no third solution

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There’s This Thing Called “Moral Hazard”

November 2nd, 2008

The relative demerits of even more corporate welfare notwithstanding,

Creating a welfare system that is fair and sustainable for all involved would provide far better value for money than bailing out the car industry.

There’s this thing called “moral hazard”. It plagues welfare systems, which are A) not actuarially sound (e.g., federally subsidized insurance in California) or B) funded by involuntary and mandatory contributions called “taxes”.

Sure, it sounds great: it would be better to create a more equitable social safety net than it would be to give more money to corporate interests who have demonstrated time and time again (i.e., isn’t this Chrysler’s third bankruptcy?) but the very idea of a “sustainable” welfare system that is not funded by voluntaryism, neighborliness, and community, but instead by taxes and redistribution, is utterly laughable.

Social insurance programs necessarily (and simultaneously) stimulate a morale hazard, by reducing the actual exposure of those most prone to the particular risk being “insured.” But such programs, like most government programs, have the propensity to be self-perpetuating. The more people who [file claims against them], the more disastrous the claims … and concurrently, the more urgent the need for the continuance of such programs.

The absolute best to which any welfare program can aspires, is to mirror that which would be produced in a free market. But since thier is no free market with which to compare the results, there can be no meaningful benchmark, no yardstick for comparison. We can know without a doubt, that whatever welfare schemes the politicians implement will be worse than their free market counterparts.

We just can’t say with any certainty how much worse.

no third solution

Blogging about liberty, anarchy, economics and politics