Gulf Oil Crisis: Case for Government, or For Freer Markets?

While being widely seen as an example of exactly why bigger, better government is needed to ameliorate or somehow prevent mega-natural resource and pollution crises, anarcho-theorist and Seasteading guru Patri Friedman takes a swing at explaining how and why a truly free market, including some changes in current corporate liability law, has a better chance of managing such disasters. The key:

BP is worth about $250B, and current estimate are the spill will cost them $1B.   So damages after the fact can actually work.  I think the $1B number is very low, but even if it is off by two orders of magnitude, they could afford to pay $100B in damages.

Unfortunately, there are laws which limit the liability of oil companies for disasters, and thus prevent them from having the proper incentive. (Krugman blames libertarians for these laws, which is ridiculous, libertarianism != crony capitalism, and there is nothing libertarian about limiting damage liability). So BP can't legally be charged the full cost of the cleanup - which is a government failure, not a market failure.  Government implemented a policy which benefits special interests - big surprise.

Now, this idea of damages after the fact doesn't hold for all disasters - it just happens that the oil industry has the largest companies in the world, so they can pay damages even for very large disasters.   In other industries, where potential damages exceed company assets, I think the answer is to require liability insurance with amounts large enough to cover worst-case damages. Then you get a free-market price put on the risks (by the insurance market), which gives companies the right incentive to avoid risky behavior even if the damages are to large for them to pay.

If you have a 1% chance of causing $1B in damages with your $100M company, insurance will charge you $10M/year (plus a little profit for them).  Thus the company must bear the expected value of the disaster - which is exactly the optimal thing, it's the true cost of the activity.  Thus they will only take this risk if the benefit is greater than the cost.  Whereas if they don't have to have insurance, they face only a $1M/year cost (1% of the $100M max they will have to pay since that's all they have), which is not the true cost of their activities.  Note that one way to bring about this situation is to remove the limited liability of corporations for damages, which I favor on moral and practical grounds.  (Limited liability for business debts, or any other contractual interactions with persons, can simply be done through a consensual contract.  But why should liability be limited when you hurt people you didn't get consent from?).  If shareholders, officers, and staff were personally liable for damages in excess of the corporation's assets, you can bet your ass that every venture would have insurance!

You could argue with Friedman about this, if you care to, on Reason's first cruise ship excursion, early next year.

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  • Rimfax||

    Requiring insurance other than self-insurance for offshore drilling (and oil transport) should be sufficient. If BP had to answer to an underwriter, they wouldn't have taken the risks that they've taken.

  • Warty||

    100% liability for all property damage, plus fines for destroying wildlife (which is a public good, after all) should also be sufficient.

  • Erik||

    What about the corporate veil protection? I think a serious consideration about how this structural protection incites more risk is definitely in order.

  • Jersey Patriot||

    I like Patri. I hope he realizes that, once in international waters, that the only law is the law of nature. And nature can produce Steve Smith.

  • creech||

    You can bet your ass that there would be no small businesses in operation in the U.S. Plenty of machine shops, for instance, make parts that go into OEM stuff. You get a Bhopal-type leak in a refinery and the lawyers are coming after all the component manufacturers.
    Some $2 million revenue shop isn't going to be able to afford the insurance if its part is judged to be the reason for a $1 billion tragedy.

  • Zeb||

    Quality control is the responsibility of the people making the final product (at least in my mind it is).

  • KPres||

    "Some $2 million revenue shop isn't going to be able to afford the insurance if its part is judged to be the reason for a $1 billion tragedy."

    Why? It's a fixed cost. They'd just raise their prices to cover the cost of insurance. It's not like their competitors would't have to pay it as well.

  • ||

    You could argue with Friedman about this, if you care to, on Reason's first cruise ship excursion, early next year.

    Boy, I almost thought you were talking about Thomas, the walking Norwalk virus.

    *shudder*

  • Rotting Plankton||

    I don't see what the problem is. You all make me feel so dirty. I don't complain about your rotten carcasses do I.

  • Self Important Ass||

    I stopped reading when you suggested mandating a new insurance that sounds horrible.

  • Ryan||

    Just a small grammar note.... "risky behavior even if the damages are to large for them to pay." should be "too large".

  • Zeb||

    That's not grammar. It's just using the wrong word.

  • ||

    Of course, that assumes that the insurance company is being run responsibly and not overextended.

    Otherwise, you and I will be stuck for the bill again ala AIG.

  • ||

    I have reached the point where I want to see shareholder lawsuits against upper management and Boards of Directors. Last time I looked, BP had lost at least twenty five percent of its value. I would be perfectly content to see Tony Hayward (and his predecessor, Lord Browne) rendered penniless.

    If you are personally responsible (and therefor rate vast piles of cash in compensation) for the triumphs and profits of the corporation you run, then you should be personally responsible for the failures.

  • Corduroy||

    But but... all that matters is the stock price!

  • ||

    Addendum:

    Rick Wagoner ran General Motors right into the ground, and walked away a very wealthy man. He's the poster boy for my proposal. Fuck that guy.

  • ||

    So, the libertarian answer to this crisis of the free market is "to require liability insurance"? Seriously? Who is exactly is going to "require" this in our muddled libertarian minds? And how will they enforce this requirement?

    I'm still waiting for any semblance of an intelligent libertarian response to this crisis. But, perhaps that's the answer.

  • ||

    The libertarian response is that the person who makes the mess should clean it up.

  • Jack||

    And if they don't, be held accountable to those who've been damaged by their mess.

