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Despite financial crises, BP's mess in the Gulf and now TEPCO's costly meltdowns in Japan, Matt Ridley doesn't understand the attractiveness of a little 'precaution'

June 13th, 2011 No comments

In the wake of the recent deaths and illnesses in Germany from a dangerous strain of E. coli, thinker and former banker Matt Ridleywho’ve I discussed before in the context of nuclear crony capitalism –  has an article in the June 11 Wall Street Journal on “When Precaution Trumps Public Safely“.

As I thought Matt’s post to be curiously uncurious as to the factors driving the ‘precautionary principle’, I ventured to address the deficiency with a thought or two of my own, and left the following comment at Matt’s blog:

Matt, ever wondered where the ‘precautionary principle’ comes from?

Ever heard of ‘once burned, twice shy’?

It seems clear to me that the insistence of many on the precautionary principle has it roots in massive externalities (pollution) by government activities and by corporations, those great pools of anonymous and irresponsible capital who shareholders, freed by the government grant of limited liability from downside risks, decided to turn a blind eye to risk management.

If we want more risk-taking, we should demand more responsibility by investors. Saying that it’s the common man who has to have the greatest skin in the game is a recipe for continued stonewalling.


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The Eve of Destruction: Excellent post on how Government and statist corporations like BP are stifling community responses to the unfolding Gulf disaster

June 18th, 2010 No comments

Yes, another BP post! Another Avatar post, too!

Following a trail of crumbs, I have just chanced upon an insightful post at the “On ALLiance” group blog of left libertarians. The post, a reader submission on June 13 by “Keith” is entitled “BPUSA” and hits squarely on the head a couple of nails that have been bothering me. I cross-post it in it entirety below (emphasis added).

I would note that while I agree that we face very serious problems, I would not attribute the weakened state of our communities to deliberate acts of scheming individuals – but rather, individuals in many institutions acting in accordance with the incentives that they face within their respective institutions. Nevertheless, I agree with and strongly support the call to action.


By Keith

The BP Deepwater Horizon oil gusher demonstrates the necessity of building civil society within American communities.  In fact if anything it demonstrates how community agency, the capacity to act for collective purposes, has been eroded due to a persistent effort to erode civil society and create dependency upon state and corporate actors.  This is done through a number of mechanisms: (1) subsuming mutual aid and not-for-profit actors into government welfare; (2) slowly chipping away at the capacity of welfare and social service agencies through diminished funding, increased bureaucracy, and enhanced regulation that undermines the core mission of the agency and; (3) finally by transferring such services over to corporate actors who seek to maximize profit by distributing material (not social) goods that fail to offer a semblance of empowerment nor promises to build individual capacity for transformative change. The purposeful erosion of civil society leaves communities extremely vulnerable in times of crises, as the Deepwater Horizon disaster demonstrates.

Gulf coastal communities were assured by BP and the United States government that the effects of the spill were being mitigated through public-private partnerships without actively engaging the local level communities or regional working groups.  As a recent Rolling Stone article notes, these actors are attempting to protect their own interests to the detriment of an entire ecosystem. BP, the criminal perpetrator, is in essence being empowered to act as judge, jury, and I dare say executioner.

When the Deepwater Horizon originally sank, BP, with support from the Obama Administration, low-balled the estimated flow rate gushing from the well.  Initially the flow was placed at 1000 barrels a day; it is now looking more like 100,000 barrels of oil per day, equivalent to an Exxon-Valdez oil spill every 8 days [actually this is every three days] , a shocking figure by anyone’s standards – it should also be noted that little attention has been paid to the nitrogen-rich liquid natural gas leaking into the deep ocean waters which may be even worse than the oil itself.

The National Oceanographic and Atmospheric Administration has estimated the worst from the very start; their own models planned for the worst.  But why then did the Obama Administration actively seek to keep these estimates tamped down.  There can only be two reasons for this.  First, the Obama Administration desired to limit the political fall out.  Perhaps this means they did not want to worry the Gulf residents (unlikely), or perhaps they wanted to play it safe and attempt to reduce media interest in an attempt to craft the initial message that would (hopefully) dominate the media discourse.  Second, the Obama Administration, a major benefactor of BP political campaign contributions, is going to bat for BP. [Also, Obama was trying to craft a climate deal that required support by big oil, in exchange for expanded offshore drilling.]

Either which way, by limiting the information flow to the media and then to the Gulf communities, they severely reduced the capacity for communities to understand the problem, mobilize resources relative to the catastrophe, and become actively engaged side by side with the government and BP to save their communities.  BP themselves bragged about their ability to detect flow rates in an in-house magazine they produce. It is criminal that communities were, in essence, denied their rightful opportunity to prepare far in advance of the oil coming ashore.

But it is critical to understand that this is how these two entities are currently structured. BP is tasked with maximizing profit and ensuring a solid return on investment to their shareholders (brown pelicans and rural fishermen be damned, they don’t own BP stock).  From a community empowerment perspective, the U.S. government, itself a top-down, hierarchical organization much like BP, also seeks to demonstrate a return on investment to its shareholders (campaign financiers, the businesses they regulate, and the businesses government officials hope will cut them a fat salary when they exit public life to enter the private sector in a cyclical process known as the revolving door).  What’s worse is that the opposition Republicans, instead of feeling the pain wrought by irresponsible regulation, subsidy, liability caps, and corporate malfeasance, has called for a federal bailout, increased oil drilling, and unfettered access to the even riskier drilling ventures; in other words, we have no good option in terms of political representation.  We get a choice of two parties, each representing the same interest, but one being far more crass in its support of destructive business practices.

