TT's Lost in Tokyo — by TokyoTom

As a follow-up to Lew Rockwell‘s Feel Sorry for BP? and my two sets of comments on it (Risk-shifting, BP and those nasty enviros, and 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), I note and highly recommend Sheldon Richman’s May 14 commentaｒｙ, “Self-Regulation in the Corporate State: The BP Spill; Which system failed”, at TheFreemanOnline.org.

Here a portion of Sheldon’s commentary (emphasis added):

Yet, the New York Times reported, “Despite … repeated promises to reform, BP continues to lag other oil companies when it comes to safety, according to federal officials and industry analysts.” The Times said BP chief executive Tony Hayward “conceded that the company had problems when he took over three years ago. But he said he had instituted broad changes to improve safety….”

Why did BP have problems? The Times goes on: “Some analysts say the safety problems indicate that BP has not yet reined in the culture of risk that prevailed under Mr. Hayward’s predecessor, John Browne…. Mr. Browne set aggressive profit goals, and BP managers drastically cut costs to meet their quarterly targets. After the 2005 explosion in Texas City [killing 15 workers], investigators found that routine maintenance that might have averted the accident had been delayed because of pressure to reduce expenses.”

What we seem to have is a company that, in pursuit of short-term profits, was less than meticulous about safety (other people and their property, that is) while it and its industry effectively vetoed government safeguards that might have prevented the explosion that killed 11 workers and caused the damaging spill.

Some will defend BP in the name of the “free market” or minimize the event, protesting that the Obama administration’s remedial measures will “undermine our capitalist system.” Meanwhile, the “progressive” statists will declare that once again the free market has failed. The respective bases will be rallied.

Corporatist System

But BP’s defenders and statist critics both have it wrong. This is not the story of a well-meaning or negligent firm operating in the free market. Negligent or not, BP is a player in a corporatist system that for generations has featured a close relationship between government and major business firms. (It wouldn’t have surprised Adam Smith.) Prominent companies have always been influential at all levels of government — and no industry more so than oil, which has long been a top concern of the national policy elite, most particularly the foreign-policy establishment. When state governments failed in the 1920s to put a lid on unruly competition and low prices, the oil companies turned to Franklin Roosevelt and the federal government, winning the cartelizing Petroleum Code, significant parts of which were revived after the National Recovery Administration was declared unconstitutional. In the 1950s, when cheap imports depressed prices, the national government imposed quotas on Middle Eastern oil. (In 1960 OPEC, a “cartel to confront a cartel,” was founded.) Republican or Democratic, energy policy is not made without oil industry input.

In this context there’s less to the contrast between government regulation and corporate self-regulation than meets the eye. Self-regulation in a corporate state does not constitute the free market. When companies are sheltered in any substantial way from the competitive market’s disciplinary forces, incentives turn perverse. Moreover, “state capitalism” and the corporate form (pdf) – with its agency problem – can produce the temptation to cut costs imprudently in order to make the next quarterly report look attractive to shareholders.

“Putting profits before people” is a feature of state, or crony, capitalism not the free market.

I accepted the invitation of an empty comment thread to post a few comments, which I copy below:

Comment by TokyoTom on 14 May 2010:

Sheldon, great post.

I also posted a few thoughts in response to Lew Rockwell’s sympathy for BP and in reply to a response by Stephan Kinsella:

Risk-shifting, BP and those nasty enviros – TT’s Lost in Tokyo http://bit.ly/alFkim

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 http://bit.ly/dc3RD9

I agree with what you wrote, but would note the following as well:

– government’s “ownership” of the seas & seabed leave a continuing tragedy of the commons in its wake, as resource users have no rights to manage, invest in sustainability, or exclude, sue or negotiate with other users whose interests or use conflicts. Thus, fishermen, shrimpers, oystermen and the like were not in a position to negotiate in advance with BP on precautions, and are poorly situated to seek damages.

– you touched on the ridiculous and counterproductive limitation of liability the the US government gifted to BP, but fail to directly note or criticize the much deeper and pervasive problems that stem from state governments’ grant of corporate status, particularly “limited liability”.

From limited liability and corporate status flow a steady transfer of risks from enterprises to the public as a whole: the corporate form enables the growth of large enterprises poorly managed by shareholders (who are dis-incentivized by “veil-piercing” judicial doctrines from trying to closely manage, and generally have little practical ability to oversee anyway), the growth of risk-taking by managers (who, like shareholders, can capture the upside of risky ventures but have little or no personal liability when injury is caused to innocent third parties), growing power and ability to influence judges, politicians and media – and so greatly eroding strict common-law protection of property rights from pollution, and resulting threats to health and safety that spur government action and thus the cycle of struggle for control over government, in which insiders always have the upper hand.

But beside these points, I note that simply explaining that what led to the spill and our general state of affairs was not “free market” capitalism isn’t particularly helpful in giving people direction on how to improve our situation.

Should we:

– insist on ending legislative grants of limited liability, both for ocean oil & gas drilling and for corporations generally? should we insist that drilling only be conducted by partnerships that have no limited liability (but can buy insurance)?

