It’s an old, but familiar tune: big government in bed with big business giving birth to big problems.
In a USA Today article, dated July 21, 2010, inspection of oil wells has not been a priority. The number of federal inspectors at Deepwater oil facilities has not kept pace with the industry's growth. According to a House hearing on the BP oil spill, the federal agency regulating offshore drilling has just 60 inspectors in the Gulf of Mexico for nearly 4,000 facilities, just five more inspectors than it had in 1985, according to a memo prepared by the Democratic majority staff of a subcommittee to the Committee on Energy and Commerce. The number of producing Deepwater Wells has increased from 65 in1985 to 602 in 2009.
The memorandum, prepared for Henry Waxman, Democrat California, and other lawmakers alleges that the minerals service:
• approved changes to the BP wells design that may have increased the risk of a blowout.
• failed to act upon a series of reports prepared for the minerals service in 2001, 2002 and 2003 that recommended two blind shear rams on blowout preventers, the safety devices that are supposed to seal a well should a blowout occur.
• failed to require more stringent standards and the cementing of wells. In 2000 the MMS decided not to impose any cementing requirements.
This report is eerily reminiscent of the lack of oversight by the Security and Exchange Commission (SEC), during the decade 1990 to 2000. During this period, the fee on stock transactions was increased ostensibly to fund better oversight, and approximately $10 billion in revenue was generated by this fee. However, the SEC only retained $2 billion of this money. During the height of the Enron and WorldCom scandals, the SEC employed approximately 100 accounting and legal staff to regulate well over 15,000 publicly held firms. Of these 100 staff, only four were qualified to audit firms of WorldCom's size and complexity.
Now we have an understaffed, out of control MMS. This is one of the largest fee generating agencies in the US Government. Inspite of their large revenue base, MMS appears to be understaffed, and yet has enough time on its hands to fraternize with the industry they are supposed to be regulating. According to the New York Times (Interior Probe Finds Fraternizing, Porn and Drugs at MMS Office in La., by Noelle Straub, May 25, 2010), the MMS Inspector General report on the New Orleans MMS discloses:
• "E-mails for MMS inspectors from the Lake Charles [MMS] office revealed that in 2005, 2006, and 2007, various offshore companies invited MMS personnel to events such as skeet-shooting contests, hunting and fishing trips, golf tournaments, crawfish boils, and Christmas parties," the report says.
• One former MMS official wrote an e-mail saying he had "good friends" in the industry that he "wouldn't write up."
• "Prior to our investigation of [Don] Howard [,the former regional supervisor at the MMS office in New Orleans, who was fired in 2007 for accepting a gift], receiving gifts such as hunting trips, fishing trips, and meals from oil companies appears to have been a generally accepted practice by MMS inspectors and supervisors in the Gulf of Mexico region."
• The IG found numerous instances of pornography and other inappropriate material on the e-mail accounts of 13 employees, six of whom have resigned. There were 314 instances in which the seven remaining employees received or forwarded pornographic images and links from their government e-mail.
So much for regulation. One of these days we will learn that regulation does nothing more than inefficiently and ineffectively spend money that could be deployed in a free market to generate more wealth. Instead, we create rules and regulations that provide a burden on small business, while creating barriers to entry for them against much larger firms. Large business, on the other hand, has the economy of scale to comply with the regulation and build that cost into their pricing structure. So what we get is big government in bed with big business – literally.
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