Battling a Bailout Culture

Posted: Dec 01, 2012 12:01 AM
Battling a Bailout Culture

Some Americans believe in the founding principle that individuals are responsible for their own well-being and will voluntarily aid those in need. Others believe that people should be required to take care of their fellow citizens.

This latter group aims to use the power of the state to enforce its belief.

Thus, one group believes in personal responsibility and private charity. The other imposes “charity,” with the threat of prison behind it, on the productive sector of the economy through taxation and the redistribution of wealth.

This second approach constitutes a threat to liberty, to be sure, but there’s another problem. Giving someone something for nothing on a regular basis ends up hurting the very person it was meant to help.

Once someone loses the habit of fending for himself, it becomes difficult for him to reacquire it. He can easily become dependent on the state for the rest of his life.

What's true for individuals is also true for corporations. Once they start looking to the government for bailouts, they too lose their ability to compete in the free market and become wards of Washington. The threats to our liberty, and economy, and our future from this bailout culture can hardly be overstated.

Moral hazard occurs when decision-makers are insulated from the consequences of their decisions. People behave differently when they are not held responsible for their actions. These morally hazardous actions can impose huge costs on the people involved, to be sure, but also on the rest of us.

A large-scale example of this occurs in our welfare system. Starting in the 1960s, the federal government declared a war on poverty. But instead of functioning as a safety net, a temporary helping hand to those in need, it wound up creating negative incentives.

Instead of encouraging the growth of healthy families, the welfare system broke up families. Mothers could receive larger payments from Uncle Sam if they remained single than if they married the father of their child.

Over time, many fatherless children entered the world. The welfare checks showed up month after month, regardless of how their mothers and fathers spent their days.

This situation continued for three, even four generations, until 1996, when a Republican Congress passed historic welfare reform legislation (over President Clinton's veto -- twice). Participants in the new Temporary Assistance for Needy Families were required to perform at least 20 to 30 hours per week of work or job-preparation activities in exchange for the cash benefit.

The result? Overnight, welfare agencies became job-placement offices. People who had been trapped in dependence began seeking employment. Between 1996 and 2009, caseloads dropped from 4.5 million families to 1.7 million. Employment for single mothers also increased dramatically.

There’s still much work to be done -- and thanks to the Obama administration, the number of federal welfare programs with work requirements is down to two -- but it was an important step in the right direction.

By the same token, conservatives oppose corporate bailouts. Companies should be allowed to fail. If government agrees to the special pleading of corporate lobbyists and ensures corporations against irresponsible behavior, it only encourages more irresponsible corporate behavior -- and more corporate bailouts.

We need to return to some very old, very basic truths. Welfare programs should create no sense of entitlement to an endless stream of handouts. Business laws and regulations should cause no expectation of future bailouts. Otherwise, the soaring costs will eventually ruin us, both morally and financially.

A “something for nothing” approach begets a culture of subservience and dependence and undermines self-reliance, self-discipline and self-respect -- traditional virtues that have always been vital components of the American spirit.

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