Moral hazards are easy to understand on a personal level but, when it comes to encouraging “the government” to give “free” money to an erstwhile “good cause,” virtue signaling easily trumps a cost/benefit analysis.
It has not been easy to rein in federal government spending. Lurid tales of federal government collapse fall on deaf ears. Ditto for pleas that “while it might be a good idea, we just cannot afford it.” As with drug addicts, appetites overwhelm reason.
This aversion to restraint is particularly notable in the liberal reaction to President Trump’s “Big Beautiful Bill” that cut tens of billions in “safety net” programs. Critics portrayed the bill as a death sentence for America’s poor and desperate people overseas. For these free-spenders, surely Uncle Sam can come to the rescue, print more money and save the world.
Fortunately, a compelling argument against overspending exists, albeit one seldom heard in today’s debate: moral hazard According to one definition: ‘a moral hazard is a situation where an economic actor has an incentive to increase its exposure to risk because it does not bear the full costs associated with that risk, should things go wrong.” Moral hazards encourage excessive risk-taking.
Consider the “Trump will Kill People” panic surrounding the bill’s reducing funding for the Supplemental Food Assistance Program (SNAP) or, colloquially, Food Stamps. SNAP is designed to help poor people supplement their diets, and while administered by individual states, it is largely Washington financed. Purchases were initially limited, but it now permits recipients to buy nearly everything except alcohol and tobacco products, pet food, prepared meals, cleaning supplies, cosmetics, paper products, and food containing marijuana. SNAP guidelines do not exclude soft drinks, snacks and “junk food.” There are currently 42 million SNAP participants, with 62% of them families with children.
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Author: Ruth King
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