– are there tools of moral suasion that we ought to apply? should we be insisting on naming the names and demanding personal responsibility by managers involved?

Not merely your diagnosis, but your thoughts on practical courses of treatment would be helpful.

Comment by TokyoTom on 14 May 2010:

Sheldon, great post.

I also posted a few thoughts in response to Lew Rockwell’s sympathy for BP and in reply to a response by Stephan Kinsella:

Risk-shifting, BP and those nasty enviros – TT’s Lost in Tokyo http://bit.ly/alFkim

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 http://bit.ly/dc3RD9

I agree with what you wrote, but would note the following as well:

– government’s “ownership” of the seas & seabed leave a continuing tragedy of the commons in its wake, as resource users have no rights to manage, invest in sustainability, or exclude, sue or negotiate with other users whose interests or use conflicts. Thus, fishermen, shrimpers, oystermen and the like were not in a position to negotiate in advance with BP on precautions, and are poorly situated to seek damages.

– you touched on the ridiculous and counterproductive limitation of liability the the US government gifted to BP, but fail to directly note or criticize the much deeper and pervasive problems that stem from state governments’ grant of corporate status, particularly “limited liability”.

From limited liability and corporate status flow a steady transfer of risks from enterprises to the public as a whole: the corporate form enables the growth of large enterprises poorly managed by shareholders (who are dis-incentivized by “veil-piercing” judicial doctrines from trying to closely manage, and generally have little practical ability to oversee anyway), the growth of risk-taking by managers (who, like shareholders, can capture the upside of risky ventures but have little or no personal liability when injury is caused to innocent third parties), growing power and ability to influence judges, politicians and media – and so greatly eroding strict common-law protection of property rights from pollution, and resulting threats to health and safety that spur government action and thus the cycle of struggle for control over government, in which insiders always have the upper hand.

But beside these points, I note that simply explaining that what led to the spill and our general state of affairs was not “free market” capitalism isn’t particularly helpful in giving people direction on how to improve our situation.

Should we:

– insist on ending legislative grants of limited liability, both for ocean oil & gas drilling and for corporations generally? should we insist that drilling only be conducted by partnerships that have no limited liability (but can buy insurance)?

– are there tools of moral suasion that we ought to apply? should we be insisting on naming the names and demanding personal responsibility by managers involved?

Not merely your diagnosis, but your thoughts on practical courses of treatment would be helpful.

[Update: added a link  to Roger Pielke, Jr. at the end.]

My pal Stephan Kinsella has pestered me about the recent letter in Science by a bunch of the world’s leading scientists, so I suppose I ought to mention it.  (I won’t make another “Climate Confession”, but some of my earlier remarks about the Great Climate Email Kerfluffle may be worth repeating, particularly as various investigations concluded that no scientific dishonesty occurred)

Those who have more than a passing interest in science, the role of science in policy and in climate-related rent-seeking ought to read the letter, signed by 255 members of the the National Academy of Science, including 11 Nobel Prize winners (in hard sciences); I won’t post any extensive quotes here.  I simply note this conclusion:

“Compelling, comprehensive, and consistent objective evidence that humans are changing the climate in ways that threaten our societies and the ecosystems on which we depend.”

The letter is a reaction, chiefly by scientists not active in the IPCC process, to recent harsh attacks on their “climate science” colleagues (including threats of legal action by Sen. Inhofe and initiation of legal action by the Virginia Attorney General), and an effort to support such scientists by expressing a strong concerns about the possible consequences of continued inaction. The letter urges policy action and blames much of the attacks on efforts by rent-seeking fossil fuel interests to protect their advantaged position. The letter itself – as well as the fact Science put it behind a paywall along with a Photo-shopped photo of a polar bear on an ice floe! – showcases the political naivete and amateurishness of the scientific establishment.

Obviously scientists have no particular expertise in making public policy, but it IS striking that so many of them are willing to venture out onto thin ice by raising their voices in alarm.

Readers may find the following background/commentary on the letter to be useful:

1. I repeat some of remarks I made when the email scandal arose (altered somewhat):

• The Climate Hack is certainly egg on the face of some climate scientists – although this has been spun ridiculously out of context (much criticism is clearly simply wrong, though those who find the whole thing “delicious” have a tough time looking past the sources they prefer to read) – but the implication that the science is nothing but a conspiracy is an obvious fantasy. The political amateurishness of the scientists alone tells us that. (If any readers honestly need help in finding their way through the fog – self-deluded or deliberate – of the “skeptics” here, please let me know.)

• Austrians/libertarians already knew that much of the climate science is politicized, especially here, not simply because of public funding, but chiefly because all parties – fossil fuel investors seeking to protect a generous status quo, enviros, politicians & bureaucrats, and those seeking greater advantage or more investment climate certainty – are seeking to steer government in particular directions, in ways that may significantly affect all of us. A further factor in such politicization is the simple difficulty that laymen (and scientists) have in wrapping their own heads around the climate science, and for which personal confirmation may take a lifetime. Personal and tribal predilections to hate “environazis”and the like, on the one hand, or to disdain evil capitalists, on the other, has nearly everyone looking reflexively for whatever scrap of science confirms their existing views and/or suits their political preferences.

