Oroville Dam

Josh F.W. Cook | AP Photo

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With the overflow of the Lake Oroville Dam displacing 100,000 Californians from their homes, people are understandably looking for answers. Why did this happen? Could it have been prevented? What should we do differently next time? And, of course, the most important question of all: Who is to blame? Not all of these questions have easy answers, but the disaster does teach us some important lessons about the risk we take when we ignore incentives and minimize accountability.

In the private sector, at least when free markets are allowed to take precedence over cronyism and protectionism, things are different.

As the media tells it, the Lake Oroville flood was a freak accident, a one in a million fluke caused by unpredictable weather patterns in California. Maybe that’s so, but the fact that environmental and watchdog groups have been warning about this exact scenario for a decade seems to undermine this argument. We knew full well that a flood like this could happen, and that taking measures to fortify the dam’s emergency spillway against erosion could have prevented it. So why was nothing done? Why were reasonable calls for increased safety ignored?

The problem, like most problems in the world, is one of incentives. The scenario of this type of flood is admittedly an unlikely one, and reinforcing the dam would have been costly. The question for the decision makers then becomes, do the benefits of shoring up the dam outweigh the costs of failing to do so? Such a risk-reward analysis works fairly well when the deciding entity, a company or individual, is liable for the costs incurred. In the case of Lake Oroville, however, we’re dealing with the government, and what distinguishes government from the private sector is that the government gets to spend other people’s money, not its own.

This means that when something goes horribly, horribly wrong, nobody at the government loses their job. Nobody goes bankrupt. Nobody is completely and utterly ruined. If we’re lucky, we’ll get an apology, as the tax collectors dip further into our pockets to repair the damaged caused by government negligence.

Confronted with this lack of foresight, the general manager of the Metropolitan Water District of Southern California pointed out that the dam was in compliance with government guidelines for safety. “They did look at that issue and they determined that [the existing emergency spillway] did meet the appropriate FERC guidelines,” he said. “In the FERC guidelines, they talk about how you don’t put a lot of funding and concrete, etc. into emergency spillways because presumably they will rarely if ever be used.”

That’s the problem with government guidelines. Once you’ve met the required minimum standards, you’re covered in terms of liability. How could any individual be expected to take additional precautions beyond what the government says is necessary? These standards create a false sense of security, a way for decision makers to abdicate responsibility for their decisions, and a justification for shoddy work.

In the private sector, at least when free markets are allowed to take precedence over cronyism and protectionism, things are different. If you’re an entrepreneur who builds something that could endanger people, any catastrophic failure is on you. If things go wrong, your business is ruined, your reputation is ruined, and you are subject to lawsuits from the affected parties that could destroy your future. You have every incentive to get it right, because if they don’t, you face the consequences.

Accidents happen. It’s possible for entrepreneurs to make the wrong call and cause damage and inconvenience — we all remember the BP oil spill from a few years back. But when individuals bear the cost of their decisions, it’s much less likely that the sensible suggestions that would have prevented the Lake Oroville flood would have been ignored to such a catastrophic extent.

Logan Albright is a researcher for Conservative Review and Director of Research for Free the People. You can follow him on Twitter @loganalbright73.