Moral Hazard: an economic term at the center of environmentalism

I am currently reading “Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You with the Bill)” by David Cay Johnston.

The second chapter discusses a real life example of what economists call a moral hazard. I am not going to use the example in the book, but will make up my own.

But first the definition: a moral hazard is when one can profit from immoral or illegal activity easily and without risk. For example, as long as industries do not have to clean up their own waste, it is the opportunity to injure the rest of us and profit by it that is a moral hazard.

Every time we use a plastic bag, every time we drive around looking for the closest parking space, every time we leave a room without turning off the light, we are in a moral hazard. Most of the time, we do not have to pay the full price of our actions.

I do not live by the coal plant generating my electricity. I do not have to live with its higher mercury and other waste. But someone else does.

I do not know the children sewing together my clothes in some faraway land. But someone else knows they may never be able to read.

I do not live next to the pig farm with its offal and polluted waters. But I have had the bacon.

It is so easy to accept the moral hazards around us as if they are not hazards to our own morality. But if someone, like Dicken’s ghost of Christmas future, showed us the damages our choices make, would we too be afraid for our own souls and change our ways?

How do we as individuals, as a community, as a nation, become self supporting and pay the actual price for what we take? How do we take less? And how do we ever find out what the real costs are?

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About the author

free electron

Simply, I want the world to be a better place, for my kids and for all the other children in the world. I am in IT, understand technology, believe in the scientific method, and have made a lot of mistakes.

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