Great moments in unintended consequences—when something that sounds like a great idea goes horribly wrong. Watch the whole series.
The year: 2010.
The problem: Yosemite National Park’s popular Half Dome trail is crowded, and people are getting hurt!
The solution: Institute a lottery system, cutting the number of hikers from 1,000 per day to just 250—reducing congestion on the trail to improve safety!
Sounds like a great idea, with the best of intentions. What could possibly go wrong?
Turns out: When permits become scarce, caution becomes optional.
Getting a permit became so difficult that when lucky hikers finally got one, many decided they had to go, even if they were sick or exhausted or saw storm clouds moving in. When people think they may never get another chance they stop asking if this is a good day to climb. So while fewer hikers went up, accidents failed to go down.
That’s peak irony.
The year: 2020.
The problem: Italy’s economy is struggling.
The solution: The Superbonus tax credit, offering to pay homeowners 110 percent of the cost of energy-saving renovations.
Sounds like a great idea, with the best of intentions. What could possibly go wrong?
Turns out: Math.
When renovations aren’t just free, but better than free, suddenly everyone has a remodeling project. Construction demand exploded, and prices followed. As a former Italian Prime minister put it: “110 percent eliminates the incentive to negotiate on price.“
Technically, that happens at 100 percent. But at 110 percent, there’s a built-in incentive to not just ignore prices, but increase them. And since the tax credits were instantly transferable, homeowners could quickly sell them to contractors, banks, or other intermediaries.
Shockingly, costs spiraled! Though initially projected to cost 35 billion euros over 15 years, the project actually racked up more than 220 billion in just four. That’s roughly 12 percent of Italy’s GDP, leaving the national debt in need of significant repairs.
Way to nail it!
The year: 1993.
The problem: Greedy corporate executives make too much money.
The solution: Cap corporate tax deductions for executive salaries at $1 million.
Sounds like a great idea, with the best of intentions. What could possibly go wrong?
Turns out: Salaries aren’t the only form of compensation.
Companies found plenty of other ways to incentivize their executives—including performance bonuses and stock options. Pay packages not only continued to rise; they soared.
Economists argue that the law encouraged executives to focus on short-term plans to boost their stock options rather than long-term value creation.
The chairman of the Securities and Exchange Commission even suggested the law “deserves pride of place in the Museum of Unintended Consequences.”
