Moral Hazard

By Chandrashekar (Chandra) Tamirisa, (On Twitter) @c_tamirisa

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The [sic] (Wo)man Caught in Adultery

Then each of them went home, while Jesus went to the Mount of Olives. Early in the morning he came again to the temple. All the people came to him and he sat down and began to teach them. The scribes and the Pharisees brought a woman who had been caught in adultery; and making her stand before all of them, they said to him, “Teacher, this woman was caught in the very act of committing adultery. Now in the law Moses commanded us to stone such women. Now what do you say?” They said this to test him, so that they might have some charge to bring against him. Jesus bent down and wrote with his finger on the ground. When they kept on questioning him, he straightened up and said to them, “Let anyone among you who is without sin be the first to throw a stone at her.” And once again he bent down and wrote on the ground. When they heard it, they went away, one by one, beginning with the elders; and Jesus was left alone with the woman standing before him. Jesus straightened up and said to her, “Woman, where are they? Has no one condemned you?” She said, “No one, sir.” And Jesus said, “Neither do I condemn you. Go your way, and from now on do not sin again.

John 7:53, 8:1-11

People make mistakes. We are not perfect. How true.

Sins are forgiven through repentance because repentance is all about learning from mistakes provided one realizes that mistakes have been made, similar to addicts beginning by acknowledging that they are addicted. Mistakes ought not to be overlooked, expecting the sinners to learn after being coddled for falling down because they continue to expect to be lifted up, ever higher, after each fall. The doting parent becomes the safety net before the child can hit the hard ground and before he can learn not to fall as hard once again. Such parents and children never learn.

In commerce, the markets, largely constituting of self-governing individuals, just as children cannot forever be watched by their parents for trespasses which can hurt them except by their own compass of conscience instilled by upbringing, are self-correcting because the mistakes of a few put the returns of the many at risk. Self-correcting markets are most efficient in allocating scarce resources because mistakes are punished and proper conduct is rewarded.

When virtuous conduct in commerce is endangered by certain terms of business transactions which induce or permit the breach of such conduct it is known as moral hazard because moral behavior is put to test and, thereby, at risk. When moral hazard is permitted to pass, such as by monetary expansion without conditions, whether it be the United States of America or the Democratic Republic of Congo, by the last bastion of government oversight, it results in corruption. After all, we do not stop paying traffic fines because we do not like the traffic laws. We pay and we change the law if we do not like it. So should the financial institutions. What is good for the goose is also good for the gander.

Well-regulated markets, through parsimonious but effective government oversight, are efficient because to oversee is in the interest of the government, an interest group in and of itself. The failure of both the government and the markets at the same time or at different times is a field of study in economics known as public choice theory. It is not practised as much because the government, with a monopoly over oversight, does not like to see itself as failing or having failed.

Whatever may be the justification for “mistakes”, hacking at the branch they are sitting on only to later cut their noses to spite their faces, such as the pursuit of a higher geopolitical purpose of global economic liberalization (Clinton and Greenspan, 1993-2005) or Chinese integration (Bush and Bernanke, 2006-present), no society and polity, the home and the public square, can function well if the people who made the mistakes, in government and in the markets, are not punished and the mistakes are not corrected.

People make mistakes. But some don’t pay when they do not play by the rules and make mistakes, because they feel entitled to make the rules. How true. The boomers, on balance, beginning with Clinton and Bush (b. 1946) and ending with Obama (b. 1961) must walk: three strikes and they are out.

To repent is to try to sin no more.


About Chandrashekar (Chandra) Tamirisa
This entry was posted in Economics, Government, Monetary Policy, Theology, Transformations LLC, World and tagged , , , . Bookmark the permalink.

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