“Moral hazard” originated as an insurance term used to differentiate between accidents caused by nature and those caused by humans. Nowadays, it’s used to judge and misjudge others according to whether we think they’ve assumed undue risk or cost us money.
My eye was caught recently by a business article in the “New York Times” about moral hazard and its relevance to our present financial calamities. The bailouts of banks and the proposed assistance to those who’ve defaulted on mortgage payments are being viewed in terms of “moral hazard.” That is, bankers and homeowners might well take undue risks if they don’t face consequences or if they can count on government bailouts.
The article details the various ways in which legal determinations about moral hazard (particularly by insurance companies) are haphazard and often dangerously backwards. For example, the author cites statistics that demonstrate that, contrary to popular opinion, the non-insured aren’t trying to grab more in the way of free health care. Rather, they’ll avoid the cost of treatment until they are dangerously or irreversibly ill and out of options.
The author equates the concept of moral hazard with our American idea of self-reliance—the idea that everyone should be able to put their houses in order (and not mortgage them to the hilt) and those who don’t lack discipline.
That may be. I’m feeling less generous with my fellow Americans these days. Instead, I sense a return to a judgmental, suspicious, parsimonious frame of mind that evokes the 19th century. Yes, moral hazard may be a term in use because of the current economic malaise. Yet the view of reckless irresponsibility appears to extend beyond the (sometimes willful) ignorance of a few but encompass the presumed cheating, sinful, and morally lax natures of most.
We are on the lookout for scoundrels and cheats an every turn. The unemployed are all seeking handouts. Illegal immigrants are never about hard work and trying to provide better lives for their children. They’re about swindling the government and taking what’s ours. Even women risk the “moral hazard” tag for seeking abortions or contraception instead of accepting the consequences of engaging in sexual activity.
As for gaming the system, it’s something the other guy does and it costs us, Mr. and Mrs. Taxpayer. Here we are, working hard for our money just so the federal government can collect it and redistribute it to welfare frauds, those illegals and scam artists, along with high-flying bankers and lazy government employees, sure.
In the land where one is innocent until proven guilty, we’re using a broad brush when it comes to moral hazard. We are incensed that the undeserving might collect what we worked for. During the debates over extending tax breaks, I got into a fierce online discussion with a friend whose divorce settlement provided her with an annual income in excess of $250,000. She was furious the government was considering taking some of her hard-earned money to give to people who were careless with their credit.
While I know she suffered through a great deal of emotional trauma with her errant and immature husband, while I sincerely believe raising children (she has two) is a worthy job, I thought her antipathy towards potential cheaters was telling. It’s like NIMBY (not in my back yard) times three.
I’m frankly suspicious of anyone who yells about “government handouts.” The truth is, we’ve all come to expect help when we need it, whether that help comes in the form of our judicial system, disaster aid, or, for most of us, public education for our children. Nevertheless, we quantify and qualify various government services based on who gets them and who we think deserves them. We continue to divorce social security from its original intent, which was as a safety net for widows and children, viewing it instead as our own government banking system, while we view Medicaid as something that goes to caring for “poor” people. We’ve enshrined the phrase “hard-working Americans” and defined it through imagery of mostly men with a few business-suited women engaged in mostly manual labor, with a few franchise owners, a sprinkling of contractors, farmers and members of the armed services, and the occasional cop or firefighter. Rarely do we associate “hard-working Americans” with public sector employees like teachers, janitors or nurses, with housekeepers or gardeners (overwhelmingly minority), or with single mothers struggling to make a life for their kids.
Exercising moral judgment is never a good idea. We ought to realize how close we might all be to falling off the ledge of relative stability due to job loss or crippling family illness or unexpected natural or man-made disaster. We may suppose some people sin more than others. Since most of us are guilty of the most flagrant kind of hypocrisy when it comes to forgiving, we might hesitate before calling anyone out on his or her mistakes.
There have always been and will always be both enterprising thieves and irresponsible spendthrifts. I’ve no doubt a few of them are taking advantage of every possible opportunity, both public and private, for easy money or unearned gain. However, the “moral hazard” I’m most concerned about is the rise in this country of mean-spirited self-righteousness.