A particularly economic destructive source of moral hazard in the protective belt designed to keep our banking system safe. Central banks standing by as lenders of last resort and deposit insurance actually encourage reckless banking behavior because they greatly reduce the risk of insolvency. Banks are thereby encouraged to undertake even more risky lending practices. If they make a profit, banks reap it all, but they do not bear all of their losses. Such privatization of profit and socialization of risk is one of the key factors contributing to our recent financial crisis.
alerted us to a Wall Street Journal article in which the author argues that hard-shell football helmets may have reduced the potential for death on the field, but also, because of creating a sense of safety, promoted more violent head collisions, resulting in more concussions.
The unintended consequences of advances in football headgear has been affirmed recently by Pittsburgh sports writer and author Jon Steigerwald in a post on his blog Just Watch the Game. He recounts a conversation he had a few days ago with newly inducted Hall of Famer Dick LeBeau. Presently defensive coordinator for the Pittsburgh Steelers, LeBeau and had a successful career as defensive cornerback with the Detroit Lions several decades ago. He told Steigerwald that the reason players in the 1960s tackled leading with their shoulders instead of their heads is that they only had at most two bars on their face mask.
The moral of the story is be careful what and how you protect. God has established economic laws that regulate the behavior of people in the market place. When we engage in policies to institutionally protect people from the negative consequences of unwise behavior, we attempt to thwart that law and, more often than not, we we end up merely feeding that foolish behavior. We should not be surprised that the outcome is much worse than expected.