The law of unintended consequences surely isn’t universal. Government often seeks to destroy things and truly does succeed in doing just that (alternative medicine, unlicensed professionals, and the like). What it taxes in order to punish, it truly does punish (cigarettes, alcohol, imports that compete with powerful domestic industries). What it regulates to ban, it does often succeed in eventually banning (large-bowl toilets, insecticides that work, effective medicines that the FDA judges too dangerous).
But sometimes, the law of unintended consequences (with results opposite of what is intended) really does apply and obviously so. A case in point is the effort to force mortgage companies to cover ever more losses on non-performing loans. The New York Times, for example, says that
Within the Senate, some discussion now focuses on pursuing legislation that would create a national foreclosure prevention program modeled on one started last year in Philadelphia. That program forces mortgage companies to submit to court-supervised mediation with delinquent borrowers aimed at striking an equitable resolution before they are allowed to proceed with the sale of foreclosed homes.
Now, you have to ask yourself what such laws are likely to do to the mortgage market. Does it make lenders more or less willing to take on more risk in lending? Surely these sorts of approaches end up putting a tighter freeze on the credit markets, in the same ways that artificially low interest rates are discouraging lending because banks can’t make it pay any more. The result seems like exactly the opposite of what the government actually intends. It results in fewer, not more, loans and therefore less and less credit availability for would-be borrowers. Are lawmakers really too stupid to see this?
