Moral Hazard: Economic and Personal


“Moral Hazard” is a term coined by banks and insurance companies to determine the economic risk they face when they lend or insure a property for more than the property is worth. This is a risk because there is NO incentive, then, for the owner to take care of – or finish paying for – the property.  It is a type of delusion that can only lead to failure and loss.

Moral hazard applies mostly to economics – more specifically to large ticket consumer items like real estate and cars.  Its intrusion can eventually lead to bankruptcy of a nation or economy.

This type of hazard  also has parallels in other fields and can manifest itself in multiple ways related to the “Theory of Unintended Consequences.”   This theory says, in essence, that while we may set out to do something helpful and constructive, we often end up creating the opposite results to what we intended.  Here are some examples:

Relationships: One person might consider themselves “compassionate” when, in fact, they are an “enabler” that allows his or her partner to get away with proverbial murder.  The other partner has less and less incentive to contribute to the relationship, and it eventually falls apart.

Health: Moral hazard in health arises when you do a few “healthy” things to feel good, like drinking diet colas and eating yogurt.  These deeds give you the illusion of adding to good health when, in fact, they are only hiding your hidden decision to stay addicted to whatever you’re addicted to.  As long as you continue to push the other stuff like smoking, no exercise, overeating fast foods, or doing drugs, you will eventually be pushing up daisys!

Personal Growth: Personal growth only takes place when there is a dynamic present that spurs you to make a decision.  If you have lived a life of poverty, personal growth takes place when you resolve to escape it.  If you suffer ill health or loss, personal growth comes about as a result of drastic measures on your part to improve your condition.  The “moral hazard” comes in when others take this away from you, or soften the blow to the point where there is little or no incentive to take action.

Government appears to be the greatest enabler of our generation, and The Theory of Unintended Consequences was probably conceived with government in mind. Check out this video . . .

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