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Who’s Liable for the Gulf Oil Spill? You Are.

Government failure and the Gulf oil spill catastrophe

BP has repeatedly promised to pay all “legitimate claims” for loss and damage as a result of the Gulf oil spill, now vying for the title fourth biggest oil spill in history at 2.3 million barrels of crude over the past two months. And that’s exactly as it should be. But how can the company pay off all the claims it faces?

Crunching the numbers through a worst-case scenario using the Environmental Protection Agency’s (EPA) Basic Oil Spill Cost Estimation Model results in an estimate that the cleanup and payment for damages will cost about $8.7 billion; double that if the well continues to gush until August. Some other estimates suggest that the cleanup and costs for damages will ultimately add up to $40 billion. BP, the oil company that holds the drilling permit, is responsible for the disaster and has spent $1.5 billion on the cleanup.

BP is essentially self-insured through its ownership of what is known as a captured insurance company, Jupiter Insurance, which can make a maximum payout of $700 million per incident to its parent. And while the amount is not known, BP also has some insurance through Lloyd’s of London. Possibly the best news for those damaged by the spill is that BP cleared $14 billion in profits last year. Given the magnitude of the current losses, why is it that BP carried so little insurance?

Oil spill liability is a complex patchwork of private and public insurance schemes. On the private side, energy companies banded together to set up two industry-owned Bermuda-based mutual insurers, Oil Insurance Ltd. (OIL) in 1971, and Oil Casualty Insurance Ltd. (OCIL) in 1986. OIL insures its petroleum company members up to $250 million per occurrence against such risks as property damage, well control costs, and third-party pollution liability. In 2009, OIL’s assets totaled over $6 billion. OCIL offers excess liability insurance, that is, the insurer pays off when a company’s liabilities exceed those covered by other policies. OCIL’s assets totaled just over $1 billion last year. So even if BP had decided to join these mutual insurers, their entire capitals would not be enough to pay off the Gulf spill damages.

Let’s take a look at the public sector. In 1990, both houses of Congress passed with nearly unanimous bipartisan support and President George H.W. Bush signed the Oil Pollution Act in the wake of the Exxon Valdez oil spill in Alaska. The act created a $1 billion Oil Spill Liability Trust Fund paid for by an 8 cent per barrel tax on oil produced in or imported into the United States. The trust fund makes payments to people damaged by a spill and then seeks repayment from the parties that are responsible for it.

The 1990 act also set a $75 million cap on liability on damages to natural resources and economic losses suffered by private parties resulting from offshore drilling spills. However, drillers are responsible for all cleanup and containment costs. The cap does not apply if a company is found to have violated federal regulations or engaged in gross negligence (an issue that will certainly be litigated in this case). Apparently, Congress made a political decision to set the liability cap low for two reasons. First, because smaller drilling companies would not have been able to afford the insurance that would enable them to operate. Congress wanted competition in offshore oil production. And second, because producing oil domestically, even if risky, improved U.S. energy security.

Now the federally approved liability cap doesn’t look like such a good idea. On June 9, Brookings Institution Senior Fellow Michael Greenstone, testifying before the House Committee on Transportation and Infrastructure, argued “the cap creates incentives for spills.” Why? Because if drillers believe that their liability is limited, they will engage in riskier activities than if they feared that they would be responsible for all the costs if things go wrong. While acknowledging that we cannot know whether this incident would have occurred without the cap, Greenstone asserts, “The cap effectively subsidizes drilling and substandard safety investments in the very locations where the damages from spills would be the greatest.” In other words, the liability cap is a good example of government failure. Government failure occurs when government intervention causes a more inefficient allocation of goods and services than would occur without the intervention.

Unfortunately, government subsidies to risky activities like the Oil Pollution Act's liability cap occur throughout our economy. For example, the Price Anderson Act limits liability for nuclear power accidents to $10 billion and federal flood insurance encourages people to build houses along vulnerable coasts and on flood plains.

Going forward, the liability cap should be removed. This would align the future incentives of drillers and their insurers to take into better account the risks of offshore oil production. Lifting the cap would also mean higher gasoline prices for consumers and job losses in the oil industry. Ultimately, insurance markets may well tell oil drillers that with current technologies deep water drilling is just too risky.

Ronald Bailey is Reason's science correspondent. His book Liberation Biology: The Scientific and Moral Case for the Biotech Revolution is available from Prometheus Books.

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  • Suki||

    Wasn't the "escrow account" for this that Maobama is *demanding* now set up a few weeks ago and BP has already paid millions in claims from it?

  • ||

    What Obama is demanding is essentially that BP fund another purely political slush fund for him to be able to dole out favors.

    Samce principle as the so-called "stimulus" package.

  • ||

    So idiots like yourself equate real damages with a political "slush fund".

    You remind me why I hate Bushpigs every time I visit the comments here.

  • ||

    I want the people harmed by this accident to get recompensed. I don't want state and federal bodies making out like bandits. Like they always do when they stick their hands into these sorts of cases.

  • ||

    Same here.

    But Gilbert Martin says this escrow account is a "political slush fund".

    Join me with a "Fuck you Gilbert"

  • Suki||

    But Gilbert Martin says this escrow account is a "political slush fund".

    No! Gilbert notices the same as I. Obama is bastardizing a fund to compensate true victims into his(His) slush fund to compensate his backers.

