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The Folly of Unintended Consequences

Great chess players think many moves ahead, always anticipating their opponent’s response to their moves.  The same can probably be said for great thinkers in any field.  For the people who try to play their game without thinking at least a few steps ahead, and without anticipating the reactions to their actions, their world seems to always be filled with unintended consequences.  Today, it seems that we Americans are suffering from a rather large dose of these unintended consequences, and they are showing up in many different places.

Most are well aware of the historically large cash horde that American multinational companies are holding overseas so as to avoid paying U.S. corporate income taxes on their overseas profits.  This is a very natural and logical response to the fact that the U.S. corporate income tax rate is among the highest, if not the highest, of all the developed nations.  So, as a result, we Americans not only don’t get the benefit of these tax dollars to help balance our nation’s budget with, but we also do not get the economic stimulus benefit that repatriating that capital would inevitably bring.

Another area that is quite troublesome is that of college loans.  Many are now whispering that the student loan arena might be America’s next “subprime-like” crisis.  How did this happen?  Well, like most of these sorts of situations the origins were likely very well intended, but poorly thought through.  Given a societal desire to grant broader access to a college education, the government provided easier access to credit.  This only emboldened U.S. universities to raise their tuition with complete impunity.  U.S. college tuition is up more than 200% since 1982, after accounting for inflation.  Now, having to burden the insane costs of college, many graduates are faced with a lifetime debt hanging like a giant weight on their shoulders even as the job market continues to disappoint their hopes and dreams.  It should come as no surprise that the government would now feel compelled to offer relief in the form of debt forgiveness programs, the most popular of which limits payments to 10% of a student’s “discretionary income” (which means that amount that exceeds 150% of the income level considered to be the poverty level) and forgives all debt after 10 years of payments.  Unsurprisingly, enrollment has surged in this plan, and now stands at 1.3 million Americans owing $72 billion.  As this debt forgiveness program grows, it is not hard to imagine a further lack of discipline in the growth of college tuition and ballooning indebtedness, with the outcome being a large social cost.  Free or subsidized education is an interesting concept worthy of consideration, and has been hugely rewarding in the Scandinavian countries.  However, this back door approach, if it is that, is highly inefficient.

Finally, when one thinks of the true folly of unintended consequences today one cannot ignore that famous “Russian Reset” button that our President and former Secretary of State pressed with such pride and enthusiasm only a few years ago.  As they say in some parts of our land…”’Nuff said.”

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