Big Spills Make Bad Regs


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.