You Had Me at “Hardly”. UNTIL…..


Well, until the last 14 words.

Then ya lost me.

Over at The Centered Square’s place he’s talking about BP.  And for almost. every. single. word. He’s got me.

Is BP an evil corporation, hellbent on purposely destroying the Gulf of Mexico and everything else it can get its capitalist paws on? Hardly.

Finally.  We see someone on the Left that is willing to acknowledge that BP is really just trying to make a livin’.

And he keeps on goin’ too:

That’s exactly what we have seen these past months from Toyota. That company made decisions about the design and safety of their vehicles, decisions that will work just fine almost all the time. But not all the time. Same thing in the financial sector: the mortgage-backed derivatives fiasco is another case in point. As long as there is not a massive drop in real estate values, all is well.

Again, fair analysis.  Failures are due to occur.  Some are natural and some are not:

Enron, the same thing.

Enron was fraud, not a failure of the system.

Anyway, the post is excellent.  In life we should contract and/or insure against risk.  I do it with my vehicles; I buy insurance against the chance I get into an accident.  I do it with construction contractors; if they damage my house or property, they will reimburse me for the damages.  Now, part of it is so that I come out whole.  If the contractor droops a tree on my son’s bike, they’ll buy me a new bike.  The other part of it is so that the contractor is careful to begin with; he doesn’t wanna buy my son a new bike.

And the same should be done with The State and it’s contracted corporations.  In the end, the United States government hasn’t the slightest clue on how to make an oil rig safer.  And really, the government shouldn’t even try.  All we CARE about is that it is, really, safe.

And that’s where I thought Center Square was going:

So, let’s not demonize BP. Let’s understand this as the inherent behavior of pretty much any large business enterprise.

The words were all said so correctly.  Right up until they weren’t:

And therefore, let us further understand that, when the decisions of these enterprises have the capacity to wreak havoc far beyond the provincial borders of the corporate suites, it is incumbent on our government to impose intelligent regulatory boundaries on their behavior.

I literally backed away from the screen the conclusion was so wrong.

Knowing that nothing, NOTHING, can be prevented forever, the logical conclusion is to regulate the eventuality into … into … into what?  As the Center Square points out so well in his post, there is no eventuality that can be made not to happen, so what, exactly, is regulation going to do to prevent an oil spill?  Answer?  Nothing.  A big fat nothing.  Except prevent us from writing a contract with a vendor that protects us from damages.  Either by buying us a new fishing industry or making that vendor be safer to begin with.

Add to FacebookAdd to DiggAdd to Del.icio.usAdd to StumbleuponAdd to RedditAdd to BlinklistAdd to TwitterAdd to TechnoratiAdd to Yahoo BuzzAdd to Newsvine

Advertisements
12 comments
  1. The Center Square said:

    First of all, thanks for the many kind words.

    “so what, exactly, is regulation going to do to prevent an oil spill? Answer? Nothing.”

    Swing and a miss! You said it yourself — risks need to be insured. When did it become an axiom that the sole purpose of regulation must be prevention of the unnacceptable? Regulation can just as well impose insurance-like characteristics on high-risk activities.

    One of the most successful regulatory frameworks of modern history is the FDIC and the associated OCC bank regulatory system. It does not prevent bank failures. But it does reduce the risk failure. And it GREATLY blunts the impact when failures occur.

    That is what the BP lesson teaches us. When I say “impose intelligent regulatory boundaries on their behavior,” I mean that sort of framework. And I stand by that.

    • pino said:

      When I say “impose intelligent regulatory boundaries on their behavior,” I mean that sort of framework. And I stand by that.

      Fair enough. But I think that you know there is enough “regulate them” speak out there that really wants to set rules on how oil companies do business. Not on the consequences that you and I are speaking of.

      I have no clear idea on how to make a tree fall a certain way or not. I couldn’t begin to tell you which tools or techniques to use. But I CAN write a contract that holds said tree contractor to task.

      So, if you mean that the government should enter into contracts with oil companies holding them responsible for damages, then I’m with you. But if you mean to tell me that the government should be the regulating body that describes to what thickness a safety valve ought to be, then we break ways.

      Sorry about the delay in posting this; wordpress put this in the spam bucket and I missed it.

