Moral hazard has become a standard feature of governmental law and policy-making in modern times. Of course, it was always with us to some extent, moreso in times of gilded ages. What is moral hazard?
Here are a few definitions of the term:
1. A situation in which someone insured against risks will purposely engage in risky behavior, knowing that any costs incurred will be compensated by the insurer. A financial system which offers "rescue packages" may encourage borrowers and lenders to undertake low-quality or high-risk investments, thus increasing the likelihood of a crisis.
2. The tendency of individuals, firms, and governments, once insured against some contingency, to behave so as to make that contingency more likely. A pervasive problem in the insurance industry, it also arises internationally when international financial institutions assist countries in financial trouble.
3. A situation in which one of the parties to an agreement has an incentive, after the agreement is made, to act in a manner that brings additional benefits to himself or herself at the expense of the other party.
4. In law and economics, moral hazard is the name given to the risk that one party to a contract can change their behavior to the detriment of the other party once the contract has been concluded.
In modern times, at least, the creation of moral hazard has become the principal technique by which elected officials reward donors and themselves while pretending ignorance of the peril their conspiracy with powerful interests imposes upon the electorate.
The oath of office of many elected officials includes an obligation to “preserve, protect, and defend” the Constitution against all enemies, foreign and domestic. It is the thesis of this essay that the creation and/or defense of laws and policies which create a moral hazard whose costs are borne by society at large is a violation of the oath of office, tantamount to treason, and should be so regarded by the justice system.
In our present state of affairs, governments routinely create moral hazards at the insistence, and usually with the advisory help of business interests. When the inevitable damage is obvious they say, “Whoops! We didn’t realize such a turn of events was possible!” Then they move on to their next order of business, as it were, and the public with no further adieu picks up the tab. Each successive incidence of moral hazard begets additional ones as officials see how successful their duplicity has been. For example, Ford’s preemptive pardon of Nixon for Watergate crimes begat the abuses of the George W. Bush administration. It has become clear that presidents are above the law. The deregulation of the Savings and Loan industry resulted in the colossal losses and bailouts of the 1980s, a disaster for the public that was entirely foreseeable. These are just a very few of the moral hazard examples that litter the landscape of our nation.
Today we see Congress creating a moral hazard in Iraq while each political party tries to pin the blame on the other. Corporations smile all the way to the bank while needless thousands die. Our environmental assets are auctioned off to the highest bidder to be squandered and destroyed for profit. Our healthcare is the poorest of any First World nation thanks to moral hazards permitting pharmaceutical corporations to bleed the public. Our national security has been privatized and compromised, resulting in the purchase of port security contracts by foreign interests that have fostered known terrorists. Our national sovereignty has been sold to the World Trade Organization through treaties whose perilous provisions are obvious to any intelligent reader. And on and on.
Closer to home, the Fort Worth City Council has adopted a city ordinance regarding gas well drilling and the provision of infrastructure to support gas wells that has absolutely no rational basis whatever in public safety concerns. The ordinance is structured so that gas wells may be drilled as close as 200 feet from public and private facilities at the producer’s insistence through a “high impact” variance. The ordinance itself contains a wholly arbitrary provision for a 600 foot setback which is routinely waived upon the insistence of the producer that there is no other available drilling site. City Council members focus attention on the 600 foot requirement as if it had some public safety basis, when in fact there have been at least three incidents in the last year nearby that resulted in damage and forced evacuations from areas much larger than a 600 foot radius. The entire drilling permit process is simply a charade that indemnifies both the Council and the industry from liability in the event of a gas production disaster. The Council has studiously avoided the appearance of having studied any data bearing on public safety in this matter. The mayor, himself is invested in the development and production of gas from the mother lode under the city. A report has revealed that he will make over $1 million in gas royalties from this gas field this year alone. This is truly an example of deliberate implementation of moral hazard.
The industry has dribbled out sufficient information about their plans that we know that they expect to place some 3000 gas well bores on about 500 drilling pad sites throughout the city. These wells will be served by a pipeline system that will require mandatory easements on much private property in the city. They are very careful to avoid mention of the pipelines as they sell their drilling pad locations to the City Council. All of this should be well known by Council members, and their oath of office, one would presume, would obligate them to act in the public interest—that is, in the interests of their electorate. Instead, at least one of them is profiting personally and most of the rest have been doing his bidding.
This nation needs a law that buttresses the oath of office and makes government officials as well as financial beneficiaries of governmental policy criminally and civilly accountable for the creation of moral hazard. If this is not possible, then moral hazard will be a primary cause of the demise of this nation.