Examples in another context of the confusion between ignoring risk and excusing wrongdoing: there's a new book out, drawing attention once again to the government policies that contributed to the 2008 housing crisis. The book is drawing the predictable criticism that it's a mistake to attribute the housing crisis to government regulatory initiatives, when it's so obvious that many bankers were greedy and incompetent. That's a confusing criticism, considering that we're not likely to start inhabiting a world in which bankers are drawn exclusively from the ranks of the saintly and skilled. We have systems for restraining the more unpleasant results of bankers who go wild. They start with making it highly likely that the bankers will lose money if they keep it up, and go on to criminal penalties if, in addition to responding to a natural impulse to make money, they drift into outright fraud. But none of that explains very well what went so dramatically wrong with our housing market in 2008.
What does explain it quite handily is a look at the impact of a government-sponsored entity that sends out a strong signal, "We'll buy the craziest mortgages you can sign up. Lend money to people with bad credit. Not only will you get credit of various sorts from people (on both sides of the political aisle) who want to see homeownership expand in our society, but you won't even pay a financial price for writing loans you ought to know perfectly well are going to default in above-average numbers. We'll subsidize your losses." What exactly did we expect to happen, especially considering that banks make money on processing fees and therefore are highly motivated, all other factors being equal, to maximize loan volume? The force that normally puts a brake on this motivation is fear of failure. We took fear of failure almost completely away.
Does that mean no banks behaved badly? Obviously not. But, as voters, we're not in control of bankers' consciences. We are in control of the laws we pass. We don't have to pass laws that fuel the very behavior we claim to be outraged by. I don't know why we can't learn the lesson that you get more of whatever you subsidize.
As usual, I think the basic underlying mistake here is to imagine we can escape the price tag of a charitable impulse. Both Democrats and Republicans had a natural, even laudable, goal to improve the lives of Americans by extending the benefits of home ownership to greater numbers of people. We went wrong by fantasizing about a world in which such a thing would not have a cost, a real cost that real people would have to pay. We're like people who want to feed the homeless, and place an order for restaurants to deliver hot meals to 10,000 people, then settle back in our armchairs feeling compassionate. But when the bill comes in the mail, we throw up our hands and refuse to pay it. "I thought it wouldn't cost anything! I thought someone else was going to pay it! If you don't keep delivering the hot meals without waiting for my check, you're just mean! You must be in favor of hunger! Restaurant owners are greedy!"