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July 15, 2010

An Economic Model of Greed (Or, The Legacy of Gordon Gekko)

New York Times
New York Times

Before Deepwater Horizon there was Thunder Horse, a fifteen story oil platform that cost over $1 billion dollars to construct and was characterized as a marvel of modern technology.  According to then Secretary of the Interior Gale Norton, “It is amazing that so large a structure … will have such a tiny environmental footprint, leaving almost no trace of itself in either the sea or the sky.”

The photograph above shows it pitching in the seas of the Gulf of Mexico following Hurricane Dennis in 2005 before it had become fully operational. The efficient cause of its near sinking was not the storm however, but the improper installation of a check valve that “caused water to flood into, rather than out of, the rig when it heated during the hurricane.”  A simple enough mistake, perhaps, until we learn that the platform was hastily rushed into production “to demonstrate to shareholders that the project was on time and on schedule.”  And it was later discovered that the shoddy welding of underwater manifold pipes could have led to a catastrophe would have made the current disaster seem small in comparison.

But there is more, for in the same year a BP refinery in Texas City, TX exploded, killing fifteen and injuring nearly 200 more.  And again, the cause was “organizational and safety deficiencies at all levels of BP.”  The next year BP was responsible for the leaking of 267,000 gallons of oil on Alaska’s North Shore. And yet, once again, the accident was foreseeable and avoidable.  In total BP ended up paying over $300 million dollars in fines.  No small amount until you compare it against their net profit for 2007 of $20.84 billion dollars (admittedly, a sharp decline from the previous year but more than enough to absorb the fines and still leave enough to pay investors a substantial dividend; aka “the cost of doing business”).

There are two points to be made. The first and more obvious point concerns what the photograph above (and others like it from the Texas City explosion and the leak in Alaska) actually shows.  The evidence of the impending disaster of Deepwater Horizon was literally before our eyes at least as early as 2005, but we chose not to see it.  After all, progress entails bold risk, and where would we be without oil.  It is just the most recent iteration of modernity’s gamble, the wager that the long-term dangers of a technology intensive society will be ultimately avoided by continual progress. Sure, safety is important, but … And as they say, the proof of the pudding is in the tasting, as we dole out fines that amount to little more than a slap on the wrist.

The second point is less obvious precisely because it is harder to visualize, and it is all the more important because of that fact:  the economic model that is driving such decision making is not guided by anything even approximating the rationality of free markets or the law of supply and demand, but by the same culture of greed that has driven the world economy to its knees in recent times.  As one British economist put it, BP was run like “a financial company, rotating mangers into new jobs with tough profit targets and then moving them before they had to deal with the consequences.  The troubled Texas City refinery, for example, had five managers in six years.”  Without putting too fine of an edge to it, we’ve learned in recent times that that is no way to run the financial sector, let alone an oil conglomerate.

In the end, the photograph of the listing Thunder Horse Platform might be the proper visual rebuttal to Gordon Gekko’s now famous declaration, “Greed, for lack of a better word, is good.”

crossposted at No Caption Needed

  • black dog barking

    What Mr Gecko meant is that greed is a very powerful drive, a force of human nature. For motivating groups of people it is very effective and produces highly predictable responses. Being a force of human nature is not the same as being a force of *real* nature like say, a hurricane or the molten heat and pressures of the earth’s core. To choose to follow greed when battling forces of nature requires pride, another force of human nature.

    New slogan for BP: Ooops. Sorry.

    • lucaites

      Fair enough. But he did say “for lack of a better word,” and so while he equates it with a state of nature he ALSO locates it within a cultural and moral context by saying that the ONLY word to describe it is “good.” We thus naturalize greed as necessary (and in his case “desirable”).

  • serr8d

    Still waiting for all the lefty-libs to eschew technology completely and return to caves; their women donning plows to work the fields and their men (if there are any left) to sweat out their existences without benefit of evil corporations and tilting oil platforms.

    • lucaites

      Thanks. I can’t think of a better expression of the sentiment that drives “modernity’s gamble.” It is precisely this sort of thinking that leads to the problem–the unreflective idea that it is either unfettered technological progress OR returning to primitive times. And for the record, I was NOT writing against technology or progress, but the idea somehow that we should let the industry regulate itself. How you can look at a critique of BP over the past ten years and equate that with luddite thinking is precisely the problem we face.

    • black dog barking

      Who needs caves and female-drawn plows when we have electricity. Just need to extract more of the energy that is all around us, ocean tides, wind, and sun. ‘Course we need to disengage from internal combustion, save the hydrocarbons for more useful ends.

      Don’t see any lefty-righty here, nor do I see any man/woman conflicts. I do see denial. A big chunk of it, slipping beneath the waves.

    • Patrick

      I disagree with you … While I’m sure that there are some “lefty-libs” out there who will say that we should return to our fields, I would argue that they are as far detached from reality and sanity as those ones chanting “Drill Baby Drill”.

  • thirdeye pushpin

    BP = Badly Planned = Bumrushed Production = Burning Plankton

  • cmac

    In what way is your response helpful or insightful, Serr8ted? You lash out at ‘lefty-libs,’ whoever they are, while ignoring the monument to greed and shortsightedness pictured above your post.

    What do you think of the photo and the litany of terrifying facts which follow it? Do you think the oil industry should be more closely regulated in light of the many failures and close calls which we’ve all (lefty-libs clear across the spectrum to the tightie-righties) been overlooking for quite some time?

    I do. I’m ready to believe my lying eyes now.

  • NoContest

    I don’t believe we are ever going to prevent anything, ever again…. just a lifetime of dealing with consequences.

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