April 26, 2012, 10:00 AM to 06:30 AM
Interventions into the market distort the market’s discovery process and lead to unexpected and often undesirable consequences. And the intervener cannot specifically predict nor effectively prevent these consequences from occurring. Further, as Bastiat (1848 ) noted over one hundred and fifty years ago, a good economist looks at not only the immediate and seen effects of a policy but all the effects, including the long run. This dissertation explores this concept in three separate case studies: in the black market for foreign produced liquor during alcohol prohibition in the United States, in fighting amongst football hooligans, and in government’s macroeconomic policies. In the first essay I explore how rumrunners, or smugglers of foreign produced liquor, in the 1920s responded to the government’s attempts at enforcing alcohol prohibition. In response to alcohol prohibition a thriving market for foreign liquor emerged off the Atlantic Coast of the United States, which lasted throughout Prohibition. Rather than eliminating the trade, the government’s various attempts at enforcement had numerous affects upon the market and its supply chain, such as lowering the quality of the products, creating opportunities for violence, and altering the structure of the black market firms. The second essay analyzes how football hooligans, individuals bent on brawling, were able to realize the gains from trade [i.e. fighting each other] despite efforts by authorities to shut down their activities. By forming a sort of fight club, hooligans were able to engage in brawling while minimizing their contact with authorities. Rules emerged within these fight clubs to keep certain individuals, whom we call sadists, from going too far and causing the fight club to break down. We provide evidence from English football hooligans from the 1960s through the 1980s. The final essay looks back on the debate between Friedrich Hayek and John Maynard Keynes in the 1930s on the role of government during a recession and argues that economists are having almost the same exact debate again in response to the current crisis. We argue that despite the long run undesirable consequences that result from Keynesian policies, they remain a popular choice when a crisis appears. This occurs because politicians and other policy makers find the short run results of Keynesian policies to be too electorally beneficial to resist. This debate fails to reach resolution because both sides of the debate continue to rehash the same arguments uncreatively. In all three cases, policymakers failed to use basic economics to understand the full effects of their policies.