To the memory of my brother Jim

      Contents

LIST OF FIGURES AND TABLES

PREFACE

1. Introduction

2. Federal Income Taxes: Funding the Welfare State

       3. Cigarettes: Creating Crime through Taxes

       4. The Minimum Wage: Promoting Teenage Unemployment

       5. The Fruits of Alcohol Prohibition: Poison Booze, Crime, and Corruption

       6. Be Careful What You Wish For

       NOTES

       REFERENCES

List of Figures and Tables

       Figures

       2.1 Top and Bottom Federal Marginal Tax Rates on Income, 1913–2011

       2.2 Federal Receipts, Spending, and Budget Surplus, 1929–1940

       2.3 Federal Government Outlays Including and Excluding Transfer Payments, Nominal Values, 1929–2009

       2.4 Federal Government Outlays Including and Excluding Transfer Payments, as a Percentage of Gross Domestic Product, 1929–2009

       2.5 Social Security and Medicare Tax Rates, 1937–2010

       4.1 Difference between Unemployment Rates for White Males Ages 16 and 45–54, 1948–1974

       4.2 Difference between Unemployment Rates for Black Males Ages 16 and 45–54, 1948—1974

       4.3 Difference between Unemployment Rates for 16-Year-Old Black Males and 16-Year-Old White Males, 1948–1974

       4.4 Inflation-Adjusted Federal Hourly Minimum Wage, 1938–2010

       5.1 U.S. Pure Alcohol Consumption, 1900–1929

       5.2 Arrests for Drunkenness per 10,000 Population in 383 U.S. Cities, 1910–1929

       5.3 U.S. Homicide Rate per 100,000 Population, 1910–1944

       Tables

       2.1 Federal Employment in Selected Years, 1929–1964

       2.2 Federal Receipts and Outlays as a Percentage of Gross Domestic Product, 2007 and 2010

       2.3 Lifetime Social Security (OASDI) and Medicare (HI) Taxes and Benefits for Those Retiring at Age 65 in 2010

       3.1 Cigarette Taxes and Tax Revenue, Alternative Scenarios

       3.2 Cigarette Tax Rates in Selected States, 1990 and 2011

       4.1 Employment and Wages, 1938–1950

       4.2 Average Union Wage Rates (Hourly), 1955–1956

       5.1 U.S. Per Capita Absolute Alcoholic Beverage Consumption in U.S. Gallons for Drinking Age Population (15+ years), 1710–1840

Preface

      This book describes four case studies of the law of unintended consequences as it applies to government policy. The well-known result that government policies designed to bring about one set of goals often create unanticipated outcomes has taken on increasing importance as governments become ever more involved in social and economic affairs.

      I became interested in this topic while researching 20th-century U.S. macroeconomic policies. My studies of business cycles, the Great Depression (with J. D. Ferguson), and the perverse economic policies carried out during the presidencies of Richard Nixon and Jimmy Carter convinced me that most of the macroeconomic instability experienced by the United States had resulted from poorly designed government policies. I then began to consider the effects of policies targeted toward more specific issues (as opposed to the overall macroeconomy). Abundant examples of the law of unintended consequences exist; the hard part was choosing a small group to focus on.

      The four cases described in this book are, I believe, interesting and important and will prove enduring. The federal income tax has existed since 1913, and given the desire of the middle and lower classes that the rich pay their “fair share,”