• The discord among scientists and attempts at gate-keeping are part and parcel of science – publicly-funded or not – but because of the political importance of climate science, we need greater, not less, transparency. The apparent efforts at gate-keeping (seeking to influence what gets published in peer-reviewed journals and what appears in IPCC reports) is what seems most objectionable, but there has been plenty of disagreement and change in views even in the dominant view; the science is and will always remain unsettled. All dissenters have found ways to make their views known, most of which have been examined and found wanting, and few dissenters have mutually coherent views.What has happened is that scientists who are extremely concerned about climate change have felt that political action is needed, and that dissenting views are dangerous distractions, and have made efforts to limit “distractions”. Such a belief appears to have been well-founded, but acting on it in this way a strategic mistake. Greater openness is required for publicly-funded research, particularly here where there is a strong, established and resistant rent-seeking class that seeks to minimize the science and to distract public discussion. While the efforts of climate scientists to provide data to and to address the arguments of “skeptics” would necessarily entail a distracting amount of attention, it is apparent that they simply need to grin and bear it.

• Much – though not all – of the “skepticism” is clearly revealed as an extended, deliberate campaign by fossil fuel interests, dressed up in part by scientists who are non-experts in the field they criticize, with support by “conservatives” and “libertarians” who prefer a massive unmanaged meddling with global ecosystems (and defense of a government-entangled, pro-fossil fuel firms status quo) over a likely expansion of government.

2.  Andrew Revkin’s NYT Dot Earth blog piece and an article at the Guardian both provide useful explanation of background and links.

3.  The related editorial by Brooks Hanson (deputy editor for physical sciences) and has some insightful remarks on the perceived urgency of the problem and how scientists can better interact with the public and policy makers.

4.  Nature, the highly respected British scientific journal, had an interesting (but misguided, I believe) editorial in March that appears to have influenced this letter; here is an excerpt:

Climate scientists are on the defensive, knocked off balance by a re-energized community of global-warming deniers who, by dominating the media agenda, are sowing doubts about the fundamental science. Most researchers find themselves completely out of their league in this kind of battle because it’s only superficially about the science. The real goal is to stoke the angry fires of talk radio, cable news, the blogosphere and the like, all of which feed off of contrarian story lines and seldom make the time to assess facts and weigh evidence. Civility, honesty, fact and perspective are irrelevant.

5.  While scientists have concerns and policy preferences, clearly they are not politically powerful, even as opposition to climate change policy is very solidly grounded in efforts by sophisticated fossil fuel interests to protect investment returns. Here is a brief introduction to the mis-information campaign.

6. The Royal Society of New Zealand has recently posted a statement regarding man’s impact on climate and ecosytems that is also worth review.

7. Roger Pielke, Jr. has some interesting comments; chiefly, he seems to castigate scientists for their poor PR skills – an approach consistent with his penchant for ongoing criticism of scientists (to the approval of “skeptics”), but hasn’t led any scientists to sign Roger up to be their PR coach.

Bill Gates – who clearly must have a screw loose (because all of us smarter people are absolutely sure that puny man can’t possibly affect climate, unless we’re trying intentionally, of course) – continues to invest in geoengineering projects that might be helpful to dampen climate change.

His latest venture? According to a report in Times Online

Bill Gates, the Microsoft billionaire, is funding research into machines to suck up ten tonnes of seawater every second and spray it upwards. This would seed vast banks of white clouds to reflect the Sun’s rays away from Earth.

The British and American scientists involved do not intend to wait for international rules on technology that deliberately alters the climate. They believe that the weak outcome of December’s climate summit in Copenhagen means that emissions will continue to rise unchecked and that the world urgently needs an alternative strategy to protect itself from global warming.

Many methods of cooling the planet, collectively known as geoengineering, have been proposed. They include rockets to deploy millions of mirrors in the stratosphere and artificial trees to suck carbon dioxide from the air. Most would be prohibitively expensive and could not be deployed for decades.

However, a study last year calculated that a fleet of 1,900 ships costing £5 billion could arrest the rise in temperature by criss-crossing the oceans and spraying seawater from tall funnels to whiten clouds and increase their reflectivity.

Silver Lining, a research body in San Francisco, has received $300,000 (£204,000) from Mr Gates. It will develop machines to convert seawater into microscopic particles capable of being blown up to the cloud level of 1,000 metres. This would whiten clouds by increasing the number of nuclei. The trial would involve ten ships and 10,000sq km (3,800sq miles) of ocean. Armand Neukermanns, who is leading the research, said that whitening clouds was “the most benign form of engineering” because, while it might alter rainfall, the effects would cease soon after the machines were switched off.

To the extent that he’s investing his own money and not twisting anyone else’s arms, I imagine that good libertarians and conservatives are cheering. I mean, hasn’t Gates embarked precisely on the type of bold, we-can-fix-it type of course that George Reisman and Stephan Kinsella have envisioned? And there’s still hope that Gates might finally invest in the pet idea of Dr. Reisman and Stephan of open-air “nuclear winter” testing!

