You Believe in Less Government and Less Regulation? Here are the Consequences

Americans believe in capitalism and the free market economic system. The Republican Party is in ascendency, and a whole host of presidential candidates are scrambling to be the one to cut the most government and rescind the most regulations. So let's look at one small system that has some regulation, and see what the consequences could be if we removed what little regulation there is.

In August of 2003, power lines in Ohio, sagging due to high voltage and high temperatures, brushed against trees and failed. Hot summer, common occurrence, recoverable, right? Except in this case, attempts to reroute around the failure, coupled with additional segments of power lines grounding out in the same fashion, also failed. This led to a domino-style failure (cascade) that ended with over 50 million people in 8 states and southern Canada being without power for two days in the hot August weather. Eleven people died and the costs to restore power were $6 billion. Failure analysis by the Department of Energy (one of those agencies to be abolished), the Federal Energy Regulatory Commission (FERC) and Canada's Department of Natural Resources showed that company after company (the electricity grid is a composite structure run by many private companies) had "failed to adhere to industry's standards". Why? Because there was no government mandate to do so. Simply put, the concept that businesses will do what is necessary to prevent a failure or to do what's right even when not required by government is fallacious.

And we instinctively know that. The concept that a company or a business, when competing with other businesses, will voluntary assume costs to meet safety standards when not required by government is ludicrous. What chemical company will clean up its pollution if not required to, but will instead dump it in the river and let everyone else deal with the problem. Economists call that externalities. We know that that is true because countless rivers and the Great Lakes were in serious trouble prior to such governmental regulations as the Clean Water Act. Yet we are giving serious attention to presidential candidates who want to rescind or cut that particular piece of legislation.

In the case of the electric grid, minimal requirements were put in place for companies to meet standards to prevent another major grid failure. But companies have not done the same to prevent a cyber attack. Why? One factor is that the only entities that are really good at monitoring and fighting cyber attacks are in the government, and the government (read DoD) is prevented from collecting information about cyber attacks from private business.

Another factor is the deregulation of the electricity industry. Twenty years ago, the industry was made up of a few bug companies that owned the whole cycle, from generation to distribution (the grid) to market delivery. Thanks to deregulation, the industry is characterized by separate companies producing the power, distributing the power, and delivering the power. No entity has responsibility for the whole job, from production to delivery. So there is no vested interest in the generator or the deliverer to protect the distributor and the grid.

Now you have a bunch of small or medium-sized companies taking parts of the system. And the costs for cyber protection become a greater part of each companies fixed costs. And what is the industry model for everything now? Mean and lean. Cut costs. Protect shareholder values. That translates to poor to no cyber protection. Especially when the model is voluntary cooperation.

And what is the risk? Here's the risk:

We are a nation that is ever more dependent on just-in-time delivery for everything, from food to drugs to medical information to healthcare. A nation that is totally dependent on the Internet for people to do their jobs, schedule their appointments, navigate their cars, conduct their love affairs. A nation that is dependent on electricity for heating, cooling, cooking, and a million other needs. A cyber attack that caused the failure of the grid for six months would totally destroy our nation. It would result in the death of 8-9 of every 10 people in the United States.

If you think that is unduly alarmist, I refer you to the Report of the Commission to Assess the Threat to the United States from Electromagnetic Pulse (EMP) Attack. You can debate the risk from EMP but the results to the US from the loss of the grid would be the same, whether from EMP or from cyberattack. Total disruption of society, complete loss of law and order, rampant death and destruction.

Consider this: US cities have at most two weeks of food for purchase. Without electricity, the fuel in underground tanks at the gas station isn't going to be pumped to your car. The diesel isn't going to be pumped into the semi, so they won't be able to deliver any more food.

All this, because what we really want is to get rid of government regulation, stick to laissez-faire capitalism, and trust the companies to voluntarily do what is necessary to protect us. Really?