COVID Relief and Moral Hazard

"You're getting a free ride on my tail, mate."
--Sir Lawrence Wildman (Wall Street)

In case you've heard the term 'moral hazard' before but are fuzzy on what it means, the recently passed $1.9 trillion 'COVID relief'' bill provides a textbook example. Several states were prudent in their virus countermeasures--no lockdowns, limited restrictions on movement, etc. As a result, their economies remained just as healthy as their people.

Many states did just the opposite--draconian countermeasures that cratered their economies and tossed millions out of work.

Facing depressionary conditions, those states that implemented totalitarian policies are now looking to the prudent states for a bailout. Those states with vibrant economies are being forced to surrender production to those states that chose not to produce.

Bad behavior is being subsidized. Precisely as predicted.

This is the essence of moral hazard. Taking more risk than you otherwise would because you believe that you ill-advised behavior is insured.