Deepwater, Enron, Massey Energy, WorldCom, Bernie Madoff - - all good examples of a fundamental flaw in our currently regulatory system. A system of rules and regulations without effective regulators - - a system of too little supervision that encourages corporate recklessness combined with the existence of oversight agencies and authorities that encourages public complacency. From MMS to EPA to SEC to IRS - - an alphabet soup of obvious problems relating to oversight, corruption, and revolving doors. It is no secret - - a quote from today’s Wall Street Journal - - “A Senate panel asked the Securities and Exchange Commission’s inspector general to review the agency’s revolving door, which shuttles many SEC staffers into jobs with the companies they once regulated.”
We spend tens of billions of dollars on new regulations each year - - yet at the same time cut the oversight and enforcement budgets. In the “economy of esteem,” soldiers and firefighters are much nearer the sharp end of the pyramid than the lowly regulatory community. But we seem unwilling or unable (or both) to pay regulators at an appropriate level to attract top talent or to provide public service work with a sense of common purpose. Which did more economic damage during the Great Recession - - fire or poor regulatory oversight? We tend to always be sending the wrong messages - - regulators are an obstacle to thriving fee markets - - regardless of risk reduction, the increase in honest markets, and improvements to the health, safety, and welfare of the public.
Deepwater drilling is a good example of the public’s desire not to care to deeply about regulations and risk - - we want our comforts and affordable gasoline but we don’t want to know too much about where they come from or what makes them possible. We don’t want to hear about the unpleasantness or risks. Like Herman Melville’s Moby-Dick, the public ashore doesn’t want to know about the ugly things that go on at sea. Current technology, from drilling to derivatives to trading algorithms, has outpaced not only governmental regulatory oversight, but also the means of correcting catastrophic failures. It has also outstripped the public’s capacity for understanding and caring along with the political will and fiscal responsibility to adequately support and fund regulatory oversight.
If you stand on the marshes in Louisiana and look south into the Gulf, like Nietzsche said, “And if thou gaze long into an abyss, the abyss will also gaze into thee.” The public, regulatory community, and political class are not going to routinely gaze into the abyss. The real first line of defense in preventing another gulf disaster is the high ethical and high moral standards that we can bring to decks of drill rigs and the banks of levees.
In some respects, the dangers of greed and self-destruction in our whaling past are metaphors for our current quest for more oil. Maybe we should read Moby-Dick again and the world of Captain Ahab to understand the risks of unregulated markets. If we are going to do it - - expand the quest for oil, let’s do it with an informed public, first class regulators, fully funded organizations, and an engineering community with a deeply embedded sense of ethical standards and the moral qualities that define virtue.