This article first appeared in the St. Louis Beacon, April 7, 2011 - The term "moral hazard" refers to the tendency of people to behave recklessly when they believe themselves to be insulated from the consequences of their actions. Economists often employ it when discussing investment strategies or insurance pools.
In the Wall Street crisis of 2008, for instance, investment banks bought sub-prime mortgages and bundled these shaky instruments into bonds, which they then sold as investment grade securities. The bankers reaped obscene profits from this trade and the derivative products market it spawned. When the bottom fell out, the government rode to the rescue with the TARP program, thereby preventing the total collapse of the banking system but also ensuring that the bankers would profit from their malfeasance.
Washington thus inadvertently rewarded people for behaving irresponsibly. As acting without regard for consequence is a good functional definition of insanity, the case can be fairly made that the government is now in the business of subsidizing madness.
Though the concept of moral hazard evolved from the study of economics, it's applicable to other fields. One of these is foreign relations.
We are currently bombing Libya. To be technically accurate, we are part of a coalition that is bombing Libya. Like the investment bankers with their worthless mortgages, we've bundled our responsibilities for this action into a NATO resolution. To paraphrase Dilbert creator Scott Adams, the reasoning seems to be that a diseased herd is somehow healthier than a sick cow.
At any rate, American munitions are once again falling on foreign soil. We are insulated from immediate consequences not only by our affiliation with NATO, but by technological superiority and fiscal artifice: The Libyan anti-aircraft defenses are no match for our planes and we're conducting the campaign on borrowed money.
In an April 4 column, Post-Dispatch columnist Bill McClellan suggested that we enact a 3 percent surtax on all goods and services within 48 hours of taking military action against anyone. Said tax would be levied for the duration of hostilities to defray the expenses incurred. McClellan's idea would install a pay-as-you-go responsibility for foreign expeditions while limiting the folly attendant to moral hazard by requiring all citizens to put a little skin into the game.
The latter aspect of his proposal would probably eliminate many of these adventures altogether. That should prove to be a tangibly beneficial side-effect because regardless of how insulated we may feel, all of these campaigns have real world consequences. Our liberation of Kuwait demonstrates how deferred consequences can come back to bite.
The First Gulf War was waged in defense of the principle of national sovereignty. Saddam Hussein was a clear-cut aggressor against an ally and I, for one, fully supported the military campaign to dislodge him. Unfortunately, the aftershocks of that highly successful effort led us to mess in which we are presently mired.
In the wake of Saddam's conquest of Kuwait, the son of a prominent Arabian businessman approached the House of Saud with plans to raise an all-Arab army to expel the Iraqis. This man had fought against the Soviets in Afghanistan with the U.S.-supported mujahedeen during the '80s. His name was Osama bin Laden.
Cooler heads prevailed and the Saudis decided to let their American friends do the heavy lifting. After dispatching Saddam, we established a no-fly zone in southern Iraq to protect the proprietors of the world's largest filling station -- the Saudi royal family -- from further aggression. This operation was run from the Prince Sultan airbase in northern Saudi Arabia where about 4,500 of our troops and an undisclosed number of US aircraft were stationed.
According to news reports, Bin Laden objected to the continued crusader presence in the Land of Mecca and ultimately engineered the 9/11 attacks on America to encourage us to go home. Those strikes spurred our invasion of Afghanistan.
After failing to close the trap at Tora Bora, our forces in Afghanistan were left to search for bin Laden -- a 6'4" Arab with a $25 million bounty on his head whom no one seems able to locate -- while sowing the seeds of democracy among a people more accustomed to warlords than ward bosses. The problem of infidel boots on Saudi soil, however, persisted.
One way to resolve that dilemma was to eliminate the threat that put the boots there in the first place. We subsequently invaded Iraq and shortly after toppling Saddam, quietly withdrew our forces from the Prince Sultan facility.
We have now suffered close to 6,000 combat deaths and more than 4 times that many wounded in these combined operations. We also took close to 3,000 domestic casualties on 9/11 and have killed an unknowable number of Afghans, Iraqis and, now, Libyans in the process. The running tab for all this is well over a trillion and mounting by the day.
These, then, are the repercussions of the original Desert Storm -- an American triumph of arms financed by the Kuwaitis in which the U.S. sustained 148 battle deaths. It would seem that the problem with "shock and awe" manifests itself in the aftershocks and the real danger of moral hazard is the fatal delusion that you can act without paying the price for doing so...
M.W. Guzy is a retired St. Louis cop who currently works for the city Sheriff's Department. His column appears weekly in the Beacon.