We Reap What We Sow

The continuing disaster from when the BP (NYSE: BP)-hired Transocean (NYSE: RIG) drilling rig, Deepwater Horizon, exploded and sank in the Gulf of Mexico is appalling. Yet not so long ago, we were hearing cries of "drill, baby, drill." Now we're hearing cries that the oil industry is too close to its regulatory agency. A different tune, indeed.

"Agency capture" is the term used in economics when the regulated dominate the regulators. It's not that difficult, really, because the regulators often need expert advice on what regulations to set, drawing upon the expertise of those being regulated. But it does take time, often years, to happen. The unfortunate thing is that when it finally does happen, the profit motive begins to dictate what regulations are set and how strongly they are enforced. And that often leads to discounting risk until something like the Gulf disaster strikes.

Will we learn from letting Big Oil get too close to its U.S. regulators? I think so. There will be changes to the Interior Department's Minerals Management Service, and other agencies will likely take a closer look at their own industry oversight duties.

But will we prevent another disaster abetted by agency capture? Not a chance. Not as long as humans are running things.