The law of unintended consequences vs music industry lackwits

You'll have seen by now that the music industry has decided it will be more fun to die squealing for government intervention and and rightly hated by music lovers than to bow out gracefully. The best discussion of the situation I've seen is from Shane Richmond and you can read it here, though Mike Butcher has an excellent take on the news too.

What we're about to see next, assuming the music lobby gets its way, is an object lesson in the Law of Unintended Consequences. Over to Marginal Revolution for the best explanation of that fascinating phenomenon:

"The law of unintended consequences is what happens when a simple system tries to regulate a complex system. The political system is simple, it operates with limited information (rational ignorance), short time horizons, low feedback, and poor and misaligned incentives. Society in contrast is a complex, evolving, high-feedback, incentive-driven system. When a simple system tries to regulate a complex system you often get unintended consequences.

Unintended consequences are not restricted to government regulation of society but can also happen when government tries to regulate other complex systems such as the ecosystem (e.g. fire prevention policy that reduces forest diversity and increases mass fires, dam building that destroys wet lands and makes floods more likely etc.) Unintended consequences can even happen in the attempted regulation of complex physical systems (here is a classic example involving turbulence).

The fact that unintended consequences of government regulation are usually (but not always or necessarily) negative is not an accident. A regulation requiring apartments to have air-conditioning, for example, pushes the rental contract against the landlord and in favour of the tenant but the landlord can easily push back by raising the rent and in so doing will create a situation where both the landlord and tenant are worse off.

More generally, when regulation pushes against incentives, incentives tend to push back creating unintended consequences. Not all regulation pushes against incentives, some regulations try to change incentives but incentives are complex and constraints change so even incentive-driven regulations can have unintended consequences.

Does the law of unintended consequences mean that the government should never try to regulate complex systems? No, of course not, but it does mean that regulators should be humble (no trying to remake man and society) and the hurdle for regulation should be high."

So attempts to ban people from the Internet for file-sharing will create all manner of unforeseen difficulties.

For example...am I to be kicked off the Internet if my neighbour uses my inadequately-secured wireless network to download music and films to their PC? If so, presumably I become responsible for preventing my wifi from being hacked (or alternatively can simply blame all illegal file-sharing activity on unidentified laptop users in the street) and p2p activity becomes an arms race between technically-illiterate wifi owners and their tech-savvy neighbours.

The move also bodes little good for the performance of my internal network at work - if it becomes problematic to share music and other media with the online population as a whole, you can bet we'll start resorting to the largest sub-networks we have access to, and for most of us (excluding students, the most prolific or at least high-profile file-sharers in any case, who have their university internal networks) that's at the office. The prospect of the BPI chasing down companies that allow file-sharing across intranets seems superficially ludicrous, but an industry that is more than willing to sue its own customers and pester the government for protection than think about a new business model might just be willing to go there.

Unintended consequences are a fascinating thing to watch. By their nature, it's silly to try and predict the specifics of how they'll play out: it's just worth bearing in mind that when legislation pushes against incentives, you get some weird results. As Umair has been telling us for years, music listeners are heavily incentivised to share music for free before they buy it because the labels aren't holding up their side of the bargain - rather than helping us find the music we'd most enjoy hearing (which is what we pay them for) labels just push on us the music that makes them the most money.

So I'm just guessing what will happen if this goes through. I guess it will be unenforceable because a lot of wifi isn't secured and early test cases will turn out to have identified the wrong people. I guess work intranets will groan under the strain. I guess recordable CDs and USB sticks will show a temporary sales boost, and the Post Office will find itself with a surge in certain types of (particularly international) mail. But most of all, I bet it won't do a damned thing to stop people sharing music and film, and I bet it won't stop the music labels - who I repeat do no good for anyone, neither artists nor music fans, any more -  from dying.