Regulations or lack of regulations

Who likes regulations? Who likes to be told what to do? Nobody it seems but then again, what are the consequences of no rules?

Oil Spill in the Gulf of Mexico

In the news on Thursday, June 17, 2010, I see that BP, British Petroleum has been obliged by the U.S. government to set aside twenty billion dollars for the Gulf oil spill. While this amount of money is deemed by analysts as a "drop in the bucket" in relation to what BP earns overall, there is for me quite an amusing side to the entire story.

As it goes, BP, amongst other oil companies, lobbied the U.S. government to stop regulation which would have required certain safety measures. These companies felt such measures were onerous to their operations or as restated by reporters, onerous to their bottom lines. From what I understand, BP was not obliged to shell out $500,000 for a safety valve. Such a valve would have apparently prevented the oil from leaking as it has been doing. Apparently, with the platform sinking and pipe being disconnected from the rig itself, this safety valve would have kicked in and sealed off the pipe at the seabed.

I am stunned by such an implication and I also have to laugh at it all. BP has now been obliged to set aside $20 billion. Who knows how much more they may have to spend on clean up and financial restitution? All of this is for what reason? It is because they lobbied to not be obliged to spend $500,000 for a safety valve. This is monstrous: monstrously short-sighted, monstrously funny and a monster of a catastrophe.

Subprime Mortgage Crisis

In the United States, financial institutions were able to set up lending practices that emphasized profit over prudence. Loans were being granted to people who would have been otherwise deemed incapable to repaying said loan. Terms were given that now seem to have only fuelled the precariousness of the loan. While many factors come into play to fully explain the complexity of the entire crisis, the rather simple reason is that a whole lot of people failed to pay back their loans, whether it be a mortgage on a house or some other form of debt. The entire system, in the quest for profit, failed to take into account the possibility of debtors being unable to repay their debt. Like a pyramid scheme, the entire house of cards fell over. Greater and greater risks were being taken in search for greater and greater profits.

No Regulations?

One of the principal ideas of a democratic free market economy is that government imposes little or no regulation. It is felt that the market itself will "self-regulate", it will find its own balance. However, like a pendulum which swings back and forth many times before coming to rest in the middle, how much adjustment will a market make, how much self-regulation is necessary before one finds that middle ground?

In the two stories above, the Gulf Oil Spill and the Subprime Crisis, a lack of regulation allowed the participants to do… well, pretty much what they wanted. By focusing on profit over prudence, people were "allowed" to proceed with a course of action that under-estimated the risk and over-estimated the reward. While a certain amount of risk would be inherent in anything we do, we must admit that certain levels of risk must be considered imprudent if not just plain stupid. After all, as the old saying goes, "Never bet more than you can afford to lose."

Don’t Tell Me What To Do

An American was telling me that he didn’t want regulations; he wanted less government. He very much wanted to be free. I told this person that we can all agree that a speed limit of 60 mph or 100 km is a reasonable restriction on our driving. Such a rule can save lives. The American nodded his head and agreed with me. I then added that such a rule does not restrict where we can go; it only tells us how fast we can go. The American became thoughtful.

I continued by explaining that the government imposes a speed limit because going faster is more dangerous and statistics prove that with speed, more people lose their lives. Nevertheless, the government is not trying to tell us where we can drive. It is not telling us where we can go. It is only trying to tell us the safest way of getting to where we have decided to go. The rule about the speed limit is for safety because the government actually wants us to get to where we are going. It imposes these rules for our own collective good.

The American admitted that I made a good point; he had never looked at regulations that way saying that this made sense.

Regulations

Every time I get in an elevator, I can look up and there is a little plaque in which I can read a certificate issued by the government showing "inspected by so and so on such and such a date". That somehow gives me a sense of security in that I don’t have to worry about the elevator plunging into the basement and leaving me flat as a pancake on the floor after a 10 story drop.

Anyone who flies an airplane is personally acquainted with a pre-flight checklist. This list covers dozens of items which the pilot must verify before he takes off. These rules are in place not to be a burden, but to ensure the pilot is actually successful in flying his plane.

When I was a boy, my father showed me the proper way of using a table saw. Explaining how a rotating saw blade can sometimes grab a piece of wood, he showed how in a twinkling of an eye a finger can be easily drawn into the whirling blade and be amputated. Proper procedure dictated guiding a piece of wood not with one’s hand, but with another piece of wood. If the piece which is being cut ever got pinched by the saw blade, instead of one’s hand being pulled into the blade, the piece of wood being used to guide the wood being cut would be drawn in.

Rules are there to help us, to protect us. There are not there to take away freedom; unless, of course, we want the freedom to maim or kill ourselves. Rules have been put in place by others who have gone before us who have observed phenomenon, analysed the results, figured out the why and determined what’s necessary to avoid the bad.

If BP had been forced through regulation to purchase and install the safety valve, we wouldn’t have the Gulf Oil Spill. If financial institutions were forced through regulation to only loan money to people who could realistically be able to repay it, we would not have had the subprime mortgage crisis. I am not advocating for more government but I do think some well thought out rules would not hurt. When I get on an elevator, when I turn onto the highway, I do not necessarily feel apprehensive. I think the rules in place are helping me and statistically doing their best to ensure that I get safely to the dinner table that evening.

Click HERE to read more columns by William Belle.

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