Thursday, June 10, 2010

The BP Gulf Oil Spill, Regulatory Capture and Government Failure

As the BP Gulf Oil Spill crisis drags on, the calls and screams to have people criminally prosecuted will become ever more shrill and demanding.

Who and what is ultimately to blame?

Looking at BP's role and lobbying efforts in American politics reveals something very interesting about the nature of political systems and the human condition.

See: Feel the Rage

The liberals' fury at the President is almost as astounding as their outrage over the discovery that oil companies and their regulators might have grown too cozy. In economic literature, this behavior is known as "regulatory capture," and the current political irony is that this is a long-time conservative critique of the regulatory state.

The Nobel economist George Stigler of the University of Chicago was one of the concept's main developers, and it is a seminal plank of the "public choice" school of economics for which James Buchanan won the economics Nobel in 1986. Ronald Reagan warned about this in different words in one of his farewell speeches.

In the better economic textbooks, regulatory capture is described as a "government failure," as opposed to a market failure. It refers to the fact that individuals or companies with the highest interest or stake in a policy outcome will be able to focus their energies on politicians and bureaucracies to get the outcome they prefer.

See: Once a government pet, BP now a capitalist tool

While BP has resisted some government interventions, it has lobbied for tax hikes, greenhouse gas restraints, the stimulus bill, the Wall Street bailout, and subsidies for oil pipelines, solar panels, natural gas and biofuels.

Now that BP’s oil rig has caused the biggest environmental disaster in American history, the Left is pulling the same bogus trick it did with Enron and AIG: Whenever a company earns universal ire, declare it the poster boy for the free market.

Making government more powerful, makes it more corruptible.

Government is corruptible because people are corruptible. There is no getting around or away from that fact.

As government grows and is given more control over the details and minutia of our daily lives, the scope of corruptibility of the government grows with it.

When the government makes a law, a rule or a regulation regarding a behavior, it affects peoples lives. Laws, rules and regulations are created with the specific intent of affecting peoples lives. Since laws, rules and regulations affect peoples lives, they create an incentive for those most affected to be able to influence those that are making the laws, rules and regulations.

There is a give an take to this. Everyone has things that they want. Everything becomes negotiable. Anything can be bought if the price is right and a seller has something that a buyer wants.

The process that this all gets worked out in, where the negotiations are made, the horse trading is done and back room deals are dealt, we call politics.

People's property and lives are at stake. The costs and prices become greater as the scope and power of the laws, rules and regulations increase.

The end results can be disturbing and very predictable.

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