The Moral Hazard
Eliminate these obvious conflicts of interest before they do even more damage.
Government rewards all sorts of bad behavior.
It’s usually attributed to well-intentioned policy mistakes over things like a public safety net, military and foreign aid for democracy abroad and an educated workforce here at home.
Yet, the pervasiveness of miscalculations and perverse incentives suggests it must be deliberate. After all, rewarding bad behavior is good for someone—especially those in government and those who seek advantage from it.
The welfare state discourages work, defense contractors encourage war and business bailouts privatize profits and socialize losses. We might call it feeding at the trough or even vote buying, but economists call it the ‘moral hazard.’1
The concept originated in the insurance markets and for good reason. No one would ‘overinsure’ your dwelling for double its value. If so, they’d soon be paying claims on a rash of unlikely house fires. Policy limits, deductibles and co-pays, though we may not like them, incentivize prudent and careful behavior.
So why shouldn’t government?
Special interests and politicians may disguise their carveouts and guarantees as helping the ‘little guy,’ but they never divulge who’s really benefitting. I can assure you it isn’t the taxpayer.
We tend to focus on federal schemes to redistribute wealth as well we should. The Biden administration announces its trillion dollar college loan forgiveness scheme just as the national debt surpasses $31 trillion, a figure larger than our GDP.2
You really can’t make this stuff up.