Big Spills Make Bad Regs

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The MMS is dead. Long live the Bureau of Ocean Energy Management, Regulation and Enforcement?

The Washington Post has a long interesting feature today detailing the flaws and foibles of Mineral Management Service's (MMS) regulation of offshore oil drilling. To those schooled in public choice theory, the Post story is another case study in "agency capture"—where a regulatory process is "captured" by those it is supposed to regulate and turned to their advantage. And in this case, saying MMS bureaucrats were in bed with representatives of the companies they were supposed to oversee is not just a figure of speech.

As the Post story makes depressingly clear, the MMS was urged by policymakers all along the way to function as a "partner" with the oil industry. Today, our economic landscape is so littered with thousands of government-industry partnerships that the country is teetering on the brink of corporatism in which politically compliant companies are rewarded with guaranteed profits by government officials. Such profits are secured through a mix of direct subsidies, tax incentives, and barriers to entry to competitors.

The Post takes the MMS to task for not understanding how to regulate new challenging oil production technologies, as if bureaucrats who have produced nothing but paper all their lives could somehow regulate out ahead of cutting-edge technologies. This is not to say that there were not regulatory failures in this fiasco, but like most human failures they only become crystal clear in hindsight.

So seeking to use hindsight to guide them, officials in the Obama administration have hit upon a new "solution" to regulating the high tech production of oil—splitting the MMS (now catchily renamed the Bureau of Ocean Energy Management, Regulation, and Enforcement) up into two branches—one that will review projects for approval and collect revenue and another that will chiefly evaluate projects on the basis of their safety. Initially this might sound like a good idea, but it's not. Why? Put some bureaucrats in charge of safety and they will make sure that safety comes first, no matter how big the foregone benefits may be. It is always easier to say "no" to some potentially risky new activity than to say "yes." This kind of regulatory "fix" is a recipe for economic and technological stagnation.

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  1. “our economic landscape is so littered with thousands of government-industry partnerships that the country is teetering on the brink of corporatism”

    Isn’t gov’t-corporate cooperation a major component of facism, as well?

  2. As the Post story makes depressingly clear, the MMS was urged by policymakers all along the way to function as a “partner” with the oil industry. Today, our economic landscape is so littered with thousands of government-industry partnerships that the country is teetering on the brink of corporatism in which politically compliant companies are rewarded with guaranteed profits by government officials.

    And you think that was not on purpose?

    Regulations are nothing more than government-run protectionist schemes. Nothing more than that.

  3. Think of the government regulator as Jiminy Cricket, sitting on the shoulder of the soulless capitalist and whispering into his wooden ear.

  4. Do we want government combating idustry or aiding it? MAKE UP YOUR MIND!

    Also, who posted this?

    1. Fist: How about “neither”?
      I admit I posted it.

      1. I knew it was you, Ron. You broke my heart.

        Also, you want to put regulators out of work in this economy? To say nothing of the hookers Big Oil sends their way. You heartless bastard.

  5. Initially this might sound like a good idea, but it’s not. Why? Put some bureaucrats in charge of safety and they will make sure that safety comes first, no matter how big the foregone benefits may be. It is always easier to say “no” to some potentially risky new activity than to say “yes.”

    This is true whether the government agency is part of the corporatist or not. Compare and contrast DOE and NRC. Licensing by NRC has made plants very safe, but cost-prohibitive. DOE still builds stuff, but as owner/regulator they follow their rules until they get too expensive. This duplicity in agency causes projects to founder or at least flounder until they are way over budget and schedule.

    The government should be the regulator only in every case and as far as possible. Congress will have to decide how much risk we can take (i.e., nuke plants versus offshore platforms). Where government must own, it will always cost more (i.e., DOD).

  6. Do we want government combating idustry or aiding it? MAKE UP YOUR MIND!

  7. Regulations are nothing more than government-run protectionist schemes. Nothing more than that.

  8. A persistent problem in regulating complex industries is that the only people who know enough to do it come from the industry and will probably want to go back to the industry at some future point in their careers. There’s really no way around the problem.

    1. Ya. What he said. Isn’t having people who don’t know shit about the industry the realistic alternative to “regulatory capture”?

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