  • Suki||

    Same here.

    Right, shrike. Do you have any idea what the words you use mean?

  • ||

    It IS a slush fund, shrike. Pull your head out of Rahm's ass and learn some fucking truth.

  • ||

    The dog is turned to his own vomit again.

  • ||

    The federal government has never misappropriated funds intended for a specific purpose. NEVER!

    I'd rather see it take place in court than in government.

  • ||

    "The federal government has never misappropriated funds intended for a specific purpose. NEVER!"

    Yeah - such as using the slush fund to pay non BP oil workers put out of jobs because of OBAMA's decision to ban offshore drilling - a purely politcial bullshit move on his part. None of the other rigs in the gulf have any problems.

  • ||

    First off, Obama INCREASED off-shore drilling. After this disaster, his only "ban" was a temporary halt to arctic drilling only. Bottom line - still more off-shore drilling allowable now than under the previous idiot.

  • ||

    "First off, Obama INCREASED off-shore drilling"

    Wrong.

    http://www.washingtonexaminer......46077.html

  • Suki||

    GM,
    Correct, he talked about it without authorizing anything and I did not even have to look.

  • Suki||

    Did you forget the exploration ban and the upcoming shallow ban?

  • Suki||

    +10

  • ||

    If you don't like it here then get lost, boy.

  • ||

    You don't scare me, you piece of shit.

    I am smarter and ruder than you are.

    You licked the Bushpigs ass-crack for years and now he can't stock his god-damn library with real books.

  • ||

    Declaring one's intellectual prowess is a sure sign of a lack intellectual prowess.

    For Shrike:
    You are a moron.

  • ||

    So BP liabilities collected in escrow are a "political slush fund"?

    You are an idiot too.

    Why can't the President collect legitimate liability without Teabbagger idiots suspect of "socialism"?

  • ||

    The "President" can't collect shit, shrike. Besides, any moron could see why Obama wants that kind of power: If BP makes good on claims on its own, Obama can't take credit for it later.

  • ||

    Watch later tonight.

    Obama is setting up a BP funded escrow account to pay for their damages before the Bushpigs on the SCOTUS can vacate their liability.

  • Suki||

    Shrike, BP already set up the account and is paying from it. Obama wants to divert it to his . . . FRIENDS LIKE YOU!

  • ||

    shrike, you only have it half-right when you use the term "Bushpigs", as you leave out the Democratpigs on the other side.

    But you know that already, don't you?

  • Suki||

    TLG +1,000,000

  • ||

    Nyaah, nyaah, nyaah, nyaah!
    Neeener neeener neeener!
    So there!

  • Suki||

    Obama appropriating them while the firm is paying them out is a political slush fund. Do you have a statue of Obama in a gown and halo in your bedroom?

  • ||

    "For Shrike:
    You are a moron."

    Also a little punk with a big mouth.

    That's all he'll ever be.

  • ||

    +10

  • ||

    shriek is off his meds again. Yay!

  • ||

    Oh shriek, you only hurt the ones you love.

  • ||

    It's uncanny how his own handle, with a single vowel switch, is so much more perfect for him.

  • ||

    shrike, why limit yourself to only hating one group of politicians?

  • ||

    seriously, I think you would be much happier if you could gush rage at the political establishment regardless of the party in power. Always having to bring up old shit must get tiresome.

  • ||

    Obviously it's only a slush fund when corrupt republicans do it. When twice as corrupt democrats do it, it's all good.

    I hated Bush. But now Obama has indeed made me miss him.

    All he had to do was repeal the Patriot act, which he talked against, to be only as bad as Bush. Rendition. FISA. Something the left is supposed to be against.

    But it's all Bullshit, Obama is all statist all the time.

    Obamalosi has reminded America why gridlock is a very good thing.

  • ||

    BP don't mind, they were first on board for AGW...now let them die!

  • christian louboutin||

    was born from a worker's family in Paris in 1963,all his glory he gains today begins with that special experience in his childhood.Excellent Halle Berry for Inspiration. Once,when he passed through Paris Oceanic Art Museum,he saw a significant icon in front of the gate,a cone-shaped heels are two lines thick lines crossed,warned female visitors be kund to the carved wooden floor in pavilion.Looking at the beautiful shoes,the 13-year-old boy was obsessed into them.It seemed that it was the first time he knew christian louboutin could be so beautiful.

  • ||

    Have no fear, the "oil czar" will soon be here.

  • ||

    Science Correspondent Ronald Bailey argues for lifting the cap on oil spill liability and letting insurance markets set prices for risky ventures.

    See, you Liburtards are just shills for big corporations!!!

  • ||

    If you're going to lift caps you will need to lift constraints on drilling or at least states decide. Part of the reason they are taking risks is they are driven to it. Couple that with the cap and you have a crapton of incentives to do risky shit.

  • ||

    Actually what you'd need is simultaneous tort reform, particularly a "loser pays the winner's legal fees" provision and a cap on punitive damages.

    I see the liability cap as an effort by government to compensate for their earlier buggering up of the market, in this case by making it too easy for rent-seekers to sue big companies out of even trivially risky activities.

    Sure, lift the liability cap. But also disallow people suing BP for $2 billion because their favoritest evah brown pelican got snuffed by oil, or because they imagine diesel exhaust from the offshore engines caused their grandson's asthma when he visited for two days two summers ago.