I pulled out my peashooter the other day and levelled a few criticisms (“Risk-shifting, BP and those nasty enviros“) at  Lew Rockwell‘s Feel Sorry for BP?.  I don’t imagine that Lew noticed, but my buddy Stephan Kinsella did.

I have long noted the reflexive defense of corporations by prominent Austrians and the stubborn unwillingness to closely examine the role that the special grants to corporate investors that lie at the core of the problem of snowballing corporate statism, spiralling politicized rent-seeking battles, incompetent government and concupiscient and grand-standing politicians. So Stephan’s comments come as no surprise:

1.  Stephan chooses to set the stage with a bunch of labels –  “enviro-global-warming anti-corporation libertarian”. Whatever makes you happy, Stephan. I know you and others have a hard time resisting the urge, which is why I often playfully sign off as the resident friendly enviro fascist! Nah, couldn’t possibly be a “real” libertarian.

On corporations, the “environment”, and climate – as on central banking, fiat currency and the whole mess of banking and capital markets regulation – I’m simply anti-un-contracted-for-risk-shifting-and-government-enabled-moral-hazard and arguments against rent-seeking that ignore existing special deals.

But if it’s easier, just keep calling me”anti-corporation” and continue to lump me in with “enviro-fascists”.

 2.  I had wondered: 

Even if one concedes that some criticisms of BP will be unfair, how can BP possibly be cast [by Lew] as the LEADING victim – as opposed to all of the others whose livelihoods or property are drastically affected by this incident, which they had no control over whatsoever?

Stephan’s lame response?

BP is a victim in the sense that a terrible tragedy just happened to it, and it’s gonna cost it dearly. It’s the leading victim assuming the others damaged are going to be compensated from BP. The point is it’s a bad thing that’s happened to it.Why not feel sorry for them?

Really, Stephan?  BP deliberately measures and takes risks as part of its business; no one else who has been or maybe injured had a clear concept of such risks or either assumed them or had any ability to control them. Clearly, BP is the one that has interfered with others’ use and enjoyment of their own property, of common property and of government-owned property; in law, we call them “tort-feasors”.  They are not a “victim” in any sense that we commonly apply in situations like this. Empty word games like yours turn reality in its head. Right, Toyota is a victim when its cars’ brakes have problems, TVA is a “victim” when its coal fly ash dams break, and so are others who “unintentionally” injure the health or damage the property of others – when latent risks materialize or they are caught at it and suffer some economic loss as a result.

It’s hard to believe you want to further support Lew’s absurd claim that BP is the leading victim now – we simply have assume that in the future, BP or someone else will throw some compensation at all of those other unworthy, insignificant passive victims. Nice.

Sure, it’s too bad that this happened, all around. BP gambled (heroically?) to make money; everyone has lost. Poor BP!

3. Lew: “The incident is a tragedy for BP and all the subcontractors involved. It will probably wreck the company”

Me: 

The incident will certainly be costly for the firms involved, but the firms will survive the death of employees, and there is certainly very little risk indeed that BP will be “wrecked” by the spill. Far from it; it is unlikely that BP will even bear the principal costs of cleanup efforts, much less the economic damages to third parties that federal law apparently caps at $75 million.

Have you not heard of “INSURANCE”? A little thinking (and Googling) would tell you that BP (and its subcontractors) has plenty of it. To the extent BP is NOT insured, it has ample capability to self-insure, unlike all of the fishermen, oystermen and those in the tourist industry who are feeling significant impacts. Insurers will bear the primary burden, not BP.

Stephan:

Obama has threatened BP and they have caved in, agreeing to pay above the $75M cap. And the cap was in exchange for a tax on oil companies to be put into the Oil Spill Liability Trust Fund for such emergencies–do you think that BP will be able to get that tax refunded? Naah.

Sounds like you’re agreeing that this incident is unlikely to “wreck”BP, given insurance, self-insurance and the $1.6 billion Oil Spill Fund. But it sounds like you also are suggesting that BP has every right to negotiate with government for liability caps. Interesting.

4. Lew:   “we might ask who is happy about the disaster: 1. the environmentalists, with their fear mongering and hatred of modern life”

Me:

Sorry, but this is perverse: enviros might feel that they have been proven right – and you might be annoyed that they can make such a claim – but they certainly aren’t “happy” with any of the loss of life, damage to property or livelihoods of the little guy (or of bigger property owners), or to a more pristine marine environment that they value.

Stephan: 

Aren’t happy? Have you seen, say, Spill Baby Spill, Boycott BP! ? And another tolerant, caring liberal on Slate’s Political Gabfest Facebook page said, “I don’t get the calls for pity. Boohoo another oil giant might have bankrupted itself.” These misanthropic sickos oppose nuclear power, which makes fossil fuels necessary. They act like they hate BP. Why? For making a mistake? Mistakes are inevitable. For drilling for oil? Why? We need oil.

