Beware the High Cost of Unintended Consequences

A teachable moment last Thursday night. No, I'm not referring to the beer-in-the-garden session featuring professor Henry Gates and Sgt. James Crowley and the shirt-sleeved president and vice president. We didn't learn anything more about the Gatesgate controversy except that only the least experienced of these four men--Crowley--was the only one willing to speak at length before the cameras.

The teachable moment came at midnight Thursday when the government decided to suspend the less-than-four-weeks old Cash for Clunkers program. Congress scheduled it to last until November. But many more car owners than predicted walked into dealers to qualify for the $3,500 or $4,500 rebates for trading in their old cars for new ones with slightly (four miles per gallon) better gas mileage.

Mind you, the government hasn't yet shelled out the $1 billion authorized for Cash for Clunkers. Dealers reduce the buyers' prices and have to apply to the National Highway Traffic Safety Administration for the rebates and NHTSA--surprise, surprise--has only managed to process 23,000 of an estimated 250,000 applications. The checks, we are told, will be in the mail. Oh, there's another problem. The dealers are required to destroy the clunkers, which will reduce the supply and increase the price of spare parts for those low-income folks who can't afford to trade their clunkers in even with a $4,500 subsidy. So much for helping the poor.

The government insurance "option" sought by Barack Obama and liberal Democrats is clearly intended to be the best way to get to a single-payer system in which choice will be further limited and innovation discouraged.

Cash for Clunkers is a prime example of the unanticipated consequences of hastily drafted legislation. The House voted hurriedly Friday to transfer $2 billion of stimulus funds to Cash for Clunkers, and the Senate will probably agree next week. But who thinks Congress will stop there? There will still be plenty of clunkers on the road.

This brings to mind a similarly well-intentioned 2000 Arizona law that paid $22,000 per vehicle to owners of cars operable with alternative fuels. Sport utility vehicle owners began installing small propane tanks and pocketing the money; the law didn't say they actually had to use the propane. A program estimated to cost $5 million ballooned to $500 million, one-tenth the state budget. The Arizona Legislature, unable to print money, repealed the law. Congress is not similarly constrained.

If such simple laws can have such huge unanticipated consequences, what should we expect from the 1,000-plus-page laws congressional Democrats have been trying to write that would regulate the provision and financing of health care, one-sixth of our total economy?

Ballooning costs, for one thing. Not many members of Congress--maybe not any--have had the time or motivation to read through 1,000-page bills to figure out how someone could game the system to bring in great gushers of government money. But some nontrivial number of 307,000,000 Americans will do so. And some will figure out how to tap the federal treasury to their advantage.

More important, any health care legislation will inevitably affect medical treatment and care. Under the Democrats' bills, the government will regulate the terms and conditions of health-insurance plans to reduce choice and discourage treatments that some centralized experts decide aren't cost effective. Never mind that experts currently differ on these matters, and constantly revise their assessments based on new information: Certain procedures will be frozen into place.

The government insurance "option" sought by Barack Obama and liberal Democrats is clearly intended, as Rep. Barney Frank confessed the other day, to be the best way to get to a single-payer system like Canada's, in which choice will be further limited and innovation discouraged. Obama constantly says you will be able to keep the insurance you have, but not if your employer decides not to offer it any more and to offload you onto the government plan.

Polling shows that most Americans are happy with the health insurance they have. One reason is that they have, in economist Albert Hirschman's phrase, the option of exit. Most Americans choose health insurance policies every year, and if we don't like our current plan we can exit from it and choose another.

Government insurance will tend to close off the option of exit, trapping you in a system that is sure to be riddled with unanticipated consequences. Those cost you money when, as a taxpayer, you have to pay for the unanticipated cost of Cars for Clunkers. Unintended consequences can cost you far more when, as a patient, you need medical treatment and care.

Michael Barone is a resident fellow at AEI.

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