Monday, February 13, 2012

Simple Truth: Moral Hazard is a direct consequence of Government "protection."

When Government offers to "bail out" underwater homeowners, some of those homeowners who could make their mortgage payments if they simply prioritized will choose not to do so- because there is profit to them in accepting the taxpayers' money.  When Government forces Insurers to guarantee coverage to those with "Pre-Existing Conditions," many will see that it benefits them not to obtain insurance coverage until they've already experienced some traumatic and/or catastrophic event.

Over at the Ace of Spades, we have a morning "DOOM!" thread Mon - Thurs. (DOOM! Always seems to take a 3 day weekend.  Wish I could do that.)  Over there, the concept of Moral Hazard arises from time to time.  I think it's important enough that I'm going to spend some time talking about it, and explaining why it's important to conservatism.

Wikipedia (I know) defines Moral Hazard thus: "moral hazard is a situation where the behavior of one party may change to the detriment of another after the transaction has taken place."  In less wordy form, Moral Hazard is when I change my behavior due to shared risk- especially in a way that will screw you over.  They then cite false examples of insurance companies (people smoking in bed being a moral hazard for homeowners insurance, for example).  A much better example of moral hazard is insurance based arson.  Not just risky behavior- the likelihood is you would have done that, if to a lesser extent, anyway.  Moral Hazard is when you see an advantage for yourself in screwing someone over due to legal or contractual provisions.

Now, this is important to Conservatism, because Moral Hazard is one of the things we group under "unintended consequences."  For instance, when people see that homeowners are not being foreclosed upon for non-payment of their mortgage, and public policy is such that proceeding with those foreclosures is more difficult or frowned-upon, more people will stop paying their mortgages.  When people know that they can get insurance at any time, they're more likely to go without insurance.  Any time the Government (at any level) offers to pay- or make someone else pay- for bad things that have happened to you, there will be people who allow those "bad things" to happen to them so they can get their payday.

Now, we could attempt to fix this through yet more regulation and more laws- but we've been trying that since at least the 1960's, and it's not working.  Funnily enough, there's always someone who has some other clever way to screw over the tax payers based on new laws and regulations.  A better way is to admit that it's not the Government's job to ensure that you receive medical care, or that you have a house, or any number of other things.  The better way is to get Government out of the way, and allow people to suffer the consequences of their choices.  This will lead to some people being adversely affected through no fault of their own (I think we can all agree that people adversely affected through their own fault are not worthy of assistance), but there are already ways to take care of that.  Charities, Churches, and communities have banded together for centuries to help the poor, the distressed, and the afflicted. 

Indeed, if we'll get government out of their way, they'll do so much better and much more efficiently than the Government can today.

Moral Hazard is a bug that exists any time government tries to protect people from the consequences of their risky, or down-right destructive, behavior.  This bug cannot be fixed.  Indeed, I believe that Liberals- in their quest to relieve you of yet more of your Liberty- see it not as a bug at all, but as a feature.  Far better to deal, as was once said, with the problems attending too much Liberty than those attending too little.

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