  • ||

    Just heard the magic word receivership from a congressman on Cavuto.

  • ||

    OH wow, that actually makes a lot of sense dude.

    Lou
    www.anonymity.au.tc

  • ||

    Seriously a great article.

    The $75 million liability cap (which Ron and Brookings say “the cap creates incentives for spills” has been supported since the gusher by Senator Lisa Murkowski and others.

    And the real plaintiffs are powerless - the Gulf workers and the wildlife.

    When the ultra-right wing SCOTUS rescinded the Exxon Valdez $5 billion judgement in 2008 they signaled "Game on - Bushpigs. You may fuck the public to your hearts content".

    Sad.

  • ||

    When the ultra-right wing SCOTUS

    "Ultra-right wing" does not mean what you think it does.

  • ||

    Goddamn McBushitler pigs on this teabagging site make me fucking sick. Go suck Rush Limbaugh's dick, you fucking christfags. I just remembered why I fucking stopped coming here.

  • ||

    I hope 90% of you intellectually vapid idiots impersonate me by Friday.

    It will be like the Thomas Crown bollo event.

    Keep it up.

  • ||

    You can't get more intellectually vapid than ad hominems.

  • ||

    If I were honest, I'd admit that Dems in Congress helped put the $75 million cap in place. But I'm not honest. I'm a liberal douchebag, which precludes such honorable actions.

  • ||

    Wear my bollo, bitch!

  • ||

    Good. Keep remembering.

  • ||

    So everyone who doesn't agree with you is a Right-wing Christian extremist? No wonder everyone hates you.

  • Paul||

    Rush Limbaugh LOVES Shrike. Without Shrike, Limbaugh wouldn't get any publicity!

  • ||

    Did you get spittle on your computer monitor when you typed this?

  • ||

    wanna know what I got on my keyboard when I read it?

  • ||

    I see you don't swallow. Hernia?

  • Paul||

    Go suck Rush Limbaugh's dick, you fucking christfags. I just remembered why I fucking stopped coming here.

    Bookmark it boys. DRINK!

  • Paul||

    And the real plaintiffs are powerless - the Gulf workers and the wildlife.

    Interesting. Guess who's the most pissed off about Obama's moratorium on offshore drilling?

    The gulf states.

  • ||

    Can I collect due to PTSD from watching this on the news? All those animals and out of work fishermen and Bobby Jindal have really gotten me down.

  • ||

    Soon, James. Hang in there, stay sick.

  • ||

    "Lifting the cap would also mean higher gasoline prices for consumers and job losses in the oil industry."

    The oil industry is evil, so who cares if they lose jobs. Boo hoo, some oil executives will lose their bonuses. As for the "middle class" American workers who who actually suck (nay, steal) oil from off shore drilling sites, they too will get what they deserve.

    Higher gas prices will be a wonderful thing, as it will herd the Americans towards alternative energy. The burger munchers will have to carpool / ride public transportaion to work, or god forbid, burn some calories on a bike.

    You can't ride a horse, of course. If you can't eat'em, you can't ride'em. That's that law.

  • ||

    Higher gas prices will be a wonderful thing, as it will herd the Americans towards alternative energy.

    Disagree -- higher gas prices will result in greater incentives to improve fuel usage and production efficiency in addition to alternative energy sources.

    Higher petroleum prices will also result in higher prices for goods that are produced using petroleum like propane, kerosene, tar, asphalt, coke, sulfur, fertilizers, plastics, oils, waxes, and artificial fibers. Those prices increases will increase prices for products using those products.

  • ||

    Higher gas prices would be regressive against the poor, left winger. Or don't you give a shit about the poor?

  • ||

    Higher gas prices would be regressive against the poor, left winger. Or don't you give a shit about the poor?

    We'll hear renewed calls for a higher minimum wage so that the "working poor" will be able to buy as much gas per hourly wage as they did in Reagan's term.

    Maybe even indexing the minimum wage to the price of gas.

  • ||

    Yes, I care about the poor. That does not mean that I support stupid methods of subsidizing them.

  • ||

    Have you sold that art collection yet? We're dying here!

  • ||

    You get plenty from me. Don't worry.

  • ||

    Is that a "yes, I have sold my art collection to give money directly to the poor?" Or, is that a "No, the pittance I 'give' because I am too lazy to itemize is good enough for you riff-raff?"

    Admit it, you cannot live up to your principles. Platitudes don't feed us.

  • ||

    I give plenty more than that.

  • ||

    We're still starving and dying in the streets here Chad. You aren't giving enough. We need more! You can afford it!

  • ||

    I give plenty too. That doesn't make me a lefty or a symphony floutist either. I am left handed though.

  • ||

    Yeah, Chad! You should welcome all 300 million of us to your house to raid your fridge for sandwich fixins.

    In fact, YOU should make the sandwiches.

  • ||

    Because it's the free market that has priced oil, not an international cartel and government subsidies. And we deserve these artificial prices, because we are entitled to impose massive environmental costs on a generations humans who has never been born, because we're for freedom, and the pristine wisdom of markets.

  • Michael Ejercito||

    And we deserve these artificial prices, because we are entitled to impose massive environmental costs on a generations humans who has never been born, because we're for freedom, and the pristine wisdom of markets.


