{"id":1713,"date":"2010-08-29T15:01:52","date_gmt":"2010-08-29T20:01:52","guid":{"rendered":"http:\/\/jimgworld.com\/blog1\/?p=1713"},"modified":"2010-09-04T16:44:23","modified_gmt":"2010-09-04T21:44:23","slug":"on-the-hazards-of-morality","status":"publish","type":"post","link":"https:\/\/jimgworld.com\/blog1\/?p=1713","title":{"rendered":"On the Hazards of Morality"},"content":{"rendered":"

I read an interesting article<\/a> the other day by Thomas Sowell that got me thinking about moral hazard. \u201cMoral hazard\u201d<\/strong> 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. <\/p>\n

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.<\/p>\n

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. According to him, benefits for the unemployed ultimately increases unemployment by lessening the incentive to look for work. And then there is federal flood insurance, which allegedly inspires home building and continued residencies in flood prone neighborhoods. This program supposedly goes so far as to inspire beach houses for the rich that get washed way by expected storms, but get built right back again (he cites the example of a beach home owned by conservative journalist John Stossel).<\/p>\n

I have two comments on this. First<\/strong>, the \u201cmoral hazard\u201d analysis of government policy assumes a negative view of people. It posits that we are inherently lazy, we are like children, we need strict and simple incentives and guidelines. It concludes that we are not naturally cooperative and sharing; as such, communism, socialism and even liberal capitalistic democracy are inherently flawed. Although conservatives hail the ideal of patriotism in war, they do not expect sacrifice for the nation when it comes to everyday life, e.g. when the middle and upper classes agree to pay their taxes and forgo further comforts of life as to help those in need; and when those in need or no longer in need decide to take up the hard work of making an honest living without support. They just don’t believe that people can be patriotic in that fashion.<\/p>\n

My second<\/strong> point is on a more practical level and is less philosophic. I.e., government programs that give benefits out are generally designed by legislatures and administrators on the cheap. Giving aid is expensive enough, and the need to spend money to actually do that does not get much public sympathy. And thus, our welfare and insurance programs are run on a string; little effort can be made to separate the goats and sheep. As such, government administrators require relatively little justification behind a claim. The word then gets out, and some people exploit this. I agree that humans are not perfect, that moral hazard is not an entirely wrongheaded idea.<\/p>\n

Is the answer to cut-away the safety net in the name of eliminating waste, and allow fate to cast many otherwise good people to destitution when they get a bad shake of the dice? Shall we go back to a Dickens-like society of unlucky families living in terrible conditions on the edges of the cities, in return for a higher number of productive, self-sufficient families? Is it better that 90 of 100 families live without any need for aid, while 10 other families fall into fatal oblivion; or that only 75 families support themselves, while the other 25 get by with on-going government aid? (In the latter case, obviously the 75 are not going to have it as good on average as the 90 in the no-aid scenario due to high taxes).<\/p>\n

Or in the alternative — is it worth it to spend more in administering government help programs, to allow expensive procedures requiring examination and justification behind every request for benefits? This would either reduce the benefits available or cost more in taxes (probably both), but would not eliminate the programs. Arguably, the savings from reducing the number of phony claimants would pay for the increased administration costs. <\/p>\n

Under this scenario, let’s say that 85 families remain self-sufficient, 12 get by on government aid (they pass all the hurdles to get aid), and perhaps 3 families fall between the cracks into destitution. I would guess that these 85 self-sufficient families have it better on average than the 75 do under the \u201cliberal benefits\u201d regime, but not quite as well as the 90 families under a \u201ccruel to be kind\u201d government. The cost is those 3 families who are left in the streets; their unkind fates will be sensationalized by the press. However, this would be less than the 10 families under the strict-conservative government; hopefully there would be enough religious and secular charity available to ease their plights somewhat. <\/p>\n

I believe that many people do have a lazy side to them, which comes out under certain conditions. This side could be tempted into dependency by easy benefits, again in certain instances (i.e., situations with little reward potential for personal effort). But I think that people also have aspects of social responsibility and sharing. And sometimes, those instincts can be inspired or fostered by closing the \u201ceasy money\u201d gate. For example, if you perceive that the other guy can get benefits as easily as you can, then why should you be sharing when they face misfortune; but if easy money is not available, maybe you feel more responsible to step-up and help, or at least cooperate in not exploiting what is available for the truly needy).<\/p>\n

Thus, I believe that government aid programs should be continued, maybe even expanded (as President Obama did with health care availability). However, more bureaucratic examination and scrutiny should be wielded; bureaucrats should be trusted (and required) to use common sense in carrying out the true intent of the program; i.e., to get benefits to the \u201ctruly worthy\u201d, and deny them to people infected with \u201cmoral hazard\u201d.<\/p>\n

Conservatives like Sowell would throw the whole safety net out, enjoy the prosperity that would accrue to the majority, and ignore the minority who fall thru the Dickens cracks into destitution. Liberals would open the gates (including the gates at the Mexican border), take credit for eliminating the worst instances of poverty, but then take the heat for declining living standards amidst the middle class, who pay for such largess. They would also bear the brunt of the infuriating stories in the press of people taking advantage of their kindness. <\/p>\n

I myself would \u201ctrust but verify\u201d; there would still be some resulting destitution on the one hand and middle-class angst about taxes on the other under my scheme. But given the mixed nature of the animal we are dealing with (i.e., homo sapiens), given their simultaneous penchant for moral hazard and social responsibility, I think this would be the best that could be done. I hope that President Obama will adopt this position as the debates over what to do about the growing federal defect force the issue.<\/p>\n","protected":false},"excerpt":{"rendered":"

I read an interesting article the other day by Thomas Sowell that got me thinking about moral hazard. \u201cMoral hazard\u201d 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 […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11,8,23],"tags":[],"_links":{"self":[{"href":"https:\/\/jimgworld.com\/blog1\/index.php?rest_route=\/wp\/v2\/posts\/1713"}],"collection":[{"href":"https:\/\/jimgworld.com\/blog1\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/jimgworld.com\/blog1\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/jimgworld.com\/blog1\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/jimgworld.com\/blog1\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1713"}],"version-history":[{"count":3,"href":"https:\/\/jimgworld.com\/blog1\/index.php?rest_route=\/wp\/v2\/posts\/1713\/revisions"}],"predecessor-version":[{"id":1719,"href":"https:\/\/jimgworld.com\/blog1\/index.php?rest_route=\/wp\/v2\/posts\/1713\/revisions\/1719"}],"wp:attachment":[{"href":"https:\/\/jimgworld.com\/blog1\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1713"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/jimgworld.com\/blog1\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1713"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/jimgworld.com\/blog1\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1713"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}