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Obamacare’s Many Negative Side-Effects Should Surprise No One

Mises Daily: Thursday, December 26, 2013 by

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Even left liberals are coming to realize that Obamacare is fatally flawed. Perhaps this is because fewer people will be insured at the end of the year, under Obamacare, than at the beginning of the year as insurers are forced to drop coverage. Stories of such cancellations to cancer-stricken children certainly don’t help matters. For a program whose expressed purpose is to bring insurance to more people, this irony seems even too much for the interventionists to stomach.

Obamacare’s negative effects, however, are simply a microcosm of government policy in general. Virtually all well-intended (assuming they are in fact well-intended) government policies bring negative unintended consequences that hurt the very people they intend to serve. The prevalence of this paradox, called iatrogenics (originally used in the medical context to refer to doctors’ actions that hurt patients), should give pause to those who favor government intervention to solve societal problems.

Take rent control policies, for example, intended to make housing more accessible to those with lower incomes. In reality these policies shrink the amount of available housing because potential landlords have less incentive to rent out, and developers have less incentive to build new, units. As a result, less housing is available for those with lower incomes. Just look at the apartment shortage in New York or San Francisco, the two cities with the most stringent rent-control policies, for proof.

This process of iatrogenics also exists in financial regulation. Polemicist Nassim Taleb has illustrated how increased financial regulation intended to prevent another financial crisis has actually made one more likely. Regulations entrust the fate of the financial system to a handful of big banks because they are the only ones who can afford to comply with them. This consolidation of power among the big banks makes the financial system riskier because if one of these few banks fails the damage will be much greater to the economy than from the failure of one small bank among many. “These attempts to eliminate the business cycle,” says Taleb, “lead to the mother of all fragilities.”

In terms of protecting society’s most economically disadvantaged, sociologist Charles Murray chronicles, most recently in his bestseller Coming Apart, how the federal government’s war on poverty paradoxically hurts the poor. He explains that though welfare benefits are well intentioned, what they in effect do is pay people to stay poor, hurting the very people they intend to help. These misaligned incentives are a leading reason why $15 trillion in welfare spending over the past 50 years has perversely resulted in a 50-year-high poverty rate of 15.1 percent.

Those currently advocating for a raise of the minimum wage should first examine its iatrogenic history of bringing about negative unintended consequences to the very low wage people it intends to help. Minimum wage increases actually hurt low wage earners because business owners lay off staff and cut back on hours to try to recoup their losses from such mandated wage increases. This leaves those with a tenuous grasp on the labor market in an even more precarious position. “Unfortunately, the real minimum wage is always zero, regardless of the laws,” says economist Thomas Sowell, “and that is the wage that many workers receive in the wake of the creation or escalation of a government-mandated minimum wage, because they either lose their jobs or fail to find jobs.”

Of course it’s not only left liberal policies that generate negative unintended consequences that hurt the very people they’re intended to help, but also conservative ones like the war on drugs and the war on terror.

The war on drugs intends to help drug-blighted communities by enacting and enforcing strict penalties on drug use. What it in effect does is hurt these communities by making criminals out of a significant portion of its inhabitants. Drug users now make up nearly 25 percent of federal and state prison inmates, many of whom go in for simple possessions and come out hardened criminals wreaking untold damage on their communities. Even those who do not run afoul with the law again face a lifetime of job and social struggles with a criminal record attached to their name.

The same iatrogenic story exists in the war on terror, which intends to keep us safe by waging a multipronged offensive against potential terrorists and the geographies they may inhabit. Unfortunately, as former CIA intelligence officer Michael Scheuer has illustrated, some of these prongs, such as aggressive drone warfare and support for apostate regimes, actually fan the flames of US hatred making us less safe. “It’s American policy that enrages al-Qaeda,” says Scheuer, “not American culture and society.”

Government intervention, no matter what its form or intention, causes iatrogenics — unintended negative consequences that hurt the very people they’re intended to help. Nowhere is this better exemplified than with Obamacare, a policy intended to bring insurance to all that has in effect taken it away from many. Perhaps the growing coalition of people recognizing this paradox will take this revelation and apply it to other policy arenas as well. For the affected classes, we can only hope.