    What environmental costs are imposed on generations that have not been born?

    How did some schmuck using Greek fire back a thousand years ago affect my generation?

  • ||

    Higher gasoline prices don't just encourage the use of "alternative" modes of transportation, you know. There is also an unrecoverable economic loss, a lasting and serious dent in everyone's standard of living. So your assertion that this would be a "wonderful thing" is only plausible if you think sustained high unemployment, reduced real wages, far more expensive health care, fewer people going to college, and less money spent on K-12 education (because the government has less taxes) are also a "wonderful thing."

    The problem is you think the economic signal can be given at zero cost. Not so. You're like a frustrated parent saying yeah, if my son fails algebra that will be a wonderful thing, because THEN he won't get into a good college and he'll learn the lesson to study hard or else! But you are, of course, overlooking the fact that he doesn't get into college.

    Similarly, yes, if gasoline becomes quite expensive, it will mean the living standards of everybody will fearfully decline -- and this will, indeed, strongly motivate them to seek alternatives to gasoline. But you'll notice there's still that nasty social cost to bear.

  • ||

    Higher gasoline prices don't just encourage the use of "alternative" modes of transportation, you know

    It actually depends on whether the prices set by the market are correct in the first place. If they are artificially low due to subsidies (both direct and hidden), then raising the price actually makes the market more accurate in allocating resources, not less.

    Given that the fossil fuel industry receives over half a trillion dollars in direct subsidies every year worldwide, and at least that much in hidden pollution subsidies, it is utterly certain that all fossil fuel prices are much lower than they should be.

  • ||

    I drive my car FAST and DRUNK, often at the SAME TIME.

    *as a direct result of your comment.

  • ||

    3...2...1...

    TEH EXTERNALITIES!!!1!!

  • Paul||

    Given that the fossil fuel industry receives over half a trillion dollars in direct subsidies every year worldwide, and at least that much in hidden pollution subsidies, it is utterly certain that all fossil fuel prices are much lower than they should be.

    No they don't. The right people are in charge, now.

  • ||

    You mean the likes of Ben Nelson and Scott Brown?

  • ||

    Hey, whoever is impersonating Chad making good points, please stop it. It confuses me.

  • ||

    BP has repeatedly promised to pay all “legitimate claims” for loss and damage as a result of the Gulf oil spill

    Why the "scare quotes", Ronnie? If Katrina taught us anything it is that after a disaster, people will submit false claims in order to get free money (debit cards). I find the contention that BP's use of the word legitimate somehow implies that they plan to screw people totally unmerited. They use it to mean they aren't going to get screwed like the federal government did after Katrina.

  • ||

    And inevitably it's going to have to be the courts in the end who decide which claims are legitimate and which ones aren't, as always.

    The idea that a crooked douchebag like Obama can be trusted to distribute the money in a fair and just manner is beyond laughable.

    And considering that a big chunk of BP is still under British control, for him to attempt to seize control is illegal anyway, not that such niceties will stop him from trying.

  • ||

    "And considering that a big chunk of BP is still under British control, for him to attempt to seize control is illegal anyway"

    It can be done.

  • ||

    I'm sure Obama would find that the Unions are most affected by the spill, and would use the fund to increase Union pensions.

  • ||

    He could use it to transfer partial ownership of BP to unions and the government.

    But that would be corporatism.

  • ||

    people will submit false claims in order to get free money

    I have a psychic connection to the Gulf of Mexico, and have endured explosive diarrhea since the oil spill. I demand $250,000.

  • ||

    I was in Sarasota this past weekend and feared the oil. I need tons of money to make me feel better.

  • ||

    That was PeeWee Herman. Avoid his frontside.

  • ||

    Is he still down there?

  • Paul||

    You tell us.

  • ||

    "legitimate claims" are the actual words BP used. Not sure how you are deriving "scare quotes" from that useage.

  • ||

    Did BP also use the words "pay" and "all"? If so, they too should have quotes.

    However, since BP did use those two words as well, then as written by Ron, legitimate claims is indeed scare quoted.

  • Jesse Walker||

    I think they said paying rather than pay, actually.

  • ||

    I wonder when the demands from the Obama State get to the point where it makes economic sense for BP to just walk away from its US subsidiaries, and just sign 'em over to the geniuses in DC.

    I wonder what they are worth, anyway?

  • ||

    Are they legally bound to keep the platforms pumping oil? Couldn't they just shut them down?

  • ||

    That's the fear with an order to stop drilling. They won't set assets like rigs sit in the Gulf and wait for the administration to come to a decision. They will just move them.

  • ||

    The best chance of stopping the leak is relief wells. Which require drilling.

    The recent moratorium on drilling only applies to arctic drilling anyway.

    The dumbest move by the administration was the dispersant decision. They should be trying to RECOVER the oil, not making it IMPOSSIBLE to recover.

  • ||

    If I owned an oil company, I'd fucking drill and dare the US military to invade.

  • Paul||

    The dumbest move by the administration was the dispersant decision. They should be trying to RECOVER the oil, not making it IMPOSSIBLE to recover.

    Oil bad. Streetcars and trains good.

  • ||

    What do you want to bet they have already moved assets and reassigned what country they will be exposed to legally. I have a feeling BP is much better at business than the current administration.