  • ||

    And who would hold them accountable? Those "damaged by their mess"? How exactly would that happen? How do you rectify or make just the asymetrical relationship between the damager and the damaged in this instance?--or any instance?

  • ||

    In court.

  • ||

    Libertarian court? How much would a verdict cost on the free market?

  • ||

    The free market is an economic system, not a legal system.

  • roy||

    how much does a senator vote? a president?
    BP bought Obama fairly cheap.

  • ||

    In the libertarian system, I doubt there would be such a thing as "senator" or "president." There would only be the police, the courts, and civil defense.

  • ||

    I'm afraid "should clean it up" sounds almost exactly like no response at all. Oh, and people should be nice to each other.

  • ||

    hahahaha OK, so clean it up means don't clean it up.

    Wow, it's really great arguing with you.

  • ||

    Fisherman: You SHOULD clean up your mess. You totally fucked me up.

    BP: You know, I really don't want to. And since we are free of the tyranny of the democratic State here in our libertarian paradise, fuck you two times.

    Fisherman: Give me a break.

    BP: Bitch, that's my line!

  • ||

    Free of a democratic state? What about police and court systems???

  • roy||

    BP: You know, I really don't want to. And since we are free of the tyranny of the democratic State here in our libertarian paradise, fuck you two times.
    ----------
    Ok... lets see how much your margins go down when you have to put armed guards on all your gas stations and refineries.... I rather think submitting to binding arbitration might be cheaper than violence...

  • ||

    I see, so BP will comply due to threat of force. Hmmmm, what does that sound like? Whatever it is, I'm sure it's very much in keeping with libertarian gospel.

  • American Justice System||

    Although BP was negligent, the complaining fishermen has damages without injury to a proprietary interest and thus BP is not liable. See: Louisana ex Rel. Guste v. M/V Testbank, 752 F.2d 1019 (1986). (Holding shipper was not liabile for economic losses caused to fishermen by spill of PCP into Gulf of Mexico).

  • jpsartrean||

    That is incorrect. True, damages were denied to many types of parties in that case, but COMMERICAL fishermen were granted relief... unfortunately, entities like marinas, bait shops, restaurants, seafood processors, etc. were denied. Trust me, I just read it last semester in Torts ;-)

  • Coeus||

    Requiring the purchase of insurance isn't necessary. Simply removing the limited liabilities they enjoy would force them to cover their bases, as they would already have done if that crap law wasn't created in the first place.

  • Chad||

    Man, are you blind.

    Why do you assume that no one would bet that they could drill and get away without a disaster? Anyone who does would be very rich.

    Who the hell wouldn't take a bet whose terms were

    99% chance of making a lot of money
    1% of wiping out and declaring bankruptcy

  • Coeus||

    The costs for offshore operations are immense. For the larger rigs, they hire out for half a million a day. Most (if not all) are publicly traded. You think investors would pour on the capital without proof of insurance if the limited liabilities were removed?

  • Chad||

    Are you seriously suggesting removing the limited liability of corporations?

    How do you plan to sue the literally tens of millions of people who have owned BP stock in the last few years, and sort the liability out between them? The legal costs would exceed the costs of the spill.

    And you also seem to believe that no investor would lend money to someone who has a 1% chance of going bankrupt and a 99% chance of making a fat profit. Why?

  • Coeus||

    My apologies, I mistyped (as I frequently do). I meant BP's limited liability for damages. And if the chances are as low for problems as you seem to think, then no. Many investors would still go for it. But contrary to what you might believe, in the oil field, safety matters. BP doesn't own the rig, they hired it on contract. In fact, there were numerous contracts involved with this operation. This is standard. Safety factors in in a big way when contracting, because of stock price. Just because short-term profit influences stock price, doesn't mean that it's the only factor. Most investors are in it for the long haul. If they weren't, the company couldn't do any long-range planning at all. And for operations as massive as offshore drilling, long-range planning is crucial.

    Is it enough? I don't know. I think it would be, but I could be wrong. What I do know is that current system doesn't work like you want it to, and never can due to the perverse incentives inherent to large government regulatory bodies. You can keep patching the regulations all you want, and you'll still never be able to keep up with technology or insure that the regulations are enforced.

    As has been stated here many times, the market isn't perfect. It's just better than regulatory capture.

  • Chad||

    My apologies, I mistyped (as I frequently do). I meant BP's limited liability for damages

    Then you don't have a problem with government, you simply have a problem with Republicans.

  • Coeus||

    Excellent job ignoring the point there.

  • Chad||

    I would say you ignored mine as well. Libertarians, like it or not, are de facto Republicans, who deliberately weaken regulatory agencies, fill them with cronies, and ignore any checks on conflicts of interest - and then claim, when the agency fails, that it must be some inherent flaw in government. *facepalm*

    You also claim most investors are in it for the "long term", which nowadays means what, five seconds?

  • Kpres||

    Chad, the liability caps were created in the 1990 Oil Pollution Act, which was sponsored by a Democrat, and passed by a Democratic-controlled congress with near-unanimous support.

    It was passed in response the Exxon Valdez spill, and set up a whole slew of new regulations. The problem was that all these new regulations would have the effect of raising final gas prices for consumers (liberals usually don't get that), so as a countermeasure, they capped liability.

  • Drax the Destroyer||

    If they are filling these agencies with cronies they aren't Libertarian... at all. This is a key distinction between Libertarians and Republicans.

    Now let's talk about all that money BP gave the fucking president? Sounds like a conflict of interest to me...sounds like cronyism to me. It also sounds like, despite Obama's lip service to the little guy, the President on some level has to back those fuckers. And why shouldn't he? Liability caps and federal leased land show that all this whole disaster has been fisted by the government from the start.