Let me repeat: some might feel vindicated and be eager to use this incident to bash BP, etc. – people/firms certainly are fighting over government – but that doesn’t make them “happy” that disaster has occurred.

You apparently missed it, but there were plenty of “misanthropic sickos” on Lew’s comment thread who expressed thoughts similar to “I don’t get the calls for pity. Boohoo another oil giant might have bankrupted itself.”

The rest of this is also packed with nonsense.  Funny that Austrians fail to overlook that enviro opposition to nukes and to other fossil fuels is more than a little related to government’s dirty role in the industries, including liability caps like those present here. Do Austrians “hate” banks, securities firms and AIG for making “mistakes”? But aren’t mistakes “inevitable”? And don’t we need lenders and insurers? And a domestic auto industry?

Just what do these utilitarian arguments have to do with libertarian principles, anyway?

5.   Me:

[Lew’s] projection of happiness at damages to common resources/private property and hatred of modern life is especially perverse, given your own explicit recognition that government ownership/mismanagement of commons, and setting of limits on liability both skew the incentives BP faces to avoid damage, and limit the ability of others (resource users and evil enviros) to directly protect or negotiate their own interests. Why is the negative role played by government any reason to bash others who use or care about the “commons”?

Stephan: No libertarian is in favor of liability caps. What is he talking about?

Simple, Stephan. Lew explicitly recognizes that government has screwed up  the ability of enviros and others who have conflicting preferences about the use of resources to engage in voluntary transactions that would advance mutual welfare – yet he chooses to bash those whose preferences are frustrated by government, while feeling sorry for those whose preferences are favored. What is remotely even-handed – or Austrian – about this imbalance? Is it simply that it’s okay for those who make omelets to take eggs from others, since the omelet “makers” are being “productive”?

6.  Me:

We have seen Austrians – sympathetic to the costs to real people in the rest of the economy – rightly call for an end to a fiat currency, central banking and to moral-hazard-enabling deposit insurance and oversight of banks. In an April 9 post by Kevin Dowd on the financial crisis, we even had a call “to remove limited liability: we should abolish the limited-liability statutes and give the bankers the strongest possible incentives to look after our money properly” – but Dowd’s comments simply echoed in the Sounds of Silence. Why do you and others refuse to look at the risk-shifting and moral hazard that is implicit in the very grant of a limited liability corporate charter – not only in banking, but in oil exploration and other parts of the economy?

Stephan:

Removing artificial caps on liability has nothing to do with the limited liability of passive shareholders in a corporation. Their liability is limited simply because they are not causally responsible for the torts of employees of the company in which they hold shares.

I suspect this is the key reason why Stephan troubled himself to respond, but surely he can see it is not only counterfactual, but dodges any consideration of the consequences of limited liability in terms of fuelling industrialization and fights over using government to check corporate excesses. Investors then and now deliberately choose to conduct business activities through corporations precisely because government absolves owners from any liability in excess of enterprise assets.  While it is possible for voluntary counterparties (employees, lenders and others doing business with the firm) to agree in advance to limit their resources solely to enterprise assets, those who are injured by acts of companies or their employees and agents do not in advance choose the nature of the those who are responsible for harming them. Accordingly, the broad blanket grant of limited liability to corporations is clearly anti-libertarian.

Accordingly, dividends received by shareholders from risky activities are not clawed back if risks are realized and claims exceed corporate assets. Further, shareholders are given disincentives from too closely directing manage risk (for fear of claims that they have direct responsibility for torts). When combined with other corporate attributes (unlimited life & purposes, relative anonymity of ownership, remoteness of owners from communities in which the firms operate, and ability of powerful firms and wealthy investors to influence judges, legislators, bureaucrats and other officials), we have seen a steady erosion of common law and growth in the regulatory state – as citizens fight to limit the risks and costs that corporations impose on individuals and communities. Is Stephan unaware of the central role of corporations in rent-seeking battles? In the perversion of the 14th Amendment – designed to protect emancipated slaves and Chinese coolies – into a weapon to elevate corporations over the states, and to permanently shift power to the Federal government?

Just as most commentators overlook the massive moral hazard and risk-shifting that is part and parcel of the federal oversight of banking (necessitated by deposit insurance and fractional banking), so do Stephan and Lew insist on keeping their eyes closed to the legacy of risk-shifting, statism and escalating fights over increasingly incompetent and corrupt government. Why?

[I that note my subsequent BP posts can be found here]

I refer to Lew Rockwell‘s May 5, 2010 piece, “Feel Sorry for BP?”

http://mises.org/daily/4331

Lew, I largely agree with your criticism of government but some of your piece is simply confused.

1. “It should be obvious that BP is by far the leading victim, but I’ve yet to see a single expression of sadness for the company and its losses.”

BP is the leading “victim”? Victim of what/who? Sure, they’re a target (1) for all manner of evil people whose livelihoods or enjoyment of their property or common property are directly or indirectly affected by the spill, (2) for evil enviro groups (relatively well-off citizens who profess to care about how well/poorly government manages the use of “common resources” by resource extraction industries), and (3) for evil governments and politicians looking to enhance their own authority/careers. But these are all a consequence of the accident, and not a cause of it. Has BP been defrauded, tricked or strong-armed into drilling anywhere? Is BP the “victim” of its own choices?

