War and Moral Hazard

From today's Washington Post:

Who's Paying for Our Patriotism?

By Uwe E. Reinhardt Monday, August 1, 2005; A17

President Bush assures us that the ongoing twin wars in Iraq and Afghanistan are worth the sacrifices they entail. Editorialists around the nation agree and say that a steadfast American public was willing to stay the course.

Should anyone be surprised by this national resolve, given that these wars visit no sacrifice of any sort -- neither blood nor angst nor taxes -- on well over 95 percent of the American people?

At most, 500,000 American troops are at risk of being deployed to these war theaters at some time. Assume that for each of them some 20 members of the wider family sweat with fear when they hear that a helicopter crashed in Afghanistan or that X number of soldiers or Marines were killed or seriously wounded in Iraq. It implies that no more than 10 million Americans have any real emotional connection to these wars.

The administration and Congress have gone to extraordinary lengths to insulate voters from the money cost of the wars -- to the point even of excluding outlays for them from the regular budget process. Furthermore, they have financed the wars not with taxes but by borrowing abroad.

The strategic shielding of most voters from any emotional or financial sacrifice for these wars cannot but trigger the analogue of what is called "moral hazard" in the context of health insurance, a field in which I've done a lot of scholarly work. There, moral hazard refers to the tendency of well-insured patients to use health care with complete indifference to the cost they visit on others. It has prompted President Bush to advocate health insurance with very high deductibles. But if all but a handful of Americans are completely insulated against the emotional -- and financial -- cost of war, is it not natural to suspect moral hazard will be at work in that context as well?

A policymaking elite whose families and purses are shielded from the sacrifices war entails may rush into it hastily and ill prepared, as surely was the case of the Iraq war. Moral hazard in this context can explain why a nation that once built a Liberty Ship every two weeks and thousands of newly designed airplanes in the span of a few years now takes years merely to properly arm and armor its troops with conventional equipment. Moral hazard can explain why, in wartime, the TV anchors on the morning and evening shows barely make time to report on the wars, lest the reports displace the silly banter with which they seek to humor their viewers. Do they ever wonder how military families with loved ones in the fray might feel after hearing ever so briefly of mayhem in Iraq or Afghanistan?

Moral hazard also can explain why the general public is so noticeably indifferent to the plight of our troops and their families. To be sure, we paste cheap magnetic ribbons on our cars to proclaim our support for the troops. But at the same time, we allow families of reservists and National Guard members to slide into deep financial distress as their loved ones stand tall for us on lethal battlefields and the family is deprived of these troops' typically higher civilian salaries. We offer a pittance in disability pay to seriously wounded soldiers who have not served the full 20 years that entitles them to a regular pension. And our legislative representatives make a disgraceful spectacle of themselves bickering over a mere $1 billion or so in added health care spending by the Department of Veterans Affairs -- in a nation with a $13 trillion economy!

Last year kind-hearted folks in New Jersey collected $12,000 at a pancake feed to help stock pantries for financially hard-pressed families of the National Guard. Food pantries for American military families? The state of Illinois now allows taxpayers to donate their tax refunds to such families. For the entire year 2004, slightly more than $400,000 was collected in this way, or 3 cents per capita. It is the equivalent of about 100,000 cups of Starbucks coffee. With a similar program Rhode Island collected about 1 cent per capita. Is this what we mean by "supporting our troops"?

When our son, then a recent Princeton graduate, decided to join the Marine Corps in 2001, I advised him thus: "Do what you must, but be advised that, flourishing rhetoric notwithstanding, this nation will never truly honor your service, and it will condemn you to the bottom of the economic scrap heap should you ever get seriously wounded." The intervening years have not changed my views; they have reaffirmed them.

Unlike the editors of the nation's newspapers, I am not at all impressed by people who resolve to have others stay the course in Iraq and in Afghanistan. At zero sacrifice, who would not have that resolve?

The writer is James Madison professor of political economy at Princeton University.

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