Moral hazard is the notion that entities -- individuals, firms, even countries -- are more likely to take risks when they are protected from the repercussions of risky actions' outcomes. Some would argue that the United States Government's identification of certain financial institutions as "too big to fail" provides those institutions unhealthy incentives to take risks they would otherwise forego, because any negative consequences of the risks will be covered by the government and American taxpayers, rather than by the financial institutions, their leadership, and their shareholders.
Today, we see an example of moral hazard in the international arena -- one that has been in existence since the 1970's, but that has become increasingly prevalent since the turn of the century. At least since the Yom Kippur War of 1973, the United States has provided a de facto security guarantee to Israel. This security guarantee was on full display this week with the U.S. Secretary of Defense's comment that the U.S. will take "every possible step [emphasis added] to defend Israel" should Iran attack Israel in retaliation for the assassination of Hamas' political leader, Ismail Haniyeh, in Tehran. (https://apnews.com/article/israel-hamas-gaza-war-us-submarine-carrier-43e2574e746af59993f54e4ef250a640) The U.S. rhetorical guarantee has been reinforced by the deployment of significant military assets to the region. The moral hazard is that Israel is likely to take strident positions and actions it might otherwise forego absent America's blanket security protection. Even more dangerously, such open-ended guarantees constrain U.S. security options to pursue its own national interests, which -- concomitant with such carte blanc promises -- have become conflated with Israel's interests to the point that many U.S. policy makers consider the two countries' interests one in the same.
Some historians have attributed World War I's eruption to Europe's system of entangling alliances and security guarantees that quickly committed larger powers to action once smaller allies made decisions. While perhaps too simple an explanation of the Great War's start, the United States should be very wary of the example, and of the moral hazards associated with public, open-ended, and all-encompassing security guarantees to any other country. International affairs is a great game of power -- not only the power of overt action, but the power of persuasion and potential. Unfortunately, over the last twenty years, the United States has played the game very poorly.
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