    Moreover, BP supported all sorts of bullshit regulations that would specifically help THEM. I mean, Jesus Christ, if you hate evil selfish corporations so much, why do you think regulations should exist to help them? Wouldn't you rather see BP financially destroyed? If Erin Brokovich could successfully sue a chemical company for killing and hurting people, certainly some competant team of lawyers representing gulf coast residents could annhilate BP. Fucking lord on high.

    Of course, the real problem here is that the government has so much power over everybody that any of these companies have to try and get a foothold in the machine in the first place or risk losing to a unscrupulous competitor. It's hard to blame someone for not wanting to play with a handicap.

  • KPres||

    Libertarians vote 70% Republican and 30% Democrat.

  • Chad, simplified||

    Get rid of all barriers to government expansion, and we'll be a Nerf-coated, disaster-free Utopia.

  • KPres||

    "Are you seriously suggesting removing the limited liability of corporations?

    How do you plan to sue the literally tens of millions of people who have owned BP stock in the last few years, and sort the liability out between them? The legal costs would exceed the costs of the spill."

    Thank you Tony, you just proved that you're an idiot.

    "tens of millions of people who have owned BP stock in the last few years"

    You do realize that when you sell a stock and somebody else buys it, they're buying the risk that you no longer own, right?

    So why the hell would you go after people that owned BP in the past? They've sold their risk to somebody else.

    You really are a moron. Like most liberals, you reach a point in thinking about these things where you make a wrong turn in your logic (like this one), get all confused, and then scream, "SEE! Even in theory the market doesn't work!"

    No, it just means your an idiot.

  • Jungle Boogie||

    +1

  • Kpres||

    burtarian, all you've done here is put your ignorance on display.

    Now, of course, you don't get why, but that's the fun of it for the rest of us.

  • ||

    1. Friedman is an idiot, which I'm beginning to think is a trait of everyone with that particular surname.

    2. The limited liability established by the Congress was put in place so that independents could compete for drilling rights with the majors and increase competition in the Gulf (and get better lease deals for the government). If the liability limit were removed, no insurance agency in the world would insure an operation in the Gulf of Mexico because one disaster would wipe them out (BP is likely to be 10 billion out of pocket by the time all is said and done). Only the supermajors and NOC's have the cash base to afford disasters of this magnitude. An independent that had this happen would simply liquidate and close up shop and the government would be stuck with the cleanup costs. Its why the government added the tax to the gas for cleanup, so that they could afford to clean up if an independent had this happen.

  • Cabeza de Vaca||

    If a company can't afford to clean up the mess it makes. It shouldn't be allowed to operate. If that means only superlarge corporations can afford to drill at sea, then so be it.

  • Coeus||

    If they would allow drilling of the currently known shallow (in comparison) reserves off the coast, then cleanup wouldn't be anywhere near this expensive, and would have been affordable enough for the smaller companies to mount capping and cleanup operations. The limited liabilities are a just a patch on a snarled mess of regulations.

  • ||

    Why do liberal/socialists call people they disagree with names and expect that is somehow a support of their point? I believe that invalidates every word following the insult.

    Lost_In_Translation - "Friedman is an idiot"

  • Tony||

    How ruined does the planet have to get before libertarians entertain the notion of regulatory prevention?

    This disaster was preventable. It wasn't a black swan thing. It's probably a preview of other disasters to come.

    And it is the same pimps for the free market who are always in favor of "tort reform" and other barriers to litigation, so don't give me that crap.

  • ||

    Any disaster can be prevented... with 20/20 hindsight.

    Tony, I have the answer! Let's ban all technology that might cause harm. That's a rock solid regulation right there...

  • Tony||

    A simple requirement for relief wells would have prevented this disaster. This regulation exists in Canada. Yes, it would have cost BP more upfront. Oh well.

  • ||

    A simple ban on cars would have prevented all deaths and injuries from car accidents.

  • Tony||

    There are many regulations involving car safety that have prevented a lot of deaths. Nobody is talking about making everyone live in a plastic bubble. As with everything, there is a balance. I know you guys have difficulty with shades of gray, but at some point you'll have to grow out of your Ayn Rand phase, don't you think?

  • Coeus||

    Nobody is talking about making everyone live in a plastic bubble.

    Not yet, but give 'em a few more years. Dammit, they're doing the best they can.

  • Jungle Boogie||

    Had to take down a trampoline we had in the back yard behind fence out of sight, thank you insurance! Your damn right were going to get those bubbles.

  • ||

    You don't HAVE to have health insurance.

    ...Oh wait, the government says you do. My bad.

  • ||

    I demand Congress ban cars. Too many have fallen victim to horrible car disasters!

  • Frankyb||

    Simple matter of cost-benefits analysis.

    Don't drill a relief well at low cost and risk being stuck with 100 of billions in reparations : bad move : drill the relief wells.

    Don't drill a relief wells at low cost and do not risk being stuck with 100 of billions in reparations because the government limits your liability by law : good move.

    Business people are greedy people. If you don't protect their investments from their mistakes, they will do it themselves. There is no need to have more people on the public dole to make sure they act greedy.

  • Corduroy||

    The point is a regulatory system existed and DIDN'T WORK.

    What happens if you meet all the regulations perfectly and it still fails? Is the corporation still responsible or is it the gov't's problem for not being on top of it?
    Can we sue the gov't when underspecified highways fall on us during an earthquake?

    Regulators can be bought off, but a pissed off court after the fact is much harder to rig. Which one do you think corporate executives fear and respect?

