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January 21, 2008

Unintended consequences

The Freakonomics guys, Stephen Dubner and Steven Levitt, take a look at well intended laws with unintended consequences. As if it is somehow an insight that such laws exist. We all know that laws can encourage behavior that is undesired and, in most cases, unexpected. It happens all the time.

One of the most famous examples (which is not in the article) is the Aid to Dependent Children program: "During the New Deal, President Roosevelt's Secretary of Labor, Frances Perkins, argued against extending federal benefits to unwed mothers because she believed that subsidizing illegitimacy would lead to the breakdown of the family. Ms. Perkins was right."

Of course, people don't want to look back and see how they screwed things up. Instead, they look ahead without self-recrimination. Every mistake just creates a new need for further intervention. As I sometimes joke, being a liberal means never having to say you're sorry. But that's not my point here.

My point is that the Freakonomics article discusses three laws that had unintended results: the Americans with Disabilities Act, the Endangered Species Act -- and the rules about the sabbatical (shmita) year in the Torah. They do this to show how long this problem has existed, but, in my view, they don't quite get to the correct conclusion.

The rules in the Torah are quite relevant now, because it's generally accepted that this year is the sabbatical year. As the article notes:

As commanded in the Bible, all Jewish-owned lands in Israel were to lie fallow every seventh year, with the needy allowed to gather whatever food continued to grow. Even more significant, all loans were to be forgiven in the sabbatical.
Naturally, the result of mandated loan-forgiveness is that people won't lend as the sabbatical year approaches. And the Torah makes clear that this is what happened. So the Freakonomics guys shouldn't, strictly speaking, include this within the rubric of unintended consequences, because while the consequences were unintended, the law clearly anticipated them from the outset.

Deuteronomy explicitly recognized that people would be inclined to refuse to lend money as the sabbatical year approached, because they wanted to avoid the remission of debt. If they lent in year six, whatever wasn't repaid by the end of the sixth year was, by force of law, forgiven.

Thus, Deuteronomy 15:9-10 states:
Beware lest you harbor the base thought, "The seventh year, the year of remission, is approaching," so that you are mean to your needy kinsman and give him nothing. He will cry out to the Lord against you, and you will incur guilt. Give to him readily and have no regrets when you do so, for in return the Lord your God will bless you in all your efforts and in all your undertakings.
Here, God asserts a threat (you will incur guilt) and a promise (He will bless you) in order to motivate people to overcome their natural and rational economic behavior. I call this a literal deus ex machina. This kind of economic law can't possibly work unless God commands the law and people believe in Him.

And it actually didn't work even when everyone believed in God; people still would stop lending as the seventh year approached. As the Freakonomics guys point out, it took the great rabbi Hillel to devise the solution:
His solution, known as prosbul, allowed a lender to go to court and pre-emptively declare that a specific loan would not be subject to sabbatical debt relief, transferring the debt to the court itself and thereby empowering it to collect the loan. This left the law technically intact but allowed for lenders to once again make credit available to the poor without taking on unwarranted risk for themselves.
It was the prosbul that encouraged people to engage in economic behavior that the idealistic rules of the Torah discouraged.

A similar legal fiction was established to deal with the rules requiring land to remain fallow during the sabbatical year. This legal fiction of temporary sale of the land to a non-Jew, by the way, is the cause of much consternation in Israel today, with many of the religiously right-wing orthodox declaring that food grown on land that has been temporarily sold should not be eaten. (Far be it from me to be critical, but anyone who uses a "shabbos clock" shouldn't be so concerned about legal fictions. But that is not my point here, either.)

We see something different, but analogous, in the of another economic law of the Torah, the prohibition of charging interest to fellow Jews. In Leviticus:
Do not lend him your money at advance interest, or give him your food at accrued interest. I the Lord am your God, who brought you out of the land of Egypt, to give you the land of Canaan, to be your God.
As moderns, we have to ask: How could people have lent money for an extended period of time without interest? Again, the answer seems to be that they did so, because God commanded them to. "I the Lord am your God, who brought you out of the land of Egypt, to give you the land of Canaan, to be your God."

There's a very interesting passage from Paul Johnson's wonderful book, A History of the Jews. Johnson, a Christian philo-semite, offers Jewish history from an interesting perspective, given that nearly all Jewish history has been written by Jews. What Johnson says is this:
One of the greatest contributions the Jews made to human progress was to force European culture to come to terms with money and its power. Human societies have always shown an extraordinary unwillingness to demystify money and see it for what it is – a commodity like any other, whose value is relative. * * * Men bred cattle with honour; they sowed grain and reaped it worthily. But if they made money work for them they were parasites and lived on "unearned increment," as it came to be termed.

The Jews were initially as much victims of this fallacy as anyone else. Indeed, they invented it.
So the Jews eventually understood that prohibiting interest couldn't possibly work as an economic matter and "force[d] European culture to come to terms with money and its power."

My point, finally, is that the economic laws of the Torah and the legal fictions that have been developed to get around those laws are proof that idealistic economic laws having no relationship to real economic behavior have severe limitations. They don't even work when God commands them.

As the rabbis might say, how much more so do they fail to work when imposed by humans.