Sunday, February 26, 2012

Quotation for Today: Moral Hazard - A Dog Whistle

The quotation for today opens a discussion about the somewhat arcane economic concept known as "moral hazard" and how it -- by excusing greed and selfishness -- is used to pervert our sense of community.

“The economics of moral hazard work to convince us that, however well intentioned, social responsibility is a bad thing. Moral hazard signifies the perverse consequences of well-intentioned efforts to share the burdens of life, and it also helps deny that refusing to share those burdens is mean-spirited or self-interested.”
Tom Baker

Tom Baker is a law professor at the University of Pennsylvania and author of “On the Genealogy of Moral Hazard,” a historical account of moral hazard published in 1996. Professor Baker's comments  -- excerpted from his aforementioned paper -- were included in the New York Times article cited below.  

The following, extended passage from Professor Baker's paper on moral hazard highlights how the meaning of moral hazard has been twisted.

By "proving" that helping people has harmful consequences, the economics of moral hazard justify the abandonment of legal rules and social policies that try to help the less fortunate; and, by providing a "scientific" basis for the abandonment of legal rules and social policies, the economics of moral hazard legitimate that abandonment as the result of a search for truth, not an exercise of power.
In that sense, the cultural meaning of moral hazard has come full circle-from legitimating the expansion of redistribution in the nineteenth century to limiting that redistribution today. Yet, conventional economic accounts of moral hazard exaggerate the incentive effects of real-world insurance and, at the same time, underestimate the social benefits of insurance. As a result, the economics of moral hazard systematically-and wrongly-undervalue efforts to protect the injured, the sick, and the poor, and absolve the more fortunate of their responsibility for that situation. The real lesson of moral hazard should be that the world is a relational web that cannot be reduced to truisms-not the op-ed writer's "less is more" and not the "insurance-deterrence" tradeoff of the economist's theoretical model.

Nowadays, when financial and political leaders use the term "moral hazard," are they merely blowing a dog whistle that only can be heard by people who support Wall Street's greed and selfishness and oppose the general welfare of the American people?

Dewan, Shaila. "Moral Hazard: A Tempest-Tossed Idea." The New York Times 25 February, 2012: online edition.

No comments:

Post a Comment