NP: The Verve, Forth

Okay, it's eleven days old -- an eternity in Internet time -- but the New York Times ran a story about the difference between oil drilling technology and oil spill cleanup technology that includes this bit:

“They have horribly underestimated the likelihood of a spill and therefore horribly underestimated the consequences of something going wrong,” said Robert G. Bea, a professor at the University of California, Berkeley, who studies offshore drilling. “So what we have now is some equivalent of a fire drill with paper towels and buckets for cleanup.”

Maybe it's just me, but that sounds suspiciously like the financial industry underestimating the possibility that real estate prices might actually drop, to the point where they pretty much ruled that possibility altogether. And we saw what happened.

What I'm wondering is whether or not there's some sort of cultural shift underneath this, an almost institutionalized hubris where people who are temporally removed from previous bad things that have happened just flat-out forget -- or ignore -- that bad things might happen. It's feels self-centered in a lot of ways, the notion that "this has never happened to me or to us in my lifetime/tenure as CEO, therefore I heavily discount the possibility that it will ever happen again."

Except that, while the likelihood may have dropped, the likelihood still exists. You would hope that to think otherwise would be a sign of poor management skills, but in the pure cost/benefit world we live in, companies and industries bet so heavily against that likelihood in order to save the cost that I suspect we're going to see more and more examples of situations where someone who should know better will be caught completely unprepared.

If one were to use this as an argument for regulation, I think the point would be that government may be able to act as a sort of "institutional memory" in certain industries where management turnover, mergers & acquisitions and competitive pressure might diminish the capacity of some actors to keep these things top of mind.