Liability vs. Regulation


On the evergreen subject of BP, here's a dumb column from Tom Frank and a decent response from Tim Carney. Frank sees conservatives criticizing the Minerals Management Service's cozy partnership with the industry it regulates and writes, "Galt only knows how many times 'coziness' of the MMS variety has been celebrated as part of the struggle for free markets and free people." Carney responds that "BP's oil gusher is in federal waters, on seabed leased from the federal government," so "asking Washington to manage its own backyard fairly and competently isn't akin to embracing Frank's statism." Frank, Carney writes, is confusing "pleas for government competence with a desire for bigger governments."

Carney is clearly correct, but there's a larger point worth making here as well. When cronyism like the corruption at the MMS is exposed, there are people whose immediate response is We need to get better regulators and there are people whose response is We need to get a better system. The first group thinks in terms of creating and enforcing an ideal set of rules that will prevent accidents. The second group thinks in terms of ensuring companies know they'll feel the full impact of the liability for any damage they cause. Group two might prefer competent regulation to incompetent regulation, but it also prefers the limits imposed by attorneys and insurers to the limits imposed by regulators.

These are general approaches, not precise platforms. In the wake of BP's big leak, members of group one called for everything from stricter enforcement of existing rules to a ban on all offshore oil exploration. And while group two would probably agree on abolishing the drillers' $75 million damage cap and ending federal ownership of the seabed, some of its advocates have also called for reforms ranging from mandating liability insurance to rethinking the limited liability corporation itself. But the basic approaches are constant, even if the details vary. One group focuses on regulation, the other on liability; one group wants to concentrate intelligence at the center of the system, and the other wants to push it out to the edges.

I'm in the second group, so when I read those reports about the MMS I see an indictment of the regulatory state. Frank reads the reports and sees evidence that the regulatory state should be stronger. The difference is that I understand Frank's reasoning, whereas Frank seems hardly aware that there's another position here at all.

Elsewhere in Reason: My review of Frank's last book, in which he makes some similarly addled arguments. Also, an article I wrote way back when about Exxon's liability for the Valdez spill.