[Quick aside. What would happen if you killed a large number of endangered animals? Do you think BP faces similar penalties? Who then do these legal processes protect?]

We are seeing a massive failure of state-centralized governance before our very eyes.  This is what happens when we put all of our collective eggs in a solitary basket, and don’t build multiple institutions of governance for collective action. Communities have been trained to rely on singular institutions for their critical goods and services. Should the singular entity (the state-corporate partners know as BPUSA) fail, we have no other choice because, well… these profit-seeking actors diminished our choices and community capacity to address crises have thusly been destroyed. Communities simply need more options.

It is obvious that the elite-led mentality of our governance structure has inhibited community’s capacity to provide for themselves when both the titans of industry and the government has failed them.  State governments in the Gulf have been further hamstrung not because of capacity to prepare for the spill, but to give the illusion that the federal government was not “granting them permits,” for example, to perform immediate stop gap measures, never mind you these “conservative” government’s supposed belief in “states’ rights” which should have prodded them to take their Confederate rebel mentality to buck the federales and win over the hearts and minds of their people; when politics comes into the fray, the vast majority of politicians will let their constituencies suffer gravely in order to further their own political ambitions.

Louisiana governor Bobby Jindal skillfully demonstrated his destructive political acumen, pleaded desperately with the media to have the Obama Administration sign off on permits to allow the state to dump sand berms at the entryways to fragile wetlands. Why, if Jindal knew his cause was just and time was of the essence, did he not use his executive authority and his Confederate-derived states’ rights mentality to not only demonstrate his adept handling of the situation to save his people, but to also give Obama a nice political jab?  Because in the end, for Jindal, he wants to build a narrative of the destructive, oppressive, federal government through demonstrable evidence, forgetting that in this instance federal actions were more about ineptitude than oppressiveness.  But we cannot fault Jindal for living up to the rhetorical standards of the American right: incoherence and inconsistency reign king.

By the way, Jindal had the resources for the sand berms at his immediate disposal. Jindal simply decided he “needed” to wait on the Obama Administration. Odd that Jindal would trust in the process considering Jindal has long criticized the Obama-led government as inept.

Then there is the governor of Mississippi.  Governor Haley Barbour, in an effort to save the state’s tourism industry (I know you are asking “Mississippi has a tourism industry?!”) downplayed the oil coming ashore as “natural.” For Barbour, tar balls are just a trivial side effect of offshore oil drilling – again, never mind a tacit acknowledgement of the destructive side of our economic system where tar balls become a natural feature of our landscape.  Barbour would rather protect the special interest of the notoriously anti working class tourist industry than mobilize the working class themselves to save the local ecosystem.

See a pattern?

Instead of preparing Mississippi citizens for the worst, in order to engage and activate the civic infrastructure, Barbour is hamstringing civilian response efforts by essentially telling people to carry on as they normally would.  God forbid Barbour truly lead and ask the citizens of Mississippi to march to the coast, assist in clean up efforts, and prepare to pitchfork BP executives until they open their fat wallets and liquidate their assets to the people of the great state of Mississippi.

You see, civic engagement is simply not in the best interest of the status quo, even if it means disaster. Political hacks want communities to come to them for their critical needs in order to reinforce their importance.

And the feds, being the good community actors they are, have decided they better make sure that the scant BP financed clean-up crews don’t have any “illegal” immigrants in their midst. Clearly the government believes they must both be choosy, and are duty-led to drum up further anti-immigrant fervor in a crisis situation.  A political two-fer!

Then there is the Coast Guard, supposedly tasked to protect American assets (”our” assets) on the open seas.  The Coast Guard has limited civilian and media access to areas in the Gulf impacted by the Deepwater Horizon gusher.  People wish to see the damage with their own eyes, and damned if in the face of the looming catastrophe they shouldn’t have that right to do so.  But the Obama Administration, which is supposedly seeking someone’s ass to kick at BP, has decided to throw their executive weight behind preventing investigative journalism and civil protest as opposed to forcing BP to shift the bulk of it’s operations to the Gulf response effort.  Read this article posted on HuffingtonPost:

What this has done is rightfully created mistrust in both the government and business.  The state has created the corporation through state charter.  With the corporate-state partnership, the corporation now receives the rights of a human being with virtually none of the risk or liabilities; the state is all too willing to proliferate this relationship too. Again, the opposition political party’s own minority leader, John Boehner, stood side by side with the president of the Chamber of Commerce, expressing their shared sense of outrage that BP might be liable, and that the government should be on the hook for the cleanup costs.

