When The Free Market Isn't Enough

The news the BP chose a riskier but cheaper approach to their well shouldn't be a shock. The world works on the sum of individual decisions, and individuals know more about what they are doing than the higher bosses, let alone investors. So when people drilling in the deep ocean look at decades of success, they will ask themselves whether it's more profitable for themselves if they cut corners.

Not whether it's better for the public, because that's abstract. What's concrete is that if you do a job for another year in a manner that has been successful for 20 years, you'll get paid. If you insist on safety measures that nobody understands the need for, you may get fired. And if you guess wrong, you can take your savings and go to Montana.

But would regulation have prevented the blowout? Is it likely that regulators will know what all the issues are, let alone the appropriate level of safety required? Unlikely.

At the end of the day, the lessons is mostly that this is a very uncertain world, where doing things on a large scale must involve large risks and we should prepare ourselves for mishaps. The lesson the most people are likely to take away is unfortunately that we should stop drilling in deep water.