    It's a shame this wasn't handled better. I have a sinking feeling everyone who doesn't deserve to get fucked is and those that should feel the pain won't.

  • ||

    I have a sinking feeling everyone who doesn't deserve to get fucked is and those that should feel the pain won't.

    As we have seen with the bailouts, the auto manufactures, and...well, everything else: that's the Obama way!

  • ||

    How long before the pejorative verb, "obamaed" enters colloquial English? To take the place of "fucked" as in "fucked over?"

  • ||

    I prefer barack(ed)

    As in "Barack you BP"

  • ||

    As we have seen with the bailouts, the auto manufactures, and...well, everything else: that's the Obushma way!

    FTFY

  • ||

    Dude, Obama is making me miss Bush. Think of how fucked up that is.

  • ||

    Don't forget, Epi. He's talking to *you* tonight.

  • ||

    (clutches pearls)

  • ||

    [Takes Episiarch's pearls and casts them before swine.]

  • ||

    I remember thinking, "It couldn't possibly be any worse."

    I really hate being wrong.

  • ||

    And we may not be done yet. So long as government power continues to grow beyond its limits, we're increasingly vulnerable to each succeeding government.

  • ||

    BP bought Amoco and Standard.

    Probably worth about $40 billion. Prime pickings in bankruptcy court for a first-line claimant for sure.

    Fuck BP.

    Liabilities should be uncapped - perhaps clawed back to stockholders.

  • ||

    That is why I own stock in Apple - among others, btw.

    Claw that back.

    Vultures like BP and Exxon who feed off the public should be held liable for the full extent of their public bloodfeeding.

  • ||

    Your stock in Apple is going to take a big tumble if BP goes under and oil supply takes a masssive hit from Obamanaut rape 'n' pillage reaction.

    Or don't you imagine Apples uses fuel in any of its manufacturing or transportation operations? iPods are transported to your Apple store by carrier pigeon or something, maybe?

  • ||

    Blame the Democrats for helping put the damage caps in place, shrike.

    But you know that, don't you?

  • Paul||

    Probably worth about $40 billion. Prime pickings in bankruptcy court for a first-line claimant for sure.

    In Obamaland, that would be the UAW.

  • ||

    As we have already seen with AIG, leaving it to the insurance companies may very well mean putting all the risk onto the taxpayers anyway. There's gold in them thar disaters.

  • ||

    Shrike is in rare form today. Is someone parroting him?

  • ||

    Maybe.

  • ||

    It's a furlough day?

  • ||

    Congress ... set the liability cap low ... because smaller drilling companies would not have been able to afford the insurance

    Serious question: Is such "leveling of the playing field" done for non-oil/mining industries? I mean, analogously; not the "minority-owned" stuff.

  • ||

    I just love seeing all of this 'Obama hate' at Reason.

    It is well deserved.

  • ||

    Now that BP is responsible for the financial well-being, and their feelings, of everyone who's ever seen the Gulf Coast, the administration is considering making BP pay for Haiti. What ever happen to Haiti? Is that "trend" over? We need a "major recording artists" We Are the World tune for the The Spill. I'm only buying Chavez gas from now on. Or Al Qaeda oil.

  • ||

    [We need a "major recording artists" We Are the World tune for the The Spill. ]

    Can't provide on on the spill as requested, but gnaw on this one whilst you wait.

    http://www.eyeblast.tv/public/video.aspx?v=XdaGaGkUSU

  • ||

    I actually heard someone on NPR yesterday say that we should make BP pay a punitive amount but not so much as to cause them to go bankrupt.

    FUCK.
    THAT.

    Say the costs (and yes, I'm including lost livelihoods, reduced property values, and declines in current and future tourism revenues as costs) are X, and the amount that BP has to pay while still staying in business is Y.

    If X-Y > $0, the people on the Gulf Coast are subsidizing BP's shitheadedness.

    This is completely unacceptable and I cannot believe that anyone could advocate that position. Fuck BP. We don't owe them a goddamn thing.

  • ||

    You're in Cro-Magnon Libertarian make-believe land here, matt.

    Like Randy Paul (R-KY) said - "Its just an accident. Move on."

    These same shitbags love Scalia and his token sidekick for siding with Exxon on the Valdez disaster.

  • ||

    Please don't agree with me again.

  • ||

    I predict you like Willard Romney in 2012.

    He is confused too.

  • ||

    Racist drivel from a liberal. How totally expected.

  • ||

    Where do you suppose BP is going to get $Y? Print it? Sell some of their secret hoard of Nazi gold?

    Or -- uh oh! -- raise the price of their gasoline? The people paying your $Y are going to be everybody who buys BP gasoline for the next 5 years. (And that does not, of course, include only those who fill up at BP stations. Big oil companies frequently sell refined products to each other, so you could, and probably will, pay part of $Y when you fill up at almost any gas stations.)

    Just remember, BP is not a person. BP is an organization that transfers money from people who buy gas to people who drill for oil. Any money "BP" pays is simply added to what the people who buy gas pay.

    If you want to make the case that the people who buy gas should be viciously screwed over for what happened in the Gulf, well, be my guest, although the morality is pretty unclear to me. But your notion that "BP" is like a person and can be horseshipped into cringing misery is absurdly naive for someone living in the 21st century.