And here we were told by the Chamber that they wanted government OUT of the business of business.  Read more here:

On one hand, when people cry out for critical social services – their only avenue being the government due to restrictive regulations preventing mutual aid type agencies – they are told that now is not the time due to severe economic situations (or the Democratic supermajority is not “super” enough).  On the other, when the government wants to bail out the banks, launch trillion dollar wars, or use our tax dollars to clean up after BP (who makes tens of billions in profits a year), all of a sudden the government can marshal its forces to meet these challenges.  The more reasonable amongst us are labeled as unreasonable or irrational when we point out that this spending orgy – resulting in irresponsible business practices and, worst of all, the death of millions of innocents – could simply be redirected toward crumbling U.S. infrastructure or, and I might sound crazy here, putting a massive collective effort toward stopping an impending, unprecedented environmental disaster.  No, you see, we have to find some guy in a cave and build a nation or two, modeled off this nation’s likeness (good luck with that Afghanistan!).

Have no doubt that we are facing critical times.  Government, which demands to be the end arbiter for rapid-response efforts, is failing us time and time again.  Corporations stand behind government to shield themselves from liability while profiting along the way (Naomi Klein wrote about this process in her book The Shock Doctrine). Government then downplays all disasters to protect the corporate interests while also downplaying the necessity to deploy the resources necessary to protect communities from catastrophic events.  Communities are then ill equipped to wage effective disaster responses or stop the absentee corporate business practices that cause the disasters in the first place.  This is a cycle that is increasingly playing out with global climate change, state-centralization of police power, and the growth of the corporate-state partnership. Communities, particularly rural and resource-constrained types, are suffering most and will continue to do so, so long as elite brokers have something to gain.

The state and corporate titans have done their fair share to blind local and regional communities to the realities of their destructive practices for the sake of the all-mighty dollar.  In doing so, it has now become common practice for communities, even in disaster situations, to have to vet their response efforts through cumbersome bureaucracies that are detached from the ground-level realities.  More troubling still is that local level communities seem to acquiesce to these power structures, presuming that it is in their best interest or that they could get punished for breaking the chain of command. In disaster scenarios, we know that a rapid response is the best remedy to ensure that chaos is mitigated, order restored, and peoples’ livelihoods are saved; time is of the essence.  We must engage communities to work collectively on the critical issues of our time, lest we face repeats of the Katrina, Haiti, and Gulf crises.

Don’t get me wrong, here. This disaster and the results are not solely the government’s blame. In the end, the criminal is BP. But the resulting disaster response should be simple and accountability should be clear. The problem is that reactions are slow, people are being lied to, authorities are dominating the response (and badly) and the government has led us to the position that we can’t do much about it.

Communities must work to build active capacity.  Communities must

challenge the rights of corporate and state actors over local autonomy.  We must have multiple institutions of governance for just such instances where the “patriarchs” fail us.  There is no valid reason, as NPR reported the other day, why the Coast Guard should prevent inland fisheries from setting up their own booms to prevent the flow of BP’s oil into their bays.  Not only should communities challenge the Coast Guard’s order, but they should, figuratively, deploy the booms when reason seems to dictate it is in their best interest. This is where civil disobedience is needed most.

Communities should not acquiesce when it means destruction.  It is long past time we challenge these obviously destructive state-corporate partnerships and build our own local capacity to work collectively.  Indeed it may be a necessity for communities to thrive.  The all too real and disturbing question to me is will we be allowed to do so, and will communities be willing to challenge such impediments?

h/t suburnanarchist 11:42 pm

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Such a big crisis, yet so few words? Scratching my head over sporadic, thin drive-by postings at LvMI on our growing BP/Gulf disaster

June 18th, 2010 2 comments

Yes, another BP post!

It’s a bit puzzling – and disturbing – that, in the midst of an ongoing and epochal pollution event, LvMI authors seem to have so little to say about BP, the federal or state governments that have arrogated to themselves the rights to own and manage shared marine resources, the local communities who can see their ways of life being destroyed but lack any right to respond, the heavy-handed BP/Fed-run cleanup, media black-out and community lock-out, the trashing of a very important commons, or the ongoing stream of misunderstanding and mis analysis by politicians, pundits and the public.

Here’s not simply a golden opportunity, but a NEED to discuss, on the basis of Austrian and libertarian principles how things SHOULD work and COULD be improved, but no.

Instead of any sharing of insights or calls for ideas, we are treated to:

What’s going on? Has the cat of smug hatred for “enviros” and “commons” and a conservative love of corporations and the burgeoning corporations-government partnership pretty much got everyone’s tongue? Are the issues not important enough? Or do Austrian insights or concerns simply not extend to pollution or to fishermen, shrimpers or oystermen or – shudder – when nature-lovers butt heads with corporations and government?

Our little oil gusher is now two months, something on the order of an Exxon Valdez every few days, and ticking, “Relief wells” are two months away, and we have no assurance that they will work. May I recommend abit of action?

I left the following comment on Doug French’s post:

TokyoTom June 17, 2010 at 8:48 am

Doug, so what is YOUR point with this post?

Just taking a stab at your Rorschach blot, could you be decrying the state interventions of limited liability and bankruptcy law, that (1) free shareholders from possible liability for the downside risks that their investment imposes on broader society and (2) let the executives of failing companies keep their jobs while jettisoning shareholders and short-changing voluntary creditors and involuntary victims?




