I read an interesting article the other day by Thomas Sowell that got me thinking about moral hazard. “Moral hazard” was once an obscure term used in the insurance industry, but in recent years it has become one of the hip things to say when you are talking about government policy. Since Sowell is a conservative, he uses the phrase to attack liberal government policies, i.e. safety nets against personal economic downfalls. The hazard of such policies, according to the conservative theorists, it that it makes people lazy and wasteful given that they are guaranteed against significant loss; and this laziness causes a lot of negative, unintended consequences.
Sowell cites some of the usual conservative targets, e.g. welfare for low-income parents. According to conservative analysis, the federal and state Aid For Dependent Families program significantly increased the birth rate amidst poor, single women. This led to the cycle of inner city and rural decay that resulted in crime, gangs, children without fathers, and broken schools in our poorest neighborhoods.
Given that the conservatives pretty much took down welfare as we once knew it, Sowell also goes after some new targets, such as unemployment insurance. » continue reading …

