Monday, February 13, 2012

Moral Hazard

The Times has spent a couple of days pointing out that government benefits have come to subsidize what is left of the American middle class -- including many people who believe in sharply reducing government benefits. (Story here, map here, charts here).

Now, this sort of thing is great fun as we approach election time. Look, we are allowed to say as we point a righteous finger, this guy in Minnesota depends on federal money to feed his kids breakfast and lunch at school, to pay for his mom's hip surgery, and so forth -- and yet he supports the Tea Party! Nothing makes us cleave to our received convictions like watching somebody we disagree with get ribbed for hypocrisy, which is why politicians and op-ed writers (and bloggers) so love to pluck the low-hanging fruit.

But beyond the rhetorical theatrics lie genuine ethical questions, as well as genuine personal pain. Binyamin Appelbaum and Robert Gebeloff, in the Times article, do a decent job of showing us both. Democrats have long ben fascinated, and appalled, by the way Republicans convince poorer people to vote aganst their own apparent economic interest, and this article offer a little window into that phenomenon.

There are at least three ethical problems at play here. The first is the obvious concern that government expenditures greatly outnumber revenues, and create a snowball of debt which poses a risk to future generations. Fair point. The second is that government money doesn't necessarily go to what the Times has always like to call "the neediest cases":
The government safety net was created to keep Americans from abject poverty, but the poorest households no longer receive a majority of government benefits. A secondary mission has gradually become primary: maintaining the middle class from childhood through retirement. The share of benefits flowing to the least affluent households, the bottom fifth, has declined from 54 percent in 1979 to 36 percent in 2007, according to a Congressional Budget Office analysis published last year.
This is, or may be, revelatory. For a moment, one thinks: Wait -- has the middle class taken to stealing money from the truly poor? And then, with a gasp of horror, one realizes the deeper truth: that without money from the government, much of the middle class would be truly poor.

From the dawn of time, politicians have used their power to reward their supporters, and buy more support. Cicero did it, and so did Boss Tweed. And for decades, American politicians have known that their political fate depended upon the votes of the middle-class masses, so they have thrown them bone after bone, until at last the bones have come to replace the meat, once represented by good jobs and affordable services.

These considerations lead to the third ethical consideration, which is sometimes called "moral hazard." That's the theory that providing people with help when they need it will cause them to become permanently dependent on such help. You hear it most often when conservatives decry the supposed welfare state, which has -- again, supposedly -- created an entire underclass of government clients, families who have been on the dole for generations with no hope of getting off. (The existence of such a class is debated, and we are aware of evidence both ways.) But the moral hazard theory is also championed, for example, by insurance companies, which use it to argue that insuring their clients against risk will then encourage them to take risk. This argument may not lack merit, but can easily become (yet another) cynical excuse for not paying a claim.

The implicit question in the Times story is whether the use of government benefits to appease voters has been a symptom of the middle class's disappearance, or a cause. If it is a cause, then government benefits have helped millions of people get by, even if they have also helped to mask the severity of the situation. But if benefits are reckoned as a cause, then the moral hazard theory seems vindicated, and those benefits have actually killed off the sort of initiative that might have kept the middle class going.

We have no answer to the question, by the way. We are certainly skeptical of easy answers, especially ones like Charles Murray's recent suggestion that poor people are poor because they lack virtue, an idea only marginally less offensive than his earlier proposal that black people are poor because they are stupid. We haven't been able to take political pontifications about "virtue" seriously since we learned of Bill Bennett's $8 million gambling debt.

Which brings us to the personal pain involved here. Remember, the "initiative" envisioned by moral hazard theory is, to put it bluntly, hunger. It is hunger, poverty, and curable diseases that go untreated, which have historically driven some poor people to educate and innovate their own way out of poverty. (Also, not incidentally, to lie, cheat and steal their way out.)

And that's what makes the story so compelling, at least in places. Over and over, the authors interview people who depend on government benefits to get by, and yet who believe -- seemingly not because they have been brainwashed, but as a matter of principle -- that those benefits must end for the good of the whole country. Even if this belief proves to be ill-founded, it is hard not to admire. And your heart breaks when one man admits that he doesn't know whether his mother should be able to walk, another whether his wife should go blind, and when a woman -- trying to balance her needs with her principles -- simply surrenders, and begins to cry.

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