Oh, in case anyone has missed it, I’ve done quite a bit of posting on the BP problem, in a manner intended to be fruitful (and not simply a noodge). Here are my posts, in chronological order:

Risk-shifting, BP and those nasty enviros

Poor statists! If we close our eyes tightly enough, we can see clearly that Corporations are innocent VICTIMS, of governments that foist on them meaningless grants like limited liability & IP, and of malevolent, grasping citizens

Sheldon Richman doesn’t feel sorry for BP, either

Corporations uber Alles: Conveniently inconsistent on “abstractions” like “the environment”, Austrians overlook their preference for “corporations” over individuals,& their lack of interest in problem-solving

Persons-R-Us? Here’s someone’s interesting thought experiment: “What If BP Were A Human Being?”

Does it make any sense to treat corporations as “persons”, given the differences in incentives structures?

As BP’s oil spills into one of those inconvenient “ecosystems”, now even Reason TV rants about “dying oceans”

Time-out for some light humor on BP’s “ecosystem”: The BP Oil Spill Re-Enacted By Cats in 1 Minute!

Who’s at the short end of the stick when Government “Play[s] Fast and Loose with Civilization” in the Gulf of Mexico?

Ed Dolan on Other People’s Money: Government, Oil Spills, Financial Crises & Limited Liability

Scott Sumner misses government role in “sh*t happens”; epitomizes discussions of BP/offshore oil development

Kevin Carson says, “In a Truly Free Market, BP Would Be Toast”

More useful discussion by Carson, both on BP’s fate in a free market, and on the inept, feckless and captured regulatory state

Matt Yglesias, like many Austrians, misses the role of government in “Agency Problems and Corporate Misconduct”

A BP Reader: statist corporations, “the environment” and the Tragedy of the Government-Owned/-Managed Commons

Sheldon Richman joins Gene Callahan in naively arguing that, IF man’s activities are responsible for climate change, we need not government but simply louder and more obnoxious enviros

As Callahan and Richman laud consumer/moral pressure on polluters, others tell us a BP boycott is stupid

Rand Paul: a caricature of libertarian views on energy

BP: Unless we are to get lost in legal fictions, like Harry Shearer we must look beyond the shareholder curtain


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If we just ignore BP/corporate lobbying & risk-shifting – and Government's ownership of oil, coal and other natural resources – we can see clearly that enviros just want to destroy civilization

May 6th, 2011 No comments


1.  BP Spent $2 Million Lobbying On Offshore Drilling, Spill Liability, Other Regulations In First Quarter Of 2011 (Marcus Baram, Huffington Post, April 21, 2011): (emphasis added)

On the first anniversary of the Deepwater Horizon oil spill that killed 11 workers, oil giant BP revealed via mandatory disclosure forms that it spent at least $2 million on federal lobbying in the first quarter of 2011 on a wide range of issues, from advocating for an end to the offshore drilling moratorium imposed by President Barack Obama in the wake of the spill to caps on its contributions to the restoration of the Gulf Coast.

BP tapped five well-connected lobbying firms — Alpine Group; Fierce, Isakowitz & Blalock; the Podesta Group; Stuntz Davis & Staffier; and the Duberstein Group — to ply their influence on Capitol Hill and at federal agencies in the wake of the four-month-long spill, which devastated the environment and leaked more than 205 million gallons of oil into the Gulf of Mexico. Executive-branch agencies targeted by the beleaguered oil behemoth, which faces a criminal probe by the Justice Department, included the Environmental Protection Agency and the State and Treasury departments.

In addition to the drilling moratorium and coastal restoration contributions, BP lobbied heavily regarding implementation of the presidential oil spill commission’s recommendations, which included stricter oversight of offshore drilling.

BP also lobbied Congress on the Put the Gulf Back to Work Act, the legislation passed last week by the House Natural Resources Committee under the leadership of chairman Doc Hastings (R-Wash.) which speeds up the approval process for new drilling permits. That bill prompted Interior Secretary Ken Salazar to accuse House Republicans of having “amnesia” about the oil spill.

Among other issues of interest to BP: the Restoring American Offshore Leasing Now Act, which requires Salazar to conduct certain offshore oil and gas lease sales; financial reform legislation and proposed rules; and liability protection for producing and retailing motor fuel that contains 15 percent ethanol. In addition, the oil company lobbied on several proposed EPA rules relating to greenhouse gas emissions and ambient air quality standards, and lobbied Congress on energy tax issues, corporate tax reform and the export of Caspian gas into European markets.

Earlier this week, it was revealed that BP broke its self-imposed moratorium on political donations in the wake of the spill.

2.  Coal mining to expand on public lands in Wyoming, CNN, March 23, 2011: (emphasis added)

Coal mining on public lands will expand in the coming months in Wyoming, as the federal government makes more coal-rich land available for lease by mining companies.

“Coal is a critical component of America¹s comprehensive energy portfolio, as well as Wyoming’s economy,” Interior Secretary Ken Salazar said at a news conference Tuesday.

The leases are expected to bring in between $13.4 billion and $21.3 billion in leasing bids and royalties to the federal government and the state of Wyoming. Wyoming will receive 48% of those revenues, with the rest going to the federal government.

The four tracts of land in northeast Wyoming’s Powder River Basin are expected to yield about 758 million tons of coal, Salazar said.

“Wyoming is the No.1 coal producer from public lands, contributing more than 400 million tons annually to our domestic energy supply, providing nearly 40% or the coal used by power plants nationwide to provide electricity nationwide,” Salazar said.

