Moral Hazard: When Benefits Discourage People from Working

Most westernized nations have welfare programs. Initially, they are sold as a social safety net for disabled people and the recently unemployed. However, over time, politicians have taken political advantage by increasing benefits in exchange for votes, and this phenomenon has converted the safety net into a lifestyle.

As an example, The Sun recently reported on a couple who refuse to work because any job they could get wouldn’t pay as much as their current welfare claims. They receive £17,680 a year in benefits, which affords them an apartment, a laptop, internet and cell service, food, cigarettes, and a 47-inch TV. Most of the jobs they are qualified for pay less than that after taxes and child care, thus discouraging them from working. European countries are further along in this transition than the US, but, given the fact that it’s well on its way to happening here, it’s time to consider the harm that is done when government discourages healthy people from working for a living.

The Costs of Moral Hazard

When a large percentage of society is allowed to sit at home on benefits without working, the result is lost prosperity. Had that same person been starving rather than watching cable television in an air-conditioned apartment, he or she might have been biologically motivated to seek a means of employment. Almost every job in the marketplace produces products and services that enrich mankind. When large quantities of people who would otherwise have to work are given the opportunity to sit idle at home, fewer products and services exist for consumers, and this results in higher prices.

With fewer products and services available in the marketplace, the root causes of poverty worsen. The working poor loses the ability to afford basic goods and services, because welfare recipients are consuming wealth without producing anything. Meanwhile, the political system itself rots from the inside as it is too easy for sketchy politicians to expand benefits as a ploy to win votes.

Inactivity and Mental Health Issues

Careers make people feel good about themselves. Self-esteem is often fundamentally tied to one’s sense of purpose. An individual on welfare benefits with no career has a more difficult time finding a calling. The time spent idle lends itself to daydreams about wild schemes rather than sober attempts to react to market signals.

Over time, welfare recipients may begin to believe the hype — that they too are in some way disabled and unable to contribute. In fact, in the US, many overstate mental health issues that others can easily work through in order to make Social Security claims. In a way, this reinforces that individual’s perception of him or herself as a disabled person, when, in reality, the structure of a job might have helped solve the mental health issues in question. Inactivity, on the other hand, gives the individual unlimited time to think idle thoughts. I’m no psychiatrist, but sitting around smoking cigarettes and watching daytime TV does not seem to be the best cure-all for mild mental health issues.

Some people are legitimately disabled and can’t work. Also, there are those who seek benefits temporarily while looking for work. However, we also must realize that a large number of physically capable people are abusing the system by creating a lifestyle based on government dependency and permanent unemployment. Once society realizes that a decent lifestyle awaits those who refuse to work, it’s only a matter of time before the economy itself screeches to a halt as more and more people join in on the scheme.

Ultimately, what’s the point of working when it pays more to sit at home on benefits? Policymakers need to ask themselves this question before voting to approve more welfare spending.

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