    And who regulates the regulators? The government, which holds no liability to anyone unless it is pleased to do so.

  • #||

    so what makes you think there were not regulations alreayd in place and what makes you think that if there were not, that that would have prevented this dissaster?

    How well did those regulators prevent Fannie and Freddie from failing, or Countrywide, or WaMu, IndyMac, etc?

  • Tony||

    I know for a fact that a lot of sensible regulations for offshore drilling were not in place, and that regulators weren't doing their job anyway. So what's your point? I don't see it as a given that regulators have to be industry cronies or that regulations are destined to go unenforced.

  • Coeus||

    I don't see it as a given that regulators have to be industry cronies...
    Your historical blindness to regulatory capture makes continuing this conversation futile.

  • Coeus||

    Shit, that came out wrong. Should have read "Your blindness to the extremely numerous historic accounts of regulatory capture..."

  • #||

    "So what's your point?"

    you are making the claim that this is proof that more regulation is needed, implying that more regulation would avert this kind of dissaster. I am showing you examples where there was a lot of regulation and it failed to avert dissaster and am asking you in that light to explain to me as to why you thing more regualtion will actually do what you claim it to do.

  • #||

    then if it can be concluded that there are reasable regulatory steps that could have been taken, the question becomes why did BPP not take these precautionary steps on its own will? What was the incentive structure like that made them come to the conlusion that they shouldnt take such steps?

  • Tony||

    It's pretty simple... government regulations would harm their bottom line. It costs I think like $100 million to dig an emergency relief well. They are lowballing their own risk for short-term gain, and this is the result. They are still going to be one of the most profitable industries in the history of the earth. And nobody can blame them. It's a machine whose role is making money. Inevitably human misery will be just a variable in an equation. That makes it government's job to accurately assess the risks and regulate accordingly, as the representative of the people, the would-be victims of their industry.

    Your examples of regulatory failure are not an argument for fewer regulations, just the opposite. It wasn't a dream, there were regulatory libertarians (corporate whores) in charge of this country for a while.

  • Kpres||

    "Your examples of regulatory failure are not an argument for fewer regulations, just the opposite."

    BS, you just don't get it. It's not an argument of regulation vs. unregulation, it's a argument about regulation vs. liability.

    And as far as short-term nonsense, you don't get that either. BP has liability insurance, and risks they undertake (both long-term and short-term) are already wrapped up in the cost of their insurance.

  • roy||

    funny... biggest man made disasters ever happened in centrally planned economies... I guess regulatory prevention depends on the regulators... and chances are they are flawed human beings too...

  • David||

    "And it is the same pimps for the free market who are always in favor of "tort reform" and other barriers to litigation, so don't give me that crap."

    Actually, I don't know of many Libertarians who were pounding the tort reform drum, that was mostly Republicans.

    But anyway, they have a decent case. The problem with medical lawsuits is that they incorporate all these BS "emotional damages", that are basically unfair to doctors.

  • KPres||

    Brings up the point, though. How are those doctors able to pay out those huge lawsuits, even though they often amount to far more than the doctor is actually worth.

    Hmmm....how do they do it...?

    According to Tony and Chad, that's impossible in a free market.

  • ||

    I wonder why all the H&R commenters who don't believe in taxing pollution are nodding their heads and agreeing that BP should pay for the oil spill. Why is alot of pollution a crime, while a comparably small amount isn't?

  • ||

    Define "pollution".

  • ||

    The introduction of waste products into the air.

  • Coeus||

    Oxygen is a waste product of several industrial processes. Is that pollution?

  • ||

    I meant damaging waste products.

  • Coeus||

    Of course you did. Now, does the damage have to be quantifiable? What criteria are you using?

  • ||

    The damage doesn't have to be quantifiable, per se. The only thing that needs to be quantified is the amount of money needed to reverse the effects of whatever pollutant we're talking about.

  • Coeus||

    But most of the posters here have no problem with taxing, for example: SO2 or NOx. Acid rain damage has been measured and accounted for. They have a problem with taxing CO2 because the damages estimated from carbon are based upon conjecture and have yet to be verified even slightly by the temperature record.

  • Chad||

    When dealing with uncertainty Creous, the correct procedure is to take your best estimate, not stick your head in the sand and pretend the answer is zero, even when it clearly is not.

    In any case, one also has to look at the consequences of missing the estimates to one side or the other. Set the carbon price too low, and you under-collect tax revenue and, ummm, potentially make large fractions of the earth uninhabitable and cause a mass extinction. Set it too high, and you collect too much tax revenue, probably in a way that is still less economically distorting than an income tax, and wind up with air that is a a bit too clean.

    What kind of moron would chose the former?

  • KPres||

    I'm a libertarian, and I don't have a problem with carbon taxes. I just have a problem with putting the responsibility for carbon taxes in the hands of a Socialist, (um, I mean, a Democrat), because I know they'll exaggerate it for ideological reasons, and use it as a tool to hijack capital from the private sector.

    ...see Al Gore's propaganda.

  • ||

    Libertarians shouldn't be in favor of carbon taxes, just pollution taxes.

  • Chad||

    As I posted yesterday, the mythical "free market" cannot solve these problems.

    Imagine you invented a scheme that produced $100,000 in profit every year, but that had a 1 in 1000 chance each year of causing a disaster that did $1 billion in damage to the surrounding community. In the absence of regulation, would you run the scheme?

    Absolutely.