Wyoming Gov. Matt Mead, a Republican, applauded the move.

“Coal is a big deal here in Wyoming,” Mead said. “We need the energy, we need the jobs that come with energy, and we need the electricity.”

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On Feel Sorry for BP Day, Coast Guard reports blasts Transocean's Deepwater Horizon, a Marshall Islands flagship. Somehow role of Govt as irresponsible resource owner is overlooked

April 23rd, 2011 No comments

Yesterday, on Feel Sorry for BP Day (we all know that BP is just another victim of fishermen,other purported victims and Government, right?), the WSJ provided coverage of a Coast Guard report blasting Transocean, owner of Deepwater Horizon, a Marshall Islands flagship owner of the rig that blew up and sank last year, leaving an oil will that has greatly affected the Gulf of Mexico and the health and livelihoods of many thousands of people.

Somehow, both the Coast Guard and the WSJ reporters managed to overlook the 800 lb. gorilla in the room: namely, the role of Government as irresponsible resource owner. How convenient!

These days, even supposedly ‘capitalist’ new organizations don’t seem to have any grasp of how profoundly “non-capitalist” is our energy sector, which is heavily tied to government as resource owner and pollution-permit authorizer.

Here’s the link.

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Does the LRC post on "When Goliath Is the ‘Victim’" refer to BP?

January 5th, 2011 No comments

So I wondered when I saw William Grigg’s “When Goliath Is the ‘Victim’” post at LRC last month.

The first paragragh hinted at the answer, while leaving me hopeful:

How does one simultaneously swagger and simper? Is it possible for someone to beat pridefully on his chest, even as his lip quivers in self-pity? Apparently so, given the evidence provided in Charles Krauthammer’s column today (December 3).

A little more reading left me disappointed, as I couldn’t help recalling the sympathies expressed by Lew Rockwell and Stephan Kinsella for poor li’l BP:

But I keep forgetting that we love statist corporations here, and hate the foolish “enviros” and other citizens who think that their only recourse against them is a bigger government.

Will I ever learn? Here’s to hope in the New Year!

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Mises The Enviro on BP (and ConocoPhillips)

August 19th, 2010 No comments

I just ran across an old post quoting Mises, and some of it seemed quite relevant to my posts on BP (including my post yesterday regading a statement by the CEO of ConocoPhillips that they would not drill in the Gulf of Mexico if Congress eliminated statutory liaibility limits for pollution), particularly with regard to ownership by government, lack of ownership  by BP, and the absence of any rights in favor of fishermen or other non-petroleum resource users.

Here’s the quote (emphasis added):

Property rights as they are circumscribed by laws and protected by courts and the police, are the outgrowth of an age-long evolution.The legal concepts of property do not fully take account of the social function of private property. There are certain inadequacies and incongruities which are reflected in the determination of the market phenomena.

Carried through consistently, the right of property would entitle the proprietor to claim all the advantages which the good’s employment may generate on the one hand and would burden him with all the disadvantages resulting from its employment on the other hand. Then the proprietor alone would be fully responsible for the outcome. In dealing with his property he would take into account all the expected results of his action, those considered favorable as well as those considered unfavorable. But if some of the consequences of his action are outside of the sphere of the benefits he is entitled to reap and of the drawbacks that are put to his debit, he will not bother in his planning about all the effects of his action. He will disregard those benefits which do not increase his own satisfaction and those costs which do not burden him. His conduct will deviate from the line which it would have followed if the laws were better adjusted to the economic objectives of private ownership. He will embark upon certain projects only because the laws release him from responsibility for some of the costs incurred. He will abstain from other projects merely because the laws prevent him from harvesting all the advantages derivable.

The laws concerning liability and indemnification for damages caused were and still are in some respects deficient. By and large the principle is accepted that everybody is liable to damages which his actions have inflicted upon other people. But there were loopholes left which the legislators were slow to fill. In some cases this tardiness was intentional because the imperfections agreed with the plans of the authorities. When in the past in many countries the owners of factories and railroads were not held liable for the damages which the conduct of their enterprises inflicted on the property and health of neighbors, patrons, employees, and other people through smoke, soot, noise, water pollution, and accidents caused by defective or inappropriate equipment, the idea was that one should not undermine the progress of industrialization and the development of transportation facilities. The same doctrines which prompted and still are prompting many governments to encourage investment in factories and railroads through subsidies, tax exemption, tariffs, and cheap credit were at work in the emergence of a legal state of affairs in which the liability of such enterprises was either formally or practically abated.”

Whether the proprietor’s relief from responsibility for some of the disadvantages resulting from his conduct of affairs is the outcome of a deliberate policy on the part of governments and legislators or whether it is an unintentional effect of the traditional working of laws, it is at any rate a datum which the actors must take into account. They are faced with the problem of external costs. Then some people choose certain modes of want-satisfaction merely on account of the fact that a part of the costs incurred are debited not to them but to other people.

