Welfare Hazards

Some of you have heard the phrase “moral hazard.” I use it often, here on the blog and elsewhere. The dictionary definition reads, “lack of incentive to guard against risk where one is protected from its consequences.” More colloquially, it’s the reality that the wrong sorts of incentives produce greater negative outcomes.

It’s a recognition of human nature, and it’s as certain as the sunrise. Put a safety net under someone, and he’s apt to take greater risks. Backstop someone’s business decisions, and he’s more apt to act irrationally. Promise someone that if they don’t earn enough to feed themselves that someone else will provide, and people will not work as hard. Or find ways to avail themselves of the free stuff, even if they are doing well enough to feed themselves.

While it’s understandable that citizens of a nation are inclined to empower their government to provide assistance to the needy, I don’t think most who feel that way give enough consideration to the consequences of such policies. Even though most recognize that excusing or subsidizing a behavior incentivizes more of it.