The WSJ has an opinion piece today about how US legislation intended to clean up the environment and reduce our dependence on foreign oil led to windfall subsidies for the US paper industry inspiring a paper subsidy retaliation by our Canadian neighbors. This trade skirmish is an obvious example (i.e., obvious after the fact) of how difficult it is to predict the full consequences of particular policy actions. It should make one wonder if there will be many unintended consequences in other new legislation, like say the 1200 page Energy bill passed by the house last Friday.

One worry I always have is that the more clauses and provisions there are in any bill, the more chances there are for companies to game the system; also the more reason there is for companies to devote time and energy to studying legislation and working to influence legislation in subtle ways. The greater the complexity of our regulatory system, the more resources are devoted exclusively to understanding that system. The problem with this is that the more time a company spends figuring out ways to game the system, the less time is devoted to product improvement and customer satisfaction. Regulations intended to improve some matters, may be unintentionally making others matters worse.

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