The Flinchum File

Thoughtful Economic Analysis and Existential Opinions
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Rewarding bad behavior must not be repeated

One of the concerns I have about all the recent government efforts to repair the credit crisis is that we’re creating a “Moral Hazard,” which means we’re rewarding bad behavior. Examples would be CEOs getting huge pay packages for poor management or unscrupulous homebuyers getting bailed out. I was discussing this today with another economist, and he told me about his daughter, who bought a puppy that liked to do his business on the living room carpet. She decided to make him change his behavior. Unfortunately, she waited two years and it was already too late. His point is that we have already created a “Moral Hazard.” We have to live with the consequences now for not dealing with it sooner. I hate to admit it, but he is probably right. But, never again . . .