The extreme instance is provided by the case of no-man’s property referred to above. If land is not owned by anybody, although legal formalism may call it public property, it is utilized without any regard to the disadvantages resulting. Those who are in a position to appropriate to themselves the returns–lumber and game of the forests, fish of the water areas, and mineral deposits of the subsoil–do not bother about the later effects of their mode of exploitation. For them the erosion of the soil, the depletion of the exhaustible resources and other impairments of the future utilization are external costs not entering into their calculation of input and output. They cut down the trees without any regard for fresh shoots or reforestation. In hunting and fishing they do not shrink from methods preventing the repopulation of the hunting and fishing grounds. In the early days of human civilization, when soil of a quality not inferior to that of the utilized pieces was still abundant, people did not find any fault with such predatory methods. When their effects appeared in a decrease in the net returns, the ploughman abandoned his farm and moved to another place. It was only when a country was more densely settled and unoccupied first class land was no longer available for appropriation, that people began to consider such predatory methods wasteful. At that time they consolidated the institution of private property in land. They started with arable land and then, step by step, included pastures, forests, and fisheries. The newly settled colonial countries overseas, especially the vast spaces of the United States, whose marvelous agricultural potentialities were almost untouched when the first colonists from Europe arrived, passed through the same stages. Until the last decades of the nineteenth century there was always a geographic zone open to newcomers–the frontier. Neither the existence of the frontier nor its passing was peculiar to America. What characterizes American conditions is the fact that at the time the frontier disappeared ideological and institutional factors impeded the adjustment of the methods of land utilization to the change in the data. …

It is true that where a considerable part of the costs incurred are external costs from the point of view of the acting individuals or firms, the economic calculation established by them is manifestly defective and their results deceptive. But this is not the outcome of alleged deficiencies inherent in the system of private ownership of the means of production. It is on the contrary a consequence of loopholes left in this system. It could be removed by a reform of the laws concerning liability for damages inflicted and by rescinding the institutional barriers preventing the full operation of private ownership.



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Limited liability & financial crisis (& BP): someone else sees the obvious "black swan" of executive/trader moral hazard after investment banks went corporate

June 29th, 2010 No comments

A libertarian analysis of the corporate form, particularly the state grant of limited liability to shareholders, does not begin and end with the question of whether such a government intervention has any libertarian justification (it clearly does not), or even – as Stephan Kinsella continually suggests – with the narrow question of whether, in hie case of a particular “corporate tort,” it is fair to impose liability broadly on shareholders who had no personal role in a tort. Rather, as I have have long argued in my posts on limited liability, one must also examine the systemic consequences of the grant.

It is my own humble view that limited liability of shareholders, when combined with other corporate attributes like unlimited life and  purposes and an ability to further ring-fence risky activities in separate subsidiary entities, has had profound and pervasive consequences: relative anonymity of ownership, remoteness of owners from communities in which the firms operate, an explosion of powerful firms and wealthy investors and their ability to influence judges, legislators, bureaucrats, the press and mass media, and a steady erosion of common law and growth in the centralized regulatory state – as citizens fight to limit the risks and costs that corporations impose on individuals and communities. The growth of corporations is accompanied by growing moral hazard, not simply because dividends paid to an anonymous and morally blind shareholder class  cannot be clawed back when risks are materialized, but shareholders find it increasingly difficult to rein in a self-interested class of executives and employees.

The toxic combination of statism and limited-liability moral hazard -and the steady shifting of risks to society that both entail – can be clearly seen in both the BP Gulf oil disaster (see my BP posts) and in the financial crisis.

I recently ran across a post by an informed observer of the financial crisis that pointed to these problems; The Ten Trillion Dollar Black Swan in the January 26, 2009 online edition of American Thinker by Mike Razar, who describes himself as a “Phd in math from Harvard, a math professor, independent option floor trader, sr. vp swiss bank corp, 9 years on board of directors of the CBOE (options exchange), chairman of product development cmte., financial software development”; some excerpts follow (emphasis added):

As a poor taxpayer, I am at least entitled some entertainment for my money.  Fire all the top executives and sue them for every penny they have on the grounds that they totally abandoned even a fig leaf of fiduciary responsibility to their share holders and bond holders. I bet we can get some lawyers to do that pro bono! But no, instead we have to vomit every time one of those self-serving empty suits who run the banking industry appears on TV telling us that we are too dumb to understand the intricacies of modern finance. Then he shakes his head solemnly, while proclaiming to us how unlucky they were.

It is unfair to blame every bank CEO. Just to name one, (I know there are others) Wells Fargo Bank share holders were sent a note of apology because earnings were off by 7% from the previous year because of bad mortgage loans. Gee whiz! They took what was believed to be a prudent risk and it didn’t work out. So the shareholders took a tiny hit, not in value, but in potential increased value. That is true capitalism. But small risk equates to small bonuses. How could you have expected  the heads of Bear Stearns, Lehman Brothers, AIG, Morgan Stanley, Goldman Sachs, etc. to disappoint their employees with mere 6 or 7 figure bonuses?
And oh yeah. The aforementioned CEO of Wells Fargo was summoned to Washington by the Treasury Department’s secret police and water-boarded for 48 hours until he agreed to accept $25 billion or so, in order to save his badly managed competitors any embarrassment.

