Moral Hazards

Earlier this month, President Obama claimed that “We created over two million jobs in the private sector — a million jobs this year alone in the private sector, but in the public sector, we keep on seeing these layoffs having an adverse effect….”  On the floor of the United States Senate earlier this week, Senate Majority Leader Harry Reid said that “It’s very clear that private-sector jobs have been doing just fine; it’s the public-sector jobs where we’ve lost huge numbers….”  And Vice President Joe Biden has been out on the stump assuring anyone who will listen that Republicans who vote against Obama’s Jobs Bill, or any part of it, are personally responsible for every rape, robbery, and cop killing that ensues after the bill fails.  Obama was plainly lying and Allysia Finley did a fine job of exposing him.  Reid also was plainly lying, and The Wall Street Journal‘s editorial staff did a fine job of exposing him.  Biden was plainly, well, Biden.

Rather than pursue the lies, though, I want to look at a different aspect of this “plan” of the Progressives.  This is in a throwaway line at the end of Finley’s column: “Paying governments to keep teachers and firemen on the rolls may sound good, but it actually creates a moral hazard.”  Let’s explore this moral hazard.

There are, actually, three hazards in the plan to transfer, ultimately, $130 billion dollars (the amount in the original Jobs Bill) to state and local governments, ostensibly to provide jobs for teachers, firefighters, and police.  The first hazard is that this creates a dependency in those state and local governments on continued Federal funding, and it inures those governments from the costs of the jobs they provide.  What happened with the nearly trillion dollar stimulus of 2009 that sent all those hundreds of billions of dollars to the states and cities for hiring teachers, firefighters, and police—or for “saving” all those jobs?  The Federal money ran out, and now there’s nothing left with which to continue paying those employees.  The state and local governments didn’t go through the belt tightening and efficiencies they needed to because, shielded from those costs, they had no incentive to do so.  Thus they still “need” Federal funds.  Continued Federal funding will only continue this dependency, though.  Further, continuing to have no stake in the costs, these governments will continue to have no incentive to take seriously their role in controlling them.

The second hazard concerns the individual recipients—those teachers, firefighters, and policemen—of this Federal jobs “welfare” that is washed through the state and local governments (what there is left of it after those government entities have skimmed off their cut).  They’re drawn into the same sort of dependency and shielding from costs.  They need this steady infusion of Federal largess—both in pay and in lucrative benefits—because, by using it for so long, they’ve lost their ability to work on their own—never mind that they might not be teaching, or fighting fires, or patrolling our streets.  Their dependency is just as complete as the governments through which their payments are washed.  And as with the state and local governments, these individuals have no skin in this game.  They just need their Federal hit.

The third hazard is this.  From where will the money for this “jobs” bill come?  There are three sources for this money: taxes, borrowing, and printing.  Yet, as Congressman Ron Paul points out repeatedly, borrowing and printing are just taxes.  Borrowing is a tax because the loan must be paid back, now and into the future, by us through our taxes.  Printing money is a tax because the increase in money in our economy drives up prices—it’s inflationary.  Ultimately, then, the money for all those dependency-creating transfers must come from the rest of us.  But this isn’t a private enterprise operation, where we as consumers get a choice in the product, its quality, and its price.  This is a government operation, in which we must participate without any choice or control at all: we must pay the tax price, and we must accept the product as it is delivered.  We’re denied a stake in the product; we just have to accept all the risk of which the state and local governments, and the individual recipients, are absolved.

None of this is to say we don’t need quality teachers, firefighters, or policemen; we certainly do, and in spades.  But we can’t continue feeding the expectation that the Federal government will pay for everything forever, that there is no such thing as failure.  That’s the path to national bankruptcy.

2 thoughts on “Moral Hazards

  1. Hence the need to cut off the Federal spigot altogether. When the states and local governments can no longer count of Uncle Sugar’s constant handouts, and only then, they’ll begin locating the efficiencies that are omnipresent in their own affairs.

  2. This also elides the argument that perhaps the funding (money being fungible, and all that) actually went to pay for something marginally less useful (not to mention “necessary”) … such as bureaucratic perks. Wasteful operations (unnecessary copying, anyone? that’s gone from the private sector these days). Deputy Assistant Undersecretaries for Whatever. And so on.

    Not every government expense is for critical functions. Perhaps those could be addressed, first, before throwing money at the profligate.

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