When government solves problems

When government gets involved, unintended consequences often ensue. One example is the so-called “moral hazard,” where people are insulated from the consequences of risk:

The person may behave differently from the way the person would behave if fully exposed to that risk. Here’s a familiar example: If you insulate people from the consequences of taking financial risks, they may behave recklessly and borrow or loan money for home mortgages which can’t be paid back.

See how moral hazards are rife in our health care system.

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  • Anonymous

    von Mises wrote a great deal about the moral hazards of health insurance and socialized health care about a hundred years ago. His predictions have definitely come true. He says it very well in much more sophisticated language, but basically the prediction that we would become a nation of whiners and shirkers always looking for a new medical condition that we can claim has become all too true.

    I wonder how many of the people who bought overpriced houses discounted the risk of falling prices by saying to themselves “Well, everybody else is doing it, so if it falls there will be enough of us in this situation that we will get the government to do something.” Likewise with the bankers, etc.

    Calls to mind those young people who thought it was cool to ride out Ike on a pier–and then called for rescue when it got scary. Clearly the expection of a rescue contributed to the risk taking behavior. Ought to have been left for a few days to teach them a lesson.

    Building in low-ing areas with an expectation of subsidized flood insurance is another common example of moral hazard. I have known otherwise responsible professional people who privately confess deliberately provoked car accidents as an act of aggression. Would they have done so were they not insured? I doubt it.

    I am taking up a dangerous hobby now. I wouldn’t do so if I didn’t have adequate life insurance to take care of my family.

    One great example is the dramatically different course of back pain in self-employeed uninsured farmers vs workers comp covered employees.

    “Homeowner bailout” will enduce millions to find themselves “unable” to pay their mortgages who otherwise were meeting them. Even the possibility is ginning up a victim mentality in all the people unside down on their mortgages when there is no justification for it. They thought the home was worth whatever they agreed to pay for it when they bought it. They ought to pay their freely entered obligations. It is still the same house. The only difference is that no one else thinks it is worth what they paid for it.

    Moral hazard has come to be the norm and responsibility almost pathological.