometimes lead to unintended consequences. Abundance in property law leads to a scarcity in property rights and expropriation. Abundance in communist paranoia and suspicion leads to a scarcity in free speech and public unity. Abundance of corn subsidies for biofuels leads to a scarcity of corn for food.
The state has the ability to operate independent to the basic rules that maintain the free market, and can be felt far and wide throughout markets. When policy-makers take it upon themselves to act upon the economy their effect spreads well beyond the intended target, and permeates far into the ‘unseen’. The result is a collateral damage that is inversely proportional to the thought that went into making the policy. Political decisions made in haste, or made based on emotions like fear or uncertainty often lead to the most disastrous public and foreign policies.