Among the consequences of the sub-prime fiasco in America is the argument as to whether governments should bail out financial institutions which fail.  A strong and compelling argument against this is what is called ‘Moral Risk’.  That is, if the government put in measures to make it safer for financial institutions to take risks (such as underwriting losses to keep them afloat), then those institutions will take bigger risks.

As Herbert Spencer said:  ‘The ultimate effect of shielding men from the effects of folly is to fill the world with fools’.

It seems that economists have, with the theory of ‘moral risk’, found a way of describing what should be self-evident – that removing the consequences of actions makes people less likely to take responsibility for themselves.  The effects of ‘Moral Risk’ can be seen in the streets of those countries where a welfare state has been in effect for some time.  It is impossible to walk down any street in Toronto, Vancouver or any other Canadian city without being accosted by a bum, beause being a ‘street person’ has been made a viable way of life in Canada.  Social workers go out to the alleys and bushes making sure they take their meds, in summer they are given bottled water.  In the UK, from the urban slums of Liverpool to the rural squalour of the Isle of Wight, 50 years of England’s welfare state has created a working class that is disdainful of work.  An influx of immigrant labour has had to be drafted in to lift the harvests, and work in the shops because the local ‘workforce’ won’t.

Just as the bailing out the financial institutions will be likely to make them less prudent in the future, removing the barriers to the consequences of laziness, ignorance and drug taking is filling the world, not just with fools, but with people who can see no moral problem in leading a parasitic existence.