Socializing Risk

It is fashionable in some quarters, amid the ongoing economic meltdown in the United States, to say that the just-passed bail-out plan put together by Congress amounts to socializing the risks in a whopping portfolio of bad debt, while the rewards remain private. Maybe. This assumes that any rewards are still possible. The rewards from these bad deals have long ago passed through to individuals too numerous to even think of pursuing for recovery—not to mention that these gains were by and large legal.
The fact that others must come to accept is that to a very large degree risks are always socialized. We all pay the price for a panoply of bad behavior by others, be it smoking, drinking to excess, poor diet or lousy investments. If nothing else, the risks create circumstances that in the end we are collectively unwilling to tolerate in a civil society: extreme poverty, untreated disease, and unemployment. Only a fractional amount of the costs falls directly on the individuals involved alone. In short, risk is always socialized.
The real problem is how much our institutions, public and private alike, mortgage the future, not by incurring debt, but rather by failing to fund risk. Look closely and you will see this everywhere. Institutions that carry a depreciation line on their budget, but rarely if ever fund a capital account for property replacement. Companies—airlines come to mind—that willingly adopt suicidal business models that require them to sell their product below cost. And governments who create risk-protective entities such as the Federal Deposit Insurance Corporation, and then act as if risk has gone away by failing to fund it for a decade or more.
While I am doubtful of the capacity of this latest meltdown to change behavior—I am far too jaded a psychologist to presume much of this sort of thing ever really changes—wouldn’t it be refreshing to see our institutions taking risk more seriously? Then, when calamity strikes, as it always must, we can act from a position of preparation as opposed to reflexive reaction.