President Joe Biden seems to have some difficulty with the concept of “moral hazard.” This term refers to a lack of incentive to guard against risk when one is protected from its consequences. When moral hazard creeps in, people feel like they are playing with “house money,” and take on wild risks they otherwise never would with their own earnings. Three examples here come from the last year alone: the student loan bailout, the attempt to crack up credit reporting agencies, and the depositor bailouts at Silicon Valley Bank and other institutions.
A lot has been written about the student loan and bank bailouts, but it’s always good to reinforce the basic reason these are bad policies. If you’re keen to go out for a Master’s degree in cis normative Marxist-feminist basket weaving, you might hesitate if you’re presented with the $30,000 bill to do so. But if the government is essentially picking up that check in the form of a student loan – a loan which you strongly suspect will be forgiven or you can otherwise easily walk away from – suddenly the degree looks more attractive. That’s a form of government subsidy–paying you to do something you otherwise would never do.
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