Even if one concedes that some criticisms of BP will be unfair, how can BP possibly be cast as the LEADING victim – as opposed to all of the others whose livelihoods or property are drastically affected by this incident, which they had no control over whatsoever?

2. “The incident is a tragedy for BP and all the subcontractors involved. It will probably wreck the company”

The incident will certainly be costly for the firms involved, but the firms will survive the death of employees, and there is certainly very little risk indeed that BP will be “wrecked” by the spill. Far from it; it is unlikely that BP will even bear the principal costs of cleanup efforts, much less the economic damages to third parties that federal law apparently caps at $75 million.

Have you not heard of “INSURANCE”? A little thinking (and Googling) would tell you that BP (and its subcontractors) has plenty of it. To the extent BP is NOT insured, it has ample capability to self-insure, unlike all of the fishermen, oystermen and those in the tourist industry who are feeling significant impacts. Insurers will bear the primary burdemn, not BP.

3. “we might ask who is happy about the disaster: 1. the environmentalists, with their fear mongering and hatred of modern life”

Sorry, but this is perverse: enviros might feel that they have been proven right – and you might be annoyed that they can make such a claim – but they certainly aren’t “happy” with any of the loss of life, damage to property or livelihoods of the little guy (or of bigger property owners), or to a more pristine marine environment that they value.

“Hatred of modern life”? Surely any clear-thinking Austrian can see that, just as Austrians hate our modern kleptocratic, incompetent and moral-hazard-enabling government, many enviros are relatively well-off people who dislike how “modern life” seems to take for granted the way government-ordered “capitalism” enables a systemic shifting of risks from manufacturers to those downwind and downstream, and to all who enjoy what remains of commons or government-owned property.

Haven’t Walter Block, Roy Cordato, Murray Rothbard and others written about this? Or do “good” Austrians these days simply hate government, but love big corporations and banks, and the way government enables them to shift risks to the rest of us?

Your projection of happiness at damages to common resources/private property and hatred of modern life is especially perverse, given your own explicit recognition that government ownership/mismanagement of commons, and setting of limits on liability, both skew the incentives BP faces to avoid damage, and limit the ability of others (resource users and evil enviros) to directly protect or negotiate their own interests. Why is the negative role played by government any reason to bash others who use or care about the “commons”?

We have seen Austrians – sympathetic to the costs to real people in the rest of the economy – rightly call for an end to a fiat currency, central banking and to moral-hazard-enabling deposit insurance and oversight of banks. In an April 9 post by Kevin Dowd on the financial crisis, we even had a call “to remove limited liability: we should abolish the limited-liability statutes and give the bankers the strongest possible incentives to look after our money properly” – but Dowd’s comments simply echoed in the Sounds of Silence. Why do you and others refuse to look at the risk-shifting and moral hazard that is implicit in the very grant of a limited liability corporate charter – not only in banking, but in oil exploration and other parts of the economy?

http://bit.ly/atelEr

4. “The abstraction called the “ecosystem” — which never seems to include mankind or civilization — has done far less for us than the oil industry, and the factories, planes, trains, and automobiles it fuels.”

Frankly, this is nonsense. Austrians understand that focussing on the “ecosystem” is often an unhelpful abstraction and distraction from the fact that there are competing and conflicting interests held by people in resources that are not effectively owned or managed. The Austrian focus is on how to enable those with conflicting desires to coordinate their planning, not to engage in some muddle-headed balancing of collective “utility” that says one powerful group of users is “right”, so other claimants should be scoffed at and chased away.

And the “ecosystem” is what gives us air to breathe, water, food and a host of other things. Do you really mean to say these are relatively unimportant?

5. “the environmentalists went nuts yet again, using the occasion to flail a private corporation and wail about the plight of the “ecosystem,” which somehow managed to survive and thrive after the Exxon debacle.”

Seems to me your “facts” about the damage done by Exxon Valdez to the “environment” – including the small segments used by by man – and recovery/compensation are basically counterfactual:

http://en.wikipedia.org/wiki/Exxon_Valdez_oil_spill

http://www.alternet.org/environment/22260

Further, it seems you don’t have any real clue as to the escalating damage that man is doing to our shared ocean “commons”. These two TED talks might help open your eyes:

http://www.ted.com/talks/jeremy_jackson.html

http://www.ted.com/talks/sylvia_earle_s_ted_prize_wish_to_protect_our_oceans.html

6. Finally, like BP, you have understated the degree of the oil leakage; BP initially estimated 1000 bpd, but later agreed with estimates by others that the leak is at least about 25,000 bpd, with risks of an even larger blowout.

Here’s to hoping for greater insight and more productive engagement from LvMI.