    First, there is a >95% chance that the scheme will never blow up in your face during your career. In this case, the whole scheme is just pure profit and guaranteed riches. In the small chance that the scheme DOES blow up, much of your previously-earned gains would be protected (your home, your 401k, little boobsies' college trust fund, etc), so you would still be in pretty good shape even if you had to declare bankrupcty.

    Therefore, the scheme will be run in a "free market", despite producing ten times the harm as it produces in value.

    Ideology refuted. Q.E.D.

    Even if BP has to pay the full costs of the damage it does (which is highly improbable, given our experience with Exxon), the management will still get to retire to the Hamptons, as always. That will sure stop them from doing this again, eh?

    Anyway, a challenge for my libertopian friends: how exactly *should* a libertarian government address private actors engaging in acts that are usually generators of small profit but are sometimes disasterous for the public?

  • ||

    You mean the mythical free market can't prevent these problems. It can, however, solve them by making companies accountable to those they damage.

  • Chad||

    How can we hold someone accountable for more than they possess? That's my entire point.

  • ||

    It's called debt.

  • Chad||

    Let me clarify that: far more than they posses and far more than they ever will posses.

    Also, here is a wonderful moment where the "Laffer Curve" works against you. Any fine levied on income earned AFTER the disaster functions exactly like a tax. So according to libertarian logic, you can't have much more than a few percent, or the amount you collect actually drops. Of course, in reality, the Laffer Curve peak is more like 70%, but you will never admit that.

    So, 95% chance of being rich, 5% chance of only being rich for a while, then halving my income halved and assets seized. I am quite sure there will be plenty of takers on that bet, and it only takes one to prove your theory wrong.

  • ||

    Any fine levied on income earned AFTER the disaster functions exactly like a tax. So according to libertarian logic, you can't have much more than a few percent, or the amount you collect actually drops.

    Wow, I don't think I can count how many wild assertions were made here. First of all, a fine doesn't function anything like a tax. A fine says you must pay X amount at this deadline. A tax says you must pay X% of your income at this date, annually. The fucking Laffer Curve has nothing at all to do with how a fine will be payed. BP gets fined a certain amount, they have to pay it. If they can't afford the fine, they owe whatever is left over. No percentages needed.

    So, 95% chance of being rich, 5% chance of only being rich for a while, then halving my income halved and assets seized. I am quite sure there will be plenty of takers on that bet, and it only takes one to prove your theory wrong.

    Prove WHAT theory wrong? The theory that people should be free to do as they please as long as they don't harm someone else? The theory that people who do harm someone else should be held accountable for their actions? Because those are the only theories I've put forth here.

    And alot of people take that bet every day. Whenever someone drives their car around they take that bet. The world is a BETTER place for it...

  • Chad||

    Wow, I don't think I can count how many wild assertions were made here. First of all, a fine doesn't function anything like a tax. A fine says you must pay X amount at this deadline

    Well, then, I don't earn any money until the deadline, and just live off welfare, charity, or begging. Now what do you do? Assuming I had a couple million in assets due to my previous $100,000/year windfalls, I only owe $998,000,000. What are you going to do to encourage me to earn ANY of that back, let alone all of it. If you don't let me keep some of what I earn, I won't earn anything. This is exactly analogous to the Laffer Curve; the more you let me keep, the more I will earn. Somewhere in the vast middle lies the point where you maximize your income.

    Of course, this is actually a rather silly point, because anything I earn after the disaster won't be a drop in the bucket relative to the mess I have caused.

    Prove WHAT theory wrong? The theory that people should be free to do as they please as long as they don't harm someone else?

    Proving your belief that a "free market" would weed out unprofitable investments such as this. Instead, it would encourage everyone and their brother to invent one. Not that it should surprise you, but your core beliefs do NOT lead to optimal outcomes in a wide variety of situations. This is one of them.

    A correllary of your core belief is "let people do whatever they want UNTIL they harm someone". And unfortunately it fails in this case.

  • ||

    Well, then, I don't earn any money until the deadline, and just live off welfare, charity, or begging. Now what do you do?

    What welfare??? Remember we're talking about libertopia here...

    In my opinion, not paying back your debts is equivalent to stealing. Jail time, anyone?

    Proving your belief that a "free market" would weed out unprofitable investments such as this.

    I'm so glad I have Chad around to tell me what my beliefs are. Tell me more, Chaddy boy.

    I notice you neglected to respond to my last point, which really refutes everything you just said. Not only are such risky actions taken every day by individuals, but the world hasn't been destroyed by them, as YOU seem to believe they would. Those risks have really benefited the world. Without them, we'd probably be pretty unhappy. But I guess that's your fantasy...

  • Fluffy||

    Chad,

    You're an idiot with absolutely no idea how the capital market works or how anyone with money would choose to employ it.

    I have to assume you have about 10 cents to your name and have never given any of these matters 10 seconds of thought.

    Proving your belief that a "free market" would weed out unprofitable investments such as this. Instead, it would encourage everyone and their brother to invent one.

    People with capital don't like to invest it in ventures with a substantial risk of a total loss, Chad.

    To raise capital in a competitive market, enterprises have to offer returns that compensate investors for risk. An investment like an offshore oil rig with the potential for tens of billions in losses if something goes wrong simply is not going to be able to raise capital if its operators take the approach you describe. "Hey, we'll make a million dollars and then let the courts attach our capital in a judgment!" Yeah, sure. Lots of takers for that one.

    One excellent piece of evidence for this is the legal limit that was placed on liability in this case. Do you know why the Congress put the $75 million liability limit in place for this type of drilling? Because they were afraid if they didn't limit liability to that amount, no one would invest in this type of drilling.