  • Amakudari||

    Or -- uh oh! -- raise the price of their gasoline?

    What? BP does not control the price of gasoline in any way out than their participation in the market, and they're quite small in the grand scheme of things. Remember that most oil companies are state-owned, and the largest private oil company, Exxon, is 3% of the market. BP is a price taker, and I'm extremely skeptical of their ability to just raise prices on everyone. If BP gas costs more than the gas station next door, I'm going next door.

    Imagine a $1.00/gallon premium for the oil spill cleanup. Would you pay it? The oil spill costs are fixed costs, which wouldn't determine the optimal price anyway.

    Think about it: Exxon didn't raise oil prices after the Valdez spill. Prices were actually flat or down for the next decade, excluding the First Gulf War spike. Those prices didn't go up because Exxon doesn't have that kind of pricing power, nor was such a spill an expected cost of doing business for most oil companies.

    The people paying your $Y are going to be everybody who buys BP gasoline for the next 5 years.

    How so? BP has cash reserves and equity shareholders. Let's imagine that BP has to pay out $X billion, then raise $X billion in capital to replace it. The company's capital and cost structures would remain relatively unchanged. It's a transfer from existing shareholders to claimants, nothing more.

    If you want to make the case that the people who buy gas should be viciously screwed over for what happened in the Gulf, well, be my guest, although the morality is pretty unclear to me.

    I'm not even making that case, but the justification for it is fairly obvious: people who require gas require drilling for gas. If that drilling occurs in an environmentally sensitive area, that should be reflected in the price of gas.

  • ||

    What do you mean where does BP get $Y? BP is worth about $130 billion in hard assets. They're simply liquidated by the courts in bankruptcy procedings.

    Or this is what should happen. It won't, and it's a shame.

  • ||

    I have to wonder what would happen if damages were looked at from a private property point of view.....

    Did the fishermen suffer any damages? They don't own the fish in the ocean, the state does. It's only AFTER the state allows the fisherman to pull in his catch does it become the property of the fisherman. Only in a fishery where the fisherman owns shares in the uncaught stock of fish could he suffer any damage (the oil killing his fish). If the state, the current owners of the fish stocks in the ocean, decided for what ever reason to suddenly stop all fishing (lets say vegan whack jobs managed to get elected and decided 'for the sake of the critters' to stop all fishing) would the fisherman have a cause for damages against the state? What private property damages could a fisherman claim other than their boat, equipment being soiled by the oil slick?

    Hotel operators and other tourist dependent businesses: If they're waterfront, and the oil washes up on their private property, they're clearly damaged (BP - no one granted you permission to pollute private property with your oil - clean your dog shit up off of their property). But if they're not waterfront, what private property interests do they have in the Gulf or the beaches? The waters of the gulf are owned by the United States. The beaches, assuming public ownership, are owned by the town, county, state, who are the ones actually damaged (BP spilled their oil onto town, county, state owned beaches). If you're a hotel owner across the street from a publically owned beach, and the governing body decides to shut it down for what ever reason (lets say, a massive shark has been eating beach goers, for example) do you have a claim on the state for shutting down the beach? Just because the beach is shut down, doesn't mean I'm stopped from operating my hotel (assuming I'm the one on the other side of the street from the beach). My hotel has suffered no physical damage, has it? If not, what damages have been done to me? Or am I entitled to some certain flow of tourists into the area?

    Where, as a private property owner, do I get the right to assume some one elses private property, or even public property for that matter, continue in their current state of operation (that I'm taking advantage of)? If the other property owner decides to change the use of their property, and that change, while not damaging my property directly, DOES impact how I'm able to earn off of my property, solely because I've ASSUMED they'd operate their property in a certain way, am I now entitled to damages? Again, my property isn't actually damaged.

    Ron, et al. It'd be interesting to see how you'd apportion damages from a strictly private property perspective.

  • ||

    You keep making sense like this and we'll demand a name.

  • ||

    You've done a great job of indicating precisely why you CAN'T apportion damages from a private property perspective. The second and third order effects are both massive and real.

    This is also why the government should fine BP the ~$4300 per barrel allowed by law. It would be a massive sum, but would probably still fall short of all the damage inflicted upon the public which would not be compensated by a direct liability-based system.

  • Michael Ejercito||

    You've done a great job of indicating precisely why you CAN'T apportion damages from a private property perspective. The second and third order effects are both massive and real.


    So if a factory decides to close, can a deli owner around the corner successfully sue to keep the factory open?

  • ||

    No, because I have no right to expect a factory to be open.

    I do have a right to expect basic public services and a clean environment. If someone prevents that and it harms my business, they must pay. Anything else is a bailout and a subsidy.

  • ||

    TEH EXTERNALITIES!!1!!!@!

  • Michael Ejercito||

    I do have a right to expect basic public services and a clean environment. If someone prevents that and it harms my business, they must pay. Anything else is a bailout and a subsidy.


    Whose environment, whose public service is it?

  • ||

    All of ours. Duh.

  • Michael Ejercito||

    All of ours. Duh.


    And who is the controlling authority?

  • ||

    "I do have a right to expect basic public services and a clean environment. If someone prevents that and it harms my business, they must pay. Anything else is a bailout and a subsidy."