A lurking hater of mankind 😉

TokyoTom

Readers might have heard that Republican conservatives – who hope to retake control of Congress and the White House, head off/engulf TeaParty reformers, and thence to further drive the federal government into the ground – have joined together in announcing the “Mount Vernon Statement”. Daniel Larison at The American Conservative rightly notes that the Statement surely would have had Washington rolling in his grave.

As an alternative, I bring readers’ attention the more clear-sighted principles enumerated by the Campaign for Liberty. One wishes only that this statement paid a little more attention to (1) federalism and states rights as a check on the federal government, and (2) the need for states – which have been busy transferring power to the limited liability corporations that in turn desire a central pork/influence machine in Washington, DC – to start exercising their authority to limit limited liability and so to end the great moral hazard machines that corpoations have become.

Here are the Campaign for Liberty’s Principles; I hope readers will visit and register at the site:

Americans inherit from our ancestors a glorious tradition of freedom
and resistance to oppression.  Our country has long been admired by the
rest of the world for her great example of liberty and prosperity—a
light shining in the darkness of tyranny.

But many Americans today are frustrated.  The political choices they
are offered give them no real choice at all.  For all their talk of
“change,” neither major political party as presently constituted
challenges the status quo in any serious way.  Neither treats the
Constitution with anything but contempt.  Neither offers any kind of
change in monetary policy.  Neither wants to make the reductions in
government that our crushing debt burden demands.  Neither talks about
bringing American troops home not just from Iraq but from around the
world.  Our country is going bankrupt, and none of these sensible
proposals are even on the table.

This destructive bipartisan consensus has suffocated American political
life for many years.  Anyone who tries to ask fundamental questions
instead of cosmetic ones is ridiculed or ignored.

That is why the Campaign for Liberty was established: to highlight the
neglected but common-sense principles we champion and reinsert them
into the American political conversation.

The U.S. Constitution is at the heart of what the Campaign for Liberty
stands for, since the very least we can demand of our government is
fidelity to its own governing document.  Claims that our Constitution
was meant to be a “living document” that judges may interpret as they
please are fraudulent, incompatible with republican government, and
without foundation in the constitutional text or the thinking of the
Framers.  Thomas Jefferson spoke of binding our rulers down from
mischief by the chains of the Constitution, and we are proud to follow
in his distinguished lineage.

With our Founding Fathers, we also believe in a noninterventionist
foreign policy.  Inspired by the old Robert Taft wing of the Republican
Party, we are convinced that the American people cannot remain free and
prosperous with 700 military bases around the world, troops in 130
countries, and a steady diet of war propaganda.  Our military
overstretch is undermining our national defense and bankrupting our
country.

We believe that the free market, reviled by people who do not
understand it, is the most just and humane economic system and the
greatest engine of prosperity the world has ever known.

We believe with Ludwig von Mises, Henry Hazlitt, and F.A. Hayek that
central banking distorts economic decisionmaking and misleads
entrepreneurs into making unsound investments.  Hayek won the Nobel
Prize for showing how central banks’ interference with interest rates
sets the stage for economic downturns.  And the central bank’s ability
to create money out of thin air transfers wealth from the most
vulnerable to those with political pull, since it is the latter who
receive the new money before the price increases it brings in its wake
have yet occurred.  For economic and moral reasons, therefore, we join
the great twentieth-century economists in opposing the Federal Reserve
System, which has reduced the value of the dollar by 95 percent since
it began in 1913.

We oppose the dehumanizing assumption that all issues that divide us
must be settled at the federal level and forced on every American
community, whether by activist judges, a power-hungry executive, or a
meddling Congress.  We believe in the humane alternative of local
self-government, as called for in our Constitution.

We oppose the transfer of American sovereignty to supranational
organizations in which the American people possess no elected
representatives.  Such compromises of our country’s independence run
counter to the principles of the American Revolution, which was fought
on behalf of self-government and local control.  Most of these
organizations have a terrible track record even on their own terms: how
much poverty have the World Bank and the International Monetary Fund
actually alleviated, for example?  The peoples of the world can
interact with each other just fine in the absence of bureaucratic
intermediaries that undermine their sovereignty.

We believe that freedom is an indivisible whole, and that it includes
not only economic liberty but civil liberties and privacy rights as
well, all of which are historic rights that our civilization has
cherished from time immemorial.

Our stances on other issues can be deduced from these general principles.

Our country is ailing.  That is the bad news.  The good news is that
the remedy is so simple and attractive: a return to the principles our
Founders taught us.  Respect for the Constitution, the rule of law,
individual liberty, sound money, and a noninterventionist foreign
policy constitute the foundation of the Campaign for Liberty.

Will you join us? Click here to sign up!

My Twitter comments can be found here and here, both in reverse chronological order (most recent posts first).

Below I`ve copied, in chronological order, just those comments that relate to the recent Supreme Court decision on the ability of Congress to regulate the “free speech” of corporations.

[Note: This is a work in progress]

Elinor Ostrom is the guru of CPR regimes; anyone interested should look into her fascinating and highly-regarded work, particularly
her seminal and extensively researched Governing the Commons (1990). Here is a review.

