When the shit hits the fan, the company declares bankruptcy and everyone is SOL.
Ding, ding, ding. Union Carbide, Bethlehem Steel, Polaroid. These are companies that have collectively walked away from hundreds of millions of cleanup liability through bankruptcy.
The only way to ensure oil company liability would be to create special bankruptcy laws that let the courts aggressively pursue shareholders and bondholders, or not just the value of their investment, but the entire value of the court-decided cleanup costs. I’d imagine such laws would effectively end all drilling in the U.S. as oil companies pursue friendlier waters, so to speak.
I would think the oil companies would prefer to have what is expected spelled out a little better than that. But then after it’s spelled out I’m sure they would lobby for a looser standard.
A large enough spill could bankrupt a large company. If it were my company I wouldn’t want as much gray area as the following sentence leaves “The standard is what would a reasonably prudent oil company in BP’s place have done re: safety devices/procedures.”
When the shit hits the fan, the company declares bankruptcy and everyone is SOL.
Ding, ding, ding. Union Carbide, Bethlehem Steel, Polaroid. These are companies that have collectively walked away from hundreds of millions of cleanup liability through bankruptcy.
The only way to ensure oil company liability would be to create special bankruptcy laws that let the courts aggressively pursue shareholders and bondholders, or not just the value of their investment, but the entire value of the court-decided cleanup costs. I’d imagine such laws would effectively end all drilling in the U.S. as oil companies pursue friendlier waters, so to speak.
But if I am already paying for the cost of clean-up either through direct taxation or by increased costs passed through by the company, then what is the difference? Frankly, if I am paying either way, I’d rather have my pound of flesh and force some people out of business.
“Rob - What this law does is essentially provide publicly funded insurance in excess of $75 million per occurrence.”
Yes, obviously.
** “They would spin off the riskiest operations to undercapitalized corporations and declare them bankrupt in the event of a catastrophe such as this.”
Actually, in a true free market you wouldn’t have limited-liability laws, at least in their present form. Liability could be contractually limited for parties with whom you deal directly, but not with regard to damages to third parties, as in the BP case. (Why? Because by the very definition of “free market,” no one is permitted to infringe on the rights of others, and the corollary is that anyone who does so, whether accidentally or intentionally, is liable for restitution.) I think that effectively undercuts the possiblity of the maneuver you describe.
“So oil companies have been paying additional taxes into a trust fund for 20+ years in order to fund cleanup of a future spill. Now that the spill has happened, you are taking issue with the taxes that have been paid into the fund being used to pay for the cleanup.”
No, or at least that wasn’t the issue I raised. The issue is that because of the way the system is structured, costs are not internalized as they would in a free market, so that there simply isn’t the proper incentive for any single oil company to structure its operation in such a way as to minimize risk-related costs. As a consequence the true costs of offshore drilling are not reflected in market prices. Current law effectively sets up a “tragedy of the commons” situation; the company that takes big risks to reap bigger profits becomes a freeloader.
“You can’t have it both ways. The government can either tax them and then get involved, or not tax them and then require them to pay 100% of the cost.”
I never suggesting trying to have it both ways. I am advocating the latter policy.
Actually, in a true free market you wouldn’t have limited-liability laws, at least in their present form.
A problem in a free market I have not been able to wrap my head around is when “Damages” exceed the ability of the company or individual to pay, what do you do?
In the case of BP/Oil spill/ Corp spin off, that’s a pretty easy thing to unravel. You just look at those that set the corp up, find out that they created a spin off and hold the people or pseudo parent corp liable. But what about an individual?
Say a 21 year old working at McDonalds decides to go out on a drinking binge, ends up running thru the neighborhood vandalizing peoples houses. He causes 10’s of thousands of dollars in damages and has a net worth of negative 10K.
How does a true free market deal with something like that?
Obviously, it’s possible for me to wreak damages that I cannot possibly undo. For example, I could kill my neighbor. There’s nothing a free market legal system could then do to bring back the life that was lost. It was never suggested that a free market would be godlike or omnipotent, only that it’s the best system within the bounds of the humanly possible.
The McDonald’s kid is responsible for whatever he can repay, whether immediately or over a long period of time. There are a lot of theories about how that could be structured, and I outline one such system on my website.
That’s mostly cleanup costs, which are separate from the damages being discussed in this thread. IIRC, the $75 million limit applies only to damages, not to cleanup costs.
BP probably also has some fear that Obama will push through an ex post facto law to overturn the limit, so the company may be trying to preempt that possibility.
Actually, in a true free market you wouldn’t have limited-liability laws, at least in their present form. Liability could be contractually limited for parties with whom you deal directly, but not with regard to damages to third parties, as in the BP case. (Why? Because by the very definition of “free market,” no one is permitted to infringe on the rights of others, and the corollary is that anyone who does so, whether accidentally or intentionally, is liable for restitution.) I think that effectively undercuts the possiblity of the maneuver you describe.
You’re absolutely right in the theoretical world. But…
Current U.S. bankruptcy laws do effectively limit liability, a “loophole” widely used. I
And this sort of move to a “true free market” may not be a wise decision if performed unilaterally by the U.S. because it would put U.S. companies (or those operating within the U.S.) at tremendous competitive disadvantages. If an investor has the choice between investing in a company that has limited liability and spends $100M in safety equipment per year, and a company that has unlimited liability and spends $500M on safety equipment per year, the former is the obvious choice. And the latter will eventually be driven out of business regardless of whether it has a disaster or not. Given that oil is very much a global market, I’m not sure our government has a lot of room here to move toward a true free market if we wish to maintain a modicum of oil production capability.
