In February 2019, the management board of the Department of Social Protection considered the question of whether it was okay to make emergency payments to help people in danger of eviction because their rent was in arrears. The department’s senior officials argued strongly against doing this.
“Any development of policy in this area”, they said, “will have to have regard to the very real moral hazard issues that would arise.” If tenants knew the State would bail them out, would they not be incentivised to stop paying their rent altogether?
“Moral hazard” is one of those terms that migrates from one field to another. It started out in the insurance industry, was then taken up by economists, and, especially after the great banking crash of 2008, it moved into the political realm.
It was much loved by the German government and the European Central Bank. The imperative of avoiding moral hazard meant that the sinning nations (Ireland among them) must suffer – because otherwise they would just carry on in their feckless ways.
As Michael Noonan, then minister of finance, explained in relation to the punitive interest rates being applied to funds loaned to Ireland: “in their wisdom, some of the ministers from the creditor countries decided that if they didn’t punish us, we’d do it again. And the punishment was referred to as ‘moral hazard’, and to avoid moral hazard they were sticking a premium on to the interest rates to make sure, like, that we didn’t enjoy it so much that we’d do it a second time.”
The idea, even in these very different contexts, is essentially the same: if little people (tenants in arrears) or little countries (Ireland in meltdown) are bailed out, they will learn a very bad lesson. They can behave badly because someone else will pick up the tab.
Grand so. It’s a principle – a harsh one, perhaps, but one with a certain logic. Make sure the malefactors don’t enjoy it so much that they’d do it a second time.
“Moral hazard” also cropped up in Irish political discourse a decade ago when the State began to face the reality that our building industry had more cowboys than Dodge City, Tombstone and Deadwood. The initial trigger for this concern was the widespread use of pyrite in building materials.
In 2012, the chairman of the expert group appointed to investigate the problem, Brendan Touhy, spoke to the Oireachtas environment committee about its findings: “The consistent message we received on this point, which tallies with our own view, is that those who caused the problem should pay to rectify it.”
He went on: “The various stakeholders, including the Construction Industry Federation ... are in agreement that the parties who bear most responsibility for what happened are the builders, insurers and those who provided the material. There is a moral hazard issue with regard to the State’s deciding to pay out on this from the outset, in that it absolves these people of their responsibility.”
Note here in particular that among the stakeholders agreeing that those who caused the problem should be the ones to pay to rectify it was the Construction Industry Federation (CIF). This bears repeating: the builders accepted more than a decade ago that their industry should meet the cost of reconstructing or remediating shoddy homes.
Conversely, no one suggested to Touhy’s inquiry that the tab should be picked up by the taxpayer. “No one who made a submission to us”, said Touhy, “named the State” as being responsible for the disaster.
And yet, here we are a decade on, and the State is shelling out, not just for the consequences of the use of contaminated building materials, but for every kind of sloppy and incompetent work by the builders of private apartments and houses.
Between the various schemes, we will be lucky to get away with €6 billion. That’s more than twice the amount the State intends to spend on the building of social and affordable housing this year.
This is a miracle of the management of public and political discourse. In 10 years, moral hazard has subsided faster than a jerry-built house.
The edifice of private responsibility has been demolished and in its place a facade of public liability has been erected. The construction industry has managed a great feat of deconstruction, taking apart what was, in 2012, an unarguable truth: that the taxpayer should not have to foot the bill.
Its impunity is not just financial, though. Where’s the criminal liability for exposing people to the dangers of being incinerated in fire-trap apartments?
Where even is the expulsion from the CIF of firms that were so disastrously reckless or incompetent? Where is the public register of these builders that members of the public can consult before they get work done?
Where is the slightest reason to think that, in Noonan’s expression, a lot of these people didn’t enjoy it so much that they’d do it a second time?
We’ve ended up with a very Irish definition of moral hazard. It means that if you built a dangerous slum, the State will bail you out. But if you’re about to be evicted from that slum because you can’t pay the rent, it won’t.