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Problems that solutions to problems breed July 11, 2007

Posted by Sharath Rao in economics, ideas.
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One of those things I like about economics is just how complex the system under analysis typically is. Often, the effects of our actions are unintuitive, or are described incorrectly and/or incompletely. The second order effects – the effects of the consequences of our actions or the problems that our solutions create are worse that then problem being solved. This makes economic analysis complicated but at the same time the cumulative and second order effects also enable one to devise simple solutions to complex problems. Here is an example, something I don’t personally endorse but serves well as an example nevertheless :

America has far more second-earners than most other advanced market democracies, and most of these second-earners are women.  Americans work very long hours.  It should thus come as no surprise that Americans rely far more heavily on prepared meals, professional child care, and other services purchased on the open market that used to be provided by parents in the home.  A lot of this work, in restaurants for example, is low-wage work that is a magnet for low-skill migrants.

If we sharply increased marginal tax rates, second-earners on the margin would be a lot less likely to engage in market work, and they’d have less disposable incomes. …

Jobs that have been “outsourced” to immigrant labor would dry up.

Thanks to Jane Galt for the pointer.

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