You are a banker.  You loan money to people and charge them interest.  If they don’t pay you back you have collateral but still are probably going to lose money.  You figure out that it doesn’t matter anymore whether the borrowers can or will pay you back.  If they can’t pay you back the taxpayers will pay you back.  Are you now more likely to make risky loans?

You want to build a house on the beach on the coast of North Carolina.  No insurance company will cover you for your losses due to hurricanes.  The risk is simply too great.  You figure out that the taxpayers (FEMA) will compensate you for your losses should you sustain damage from a hurricane.  Are you now more likely to build a home at risk?

This socialization of risk is also referred to as moral hazard.  Basically a situation whereby your decisions affect other folks money.  The socialization of risk prevents individuals from responding rationally to actual danger or loss to their property or even their lives.  How many lives have been lost when hurricanes struck homes that would never have been built in the first place, had the individual had to assume all of this property risk himself?  How many bankruptcies or even suicides have happened because people were incentivized and hustled to take out loans they could never repay?

Socializing the risk of disease is a much greater problem.  Don’t we have the welfare medical machine (Medicare/Medicaid) to blame for people continuing to smoke?  Haven’t we “taught” folks that even if they don’t have anything they will receive the state of the art treatment for conditions that are a result of risky behavior?  How much more careful would people be if they knew that the cost of their actions and behavior with regard to their health was on their shoulders alone?  Might there be less reckless driving and venereal disease?  Might people take better care of themselves and eat less and exercise more?

Inevitably, the institutions that embrace this socialization of risk go belly up.  Banks, FEMA, Medicare/Medicaid.  The demand for freebies simply overwhelms the supply.  I suggest that we all get as healthy as we can as soon as we can so we have little or no reliance on the health care system that the thugs in D.C. will try to impose on us, as this socialization of risk will inevitably dictate the rationing of what little, crappy care is available.

G. Keith Smith, M.D.