Moral Hazard Is Central To What Ails America


In today’s Grand Forks Herald editorial, Tom Dennis decides to cut Rep. Paul Ryan some slack. Dennis and his editorial board have been pretty tough on Ryan, but Dennis wants to give Romney’s running mate some credit for his focus on “moral hazard.”

Which represents some fairly inconsistent thinking for the folks at the Herald. Even as Dennis continues to scold Ryan for “willful ignorance” about “low-income people’s health care needs” he applauds Ryan for recognizing that an entitlement for nursing home care embedded in Medicare creates a moral hazard.

“[A] key reason why so few people have nursing-home insurance is the fact that long-term care is available for “free” to people who qualify for Medicaid,” writes Dennis.

That’s true, but why would you allow that thinking to stop there?

The reason so few people save for retirement is because they expect entitlement behemoths like Social Security and Medicare to provide for them.

The reason so few save adequately for college is because they expect to get government-subsidized, low-interest student loans.

The reason so many Americans live such irresponsible lives, living paycheck to paycheck among other risky behaviors, is that they expect the government’s safety net to catch them if they fall.

The reason why banks engaged in irresponsible lending practices in the lead up to the subprime housing crisis is because they expected, and ultimately received, government bailouts.

Safety nets promote risky behavior. These government programs create moral hazards because they disconnect the person and their behavior from consequences.

If we recognize that in a nursing home entitlement, then we must recognize it in other areas in our society as well.

Rob Port is the editor of In 2011 he was a finalist for the Watch Dog of the Year from the Sam Adams Alliance and winner of the Americans For Prosperity Award for Online Excellence. In 2013 the Washington Post named SAB one of the nation's top state-based political blogs, and named Rob one of the state's best political reporters.

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  • robert108

    “The reason why banks engaged in irresponsible lending practices in the lead up to the subprime housing crisis is because they expected, and ultimately received, government bailouts.”
    Actually, the large lenders were pressured to make those questionable loans under the CRA, and even pressured by the govt to lower lending standards even more. Fannie and Freddie were used to cover up the bad paper by bundling it with good loans and trading them on the derivatives market, which expanded tremendously as a consequence.
    If you’re looking for the moral hazard, it’s Fannie and Freddie.
    Otherwise a very good article, port.

    • Rob

      You really need to learn how to read for comprehension.

      • robert108

        I repeated your own words, and filled in the gaps. Sorry your vendetta prohibits you from acknowledging the truth I wrote.

  • splined

    When government guarantees the crop investment expenses as well as the profits for corn farmers, these farmers have no need to budget for the risks associated with growing this crops and are given the ability to bid both land rental and purchase prices higher. This has caused more acres to be planted to corn and less acres to be planted to other crops driving up the prices of other crops and thereby increasing most food prices. Higher food prices force more people into the food stamp dependency program.

  • mickey_moussaoui

    obama’s death gouls will make sure you don’t live long enough to need a medicare funded nursing home