    What public services have been shut down Chad? Are the police and fire departments no longer able to serve due to the spill? And even if they were shut down, it's consistently been ruled that there is no individual right to their services. They serve "the public" at large. So, how does one determine damages? By touchy-feely?

    That's why I've asked this question - it's all touchy feely on the damages. If oil washes up on my private beach, the damages are easily quantifiable. BP, come in and clean up the shit and restore the property to the condition it was on the day before the oil washed up. Add to that, a quantifiable 'loss of use' for the time my property is damaged (in the case of a beach front hotel, it's pretty clear).

    The deli / factory point illustrates my point about the hotel owner across the street from the beach that's now shut down. What right does the hotel owner have to assume that the beach will always be open? The fact that his business is off, doesn't mean he has any right to expect that business in the first place. Again, what if some enviro whack jobs take over the town / county / state and decided to close the beach to allow for turtle nesting, or to make it a plankton reserve, or some other bullshit enviro whack job reason. The hotel owner is "damaged" all the same, but does he, in this case, have a private cause of action?

  • ||

    What public services have been shut down Chad

    The beaches, (reasonably) clean air, and fisheries that attract the tourists.

    Why do you ask such easy questions?

    That's why I've asked this question - it's all touchy feely on the damages. If oil washes up on my private beach, the damages are easily quantifiable

    No easier than quantifying the damages to the business across the street from a public beach.

  • ||

    Celtics tonight!

  • ||

    Right, what we need to cheer us up is 12 black guys with a thyroid condition cramming a ball through a hoop. Go shoot yourself.

  • ||

    late they lost & looked bad doing it.

  • ||

    When shall we talk about the liability of oil companies for the less visceral, but even more destructive environmental harms associated with their product? Or perhaps we'll go on being ignorant science denying apes so we can pretend that question doesn't need an answer?

    There will be unintended consequences of transitioning to non-fossil-fuel energy. Any complex operation or upset of the status quo has them. But that doesn't mean that the status quo is any less of a choice (by governments, industries, and individuals), or has any fewer negative consequences. Fact is the status quo is simply not an option.

    How libertarians can bend over backward defending the great entrepreneurs of the oil industry (which eschews R&D in favor of finding ways to maintain the highly profitable status quo), yet piss on unions, which are nothing more than fee associations of people just like corporations, is indicative of the central insidious nonsense of libertarianism. You actively favor certain groups and certain people and trash others in a purely classist way. Presumably because you live under the delusion that, if not for all that government meddling, you too could be a great success.

  • ||

    And just as example of an unintended consequence, what happens to the Muslim theocracies whose main source of wealth is oil exports? I can't say, and I can't promise it will be pretty. But if something simply isn't sustainable, it's best to figure out how to replace that paradigm sooner rather than later. There are consequences either way, and in this subject the status quo has without a doubt the worst of them.

  • ||

    I don't have a problem with unions as "free associations" but companies should also be able to fire employees for any reason. That is also free association. If this were true unions would be very difficult to form because employers would simply fire union organizers and any other troublesome employees.

  • ||

    The point of unions is leverage in negotiations with employers. I take it you don't want to actively suppress unions, you just want to expand government favoritism toward employers over workers.

  • ||

    Since the law currently favors unions over employers, your characterization rings false.

  • Michael Ejercito||

    And just as example of an unintended consequence, what happens to the Muslim theocracies whose main source of wealth is oil exports?


    They invest their wealth in more profitable ventures.

    If Japan, with few natural resources, managed to make itself wealthy in the order of a few decades, Muslim theocracies can do much more.

  • ||

    Yeah but they're in the desert.

  • Paul||

    Then they can make a fortune manufacturing luggage.

  • ||

    Energy and raw materials account for less than 10% of the GDP of advanced economies. Therefore, it really doesn't matter if they have them or not.

    Btw, Japan has a fair amount of high-quality agricultural and forested areas, as well as a reasonably bountiful sea.

  • Amakudari||

    Point taken, although I'd note that Japan's agriculture is heavily subsidized, otherwise certain parts of it (i.e. rice farming, orange growing) wouldn't be viable despite good land, so net it's probably negative for national wealth. The government buys rice and then sells it to stores, usually at a 6:1 cost ratio.

    The US and Europe, of course, are similar.

  • Michael Ejercito||

    When shall we talk about the liability of oil companies for the less visceral, but even more destructive environmental harms associated with their product? Or perhaps we'll go on being ignorant science denying apes so we can pretend that question doesn't need an answer?


    The oil companies have no liability. They merely sell and refine the oil; the consumers actually pollute the air.

    The only pollution the oil companies are responsible for, aside from oil spills, is the pollution caused by refining the oil.

    There will be unintended consequences of transitioning to non-fossil-fuel energy. Any complex operation or upset of the status quo has them. But that doesn't mean that the status quo is any less of a choice (by governments, industries, and individuals), or has any fewer negative consequences. Fact is the status quo is simply not an option.


    The status quo is the present option due to cost and convenience of fossil fuels.

    Presumably because you live under the delusion that, if not for all that government meddling, you too could be a great success.


    How did Amadou Diallo and Timothy Cole benefit from government meddling?

  • ||

    They merely sell and refine the oil; the consumers actually pollute the air.

