The worry is that bailouts will be bad for us in the long term. But in the long term, as one sage noted, we are all dead. We can ban government rescues in the long term, if they’re such a worry. In the short term, the biggest hazard is too much moralizing.

How much evidence is there that moral hazard has any meaningful effect on decision making, for example in choosing to safeguard your home against fire?

Insurers count the cost of fire devastation – SMH, February 13.

The insurance industry said Government intervention after such disasters did not help reduce the strain on the industry and contributed to a moral hazard where people were less likely to hold private insurance.

Paul Giles, from the Insurance Council of Australia, said: “Those people who do insure look at people who don’t insure and say, ‘Well, I’ve been paying my insurance premiums for a number of years, why do I bother if the Government steps in?”‘.

Mr Giles said the fire services levy and stamp duty accounted for up to 40 per cent of home and contents insurance premiums, and governments would be better off encouraging people to take out private insurance.

It’s a beguiling argument, and it works logically. People tend to be less cautious when they know they’ll be bailed out. But context is everything.

‘Moral hazard’ isn’t applied evenly. In the past year, as this article points out, large insurers and banks have gone to governments, hat in hand, for bailout money.

Months ago, when the president announced a paltry plan to help out a few of the millions of homeowners who got caught in the sub-prime loan mess, he reiterated the credo: “It’s not government’s job to bail out … those who made the decision to buy a home they knew they could not afford.” Days ago, when he endorsed the giant Fed bailout of Wall Street, the president signaled it was government’s job to bail out big bankers who had made decisions to buy and sell risky securities they knew (or should have known) they could not afford.

At the same time, Australia faces escalating climate risks – bushfires, floods, sea level rise and storm surge. How prepared are insurers for these things, are they adequately prepared for the payouts?

Beyond all that, evidence is increasing that we just don’t know how to assess risk.