The Making of an Oil Spill


While E.J. Dionne announces that the BP oil leak shows the dangers of "disempowered government," Sheldon Richman paints a more nuanced picture:

[T]his is not just a simple matter of regulation. More fundamentally it's a matter of ownership. The government has proclaimed itself the owner of the offshore positions where oil companies drill. In a free market those positions would be homesteaded and managed privately with full liability. In the absence of a free market and private property, built-in incentives that protect the public are diminished if not eliminated. Bureaucrats and "political capitalists" are not as reliable as companies facing bankruptcy in a fully freed market….

Regulators and the industries they oversee develop mutually beneficial relationships that would appall those who idealize regulators as watchdogs. The rules that emerge from those relationships tend to foster more monopolistic industries.

It took the Deepwater Horizon tragedy to bring out the fact that a single federal agency, the Minerals Management Service, is "responsible for both policing the oil industry and acting as its partner in drilling activities," writes the New York Times. "Decades of law and custom have joined government and the oil industry in the pursuit of petroleum and profit. The Minerals Management Service brings in an average of $13 billion a year. Under federal law, even in the case of a major accident, the company responsible for the oil well acts in concert with government in cleanup activities."

The coziness between government and the oil industry is also apparent in the cap on liability for damages—a paltry $75 million—from offshore oil spills (not including cleanup costs). The interesting question is whether BP's dubious conduct would have been different without the cap. [BP chief executive Tony] Hayward, the Wall Street Journal reports, "admitted the U.K.-based oil giant had not had the technology available to stop the leak, and said in hindsight it was 'probably true' that BP should have done more to prepare for an emergency of this kind." Transocean, owner and operator of the rig, is petitioning to limit its own liability to $26.7 million. (Moral hazard matters, but the story is complicated. Oil spills have been decreasing, and no energy development is without its risks.)

Unfortunately, the loudest criticism Obama has received over the BP leak has focused on his efforts to contain the crisis, not the systemic problems that helped produce it (problems which, not coincidentally, tar Republicans as well as Democrats). The president's response to the spill has certainly had its problems, but some people—I'm looking at you, Karl Rove—are taking that line of attack too far. As Clive Crook recently wrote, "The notion that the government should be directing, as opposed to merely supervising, the effort to stop the leak—BP should be pushed aside; bring in the military—is absurd. So far as that side of the operations goes, all that matters is who has more technical expertise: the company or the administration? (If your house was burning down, would you want the White House directing the fire crews, or maybe calling in air strikes, as a sign of how seriously Obama takes your problem?)" In this sense, at least, the oil spill is not Obama's Katrina: The worst thing about Bush's reaction to the hurricane was how centralized and militarized it was.