Marginal Utility and Unintended 2nd Order Effects

Unintended second order effects are one of the problems that can occur anytime we are willing to risk action. Sometimes these effects occur when pushing the edge of what economists term marginal utility. This concept was explained by my economics professor in terms of beer. The marginal utility of the first and second beer are positive, they make you happy and funny. The marginal utility of the third and fourth beer decline in value relative to the effect of the first two. By the time you finish a twelve pack the marginal utility of the last beer is profoundly negative. You will pass out and wake up with a terrible headache.

Sometimes unintended second order effects occur even when those who initiate the actions have the best of intentions. When I was young I worked in the American textile industry. At the time brown lung was a problem in greige mills where cotton thread was woven into cloth on mechanical looms. The cotton dust in the air caused emphysema and similar degenerative lung disease in the work force. The government decreed that the mills would have to remove 90% of the cotton dust from the air. Turns out that was not much of a problem. This goal could be accomplished by simple inexpensive devices like mist machines placed over the looms that could knock the cotton dust out of the air. Enboldened by their success the government went for a 95% dust free standard. This could only be accomplished using expensive solutions, like fully enclosed looms. At that time return on investment for new textile machinery was about 3.5%. Pass book savings at an insured savings and loan was then running at about 5.0%. The result was the elimination of roughly 250,000 American jobs with a single stroke of the pen. Of course that was not the end of the story. Existing looms and other textile machinery were still perfectly capable of producing cloth, so the companies sold their used equipment to Korea and other countries primarily in Asia. There this machinery was operated by teenaged girls working twelve hour shifts for slave wages. In these countries there were virtually no environmental of safety standards of any sort.

Is the world a better place?

A similar sort of value analysis can be undertaken with any purchase. Whether buying clothing, stereo equipment, or a new car we can mentally create a cost/performance chart, a value curve, if you will. The difference between a $1,000 car and a $4,000 car is considerable. The difference between a $32,000 entry level luxury sedan and such a car that sells for $35,000 is much harder to measure. At some point, say a $360,000 Rolls Royce, the payments will be so high that your wife might divorce you on the grounds of profound stupidity, and then perhaps, you will discover that you will not be able to impress many women before your car is repossessed.

Mathew 16

[24] Then said Jesus unto his disciples, If any man will come after me, let him deny himself, and take up his cross, and follow me.
[25] For whosoever will save his life shall lose it: and whosoever will lose his life for my sake shall find it.
[26] For what is a man profited, if he shall gain the whole world, and lose his own soul? or what shall a man give in exchange for his soul?