Tuesday, May 11, 2010

How to Fix the Oil Spill

There's a fundamental issue with the way that people in America (and I suppose, humans in general) approach a problem. You see, all that they take into account is what happens after the fact, or rather what is currently happening. Take illegal immigration for example, all that people are arguing against is the fact that there are illegals in the country; they don't take into consideration why they are there in the first place. In short, we're not very good at looking at the CAUSE of a lot of problems in the world.

Take this oil spill for example. Some major disaster like this just screams government intervention, doesn't it? I mean, it's apparent that the free market can not handle itself and needs to be regulated. This is the conclusion that someone might come to if they only look at the effects, not the causes.

In reality, government played a large role in creating this mess. No, I don't mean that there is some conspiracy involving oil and the gulf coast; I'm not Glenn Beck after all.

In reality, the governments role in this was the regulation that PREVENTED BP and Transocean from being fully liable for their assets. Let me show you.

According to the New York Times, as per federal law BP is only liable for $75 million dollars, while Transocean is only liable for $65 million. Hmmm, I sense a disturbance in the force, and that disturbance is big government!

What does that liability cap mean? They mean that the company is not fully liable for all damages that they cause. This distorts the markets and encourages companies to act in riskier fashion. I mean, if you were only liable for a certain amount of money for damages that YOU caused, wouldn't you take the risk? BP and Transocean sure did.

BP and Transocean knew what the damages and costs would be associated with an oil spill. If there wasn't a cap, then they would have had the burden of full financial responsibility for their actions. They would have to demand better safeguards, or simply test them better because they knew that a spill could cost billions. Granted, they would have been expensive, but the companies have the financial incentive to invest in safety measures. Because the government capped their liability, they essentially gave them permission to act irresponsibly by limiting what they would owe in damages.

Now, BP has said that it would pay all legitimate claims, even those beyond the cap. But, when it comes to property damage, there is no way in hell the offending party should have the choice of whether or not to reimburse those whose property they damaged. This is the job of the court.

There will be a lot of legislation that is introduced to bring about more safety. As I said above, this is a reaction to the after effects. The problem must be dealt with at the cause: end the government intervention.

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