    If the market was full of people perfectly willing to have their capital seized after making a profit for a brief period of time, there would have been no reason to legislate a liability limit of this kind.

  • David||

    "Of course, in reality, the Laffer Curve peak is more like 70%, but you will never admit that."

    The peak of the Laffer Curve is just over 50%, and studies done with high-tax economies such as Sweeden and Denmark have shown that.

    Currently, in the US, taxes for high income earners are approaching that peak, once you account for state and local.

    Furthermore, you don't understand how the curve works anyway. The peak isn't some magical barrier meaning you can tax all you want up until you reach it. Leading up to the peak, you will experience diminishing returns.

    For example...

    Suppose the peak is 50%, the tax rate is 0% and get $1 in added revenue for every percentage point you raise taxes. If you raise the rate to 25%, you will bring in $25. But if you raise it to 50%, you might only bring in $40 extra dollars. You haven't "peaked" yet, you're still bringing in more revenue, but you're experiencing diminishing returns, i.e., inefficiency.

    Then if you raise it to 60%, you'll only bring in $35 dollars. Now you're actually LOSING revenue.

  • Chad||

    Citation, please.

    I'd love to see your Laffer Curve studies. Seriously.

    Remember, the power of the Laffer Curve is highly dependant on how substitutable the activity being taxed is, so what may apply to a small locality would not necessarily translate to a large nation state, which is harder to escape. And of course, if we had largely synchronized international tax laws, the issue would disappear.

    And David, I can assure you that I understand the math. Hell, I have a degree in math. This stuff is child's play. I invite you to stick some numbers in a spreadsheet and play around with them. Does it really make sense for someone who makes $100k and pays $20k in taxes to respond to a 5% tax increase (ie, to 25k on his 100k) by dropping his income to under $80k, so that the government loses money? Hell no. Indeed, some people might respond by working harder or longer, to make up for the loss of cash flow.

    The trick to defeating the Laffer Curve is to have a large number of smaller, broad-based taxes, which are harder and less profitable to dodge. This is why we should be implementing a VAT and a carbon tax, rather than increasing income taxes.

  • Kpres||

    "How can we hold someone accountable for more than they possess? That's my entire point."

    Force them to carry insurance.

    Now, anticipating your stupid response (given that I know how stupid you are), this is different from health care, because if you get ill or injured, it doesn't represent an externality.

  • Chad||

    Ahh, FORCE.

    The libertarian concedes his ideology.

    Game over, man. Once you concede your logic is flawed and that utilitarian concerns trump ideological purity, you have given me everything I have asked for.

  • ||

    Pay no attention to the man in the libertarian costume, Chad.

  • ||

    Kpres, shut the hell up you doddering moron.

  • Tony||

    Making them accountable takes at least as much government apparatus as a regulatory agency would. The legal system is massive, and you want to burden it with things that could easily be prevented by foresight and regulation? Not to mention the human cost.

    Why can't you wrap your mind around the fact that while a seatbelt restrains you in a minor way, it adds hugely to the amount of freedom in the world?

  • Coeus||

    The whole point of our legal system is to address violations of property rights such as this. It's the insane influx of nanny laws (such as seatbelt laws) that have caused the system to be so massive and overburdened.

  • ||

    I don't understand how a legal system doing what it's supposed to do is a "burden" to it. If you damage my property, I have the right to take you to court and force you to pay for it.

    Wearing a seatbelt doesn't add to freedom. No action can "add" to freedom. Only the erasure of limits on freedom (such as mandated seatbelt wearing) can "add" to freedom. Remember, wearing a seatbelt is not equivalent to being mandated to wear a seatbelt.

  • Tony||

    You're not free if you're dead. The seatbelt is just an example of a sensible sacrifice of a meaningless liberty for a large social good, if you define preventing death a social good. It doesn't even have to be government mandated to make the point. Why can't people through their governments choose to make their environment safer than it is in a laissez-faire system that is not motivated by social good but by profit?

  • Coeus||

    You're not free if you're dead.

    I'm free from the bullshit micromanagement you want to impose upon me. Go ahead, tell a dead guy he has to give up the fruits of his labor so some bloated sack of crap in Washington can make more kickbacks while spouting that "greater-good" tripe. He won't care that you have the guns. Hell, you wouldn't even be able to force him to put on a seatbelt, buy health insurance, or do a thousand other things you think that he should. I'm not saying that death is preferable to the safe, padded hell that you and your ilk would like to see imposed. I'm smart enough to play the system. I just resent the time and energy it takes to do so. For those less crafty but equally chaffed by stupid restrictions, death might actually be the better option compared to the suffocatingly dull existence this road of yours leads to. You do realize that we could reduce deaths and healthcare costs associated with AIDS by making anal sex illegal, right? Just because it's something you wouldn't ban, doesn't mean it won't be done by an equally well-meaning individual. Live free or die. It's a motto which created the society you benefit from and want to completely destroy.

  • Tony||

    Really I just want it slightly safer and more padded than it already is. Speaking for the progressive people who made it possible for you to live life with relative ease, you're welcome. Go "live free or die" in one of those small-government paradises that exist. Oh wait, there are none, they're all crapholes you wouldn't step foot in.

  • Kpres||

    There are no free markets that exist in the developed world because of all the Marxists like you.

    In the undeveloped world, where government corruption is rife, free markets fail, but then again, so do mixed and command economies.

    So again, you have no argument here.

  • ||

    You're not free if you're dead. The seatbelt is just an example of a sensible sacrifice of a meaningless liberty for a large social good, if you define preventing death a social good.