  2. The Center Square said:

    P.S.: I reject the characterization of me “on the Left.” For the record.

  3. The Center Square said:

    @ pino: Yes, we are saying exactly the same thing. In fact, I think that the idea of “intelligent regulation” — as opposed to prescriptive regulation — is going to be one of the great governmental challenges of the coming years.

    I own a business (skilled nursing facilities) which is heavily regulated in the worst, prescriptive sense. Government officials have a VERY active voice, down literally to the point of how to provide specific patient care. It is a terribly dysfunctional system that correlates vaguely at best to actual quality of care.

    A more intelligent framework, though, can be profoundly powerful and effective. Again, witness FDIC, and the incredible stability of the commercial banking system since its inception in the 1930s. (Not that the deposit insurance mechanism gets sole credit, of course.)

    We should be applying that principle right now to the investment banking system. Forget about “Too big to fail” or caps on bonuses or limits on activity — that is more akin to your safety valve thickness example. Rather, try “Here is the ever-escalating surcharge on leverage that we are going to impose.” Get as big as you want. Pay as handsomely as you can. But we are going to make you have to squirrel away enough nuts to get EVERYONE through the winter if you crater.

    To apply it to mineral extraction… if deepwater drilling is the riskiest of the methods, then impose, oh I dunno, $30 a barrel into the failsafe fund. Do $15 a barrel into the fund for shallow offshore drilling, and $8 a barrel for onshore drilling. I have no idea if that’s the right magnitude, but the principle is a risk-based reserve system of sufficient overall scale to handle things like this Gulf disaster.

    [Sidebar: Yes, I do acknowledge that putting such a reserve burden on oil extraction will have a dampening effect on exploration and extraction. But my view is that the absence of such a counter-weight (i.e., the existence of huge unfunded externalities) is a market failure leading to over-reliance on these methods. We are making agonizingly slow progress to the post-petroleum era precisely because our current free market arrangements fail to incorporate the cost of these extremely high cost, low frequency events.]

    [Sidebar #2: This regulatory framework is very closely akin to the cap-and-trade idea for the capturing the external costs of carbon emissions. Before politics finished extinguishing thoughtful policy-making, that was considered a very pro-market notion.]

    • pino said:

      @ pino: Yes, we are saying exactly the same thing. In fact, I think that the idea of “intelligent regulation” — as opposed to prescriptive regulation — is going to be one of the great governmental challenges of the coming years.

      Well said.

      if deepwater drilling is the riskiest of the methods, then impose, oh I dunno, $30 a barrel into the failsafe fund. Do $15 a barrel into the fund for shallow offshore drilling, and $8 a barrel for onshore drilling.

      Acknowledging that you are “Kentucky Windage” the thing, I get it. However, I think even that is too much regulation. A much more simple application can take place. For example

      “Mr. Oil company, if you damage my coast or my people, you will have to pay this amount. Would you still like to lease the rights?”

      It would then be up to the oil company to determine if they wanna take on those risks.*

      Yes, I do acknowledge that putting such a reserve burden on oil extraction will have a dampening effect on exploration and extraction

      Which is fine in my opinion. If, IF, we open up more easily accessible sources of oil. All of which plays into the market. As BP and the others realize that oil is becoming too expensive, they will transform themselves from an “Oil” company into an “Energy” company and begin to explore other methods of delivering said energy.

      This regulatory framework is very closely akin to the cap-and-trade idea for the capturing the external costs of carbon emissions. Before politics finished extinguishing thoughtful policy-making, that was considered a very pro-market notion

      Except that Cap and Trade credits are handed out arbitrarily. If you want to reduce CO2, and I don’t, then just tax each unit of CO2. Period. To make the conservatives happy, reduce taxes elsewhere, like on things like labor and/or capital, to level it out. Make it tax revenue neutral.

      But the way it’s written right now, the government is going to pick the winners and the losers. And that’s unacceptable.

  4. Jeff said:

    Would you claim the government had expertise in any business venture? Is a contractual obligation for safety all that’s required for any industry? I’m specifically thinking of pharmaceuticals and food safety, but I guess you could argue for any number of fields.

    • pino said:

      Would you claim the government had expertise in any business venture?

