The Duke of Hazard

Moral hazard is the prospect that a party insulated from risk may behave differently from the way it would behave if it were fully exposed to the risk…Moral hazard arises because an individual or institution does not take the full consequences and responsibilities of its doings, and therefore has a tendency to act less carefully than it alternately would, leaving another party to hold some responsibility for the consequences of those actions. (From Wikipedia)

Moral hazard is a term particularly used by economists, although it can be applied to all sorts of situations that are not economic. It has become one of the favorite ideas floating around in my head. I am now seeing it everywhere I look. Let me explain it a little so you can join my insanity.

Imagine I am teaching my children to play Monopoly. As their turns proceed, Madelyn makes some bad choices. She mortgages Boardwalk and Park Place to buy Baltic and St. James Place. Because of the loss of rental income she decides to sell a couple of railroads to get some quick cash rather than sticking with the steady flow of money they produce. Meanwhile, the other kids are methodically building houses on property to increase value. Then Madelyn lands on Pacific Avenue. It’s got three houses. She can’t possibly afford to pay, game over. But wait, as the banker I step in and give her a couple thousand dollars. Think about how this upsets the game (not to mention the other players). I have rewarded risky and stupid behavior. Now Madelyn will expect this every time. So she will continue with the type of thinking that got her in trouble in the first place. Even worse, what if I don’t offer this type of financial help to every player? What if I only give it to those who spend lavishly and without care? Or only to those who own extremely valuable property (Boardwalk and Park Place) but not to those who stayed within their means and bought St. Charles. I have so disrupted the rules of the game that it becomes impossible for anyone to know what they should do.

This happens in real life all the time and it is extremely destructive. It teaches a lack of personal responsibility and rewards idiotic behavior. For instance, you can go try and climb some impossible canyon out in the Mojave Desert. When you get stuck all sorts of rescue personnel are dispatched to save you. This is good, because you live. But it costs the tax payers thousands of dollars. Why should everyone else have to pay for your stupidity? And besides, by not placing the financial responsibility at your feet, we only encourage you to do it again next weekend. The rescued person should have to pay not only for the benefit of society, but for their own long-term growth as well.

This occurs with athletes who have been passed from grade to grade regardless of their academic standing. They come to believe that they are above the normal consequences and therefore responsibilities of life. It happens with children who are allowed to behave in whatever way they see fit, and whose parents seem held hostage by this behavior. Eventually, when a teacher or employer brings severe consequences for such behavior the child is enraged. They thought the rules didn’t apply to them.

And of course it happens financially. If I know you are going to bail me out, then why worry about how well I perform? When people are allowed to commit stupid or risky acts, and then someone else shields them from the consequences, it often creates an environment that only perpetuates that behavior.

The rub for Christians is that we have been shielded from the ultimate consequence of our actions. This is wonderful, yet also creates a moral quandary. Paul asks the Romans “should we keep on sinning so grace will abound?” That’s the moral hazard. Since Christ’s love and forgiveness and grace are offered in place of our sin, then by sinning I get more of God’s grace. Of course Paul’s answer is “certainly not.” We should not continue the behavior even though our experience of God’s grace is a good thing.

So we must wisely meet the dilemmas of our day. We extend God’s grace. But we also recognize that to allow people to continue in risky or stupid or sinful behavior is detrimental to them and everyone around them. It is not grace to pass a kid on to the next grade even though they can’t read. Nor is it Christian to allow people to starve because of a stupid mistake. Wisdom is not easy.