During an insightful discussion featuring macro minds Raoul Pal and Larry McDonald, Larry tells of what inspired, then killed, the short-lived Cobra farming phenomenon of late-1800s India:
“The British government controlled India and they had a cobra problem, so they started to pay people for each cobra that was turned in. They were trying to save lives. And, sure enough, it worked for four or five months; they had a number of cobras contained and they were killing them. And lo and behold all of a sudden there were a number of these gentlemen in the countrysides of India who started to farm cobras and sell them to the government. Then, sure enough, the government, to stop it, stopped the policy of paying one pound per cobra. And what did the cobra farmers do? They released them into the cities and the towns; they then had three times the cobras.
So the point is that when you take the inefficient hand of central planners and government officials into this mix, all these government officials around the world have the most power they’ve had in years. They’re embracing this power through Covid, and they’re embracing this power through new fiscal policy, and when you throw that into the mix you have this cocktail that is very unlike the previous decade.”
Reminded me of an essay I penned a few years ago and featured in my 2013 volume Leaving Liberty?:
A Very Short List of Government-Related Perverse Incentives
In the early 1960s, Europe (attempting to bolster its poultry industry) tariffed US chickens. President Johnson retaliated with a tariff on Europe-made commercial vans. Both tariffs are still on the books. Today, there’s a Ford plant in Turkey that affixes rear-side windows and backseats to what would have been commercial vans (i.e., transforming them into consumer, duty free vehicles). They’re then shipped to America, where they’re stripped of their rear-side windows and backseats (the materials shredded and sent for recycling) and (voilà!) become commercial vans. Apparently the above waste costs less than the utterly idiotic tax.
When teachers are rewarded for their students’ improved test scores, do we get more effective teachers and better-educated kids or more effective test-teachers and better test-takers? When teachers are rewarded for student evaluation scores, do we get better teachers or easier courses and inflated grades?
Government can indeed create industry. For example, in Hanoi, under French colonial rule, they had a rat problem. Therefore, in its infinite wisdom, the government instituted a program where folks were paid bounties for rat pelts. And thus a new industry, rat farming, was born.
Would a farmer who comes across a chartreuse-spotted salamander immediately contact the Fish and Wildlife Service? Or would he engage in “preemptive habitat destruction” (with a shovel) over fear he’d lose the use of his land due to the Endangered Species Act?
Ask yourself, honestly, if unemployment benefits ended at twenty-six weeks, like they used to, would the long-term unemployed be unemployed so long-term?
When government mandates mileage standards for new automobiles, meaning you get more miles per gallon, will you be nearly as odometerphobic? In other words, as driving gets cheaper, would traffic get denser (more drivers, more traffic jams, more roads, more cars, more pollution)?
My point being, well intended or not, government intrusion into the marketplace all too often results in distorted pricing, incentives gone awry, and unintended negative consequences.