      They would have the expertise in business ventures that are related to the proper role of government. That is, the government would know how to buy and sell guns, tanks and aircraft. What makes them safe and what doesn’t.

      Is a contractual obligation for safety all that’s required for any industry?

      That and fraud protection.

      For example, if I am a milk seller and I advertise fresh milk but sell spoiled milk, I am committing fraud. On the other hand, if I advertise spoiled milk here and fresh milk here, that should be fine. There may be perfectly valid applications of spoiled milk where a client would rather spend less than the price of fresh milk. [tree stump removal for example. milk poured onto a tree stump and then sealed with a plastic bag will eat away the stump.]

      I’m specifically thinking of pharmaceuticals

      If you advertise or represent a drug of doing a certain thing, it should do that certain thing and no more.

  5. The Center Square said:

    “Mr. Oil company, if you damage my coast or my people, you will have to pay this amount. Would you still like to lease the rights? It would then be up to the oil company to determine if they wanna take on those risks.*

    Except that it’s too easy to dodge a mere promise. As a society, we need an assurance. We had promises before, and the legal authority to enforce liability against polluters — and now we are left with more than 1000 Superfund sites being cleaned up at taxpayers’ expense.

    Ill have to leave it at that for the moment, a busy day of work beckons. I like your blog, though. Keep writing!

    • pino said:

      Ill have to leave it at that for the moment, a busy day of work beckons. I like your blog, though. Keep writing!

      Thanks for stoppin by and engaging.

  6. The Center Square said:

    A quick, off the top of my head list of instances where a company’s promise to be responsible for any harm it does, and the existing general framework of legal liability, proved inadequate:

    • Johns Manville (asbestos)

    • Exxon Valdez (company eventually paid about 20% of the remediation costs — http://www.nowpublic.com/environment/exxon-valdez-oil-spill-settlement-exxon-pay-507-5-million)

    • Enron (uncompensated investor fraud)

    • Occidental Petroleum (Love Canal)

    • Times Beach (dioxin contamination)

    • Union Carbide (Bhopal, India gas leak)

    Each of these is a case where a company’s actions intentionally or unintentionally caused harm on such a vast scale that it was no longer possible for the company to honor its financial promises, or, in some of the instances, used litigation and settlement to shift those costs to others.

    So I ask myself: What is the likelihood that we will look back in 20 years, and feel reasonable satisfied that the shareholders of BP (and/or TransOcean and/or Halliburton) have absorbed 100% of the fallout of this Gulf disaster? I say there is none. And that is why I think that adequately scaled contingency reserves, imposed and managed by the federal government, should be required from any company intending to engage in high risk energy extraction.

    • pino said:

      in some of the instances, used litigation and settlement to shift those costs to others.

      I’ll go in reverse order:

      This is a case where the system failed us. It’s gross that they were able to skate away without paying the penalty.

      Clear restriction of capital “L” Liberty.

      a company’s actions intentionally or unintentionally caused harm on such a vast scale that it was no longer possible for the company to honor its financial promises

      Yes. When the damages done are larger than the corporation can pay, we have a problem. A very interesting debate for sure.

      And that is why I think that adequately scaled contingency reserves, imposed and managed by the federal government, should be required from any company intending to engage in high risk energy extraction.

      As part of the contract, I have no issue with the companies being required to put money in an account as down payment should something happen. As long as the money remains the property of the corporation and is invested in a reasonable vehicle for ’em.

  7. The Center Square said:

    I think we have almost reached full agreement. The only departure I have is to your statement: “As part of the contract, I have no issue with the companies being required to put money in an account as down payment should something happen. As long as the money remains the property of the corporation and is invested in a reasonable vehicle for ‘em.”

    No, it needs to be more of an insurance model. Because the catastrophic events are extremely rare and devastatingly costly, all participants in the activity must pay in. Again, we have an extraordinarily successful model in FDIC. Petroleum companies will pull back too far if each of them, individually, must hold worst-case reserves.

    But other than that, we are in agreement. This is what I meant in my original post by “intelligent regulation.” Force “insurance” on private companies engaging in behaviors so risky as to be beyond their capabilities when it goes wrong. It’s just common sense.

    Thanks for the discussion.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: