TT's Lost in Tokyo — by TokyoTom

For lack of a better place I left the following note on the moribund comment thread at Lew Rockwell’s May 5 “Feel Sorry for BP?” post:

TokyoTom June 16, 2010 at 2:41 am

Another BP post!

Both of Kevin Carson’s most recent posts at Center for a Stateless Society are worth a read.

BP’s Fate in a Free Market, Part Two

How’s All That Progressive Regulatory Stuff Workin’ Out For Ya?

In particular, Kevin’s “Part 2” post – and the comments to it and posts by others whom he references – are quite thoughtful. Below are some points that I think deserve particular attention (emphasis mine):

Shawn Wilbur, a leading scholar in the history of the individualist/mutualist tradition in addition to being an anarchist himself, agrees that oil companies like BP would be far less able to externalize costs on the public in a free market order, absent such privileges as caps on liability.  But he goes on to raise the issue of the “many kinds of value and interest” that are not adequately represented by markets:

“After all, sea turtles and brown pelicans don’t get any more of a vote in the market than they do in elections or campaign contributions. Private property conventions tend to establish a separation of interests not reflected in, or respected by, the circulatory systems of the biosphere …”

Gary Chartier, a market anarchist professor at La Sierra University, commented that since sea turtles lack any means of effectively asserting or defending rights on their own behalf, their interests in any system — whether under statism, market anarchy, or any other kind of anarchy — depend entirely on the existence of human beings who identify those interests with their own.

I would add that the present system includes many structural barriers that prevent humans who value the interests of other species or of the ecosystem from expressing that valuation in the marketplace.  For example, federal lease auctions allow only companies from the relevant industry (lumber, mining, etc.) to bid on access to federal land.  That means conservationists who value holding land out of use are banned from the bidding process, that the winning bid is hence lower than it likely would otherwise have been, and that resource extraction is artificially profitable.  Federal preemption of vacant land means, likewise, that the privileged access granted by the federal government is uncontested by other previous claimants.

Were vacant land not preempted by the state and then granted on a privileged basis, then the oil, mining and lumber companies could establish legitimate homestead rights only over the land that they were capable of effectively developing and fully prepared to economically exploit at any given time.  In the meantime, other groups might have homesteaded significant parcels of land with the intention of conserving  it.  As Wilbur himself states in the comments under his post, “active conservation” — like “a wildlife corridor, or critical wetland, or scenic area” — is “pretty obviously a use.”  In a free market regime with open homesteading, lumber and other extractive industries would have to buy out such competition at whatever price the latter demanded, if they were willing to sell at all.

As I mentioned in another post, one reason the ecosystem in West Virginia has had so little protection against mountaintop removal, is that the property rights of small owners had so little protection against expropriation, and the surrounding communities had been robbed of so much of their common law protection against tortious action by the mining companies against their air and water.  As chronicled in the movie “Matewan,” the first white homesteaders in West Virginia — who mostly lacked formal title to their land, having settled when government was still quite irregular — were later expropriated by the mining companies, who could afford to buy both good lawyers and bad legislators.

I would observe that Austrians at LvMI routinely discount – if are not actively hostile to – the preferences that non-industrial users (and destested “enviros”) have regarding common or publicly-owned resources. This is clearly inconsistent with Austrian principles. Further, Austrians also generally – and wrongly – treat with scorn even the notion that there are commons assets – such as “ecosystems”  that are important and valuable. Austrians are wrong to have their thumb on the scale in the way that they do when determining how government favor should be bestowed; this tendency amounts to fairly consistent support for/defense of statist corporations.

Kevin is entirely correct that “the present system includes many structural barriers that prevent humans who value the interests of other species or of the ecosystem from expressing that valuation in the marketplace.” So let me connect a link that somehow Kevin has overlooked in the context of the BP oilwell blowout and spill: the chief structural barrier here is the US government, which “owns” and “manages” the Gulf out to the 200 mile limit (there is moderate state control out a few miles), and which prevents indigenous and commercial fishermen, oystermen, shrimpers and conservationists from actually owning or directly managing any of the resources or ecosytems on which their livelihoods depend or that they otherwise value, and which is favors and is financially beholden to the oil industry.

See, for example:

http://mises.org/Community/blogs/tokyotom/archive/2009/01/14/for-crashing-fisheries-coalition-of-mainline-us-enviro-groups-calls-for-property-rights.aspx

http://twitter.com/Tokyo_Tom/status/15689063688
http://twitter.com/Tokyo_Tom/status/15689222932

I think Kevin that is also correct about mountaintop removal, which involves a frequently flagrantly corrupt use of the state to subvert common-law protections, as I have commented a number of times.

I also highly recommend the post by Shawn Wilbur that Kevin references; I may comment separately on it.

And the following comment on the state grant of limited liability to corporate shareholders is consistent with points I have made any number of times:

Brian Cantin on Jun 7, 2010, 9:53 pm: [I hope Brian does not object]

Without the government, a limited liability corporation would not have the protections they enjoy today. The corporation could gain limited liability if it is obtained via contract. Why anyone would sign a contract allowing a corporation limited liability is another question.

However, in the case of a tort, the owners of offending corporation would not only be possibly liable for the all of the assets of the corporation, they could also be personally liable down to their last farthing.

Strict liability is a great inducement to careful practices.

Another BP post!

I copy below some comments I left on the above-entitled post by Kevin Carson (slightly tweaked, with emphasis & links added):

TokyoTom on Jun 9, 2010, 1:39 am:

Kevin, good post. I imagine that the $75 million liability cap affected decion-making by BP managers in any number of ways, but let me note that the cap doesn’t apply (1) to claims by state and local governments and (2) if BP is determined to have been grossly negligent (since this cannot be determined in advance of final judical decision, a potentially much larger sword was hanging over BP’s head, even if it was discounted to zero by BP). Still, I agree with you about oversight by insurers, but one wonders whether BP actually insured any of its risk here. They certainly have been more likely to do so if there was no liability cap whatsoever.

You fail to note some other, more basic government interventions, particularly the grant of zero liability to shareholders, which perversely both (i) incentivizes shareolders to look the other way at corporate activities that profitably shift risks to third parties and (ii) generates agency problems which leave shareholders vulnerable to poor decision-making by executives.

Finally, you and celocelo1 miss another way for society to force oil cos like BP to internalize more of their costs – expand and formalize “catch rights” programs that empower fishermen and other resource users (including when and where oil/gas is developed), and would give direct rights to sue polluters, and end the current system, where fishermen are both trapped in a tragedy of the commons and beholden to government for protection of the resources and for some recompense in the case of damages suffered. I discuss catch rights over at my blog.

Regards,

Tom

Another BP post!

1. Over on his The Money Illusion blog, Chicago-school economist Scott Sumner has a curiously uninsightful post up on the BP oil spill: “Stuff Happens“. Perhaps some of my friendly enviro-hater readers here might like it, but I didn’t. I left the following comments (still pending approval as I copy them here) (emphasis added):

Scott, what you’re rather glaringly missing with your cost-benefit analysis – which blithely ignores the real face of “externalities” – is the institutional setting, which can be summed up as a tragedy of the government-owned and (rather expensively) mis-managed comonns.

Ed Dolan is exactly right about incentives problems facing BP and regulators, none of whom really directly own the downside risks, which instead are borne by fishermen, oystermen, shrimpers, the tourist industry, those who value wildlife and a clean environment, and those who consume what harvesters catch. Some of these are very marginalized communities, but all face tremendous difficulties organizing and expressing their interests effectively with respect to resources on which their very livelihoods may depend, but in which they have no ownership rights.

On the other hand, the oil industry are very powerful actors, very well organized and represented in the corridors of power and influence (remember Cheney’s secret energy meetings, and that BP was one of Obama’s largest donors?), and are adept at shifting risks to others (though self-damage is possible when catastrophic losses occur). As Ed Dolan rightly notes, this is built into their very nature as a result of the government grant of limited (zero) liability to shareholders, who have disincentives to monitoring too closely or to questioning whether profits come at the expense of others who – because of government ownership – have no effective voice regarding losses they bear.

It’s hard to feel much sympathy for either the oil cos or government in theis Avatar-like situation, but I don’t mean to castigate either as “evil”. Rather, we simply need to take a close look at the problems of Moral Hazard that our government interventions – from grants of limited liability, to government resource ownership and concomitant inept and occasionally management – have been fuelling.

Answers lie not in gross CBA analysis, but in letting resources users own the rights to manage and harvest wild resources (which would give them direct claims agains polluters), AND to determine when and where seabed resources are developed. (NOAA’s successful experiments with “catch rights” need to be vastly scaled up.) We would still have oil & gas development, but the fishermen would do a vastly better job of policing the oil companies – who would have to face other resource users with full incentives and abilities to protect their livelihoods. (Obversely, oil companies would also be better managers if they had control over the very valuable fish harvest rights in particular blocks, and would manage to in a way that would reflect such value.

Sincerely,

Tom

Austrian-leaning Ed Dolan, whose recent post on Moral Hazard and agency issues I have just noted, joins in on the comment thread. 

Sadly, Sumner is not alone in paying little attention to those who are at the short-end of the messy oil stick.

2. Liberal blogger Matt Yglesias has a useful blog post up in response to Scott; unfortunately his comment thread has fallen into blind, clear-sighted partisan bickering.

3. I see Richard Posner now has a similar blind piece of blather up at the Washington Post: “From the oil spill to the financial crisis, why we don’t plan for the worst”; more on Posner perhap’s later.

4. Sadly/fortunately, for those of you who haven’t seen or (or could use a little further diversion) this litle one-minute “BP kittens ” YouTube video does a better job than virtually all discussions I’ve seen in noting relevant agency and institutional failure issues.

Another BP post!

Warning: salty language from salt-of-the-Earth people kittens:

[View:http://www.youtube.com/watch?v=zt617zYAbng:550:0]

The creator can be found here on Twitter: http://twitter.com/tremendousnews.

This seems to be getting some play, so head’s up you culture-watchers!

While this unfortunately skirts addressing the Federal Government’s role in engendering the BP catastrophe, one has to wonder — Does it make any sense to treat corporations as “persons”, given the differences in incentives structures?