Moral Hazard

Economists love to talk about the concept of moral hazard. It’s why you have a co-payment on your doctor’s visit, even if you have really good insurance. It’s so that people don’t use something just because it’s free when they don’t need it. It’s the crux of all of the angry arguments against the welfare state.

But in terms of sheer scale, no one has abused moral hazard more than the same banksters who use it as a bludgeon against the middle class. Literally trillions of dollars have been vacuumed out of middle class retirements, property values, and investments to make profits for the elite. Meanwhile, the utter lack of inflation lets those hordes of cash retain their value.

But there’s more to it than that. It’s not enough that the richest are the largest consumer of welfare by several orders of magnitude. They are then able to turn around and use the general bad luck of the middle class to justify all sorts of further self-enrichment.

For example, we hardly even question mass layoffs in this country anymore. Mostly, it’s seen as a shrewd move by investors to keep the corporation’s stock price high. It’s never even dreamed of that the investors’ welfare is less important than the workers’.

Or, tax cuts. Very low tax rates for extreme amounts of wealth are passed off as a form of stimulus. Yet the fact that (first) most of these folks pay way less than their bracket suggests, and, there will be zero impact on their quality of life if their taxes were 10 or even 25% higher is ignored.

This same class that has vacuumed trillions of dollars out of the middle class through financial scandal after financial scandal going back 30 years then matter-of-factly announces that the government will have to “tighten its belt” because there’s not enough money. Suddenly, budgets must be balanced. Cuts must be made. But, since the economy is in the shitter, we can’t raise taxes!

In short, the same people who ripped us off and have all the money are telling us there isn’t any left to fund things like police, schools, and firefighters.

The same people who ripped us off and have all the money are telling us they need an extra 5′ of length on their next yacht more than your neighbors need a job.

I don’t have any particular problem in general with balanced budgets. When interest rates are low, it makes sense to borrow to expand, just like any business would do (because the price of money is so cheap). When there is a recession, it makes sense to borrow to prevent misery. Otherwise, I suppose, there’s no need to needlessly run a deficit. But both of those conditions obtain right now. So, even under a more classical economic theory, there’s no excuse right now.

The truth is, we have bailed out the rich so many times, they see it as an entitlement now. The moral hazard concept has been proved. By them.