When Government Acts, “Unintended Consequences” Follow

By Jp Cortez

In 1850, French economist Frédéric Bastiat published an essay that is misunderstood, or more often, unread, titled, “That Which is Seen, and That Which is Not Seen.” Bastiat brilliantly introduced the idea of opportunity cost and, through the parable of the broken window, illustrated the destructive effects of unintended consequences.

Unfortunately, because of misplaced belief in government benevolence, even the most powerful and successful members of the American citizenry often miss the point.

According to Reuters, Ramin Arani, a co-portfolio manager of the $25 billion Fidelity Puritan fund, said while discussing his current bullish stance of gold, “In terms of unpredictability, there is a tail risk with this administration that did not exist with the prior…There is a small but present possibility that government action is going to lead to unintended consequences.”

Arani’s overall bullish stance on gold is sound. Given the political climate, gold is an attractive “insurance” for equity exposure. The problem doesn’t lie in his financial analysis, but rather in the seemingly innocuous comment that followed.

There is a small but present possibility that government action is going to lead to unintended consequences.

To suggest the chances of unintended consequences are merely “small” is extremely naïve.

Notwithstanding myriad examples of government action leading to unintended consequences, including, but certainly not limited to, minimum wage laws, rent control, social security, and the disastrous war on drugs, there are countless examples of unintended consequences brought on by government action that should resonate with a multi-billion-dollar portfolio manager. Yet they seem to have fallen on deaf ears.

Unintended Consequences of Gold Confiscation

In 1933, President Franklin Roosevelt signed Executive Order 6102 which called for the confiscation of gold. Robert Higgs’ writes for the Mises Institute:

Besides being theft, gold confiscation didn’t work. The price of gold was increased from $20.67 to $35.00 per ounce, a 69% increase, but the domestic price level increased only 7% between 1933 and 1934, and over rest of the decade it hardly increased at all. FDR’s devaluation provoked retaliation by other countries, further strangling international trade and throwing the world’s economies further into depression.”

Looking for government action that led to the unintended consequence of literally worsening the worst depression in world history? Check.

Unintended Consequences of the Community Reinvestment Act

In 1977, Congress passed of a piece of legislation called the Community Reinvestment Act. The evolution of this act played a significant role in establishing the lowered lending standards that caused the 2008 housing crisis. Combined with the Federal Reserve artificially lowering interest rates, Fannie Mae and Freddie Mac taking on the “philanthropic” effort of improving homeownership of low and middle class families, and many other factors, the unintended consequences of government action raised the rate of foreclosure by 225% from 2006 to 2009.

Looking for government action that led to the unintended consequence of close to a million American families losing their homes? Check.

Unintended Consequences of the Affordable Care Act

The first half of Arani’s statement speaks to rising unpredictability under the Trump administration relative to the Obama administration. It has been barely two weeks since President Trump was inaugurated, but one would be remiss to speak on the Obama administration as if it was the bastion of predictability.

Without examining the disparity between Obama’s foreign policy campaign rhetoric and his unpredictable drone-happy administration, there is a glaring example of an unintended but extremely foreseeable consequence stemming from his signature health care law.

In September 2013, President Obama said the following in a speech on the Affordable Care Act:

In the United States of America, health care is not a privilege for the fortunate few — it is a right. And I knew that if we didn’t do something about our unfair and inefficient health care system, it would keep driving up our deficits, it would keep burdening our businesses, it would keep hurting our families, and it would keep holding back economic growth.

The most predictable consequences of passing the Affordable Care Act came to the surface. A large spike in premiums, increase in taxes, millions of Americans losing their plans, and job losses, just to name a few.

Looking for government action that led to literally 100 unintended consequences throughout the health care system? Check.

Mr. Arani is correct: gold is an attractive investment. The importance of sound money in investments cannot be overstated and he should be credited for recognizing this when a lot of his financial market counterparts do not.

But to minimize the severity and predictability of unintended consequences brought on by government action as a “small but present possibility” is disingenuous.

Jp Cortez is the assistant director of the Sound Money Defense League, an organization working to bring back gold and silver as America’s constitutional money. He is an Auburn University alumnus and a resident of Charlotte, NC. Follow him on Twitter, @JpCortez27.

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  • littljo

    I know that me and my wife were looking to find a house during the Carter years when we finally qualified for a $55,000 30 year fixed but had a whopping 12% interest rate and felt good about that, because before Carter was kicked out interest rates were up around 18%.
    Then Rony Regan was elected and his trickle down seemed to have worked. Interest rates began to decline and jobs gained back.
    So government has huge effects on us all, whether unintended or intended.
    Usury is unCristian.
    Direct taxation is theft.
    End the Fed and all zentral banks, there owners have not lived up to their charters and bring nothing but misery for the commoner and, yet like the vampires they are, they continue to suck the life out of us.
    Silver stakes required.

  • America’s problems and the Constitutional Republic’s worse solutions are interrelated. It’s the wind/whirlwind effect depicted by the Prophet Hosea:

    “[B]ecause they have transgressed my covenant, and trespassed against my law … they have sown the wind, and they shall reap the whirlwind….” (Hosea 8:1,7)

    Today’s America is reaping the whirlwind in tens of thousands of different ways (millions of way if you count the infants slaughtered in their mother’s wombs) resulting from the wind sown in 1787 by the constitutional framers when they replaced Yahweh’s immutable moral law with their capricious man-made Enlightenment and Masonic traditions as the supreme law of the land.

    For more on how Yahweh’s immutable moral law applies and should be implemented today, see free online book “Law and Kingdom: Their Relevance Under the New Covenant.” Click on my name, then our website. Go to our Online Books page and scroll down to title.

    Then “A Biblical Constitution: A Scriptural Replacement for Secular Government.”

    Find out how much you REALLY know about the Constitution as compared to the Bible. Take our 10-question Constitution Survey in the right-hand sidebar and receive a complimentary copy of a book that EXAMINES the Constitution by the Bible.

    • Average Joe American

      Mr. Weiland: You apparently believe this nonsense so there’s little point in discussion. But let others reading it ask themselves: How many other religion-based governments are extant in the world today? How are they and the people living under them doing? How many religion-based governments have we seen throughout history? How have they and their subjects fared?

      You speak of “Covenants” with God, Ted. Show us one. Where the Almighty came down and said to everyone, “Let’s make a deal!” Not ordering one poor dude to kill his son, not ordering a wandering desert tribe leader to have his followers slaughter every peace-loving person and living thing inside an innocent walled town (nowadays they’d just order up a drone; back in the day God could have just turned the whole place into a salt sculpture). Not some Almighty voice who only speaks to one desert-dwelling ragamuffin at a time and instructs him to pass it on…or else. A real Covenant which God and all nations and peoples could live by, which we’d all agree to follow for the good of all, a townhall meeting where God showed his face and we all showed ours, had a productive chat.

      Never happened, not happening now. It appears all these “Sky Rulers” (martial marshals) by any name–Yahweh, Allah, God, Booga Wooga–like to order their subjects to start fights with each other and sit back and watch. Not the best sort of guidance to seek for anyone wanting to set up a stable form of fair and just government.

      Many of us find it suspicious that the orders come down from on high, delivered through people who hear voices in their heads. This makes some of us uneasy, Ted.

      • Joe, thanks for responding and especially for demonstrating the inspiration and veracity of the Bible, especially 1 Corinthians 2:12-14.

Thank you for sharing.
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