OK, government regulation isn’t ALL bad…
Why the delay? Because I was trying to figure out what to say.
On the one hand, the movie was immensely entertaining. The story (based on a book by Fortune magazine writer Bethany McLean) tells how an energy-futures trading company charmed financial institutions around the world, promoted a new business model and a new type of accounting, coerced financial analysts, manipulated energy markets at home and abroad, and finally collapsed in a huge steaming pile of fraud. That the movie was fun could be seen in the ample audience participation – laughter, groans, and animated conversation afterward.
On the other hand, the story drills a number of painful holes in my libertarian/conservative teeth.
I like to believe that government regulation of markets (in the form of subsidies, limits, and controls) are the reason that marketplaces don’t perform better than they do. Why, if gub’mint would only git out of the way, the marketplace would find the best solution every time!
But that’s plainly not true. One area where it does not work is in necessary services that can’t be assigned to individual consumers. NOAA comes to mind, and the CDC, the Army Corps of Engineers, or for that matter even the whole national defense enterprise. If we depended on the market to do these things, they wouldn’t get done – and they need to be done.
The other major area of market failure is where corporations become large enough to manipulate the markets out of sheer greed or the ego of their leaders. That seems to be what happened with Enron. The less regulation on that company, the worse it played out for consumers. The wreckage caused by the wishful thinking of deregulation landed on literally millions of people’s lives.
Ego played a large role in Enron. The lead guys were “colorful”, to say the least. And they obviously thought very, very highly of themselves.
I was fascinated by how financial institutions could look at Enron’s business and accounting models and not back away and go wash their hands. There really is something in human nature that wants to believe things will turn out great, I guess. We want to believe the promises of the huckster.
This does not bode well as larger forces are at the disposal of corporations, and it isn’t that reassuring in the hands of governments either. The unfortunate lesson is that sometimes, only government regulations can prevent disaster. I find it a scary thought because there are so many examples of government incompetence.
The movie did play into one of my pet intersts, though. History is full of examples where disaster loomed, a few people said “this will cause a disaster!” and were brushed aside with “Pshaw! That’s crazy talk! You just be quiet now!” Some of my favorite examples are the Johnstown flood, the Gimli glider, the Kansas City Hilton walkway, and the Challenger shuttle. I’d never thought of adding a financial collapse to the list, until now.
ENRON: the smartest guys in the room is definitely recommended!