June 9, 2010
Regulation: Why didn't the government's regulations regulate BP?
By James Wilson

I sent the letter below to Congress using our "cut regulations" campaign. If you like what I wrote you can copy it or borrow from it to send your own letter to Congress.

My letter . . .

You politicians claim that your regulations and bureaucracies will protect me from evil corporations, but . . .

* Who will protect me from the big bad monopoly you guys run -- the federal government?
* And what am I to do when government regulators are constantly incompetent?
* And to whom can I turn when big corporations control their own regulators?

I'm going to give you examples of what I'm talking about, and then I'm going to tell you what the solution is.

It's a simple fact. Government regulators are constantly incompetent.

* We saw this with the Bernie Madoff scandal.
* We saw it during the Bush administration, with the botched New Orleans rescue.
* And now we're seeing it again, with the BP oil spill.

For example, the Washington Post reported the following on May 29, 2010:

The director of the Minerals Management Service, Elizabeth Birnbaum, had her attention focused on an airy-fairy offshore windmill farm called Cape Wind, instead of on regulating oil drilling. In part, this seems to have happened because she felt her agency was impossible for any mere mortal to control. Well . . .

This strikes me as typical of THE STATE as a whole. The attempt to manage the complexity inherent to big institutions by resorting to THE STATE, which is the biggest institution of all, is self-contradictory. But the problems run even deeper than that . . .

* You guys have no incentive to do a good job with anything, because you get your money from taxes, and no one can compete with you.
* Whenever a STATE agency fails it almost always gets MORE money, and MORE power.
* And you foist these same bad incentives on the private sector too, through your constant bailouts.

But The State's unfitness to regulate suffers from an even worse defect. Economists call it "regulatory capture." This means that industries tend to capture (control) the STATE agencies that are supposed to regulate them. The Minerals Management Service is only the latest example.

Please consult this Christian Science Monitor story to get some of the details about the too-cosy relationship between the oil companies and the Minerals Management Service:

Here's how it looks to me. You politicians . . .

* Constantly reward your own incompetence by assuming more power and confiscating more money,
* Promote similar incompetence in the private sector through bailouts,
* Constantly end up serving the industries you're supposed to regulate.

To me, this makes it overwhelmingly obvious that we need an alternative to STATE regulation.

I think the harsh punishments of a True Free Market provide that alternative. We're already seeing part of how such a system works. The stock market is punishing BP for its incompetence.

But we need much more of this, and for that to happen we need to free the market from the inherent contradictions of THE STATE. Specifically . . .

* You need to stop subsidizing energy production, in all its forms, because such subsidies are morally wrong (taking from some to give to others), and because they promote excessive risk taking
* Big projects like offshore oil drilling need to be entirely funded by people who will have their own money at risk, because this will make them more careful.
* Insurance underwriting will then play more of a regulatory role, and this will be better because, unlike government regulators, insurance companies will also have their own money at stake.
* But this incentive-based approach to regulation cannot work if you guys keep stealing money from taxpayers to bailout incompetent companies.

So far you have refused to bailout BP. Good! Now make this your general policy that applies to all companies. In short, please recognize that regulation by THE STATE is inherently inferior to the harsh discipline provided by a true free market. 


You can send your own letter to Congress here:

We encourage you to spread the word. Share this on Facebook.

Jim Babka
President, Inc.

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