Am I being too harsh? After all we are repeatedly assured (as if we were the morons) that it was a perfect storm. No, worse than that. A black swan!  Sure, hindsight is 20/20, but who could have anticipated it?  Let’s see. You leverage your firm 30 or 40 to 1. That means (public school graduates) that you have a billion dollars of your own money. Then you use your “strong” balance sheet (no silly marking to market) to borrow another $39 billion. You loan out $35 billion of it and pay the other $4 billion to yourself or other co-conspirators. Your risk managers fire off e-mails telling you that if housing prices decline by as little as 5% to 10%, the entire firm is lost. What a bunch of academic worry-warts! Everyone knows that housing prices can never go down. Maybe one intrepid risk analyst (who earns less that 1% of your well deserved compensation) has the temerity to remind you that the latest reports show an excess supply of more than 2 million homes nationwide as compared to people who need a home to live in. After firing her, you console yourself with some caviar and truffles washed down with a $10,000 bottle of wine.

There was a time when the greed factor cited above was balanced by its equally famous sibling, the fear factor. Before 1970, investment banks and other NYSE members had to be individuals or general partnerships. When they converted to publicly traded corporations the risk was transferred to the shareholders but the rewards still went disproportionately to the senior managers. Why is that important? When that e-mail warning of the risk hit the CEO’s computer, he could ignore it, knowing that he had accumulated tens or even hundreds of million dollars in prior years. At worst, he could retire comfortably. Had he been the managing partner, the firm’s creditors could go after every penny he had to his name. Say goodbye to Mister [Fear] and hello to Mister [Greed]! …

This rant would be incomplete without a nice metaphor to take home. It was not a black swan that caused this crisis. It was a whole flying wedge of white swans flying over Wall Street marking the market in their own charming way.

One commenter left the following note:



Posted by: bob bradley <!–
–><!– Comment: #33 –> 
Jan 26, 06:43 PM

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the key point hear is the move from partnerships to public companies by the investment houses while still operating their compensation systems(at least on the bonus side) like they wre still partnerships. in this assymetrical, i win but cannot lose structure, traders used the firms(now shareholders) capital as their own personal gambling pot.this was an inevitable train wreck for us poor shareholders who did not get it .talk about the proverbial “other people’s money”!

Razar refers implicitly to successful lobbying by the investment banks to expand their permissible leverage, but fails to note that the moral hazard was further enabled by government bailouts. This combination of corporate risk shifting and rampant, government-fuelled moral hazard is also present in the case of the BP disaster.

Would we have healthier offshore oil and gas development and oversight if government did not license and pretend to regulate it, but rather those whose livelihoods are put at risk by spills? And if those engaged in it did not act through corporations, but partnerships with unlimited liability and without liability caps and royalty incentives set by government?

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More about “the biggest victim,” BP, and how we can help it end its “victimization”

June 20th, 2010 No comments

Is it too much to ask to have a little more light of Austrian analysis thrown on BP? I’ve asked Lew Rockwell and Stephan Kinsella not simply about the moral calculus that leads them to assert that BP is the biggest victim of its own decisions that produced the Gulf oil gusher, but also whether it makes sense to speak of a massive corporation as if it is in any way a “person” similar to those living breathing individuals its action have harmed and continue to harm.

Where, in a week when BP CEO Tony Hayward (after Senator Joe Barton first apologizes to him for a “shakedown” of BP by President Obama) is off watching a yacht race, is the focus of Austrians on real people – and how the state-given corporate entity status affects human behavior WITHIN the corporation, as well as the behavior of the “corporation” to others? Maybe the issues raised are just too insignificant or mundane? But hey, as Stephan has just noted to me in a dull, cursory comment:

“what do you expect us to say? this is just a tort. Torts happen”!

Confused nonsense, I say. “Torts “happen”? Balderdash – PEOPLE violate the rights of others (commit torts).  Did this tort  “happen” to our chief victim, BP, too?

It is one of the salient features of corporations that they confuse themselves and everyone else as to WHO, precisely, is responsible for their actions and the harms they cause others, and it is time for Austrians to examine such features closely.

All of this is prelude to the following by Jim Hightower that highlights the behavior of BP and its CEO:

Jim Hightower,  BP Is a Corporate Criminal; BP has been implicated in bribery, overthrowing governments, plunder and money laundering, plus having established one of the worst safety records in the industry.  (AlterNet, June  17):

Gosh, how quickly things turn. One day, you’re a strutting peacock — the next day, you’re just another gasping, oil-covered bird.

In early April, BP was strutting about in full corporate splendor, showing off the $9 billion in profits that it had soaked up in just the first three months of this year. It was also basking in a corporate re-imaging campaign, depicting itself as a clean-energy pioneer and declaring that BP now stood for “Beyond Petroleum.”

Since its Gulf of Mexico well blew out on April 20, however, BP has proven to be beyond belief. The wider and deeper that this catastrophe spreads, the more we discover just how oily this giant is.

From the time it was known as the Anglo-Persian Oil Company and set out to grab and control the rich petroleum reserves owned by what is now Iran, BP has been a recidivist global criminal. In the past three decades, it grew huge by swallowing such competitors as Standard Oil of Ohio, Amoco and Arco. Along the way, it has been implicated in bribery, overthrowing governments, plunder and money laundering, plus having established one of the worst safety and environmental records in an industry that is notoriously reckless on both counts.