    True but irrelevant. As you guys always argue, if you tax the producers, they will just pass it on to consumers anyway. Therefore, the only difference between taxing the oil companies and taxing oil consumers is practical: it is far easier to measure (and therefore tax) at the well. Taxing at the point of use would simply take far more resources to accomplish the same effect.

  • Amakudari||

    Would it? We already tax at the point of use, and that's arguably closer to place of consumption given the amount of oil we import and export.

  • ||

    We tax some parts at the point of use, not others. In the case of oil, how do you handle things like petrochemicals at the point of use? It's far easier to put the carbon tax at the well or mine.

  • ||

    Which libertarians are you talking about?
    Me?
    B/c you're wrong.
    As usual.

  • ||

    How does BP survive as a company beyond this disaster?
    Shareholders should be wiped out. Bondholders left high and dry. And executives held civilly and criminally responsible.
    The sooner we agree that the highest form of organization is the individual and that governments and corporations are a plague upon our world, the better off we'll be.
    Time to put responsibility where it belongs - on the actors who perpetuate these atrocities.

  • ||

    What if the company can afford the damages?

    Why should all the shareholders be "wiped out"?

  • ||

    okay, if you do not want a cap on oil malpractice damages, than i presume the official libertarian position on healthcare reform is to not put a cap on medical malpractice damages?

    great, we got two things in common.

  • ||

    Yup...and no limits on gov't malpractice, either. Wait, that would destroy the gov't. Yay!!!

  • ||

    lol, the government would just print more money, if it could be sued.

    i sometimes get republicans confused with libertarians, so i wasn't sure about the cap on medical malpractice damages.

  • ||

    As a libertarian, and a physician, I oppose a cap on economic (read: real) damages in any malpractice suit. However, punitive damages should be capped or eliminated. That's not the basis of true tort reform though. We can save that for another thread.

  • Paul||

    How much money is left in the American Structured Securities Rescue Act for a Prudent Economy fund?

  • ||

    Tree Fitty.

  • ||

    Obama has already said that BP will pay for it all. The American people will put pressure on Obama to make it happen, and this - and only this - will determine if this was a government failure.

    As it stands, the only failure as of right now is a greedy corporation that cut corners.

    Next you all will be arguing that all traffic fines for speeding should be in proportion to one's income, because otherwise the rich just speed all they want and if an accident occurs then it's the government's fault for not deterring them enough.

    Once you get it out of your heads that the very existence of government is its fault, and criticize government actions that actually deserve criticism rather than criticizing government action, then you become credible and not a crackpot.

  • ||

    So it's not valid to criticize a short-sighted government policy that incentived a large corporation to act negligent? Sure the corporation is at fault, but there was a nice government shield protecting it from the ass-rape of total justice. I suppose we shouldn't criticize welfare for all the people it has incentivized to sit on their asses or the military-industrial complex because it "creates jobs". What the hell can we criticize? What overarching good have any of these over-reaching powers achieved?

  • ||

    A huge oil spill is not just about 75 million in economic damages. The image of BP would take a serious hit, not to mention that the cleanup would be in the billions: these things BP knew in addition to the 75 million.

    It's so freakin' obvious that BP didn't think anything would happen, and weren't thinkin': "well it's only 75 million if I'm wrong".

    Criticize all you want the 75 million cap on economic damages, but it has nothing to do with the spill.

  • ||

    "The cap does not apply if a company is found to have violated federal regulations or engaged in gross negligence (an issue that will certainly be litigated in this case). "

    So it's moot. There was "gross negligence" without any doubt. The lawyers can try to argue otherwise, but we already know this to be a fact.

  • ||

    Events like this prove once and for all that James Bond and Jack Ryan don't exist, nor do they have real life counterparts.

    If they did then MI-6 would have dispatched 007 to go down in a submarine and fix the leak before some evil corporation destroyed the Gulf of Mexico.

    If Barack Obama were a real man he would be strapping on some scuba tanks now instead of making speeches and issuing orders to underlings.

    What if the whole world would be destroyed in 48 hours unless the President could save us?

  • ||

    The oil industry clear lacks sufficient government regulatory oversight. A new massive agency ought to be created to inspect oil rigs and issue drilling permits. The best part is not only would this agency protect America, but it would also create jobs.

    That would certainly be easier than some pie-in-the-sky fantasy law requiring oil companies to drill relief wells as a precaution.

    Our government knows best. After all, they have thousands of years of combined engineering experience among them.

  • ||

    +10 for parody

  • ||

    You are quite right Liberal Genius, this situation in the Gulf is a political problem, not a technical one, and therefore requires a political solution.

    I'm reminded of how often naive citizens will call Animal Control rather than a policeman when the neighbor's dog gets loose and runs around in the street. Animal Control humanely captures the dog and returns it to its owners. This leaves it free to offend a second time. If they had called a cop, he would pull out his gun and shoot it dead, which solves the problem once and for all.

    A President can solve a problem like this BP oil spill the same way a cop rounds up strays.

  • ||

    Some departments of the government do have engineering experience.

    But only the engineers have engineering experience. Obama doesn't, and the business people at BP who ignored their engineer's warnings also don't have engineering experience.

  • SEOsean||

    I live in Clearwater, Florida and I spell the oil again today! It's horrible! I feel sick & dizzy every time I have to go out side and walk around. Is there something I can do about this?

  • Scarpe Nike||

    is good

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