Red Tape and Unintended Consequences

September 12, 2025 by Dan Mitchell @ International Liberty

I’ve written endlessly about the negative effect of high tax rates on productive behavior, as well as some quirky examples of how taxes lead to some unintended consequences.

Today, let’s consider how government regulations distort behavior.

We’ll start with a video from Reason about government policies that backfire. In this case, note the second example. Bureaucrats tried to help people who are allergic to sesame seeds.

So what happened? They actually made things worse.

Next, let’s go overseas to look at this tweet showing how red tape in France has a similar effect on both houses and businesses.

This is definitely another example (see here, here, here, here, and here) of how a picture can say 1000 words. Or, in this case, two pictures.

Let’s consider something similar in the United States.

As shown in this visual, New York City has various rules for rental housing.

The above table comes from a Bloomberg article by Paulina Cachero.

You won’t be surprised to learn that the article confirms that political meddling has distorted New York City’s rental market. Here are some excerpts.

 

Real-estate developers are seeking to construct buildings with exactly 99 units. No more, no less. In the past four quarters, 28 such permits were filed, more than double the total from the previous 16 years combined… To those in the industry, there’s no question what’s behind the pileup at that precise number: A new tax program for real estate developments that requires higher worker wages for buildings with 100 or more apartments. Last year, the New York legislature passed 485-x, which allows developments in New York to receive a tax break if they include a certain number of affordable housing units. … 

However, the new program requires developers of buildings with 100 units or more to pay workers at least $40 an hour — a mandate far more stringent than the prior one. Developer MaryAnne Gilmartin…once envisioned a pair of 400-unit rental towers on a NYC lot, but she’s now considering as many as six smaller buildings — a patchwork of projects that ultimately would deliver fewer apartments. 

The revised plan would take longer to execute and cost more per unit, but Gilmartin said this is the more financially viable option for her. It’s an unintended consequence of an initiative designed to substantially expand the city’s supply of housing, a crucial need at a time when spiraling rents have made life in New York more unaffordable than ever. …This means affordable housing will be built in “smaller amounts and at a slower pace,” said Daniel Bernstein, an attorney at Rosenberg & Estis who works with developers.

The lesson from all three examples is that government intervention almost always makes things worse because people and businesses respond to changed incentives.

In all three cases discussed today, everyone (except politicians) would be better off if the government intervention was totally eliminated.

P.S. Politicians and bureaucrats like to do things that allegedly help babies, yet the net result (see here and here) is fewer babies.