One of the greatest challenges for policymakers is the “unexpected negative consequence” of a change in law or regulation. There is a well-documented history of proposed policies that have achieved successes, but not without negative externalities. Prohibition in the 1920s United States, originally enacted to suppress the alcohol trade, drove many small-time alcohol suppliers out of business and consolidated the hold of large-scale organized crime over the illegal alcohol industry.
Tradeoffs in pursuit of greater benefits to society are worth the cost if the positives are greater than the negatives. But if the negative consequences of a policy change outweigh the benefits — or actually make the problem worse — then that policy can only be described as problematic and worth reconsidering. The “Durbin Amendment, enacted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, has been cited by some as an example of a policy that did not achieve the goals of the authors of the policy while imposing new costs on the financial and debit exchange sectors. Yet despite its mixed record, some in Congress want to extend the Durbin Amendment to interchange fees for credit cards.