    As I said above, not having a mandate forcing people to wear seatbelts doesn't mean that people can't wear seatbelts. Right now you are arguing about that people should wear seatbelts, not that seatbelt wearing should be mandated. I really don't understand why you people don't get this.

    Why can't people through their governments choose to make their environment safer than it is in a laissez-faire system that is not motivated by social good but by profit?

    I have no problem with people doing that, AS LONG AS THEY DON'T FORCE PEOPLE TO DO THINGS THEY DON'T WANT TO DO. Find me a law that doesn't do that, and I'll support it.

    http://reason.com/blog/2010/06.....nt_1739903

  • ||

    ignore that link

  • Tony||

    heller find me a law that doesn't force someone to do what they don't want to do. We wouldn't need laws if society could function with people doing everything they wanted all the time.

  • ||

    heller find me a law that doesn't force someone to do what they don't want to do.

    I asked you first, silly.

    We wouldn't need laws if society could function with people doing everything they wanted all the time.

    Behold the convoluted "logic" of the statist: People can't be free to act within their rights, or society would crumble into little bits! We need the smart guys to tell everyone else what they can't do, or SOCIETY WILL CRUMBLE INTO LITTLE BITS.

    Society is made of individuals, Tony. I'll try to explain this in words you can understand. If an individual is doing something wrong, they should go to jail. If not, then nothing should be done about it. Society functions when individuals function.

  • Kpres||

    "Making them accountable takes at least as much government apparatus as a regulatory agency would."

    It doesn't matter. The point is that making them accountable means the costs are levied at a MICRO level, and so doesn't represent an artificial price distortion.

  • Kpres||

    "Why can't you wrap your mind around the fact that while a seatbelt restrains you in a minor way, it adds hugely to the amount of freedom in the world?"

    But that's a decision for the individual. People don't wear seat belts because of the $25 fine, they wear seat belts because they've assessed the risk and determined it's a fair trade of freedom for security.

  • David||

    Also because because many insurance policies don't cover you if you aren't wearing your seat belt.

    And the ones that do cost more.

    Thus, the free market creates a financial incentive to wear your seat belt, all by itself, without a bunch of government nonsense.

  • ||

    Not to mention that I don't see why any of the previously earned gains in your hypothetical should be protected.

    Also, this part of a much bigger problem: should we take risks or not. Many decisions we make have risks that are much more costly than their gains. When I carry a gun, I run the risk of accidentally shooting an innocent civilian. When I drive a car, I run the risk of running over a pedestrian. Should we stop people from taking these risks Chad?

  • Chad||

    It depends on the circumstance. Sometimes you should be banned from doing the risky action, sometimes you should be taxed, sometimes it should be regulated, and sometimes ignored, depending on which is most practical.

  • Coeus||

    But it's almost never decided based upon practicality. It's decided based upon who can bribe the most congresscritters. And that's a flaw inherent to the regulatory state of which you're such a adamant supporter.

  • Tony||

    Well, Congress is always gonna be there, and so will ethically challenged businesspeople, so are you in favor of public campaign financing or are you actually in favor of making bribery easier?

  • ||

    We can't stop murders from happening, so we might as well ban guns, knives, and anything else that could be used as a weapon

  • Tony||

    heller,

    Make sense please.

  • ||

    Tony, the swiftest means to an end is not always the just means to an end.

  • Tony||

    I don't see anything unjust about the people requiring powerful entities that profit from them to take precautions that protect the people from having their environment and livelihoods devastated.

  • ||

    Tony, you are talking about the how the ends are justified, not how the means are justified. Try again.

  • Coeus||

    Neither. I'm in favor of reducing the incentives to bribe the fuckers in the first place.

  • Tony||

    By letting them do what harm they would have done via bribery, only for free.

  • Coeus||

    As I already stated: The whole point of our legal system is to address violations of property rights such as this.

  • Tony||

    So by letting them do what harm they would have via bribery, except for free, then hoping they haven't bribed the judges.

  • Coeus||

    When they pay upfront, they get assurances that their behavior will be allowed. They are therefore more likely to cause the harm you would prevent. They can't know ahead of time if the judge they get will be bribe-able. But I also favor more accountability in our legal system, which should further reduce the problem.

  • Kpres||

    They can't bribe regulators?

    Corruption in the government, be it administrators or judges, is a problem for both a free market or a regulated bureaucracy.

    That's like saying gravity caused the spill, and the free market can't prevent gravity, so government is good.

  • ||

    When Chad? When should we be banned from taking risk? Where is the line?

  • Chad||

    I do believe there is a law preventing you from owning a nuclear weapon. That would be an extreme example, but it demonstrates the point.

  • ||

    That's not a line Chad, that's an example. It's one data point that's probably not even on the line.

  • Coeus||

    Hell, if the line is drawn so that you can own anything as long as it's not as dangerous as a nuclear weapon, I would probably really enjoy Chad's utopia. The taxes would probably be high, but who's gonna collect them from a guy with claymores and RPGs?

  • Coeus||

    Oh, and a tank. I'm definitely getting a tank.

  • Kpres||

    Yes, but the extremeness of the example is problematic. Libertarians aren't that extreme. Back in the real world, where bad risks don't amount to the destruction of the human race, the question revolves around this: Who's going to know better how much risk is being taken on, some bureaucrat in Washington, or the actual company taking on the risk (and operating under full liability)?

    You'd be stupid if you said the bureaucrat. Why? Because the bureaucrat doesn't have a profit motive driving him to get it right.