The McDonald’s kid is responsible for whatever he can repay, whether immediately or over a long period of time.
I guess I wondering on what basis one would develop the system of repayment on.
If one equates “Damages” with “Loss of freedoms” or infringements on ones rights is it allowable to infringe on anothers freedoms until such damages are freedoms or rights until such a time that those damages are repaid? Would this lead into “Indentured servitude”? Or is it never allowed to purposefully infringe on ones rights under the system despite the already existing loss of ones rights?
I’m not looking for a “Gotcha” here merely looking at how a free market system might handle such a situation. Clearly a free market is not perfect and what I find is that many people look at a free market and go right for the “Gotcha’s”, this is one of them I hear often.
For me having an understanding of how the system would be developed and on what basis is more important than the actual structure of the system itself, as the latter would always follow the former.
“If an investor has the choice between investing in a company that has limited liability and spends $100M in safety equipment per year, and a company that has unlimited liability and spends $500M on safety equipment per year, the former is the obvious choice.”
Of course, in the context of this discussion, what that means is that other nations will be allowing companies to despoil their environments in order to reap greater profits–providing them, in effect, with a subsidy. In the absence of that subsidy, more marginal deposits might not be explored in the US, although that doesn’t mean that there would be no drilling at all. In any case, would you rather live under a system that exalted profit regardless of the environmental cost, or under a capitalist system where you were enjoyed reasonable protection from such damages?
It’s ironic, when you think about it, that certain posters here (e. g., Yahey and Lorax) try to blame such disasters on capitalism.
BP probably also has some fear that Obama will push through an ex post facto law to overturn the limit, so the company may be trying to preempt that possibility.
“Fear”? IIRC from a news tidbit I heard this is already being tried. As soon as some in congress found out the 75 million limit they were trying to get it raised, and it would cover this as well.
Again, just comments I heard by a couple congressman. Not sure if it’s going anywhere or anyone is doing anything with it. You can bet your but they will try though
Nice post. I love it when people unhinge fundamental components of a free market and then talk about its failure to work properly.
Let BP pay the true cost of this oil spill. They will pass that cost on to the consumer. When we are all paying that price, I suspect clean, alternative energy sources will be much more appealing. A free market will bring alternative energy sources to fruition far faster than Uncle Sam has.
Put another way, “I think we have had quite enough regulation and I think we need some true capitalism now.”
Fukitol! Ride your bike to work, walk, or stay home and eat a feces sandwich.
“If one equates ‘Damages’ with ‘Loss of freedoms’ or infringements on ones rights is it allowable to infringe on anothers freedoms until such damages are freedoms or rights until such a time that those damages are repaid?”
Remember that under laissez-faire capitalism, it is only initiated force that is prohibited. Defensive force is still permissible, and where necessary that includes force that might have to be used to recover values that have been wrongfully taken. Depending on the attitude of the violator, the damages might be paid willingly with no force involved, or the power of the law might have to be brought to bear upon him/her to a greater or lesser degree. Again, I’ve gone into these issues in more detail on my website.
Strictly speaking, we aren’t talking about any “loss of freedom” here, since no one ever had any legitimate “freedom” to possess values that they took by force in the first place. Your freedom extends only to your own life, liberty, and property, not to the property or life of others.
**It’s ironic, when you think about it, that certain posters here (e. g., Yahey and Lorax) try to blame such disasters on capitalism.
It is ironic. And we’re mostly in agreement. I’m just pointing out that it’s awfully easy to throw the government under the bus, when really they have to navigate incredibly complex gray areas often dictated by forces outside their control (e.g. China, OPEC), balancing environment vs. global competitiveness against subsidised competitors, etc.
That said, I will throw them under the bus for the $75M cap, which is retarded no matter how you look at it.
I think that effectively undercuts the possiblity of the maneuver you describe.
I am not following you. Without a liability cap and public fund combination scheme, risky ventures would either become cost prohibitive or government run. Witness the Vaccine Act.
Without this scheme, there is nothing in our tort law that would make BP liable for another company’s drilling errors. In other words, the oil exploration and recovery coprorate entities would be set up to be judgment proof. When a spill happens, they close up shop. Who pays?
I don’t understand the argument that this fund is designed to primarily to protect the public. How does limiting BP’s financial liability protect the public?
The cap and fund combination provides a guarantee that there will be enough money to pay the damages.
Absent the cap and fund scheme, one of two things is likely to occur. One, there would be no or far less risky oil drilling. Two, the oil exploration and drilling companies would be undercapitalized corporate entities that would simply declare bankruptcy and walk away from disasters.
That newsletter is incorrect. The limit applies only at the Federal level and does NOT exclude state claims nor third party claims (fishermen, etc.) Read the the oil pollution act of 1990 in its entirety. There are also other factors that effectively render the cap useless. The cap as stated is applied only to BP consortium as the lessee of the platform; there are other responsible parties liable for damages over that limit including the maker of the failed valve and the service provider plugging the exploratory well. Also, if any or all were found to have been grossly negligent, engaged in willful misconduct or in the violation of an applicable Federal safety, construction, or operating regulation, then there is also NO cap.
