Gulf Diaster and Free Market Solutions

Walter Block writes:

The BP Deepwater Horizon oil rig explosion of April 20, 2010 was a disaster for people located in or near the Gulf of Mexico. It outright killed 11 platform workers and seriously injured 17 others. It played havoc with the economic welfare of people in states stretching from Texas to Florida (none of which apart from Florida voted for Obama). But it was a great boon for socialists who like nothing more than to bash the free enterprise system...

What suggestion emanates from market fundamentalists such as me? Why, to privatize the entire Gulf of Mexico, of course. Why? Because with private ownership, external costs would be internalized. Any owner of the Gulf would have been much more careful than the MMS, because he would have lost, wait for it, profits! Had the Mississippi river been in private hands, the corporate owner would have gone broke, and this property turned over to more capable hands in the advent of the Katrina tragedy. Instead, those responsible for killing some 1500 of our neighbors, FEMA and the Army Corps of Engineers, are still in existence. This is in sharp contrast to BP, which of course, is (partially) responsible for this disaster. But, happily, based on free enterprise principles, that firm will suffer losses and even risk bankruptcy, unlike these statist institutions.

Ideally, users of the Gulf, its homesteaders, would become its owners. As a second best policy all those living within say, five miles of its coast, plus intensive users of its waters, would become stockholders in a new Gulf of Mexico Corporation. Take that, pinkos. If we learn anything from the study of economics, it is that private property rights systems, while far from perfect, function markedly better than their alternative, nonownership or government ownership.

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Cartoon: BP Oil Spill

Cartoon: Gulf Avoids Crisis?

BP Gulf Oil Spill

The tragic April 20 explosion that destroyed BP's Deepwater Horizon oil platform in the Gulf of Mexico, killing 11 crew members, didn't happen in a vacuum.

BP clearly is culpable. And the Interior Department's Minerals Management Service, now known as the Bureau of Ocean Energy Management, Regulation and Enforcement, shares in the blame, for failing to exercise proper oversight.

Many other factors also contributed to the accident, however.

First among them is the important issue of ownership. BP did not own the Deepwater Horizon, but leased it from another company, Transocean. The contractual relationship between Transocean and BP created a classic "principal-agent" problem in which the duties and responsibilities of the lessor, or owner, and lessee, the renter, may not have been spelled out adequately...

A second contributor to the disaster is the federal law limiting liability for damages caused by offshore oil spills...

Third, BP may have been misled in calculating its exposure to risk by MMS computer models that predict the likely path of large-scale oil spills in the Gulf of Mexico...

Fourth, BP and other oil companies have been forced to drill in ultra-deep waters as a result of federal laws and White House and court rulings that limit access to oil reserves in shallower waters and on federally owned land in the continental United States...

There is plenty of blame to go around for the Deepwater Horizon disaster. But don't jump to the conclusion that the best way to prevent future catastrophes is simply through further regulation.

More regulation will not necessarily work any better than existing regulation. What will work is getting the incentives right — through clearly defined ownership, responsibility and liability — and exploiting proven oil reserves onshore and in shallow waters offshore.

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Deep Water Horizon v. Exxon Valdez

source of lots of other visuals

Gulf Oil Spill Map

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Cartoon: Gulf Oil Spill

Gulf Oil Spill

Obama, the Gulf Oil Spill, and Federal Power

Not long ago, Barack Obama was pilloried for being too activist, too meddlesome, and too inclined to see himself as the messiah. He was forcing health care reform down our throats, running General Motors, wrecking the financial system and promising to make the oceans recede.

But that was a different guy, from a parallel universe. The President Obama we all know is a passive, detached do-nothing. Or so we have been hearing since the British Petroleum oil spill gained our attention.

Louisiana Gov. Bobby Jindal, a Republican who once denounced Democrats for scheming to "increase dependence on government," now demands that Washington do more for his state...

"For 35 days, he hasn't used the full force of our government," Rep. Darrell Issa (R-Calif.), complained of the president last month. That's right: a conservative lamenting that Obama is being too cautious and prudent in his deployment of federal power...

He is also responsible for directing policy and making budget decisions involving numerous federal departments and agencies that exist because the GOP, after all, didn't abolish them during its time in power.

To suggest that Obama should devote his full attention to fixing a single problem (a leaking oil well) that the federal government has no competence or responsibility to fix is not leadership but childish fantasy.

Making rules for deepwater drilling is a legitimate function of government, and so is holding polluters accountable for the damage they cause. Plugging oil wells is the function of oil companies...

Obama has gone wrong—as conservatives have often been correct in pointing out—when he has pressed against the limits of his rightful powers, taking on responsibilities far greater than the federal government should assume. A president who does too much is far more dangerous to life, liberty, and property than one who does too little.

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Cartoon: Gulf Oil Spill

Cartoon: Gulf Oil Spill

Gulf Oil Spill Diaster: The Result of Government Regulations?

BP PLC and other big oil companies based their plans for responding to a big oil spill in the Gulf of Mexico on U.S. government projections that gave very low odds of oil hitting shore, even in the case of a spill much larger than the current one. The government models, which oil companies are required to use but have not been updated since 2004, assumed that most of the oil would rapidly evaporate or get broken up by waves or weather. In the weeks since the Deepwater Horizon caught fire and sank, real life has proven these models, prepared by the Interior Department’s Mineral Management Service, wrong…. The government’s optimistic forecasts reinforced the oil industry’s confidence in its spill-prevention technology, leading to decisions that left both oil companies and the government ill-prepared for the disaster that has unfolded in the Gulf since April 20.

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Jacob Hornberger: Obama, BP, and the Rule of Law

I pointed out that President Obama exercised brute dictatorial powers in dictating to BP to hand over $20 billion of corporate money to federal officials, who plan on distributing the loot to victims of the BP oil spill.

Most everyone is familiar with the term “the rule of law.” Many people, however, don’t understand what it really means. They think that it means that people should obey the law.

But that’s not what the rule of law means. What it means is this: In a free society, people should never have to answer to the arbitrary dictates of government officials. That type of society is described as one based on the “rule of men.” It is what dictatorship is all about. In a society based on the rule of law, people have to answer only to well-defined and pre-existing laws that have been duly enacted by the legislature.

As the Nobel Prize winning libertarian economist Friedrich Hayek pointed out in his book The Constitution of Liberty, the rule of law is a necessary prerequisite for a free society.

At the time of the BP oil spill, the law provided that BP would be required to pay for all clean-up costs but was liable for a maximum of $75 million to private parties who suffered losses because of an oil spill.

Now, obviously that liability cap violated fundamental principles of responsibility. People should be fully responsible for all the damages they cause. The $75 million cap was likely enacted as part of the cozy corporatist relationship that has long existed between big corporations and federal politicians.

One thing is for sure: The liability cap almost certainly played an important role in BP’s safety precautions. After all, when a company thinks that its maximum liability for an oil spill will be only $75 million, as compared to the possibility of facing unlimited liability for an oil spill, that is going to cause the company to act differently when it comes to deciding how many precautions to take and how much money to spend on safety precautions.

In any event, the reasons the $75 million cap were enacted are irrelevant when it comes to BP’s liability. The rule of law entitles BP to the full protection of the law, no matter how distasteful the results.

The $75 liability cap did provide exceptions to the cap in cases where the company could be shown to be guilty of gross negligence or willful misconduct.

But a system based on the rule of law requires such issues to be litigated in a court of law. Victims of the disaster must go into court and convince a jury (or judge) by a preponderance of the evidence that BP was guilty of gross negligence or willful misconduct. They must also document with sworn testimony their financial losses.

That’s what the rule of law requires.

Instead, what Obama did was effectively declare: “Well, I don’t like the law and I wish it had never been enacted because it is a bad law. I’m going to decree that the law will not apply in this case. I am summoning BP executives to my office and dictating what BP must do, beginning with the delivery of a down payment of $20 billion dollars in corporate money to a political commission that I am appointing. That commission will dole out money to victims of the oil spill based on criteria that I deem appropriate.”

Notice that there is no judicial process concerning how the loot is going to be distributed. That is how things are handled in a society based on the rule of men, a society based on dictatorship. The dictator simply dictates and the person being dictated to is expected to submit and obey.

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BP Saga: Tony Hayward Before Congress

Poor Tony Hayward.

The man was devoured by zombies last week.

Now that we’ve figured out how history works, we’re begging to see the forces of history at work all around us – an eternal fight between the zombies and the producers. We’re surrounded by zombies. They are all around us. Tort lawyers. Bureaucrats. Politicians. Welfare slaves. Chiselers. Layabouts. Whiners.

On the way to work, on the Washington beltway, there are so many lobbyists, we have to put up the windows and lock the doors...

Mr. Hayward was confronted by a panel of zombies in Congress. They chained him to a rock so the members of the energy committee could take turns feeding on his internal organs...

But the zombies didn’t really care about getting to the bottom of things. They were going for the jugular. And the right arm. And the liver.

From the reports we’ve read, Mr. Hayward held up pretty well. He played his part. He did not wander from the script. He remained calm as he was dismembered. His voice did not quake or complain as his liver was removed...

What disturbed us was the crowd reaction. There was a time when Americans had a sense of fair play. At least, we’d like to think so. In a fight between a group of zombies and a real producer, their sympathies should be with the oil man. After all, when they drive into the filling station, it’s not the Congressional Record that they pump into their fuel tanks. And when they heat their homes, it’s not tort lawyers whom they look to for fuel. Gasoline is valuable. They know it. And they know that someone has to get it. In fact, so keen is their demand for octane, and so high is the price, that the producers are lured farther and farther away from dry land. No one would drill a mile below the water for oil unless a lot of people wanted it badly. Sooner or later, one of the rigs was bound to spring a big leak.

You’d think the public would have more sympathy for the people who risk their lives and their money bringing oil to market.

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