  • Kpres||

    "It depends on the circumstance. Sometimes you should be banned from doing the risky action, sometimes you should be taxed, sometimes it should be regulated, and sometimes ignored, depending on which is most practical."

    And the market does all those things for us when liability it maintained.

  • Jason||

    In this case, the whole scheme is just pure profit and guaranteed riches. In the small chance that the scheme DOES blow up, much of your previously-earned gains would be protected (your home, your 401k, little boobsies' college trust fund, etc), so you would still be in pretty good shape even if you had to declare bankrupcty.

    Ummm... how are they protected in a free market?

  • Chad||

    If you didn't protect them, people would just gimmick their way around them (shell corporations, house in grandma's name, whatever). Even if you could manage to wipe someone out, it still leaves them with a 95%+ of a life of luxury, and a 5% chance luxury for a while, then being wiped out and having to start over. Are you seriously contending that no one would make such a bet? It only takes one.

  • Coeus||

    One what? See my 9:28 post.

  • Chad||

    You seem to think that all "investors" have equity.

    Instead, the risk-taker could just borrow, which puts no liability on the lenders. 99% both the borrower and the lenders win, 1% chance they lose. Plenty will take the bet.

  • Coeus||

    We're having the same conversation on two different sub-threads. Please see above.

  • Chad, simplified||

    I hate free enterprise so much, I'll pimp any excuse to bitch about it and help my masters destroy it once and for all.

  • Fluffy||

    Therefore, the scheme will be run in a "free market", despite producing ten times the harm as it produces in value.

    That's not how the math works, Chad.

    It is entirely mathematically possible for no harm to be produced for hundreds of years in your example.

    Are you seriously proposing to me now that there are regulatory regimes currently in existence that have taken into account every possible harm that could occur over thousand-year timeframes?

    You have to make the math that absurd, to allow you to discount the risk to the underlying capital - to make it plausible that people would go forward with enterprises that make miniscule profit relative to their potential loss.

    But once you make the example that extreme, the example fails, because the risk is so miniscule and likely to be so time-remote that it's absurd to believe that regulations would even begin to account for it.

    Did regulators foresee all the impacts that, say, widespread auto use would eventually have - in 1920? If not, that destroys your math. If regulators can't even handle time frames of less than a century, asking them to account for all events with a 1 in 1000 year likelihood of occuring is bizarre.

  • ||

    A huge part of the blame lies with Haliburton, but I am not surprised to see US politicians or media commentators avoiding detailed discussion of those facts, nor am I surprised at the enthusiasm for abondonning the concept of the rule of law and bringing in retrospective legislation to try to punish BP (even though BP have not tried to deny any part of their own responsibility).

  • ||

    Tony said,

    A simple requirement for relief wells would have prevented this disaster. This regulation exists in Canada.

    Would you explain how this regulation would work or provide a link to the Canadian regulation that explains how it works.

    Thanks

  • Tony||

    Here is an NPR story.

    By no means are the Canadian regulations adequate--it's really just a requirement to have the ability to drill a relief well within the same season as a blowout. (The NPR piece explains that BP is trying to undo even this rule for drilling in the Arctic.)

    Assuming relief wells are the best cure for a blowout, I'd like to see government try to require them. I'm not a policy expert I just know that not even trying is one of the stupidest policies possible.

    Of course I really want is government policy that will as swiftly as possible shrink the oil industry so that it will fit in a bathtub.

  • KPres||

    "Of course I really want is government policy that will as swiftly as possible shrink the oil industry so that it will fit in a bathtub"

    And that's why people like you shouldn't be in charge. It's not about protecting people, making the market more efficient, or any of the so-called "moderate" positions you always claim to hold.

    It's about manipulating the market for ideological reasons.

    "I hate oil companies and I want them gone!! Whaaaaaa!!!"

    You've exposed yourself (as if we didn't already know) as the statist totalitarian we know you are.

  • ||

    Tony,

    Thanks for the link.

  • ||

    Big government supporters use accidents like the exxon valdez and the horizon blowout to drive for ever increasing government expansion.

    They remain studiously, even energetically, ignorant of the vast amounts of environmental damage caused by deliberate, planned, taxpayer funded, government action.

    We will see what things look like after the well is controlled and the spill cleaned up.

    But at this point there is no doubt that United States Army Corps of Engineers and the United States Bureau of Reclamation have caused far more destruction of waterways and wetlands in the US than exxon or bp have to date.

    But for some strange reason we never hear the usual suspects calling for those government organizations to be shrunk to the size that will fit in a bathtub.

    For the good of the environment and all the creatures that live there.

  • Shitty Friend||

    You know when Chernobyl happend, all I could think was "damn the profit motive!". Disaster could have been averted, if only there had been better regulations.

    Chad,
    Ideology refuted. G.F.Y.

  • KPres||

    Thanks for bringing that up. Lucky for us, the Soviet Union is one giant petri dish that shows how completely inefficient and ineffective giant regulatory regimes are. The environmental record in the US was far better than the Soviet Union, even as we produced far more than they did.

    Liability works, regulation doesn't. The reason is because liability involves the profit motive, something the government doesn't have.

  • MR||

    Also remember Aral Sea. The largest eco disaster in the history of the planet.

  • Dave||

    Good luck with reforming liability laws. I can accept that libertarian philosophy isn't crony capitalism, but it's got a lot to answer for as far as feeding the beast.

  • winnall||

    In 1990 didn't the government in return for limiting liability put an 8 cents per gallon tax on oil? Where did the money go?

  • ||

    Check out this amazing music video on the oil crisis:

    http://www.youtube.com/watch?v=xASgZTfwFZI

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