Foundation Damage: The 2008 Subprime-Mortgage Meltdown

Publication Date: January 2008

Publisher: Hoover Institution on War, Revolution, and Peace

Author(s): Gary S. Becker

Research Area: Economics; Government

Keywords: Mortgage Crisis; Economy

Type: Report

Coverage: United States

Abstract:

People who succeed in shifting the responsibility for bad decisions onto others, and to society more generally, create a “moral hazard” in behavior. A foundation of the philosophy behind the arguments for private enterprise, free economies, and free societies is that these societies rely on and require individual decision making and responsibility.

What, if anything, should governments do to help out in this crisis, staying aware of the many kinds of moral hazards that lurk but also noting that the financial structure is delicately balanced? Interventionist policies might be justified to help the economy recover more quickly and ensure that the recession is neither prolonged nor deep.