And now, its rap sheet grows almost daily. In fact, the Center for Public Integrity has revealed that the oil giant’s current catastrophic mess should come as no surprise, for it has a long and sorry record of causing calamities. In the last three years, the center says, an astonishing “97 percent of all flagrant violations found in the refining industry by government safety inspectors” came at BP facilities. These included 760 violations rated as “egregious” and “willful.” In contrast, the oil company with the second-worst record had only eight such citations.

While its CEO, Tony Hayward, claims that its gulf blowout was simply a tragic accident that no one could’ve foreseen, internal corporate documents reveal that BP itself had been struggling for nearly a year with its inability to get this well under control. Also, it had been willfully violating its own safety policies and had flat out lied to regulators about its ability to cope with what’s delicately called a major “petroleum release” in the Gulf of Mexico.

“What the hell did we do to deserve this?” Hayward asked shortly after his faulty well exploded. Excuse us, Tony, but you’re not the victim here — and this disaster is not the work of fate. Rather, the deadly gusher in the gulf is a direct product of BP’s reckless pursuit of profits. You waltzed around environmental protections, deliberately avoided installing relatively cheap safety equipment, and cavalierly lied about the likelihood of disaster and your ability to cope with it.

“It wasn’t our accident,” the CEO later declared, as oil was spreading. Wow, Tony, in one four-word sentence, you told two lies. First, BP owns the well, and it is your mess. Second, the mess was not an “accident,” but the inevitable result of hubris and greed flowing straight from BP’s executive suite.

“The Gulf of Mexico is a very big ocean,” Hayward told the media, trying to sidestep the fact that BP’s mess was fast becoming America’s worst oil calamity. Indeed, Tony coolly explained that the amount of oil spewing from the well “is tiny in relation to the total water volume.” This flabbergasting comment came only two weeks before it was revealed that the amount of gushing oil was 19 times more than BP had been claiming.

Eleven oil workers are dead, thousands of Gulf Coast people have had their livelihoods devastated and unfathomable damage is being done to the gulf ecology. Imagine how the authorities would be treating the offender if BP were a person. It would’ve been put behind bars long ago — if not on death row.

Jim Hightower is a national radio commentator, writer, public speaker, and author of the new book, “Swim Against the Current: Even a Dead Fish Can Go With the Flow.” (Wiley, March 2008) He publishes the monthly “Hightower Lowdown,” co-edited by Phillip Frazer.

These observations are similar to those of Bruce Dixon, who noted:

Ultimately, people woke up, rose up, and revoked those privileges. How long will it be before we revoke the lawless privileges of corporations, before we limit their immunity, curtail their immortality, and rein in their immorality?. How long can we, and the planet on which we depend for life itself, wait? Is there every a line that cannot be crossed? Where is it? What will it take?When it suits their purposes, employees and mouthpieces of various transnational firms hasten to assure us that “corporations are people too.” In a sense this is certainly true. Despite what some bible thumping fundamentalists will tell you, corporations were not ordained by the Almighty. Corporations are legal fictions. They are artificial shields under which we agree to allow a handful of extremely wealthy people to rule over the rest us, and plunder the planet and its people at will, just as centuries ago most of the humans who mattered agreed that kings, queens and nobly born, the “people of quality” had the god given right to ride roughshod over humanity.

The gaps between (i) Austrian insistence that we focus on individual rights and plan formation, (ii) the penchant of some (many!) libertarians to support corporations while bashing citizens groups which are unhappy with the impacts of corporate actions on others, and (iii) the real world where corporate misbehavior is large and spinning out of control (in banking as well as in the Gulf and elsewhere where governments ”protect” their citizens by turning community resources into a government commons, are growing and cannot be ignored.

One must ask – does it make any difference, either to the broader statist environment that we find ourselves, or to the behavior of BP, that BP is a corporation that is granted unlimited life and whose shareholders are excluded from any personal liability for corporate acts? I think that it undeniably matters, and quite deeply.

Just as libertarian and other commentators have suggested that we need to insist that firms that engage in the banking business be partnerships with unlimited liability in order to control the moral hazard engendered by the current system, so too should libertarians insist on restoring personal responsibility and ending both corporate limited liability and the government management of commons. If we do so, we will certainly see much greater efforts by those who own and/or manage business enterprises to control risks and behave responsibly – which will take pressure off of spiralling calls for corrupt and inept governments to “do something!”

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Disturbing news/views on the manageability of the BP gusher

June 18th, 2010 No comments

[I’ve switched this around to reverse chronological order; most recent first.]

I  note that some of the scariest views come from Matt Simmons, someone who has long experience with and good contacts in the oil industry, though conversant is not a technical expert. His surmises so far have all proven more accurate than the nonsense coming from BP and the Obama administratrion. He also apparently is now shorting BP, so has an incentive to talk them down. But we have obviously been deliberately getting the opposite of honesty and transparency from BP or the administration, so what do we have left but speculation?

June 17:

June 15 Lori Rothman




June 7 Ratigan

June 7:

[View: Simmons Interview About BP Oil Spill &clipSRC=mms://]

May 28th interview with Bloomberg’s Mark Crumpton and Lori Rothman

The “relief well may very well NOT work; so thirty years at 100,000+ barrels per day  (an Exxon Valdez every three days) is a real possibility. Apparently there is A LOT of subsurface oil.


May11 interview:


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