A profile of Ostrom, who is a member of the National Academies of Science and and Editor of its Proceedings, is here:
http://www.pubmedcentral.nih.gov/articlerender.fcgi?artid=1748208

Her work can be found here: http://scholar.google.co.jp/scholar?q=Ostrom,+Elinor&hl=en&btnG=Search

here: http://de.scientificcommons.org/elinor_ostrom

and here: http://dlc.dlib.indiana.edu/dlc/browse?value=Ostrom%2C+Elinor&type=author

[She is a member of the American Academy of Arts and Sciences, the National Academy of Sciences, and the American Philosophical Society,
and a recipient of a number of prestigious awards. Her other books include Rules, Games, and Common-Pool Resources (1994); The Commons in the New Millennium: Challenges and Adaptations (2003); The Samaritan’s Dilemma: The Political Economy of Development Aid (2005); Understanding Institutional Diversity (2005); and Understanding Knowledge as a Commons: From Theory to Practice (2007).]

Here is one link to get readers started:

Elinor Ostrom et al.,
Revisiting the Commons: Local Lessons, Global Challenges, Science 9
April 1999: http://conservationcommons.org/media/document/docu-wyycyz.pdf

Here is one general bibliography on commons research: http://www.indiana.edu/~workshop/wsl/tragedy.htm

1.  Here are the statements from the 2009 Nobel Prize committee:

a.  From the press release:

Elinor Ostrom has demonstrated how common property can be successfully managed by user associations. Oliver Williamson has
developed a theory where business firms serve as structures for
conflict resolution. Over the last three decades these seminal
contributions have advanced economic governance research from the
fringe to the forefront of scientific attention.

Economic transactions take place not
only in markets, but also within firms, associations, households, and
agencies. Whereas economic theory has comprehensively illuminated the
virtues and limitations of markets, it has traditionally paid less
attention to other institutional arrangements. The research of Elinor
Ostrom and Oliver Williamson demonstrates that economic analysis can
shed light on most forms of social organization.

Elinor Ostrom has challenged
the conventional wisdom that common property is poorly managed and
should be either regulated by central authorities or privatized.
Based on numerous studies of user-managed fish stocks, pastures, woods,
lakes, and groundwater basins, Ostrom concludes that the outcomes are,
more often than not, better than predicted by standard theories. She
observes that resource users frequently develop sophisticated
mechanisms for decision-making and rule enforcement to handle conflicts
of interest, and she characterizes the rules that promote successful
outcomes.

b.  The background explanation is useful and contains a pointed criticism of many centrally-directed approaches to common pool resources (emphasis added):

If we want to halt the degradation of our natural environment and prevent a repetition of the many collapses
of natural-resource stocks experienced in the past, we should learn
from the successes and failures of common-property regimes. Ostrom’s
work teaches us novel lessons about the deep mechanisms that sustain
cooperation in human societies.

It has frequently been suggested that common ownership entails excessive resource utilization, and that it is
advisable to reduce utilization either by imposing government
regulations, such as taxes or quotas, or by privatizing the resource. The
theoretical argument is simple: each user weighs private benefits
against private costs, thereby neglecting the negative impact on others.

However, based on numerous empirical studies of natural-resource management, Elinor Ostrom has concluded that common
property is often surprisingly well managed. Thus, the standard
theoretical argument against common property is overly simplistic. It neglects the fact that users themselves can both create and enforce rules that mitigate overexploitation.
The standard argument also neglects the practical difficulties associated with privatization and government regulation. …

There are many …. examples which indicate that user-management of local resources has been more
successful than management by outsiders. …

[T]he main lesson is that common
property is often managed on the basis of rules and procedures that
have evolved over long periods of time. As a result they are more
adequate and subtle than outsiders – both politicians and social
scientists – have tended to realize. Beyond showing that
self-governance can be feasible and successful, Ostrom also elucidates
the key features of successful governance. One instance is that active
participation of users in creating and enforcing rules appears to be
essential. Rules that are imposed from the outside or unilaterally
dictated by powerful insiders have less legitimacy and are more likely
to be violated. Likewise, monitoring and enforcement work better when
conducted by insiders than by outsiders. These principles are in stark
contrast to the common view that monitoring and sanctioning are the
responsibility of the state and should be conducted by public employees.

2.   Miscellaneous recent materials

On December 16, Spiegel Online ran the following interview with Elinor Ostrom

NPR’s Planet Money: Podcast: Elinor Ostrom Checks In (October 23, 2009)

Lecture at Cornell University: “Collective Action and the Commons: What Have We Learned?” (September 17, 2009)

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3.  These following earlier posts:

People can compete with their competition  to
provide the best products and service at the best price or people can
compete for government influence to give them an unfair advantage over
their competition.

There’s really no other option.

The larger government gets the more the latter is beneficial, and eventually required. We’re almost there now.

#

re: Rot at the Core: Michael Moore says “Capitalism is evil”, but
rightly points to statist corporations and institutionalized theft via
government

Well
said. It seems to me that the best way to influence this is to start
forming a consumer-supported coalition of principled, non-rent-seeking
firms.