kill cactus! A Bay Area Student's Blog

This article is now hosted on my new site. You can access it with this link. I will be completing the move to ppresky.com by June 1st.

After the stock market crash which signaled the start of the Great Depression, after the housing bubble which blew in 2008, even after the recent anger over Goldman Sachs and BP, there are people who think unregulated markets are more efficient than and morally superior to regulated ones. And I’m not addressing anarcho-capitalists who base this on moral objections to central authority nor am I addressing those who prefer no regulation to extreme nationalization. I’m addressing people who think that all members of society are happier, more secure, and more empowered without market regulation of any sort. Dinesh D’Souza, one of these people, spoke at UCSC a few weeks ago. Most of his speech, which espoused the morality of capitalism, can be summarized in his saying “besides the clergy, the capitalist is the person most obsessed with fulfilling the needs and wants of others”. This is a clever way of disguising the capitalist’s selfishness as a virtue. Selfishness is not a virtue, though it can be harnessed in a way which makes it virtuous through its useful products. That is why the competitive marketplace has been the most effective economic tool for helping to grow the total material output of a society. But selfishness means that businesses do what is best for them, which only sometimes is what is best for the consumer. Thus if some level of safety, fairness, equality, whatever you call it, is wanted in a society, someone with immense power who is held accountable only to society’s members must have some say in what businesses do.

Just like the Great Depression, the years leading up to the recent housing bubble will be studied for by economists for decades. But look at it this way: if many people start wanting housing, its value will go up. This works in the opposite direction as well: once something starts becoming unwanted by a few, everyone tries to sell. But by that time around early 2008, too many people had taken out huge mortgages on their once valuable houses, which were then (and are now) useless. They could never repay those loans without their houses because their incomes wouldn’t support such a large debt. And once people started defaulting, every bank had a bunch of houses and no cash. Zero cash means no loans, which stopped the economy from growing.

This explanation leaves out so much and yet, when combined with the leaked Goldman Sachs letters, shows why markets fail without regulation. It would be one thing for banks to really think they were making safe loans. But they knew they weren’t. Their bad loans were okay because they could, through magical bank tricks (derivatives) and lies, sell those debts to others, who would then have to deal with it themselves. And eventually not making risky loans would put you out of business because everyone else was making so much money off them that they’d simply push you over. And it was at this time that the selfish prospect of staying in business was completely at the expense of society’s best interests.

People like Dinesh D’Souza would argue that the banks would suffer from the fallout of the crash and stop doing this. But this is false. Banks are not embracing their mistakes as learning processes. Instead of reforming their ways they are spending millions of dollars fighting the government regulations that would put an end to the insane practices they knowingly perpetrated. Funny, but BP is also funding the fight against financial regulation, too. On to them.

Oil spills are not freak accidents which can’t be predicted. If your local coffee shop owner runs the numbers to determine if it’s worth buying insurance for his or her windows, I’m pretty sure that BP ran numbers on deciding if it is worth getting rigs built by people more careful than Transocean. And the result? Well if you factor in the cost of the oil clean-up (only 450 million) and government fines, the immediate consumer outrage (which isn’t really a problem), the long-run increases in the charges governments may put on drilling, and the long-run repercussions on their brand image, the spill is worth it. Some will say the spill will put BP out of business and others will be more cautious because of it. Well if that is the case, great. Too bad the fishing industry just died. All for the sake of learning, I guess. And what if it were a small spill that didn’t kill BP? The spill still happened, did it not? I’m not saying that cost-benefit analyses are always bad. If they were governments would just not let oil drilling happen because the slightest possible cost would not be worth any benefit. But clearly when you can spend more on an Italian sports car than on the technology that would have stopped this from happening we see that cost-benefit analyses should take into account more than just a company’s profit.

D’Souza argued that allowing individuals to make their own decisions to benefit society via charity is better than the government reallocating wealth. It might be understandable if he addressed inefficiency, but instead he addressed charity’s moral side. If you give money to a begger out of your own choice, he says, then you’ve done a good deed. But if the begger is given money taken from you, then no goodness comes of it. While I can agree with his logic, it breaks down when applied to big companies. It would be morally righteous for BP to regulate itself. But it isn’t going to do that. Even when governments try to regulate it, it is cheaper to pay them off – either legally with fees or through sexual favors to government employees. Corporations are driven by money, not values and so there is no moral goodness either way.

Which brings us back to the response from “conservatives”. Why does Palin respond to this incident by saying she “want[s] our country to be able to trust the oil industry” instead of renouncing her former efforts to deregulate it? And why are the  legislators complaining about the lack of enforcement of regulations usually the ones stopping tougher federal control? In response to a mediocre police department you improve and expand if given no other crime-stopping force. Of course they’ll say the crime stopping force of the free market is consumer and investor response. But I haven’t heard any “conservative” legislators calling for a boycott of BP, Halliburton, Transocean, etc… Maybe because a boycott is almost impossible. Remember when the idea for a Viacom boycott was resurrected after their unfair attacks on YouTube? Would you stop watching Comedy Central, BET, Nickelodeon, MTV, VH1, and everything by Paramount Pictures? I wouldn’t. And even if it were easy, the majority of us aren’t informed or simply don’t care enough to make socially conscious shopping choices, myself included.

The US is the only major country whose oil companies are not nationalized – which is often a good thing. But this means that large, powerful corporations are, by definition, interested in profit and not in the the long run needs of the people they serve, no matter what D’Souza may say. A consumer and investor response hasn’t really been an issue. And the spill probably won’t put them out of business. So the only way we can stop these disasters is through adequate and enforced regulation. Because while the search for profit can be noble, considering it the only factor when taking big risks like this just shouldn’t happen.