The Cobra Effect describes what happens when an incentive scheme backfires. The name comes from an anecdote from British colonial rule in India.
Officials in Delhi wanted fewer venomous cobras, so they offered a cash reward for every dead snake. Enterprising people began breeding cobras at home to collect the payout. When the government discovered this and canceled the program, the breeders released their now-worthless snakes. The city ended up with more cobras than it had when the scheme began.
In a well-run free market system, supply rises or falls with demand, so prices stay low enough for consumers and high enough for producers to cover their costs. You cannot force one price out of line without distorting others. That imbalance will then spread through the rest of the system.
Recent knee-jerk reactions from the current U.S. administration regarding importing ground beef and deregulating processing plants will most likely end up having unintended consequences.
Whether the subject is cobras, cattle, or diesel, governments that try to engineer prices instead of letting them work tend to get the opposite of what they were wanting to achieve. The most reliable cure for high diesel prices and high beef prices is high diesel prices and high beef prices.
Quote Worth Re-Quoting
“Never in the history of the world has there been a situation so bad the government can’t make it worse.” ~ Henry Morgenthau
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