May 25, 2010
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You've got to hand it to BP. After witnessing the Great Financial Crash of 2008, it seemed like it would be decades before any corporation could eclipse Wall Street's reckless rush to place its own short-term profits ahead of the public interest. But the epic drilling disaster off the Louisiana coast demonstrates that many of the problems that wrecked Wall Street are deeply embedded in other sectors of the American economy. Over the past 30 years, corporate titans have so thoroughly corrupted the notion of "free markets" that many of the world's riskiest businesses are not only insulated from regulatory supervision, they have been immunized from even minimum standards of market discipline.
Forget for a moment that the oil catastrophe is first and foremost an ecological massacre, and forget that burning fossil fuels creates an entirely distinct set of environmental nightmares. Instead, imagine that we live in an accountants' paradise in which everything can be described by the language of dollars and cents, assets and liabilities, profit and loss. In this world, both Wall Street and the oil industry are largely protected from the risks inherent in their everyday operations, pushing real costs onto others in order to boost their own balance sheets. On Wall Street, this phenomenon is called "too-big-to-fail." After the BP disaster, we might call the energy equivalent "too-big-to-drill."
Nobody working at Goldman Sachs, J.P. Morgan Chase or Citigroup seriously believes the U.S.
government would ever allow their firm to fail, and the various bailouts of 2008 and 2009 proved them right. That scenario radically distorts the market, making massive and unnecessary risk-taking the rational choice for bigwig bankers. If their bets pay off, the bank books huge profits. If the bets backfire, the government will bail out the bank. Banks get to exclude very real costs from their quarterly earnings, artificially boosting their profits.
This distortion is so severe that economists call it "market failure." The market literally does not work. Instead of moving goods and services to people who want and need them, corporations simply extract profits from innocent bystanders. It is a form of theft, and the exact same scenario exists with the liability cap on offshore drilling.
We know that the economic fallout from the BP mess will move into the billions of dollars. Current estimates are around $14 billion
, but it's easy to imagine that amount soaring much higher if BP fails to contain the oil gushing from the Gulf, or clean up what has already been released. But while BP is liable for the costs of cleaning up the mess, under current law, BP is only on the hook for $75 million
in economic damages—losses the spill creates for other businesses. For a firm that books multi-billion profits every quarter, the economic consequences of the spill will be no more than a blip on the radar. This was not simply an accident. BP could have prevented
this disaster, but instead chose to roll the dice in order to cut costs. The liability cap rewards the company for that negligence.
Let's be clear. This is an explicit, codified bailout for BP and every other company that engages in offshore drilling—a bailout every bit as disgusting as those recently bestowed upon Wall Street. The company is being shielded from the real costs of its business, and has been using artificially inflated profits to pay out princely fortunes to its top brass. Wall Street looted the housing market, converting real assets into bonuses. Now BP is looting the GulfCoast
There is a theory of law—a very conservative
theory, at that—which actually says that BP should have to pay out much more
than whatever the ultimate economic tab for the oil mess comes to. The government should amplify, rather than reduce, those costs in order to ensure that dealing out damage to innocent bystanders does not become a regular business practice. If the total cleanup tab is really $14 billion, that sum only amounts to BP's total 2009 profit
. We can't have companies dealing out crazy economic and ecological damage on a regular basis, which is why Federal Judge Richard Posner
, an appointee of Ronald Reagan, suggests imposing massive penalties on firms that do so.
The point here is not to argue that the way conservatives think about markets is right, but rather to note that the conservative conception offers the minimum legal framework necessary for even theoretically
maintaining a functional economy. And by that standard, two of the linchpins of the American economy, finance and energy, are not even acting as markets
. They are acting as parasites on the broader economy, cannibalizing other industries for their own benefit. For years we've heard politicians bloviate about the need to cut taxes and reduce costs for big corporations in the name of jobs. But the eight million jobs lost in the aftermath of the Wall Street crash and the millions more to be destroyed by BP's recklessness put the lie to these slogans. BP and Wall Street are not using their political protection to create jobs, strengthen the economy and further the public good. They're using that protection to kneecap other sectors and convert the damage to profits and bonuses.
And yet defenders of these predators still use the language of markets to defend the policies. Senate Minority Leader Mitch McConnell, R-Ky., said that without the $75 million liability cap, smaller companies would be unable to compete
with giants like BP. Sens. James Inhofe, R-Okla., and Lisa Murkowski, R-Ala., have made the same argument. President Barack Obama's Secretary of the Interior, Ken Salazar, supports raising the liability cap, but has said $10 billion is too high because, "You don't want only the BPs of the world to be involved in these operations.
This argument is absurd. If any company--large or small--unleashes economic damage of more than $75 million, it should have to pay for it. If you are in the business of creating huge ecological risks, you should also, at minimum, be in the businesses of paying for it.
After more than a year of Republican obstruction, it's no surprise to see McConnell and his underlings resorting to whatever tactics they can to block reforms and curry favor with big corporations—nor is it a surprise to see the Obama administration caving to outrageous Republican demands
after witnessing both the health care and Wall Street reform negotiations. But even for McConnell, this marks a new low. The senator from Kentucky
spent months alleging that the Wall Street reform package includes hidden bailouts for Wall Street, a charge that is simply not true. Now, after sounding the alarm on a fictitious bailout, he is actively going to bat for BP's very real bailout.
BP isn't the only company getting away with murder here. Transocean, the firm that actually owns the rig BP was leasing, also has its liability capped at $65 million. If Congress or regulators do not intervene, taxpayers and other businesses are about to do Transocean a big favor, even though Transocean has done everything it can to avoid contributing to society. The Houston-based company even opened an office in Switzerland
with just a dozen employees
in order to dodge U.S.
corporate income taxes. Transocean also had the rig insured for more than it is actually worth
. With the liability cap, it's likely to actually profit
from the disaster. Just in case the government decides to actually do something about this heist, the company is in a hurry to pump $1 billion in cash
out to its shareholders in the form of dividends—leaving it with less money to pay out in any future lawsuits.
In practice, we need much more than a system that simply weighs costs and revenues—disasters like the Gulf oil spill and the Wall Street crash create ecological and human trauma that no accountant can aggregate. The real pain of being unemployed for years on end is not merely financial, it's the psychological toll of being unwanted and useless. Similarly, destroying an ocean is just bad
in and of itself, regardless of how much it costs. Companies that can kill eight million jobs (Wall Street) or devastate an entire coastline (BP) should be prevented from doing so with strong regulations and committed, valued regulators.
An economy built around bailouts like these cannot function. It's a recipe for high long-term unemployment, sluggish growth, environmental degradation and social unrest.
Zach Carter is an economics editor at AlterNet. He writes a weekly blog on the economy for the Media Consortium and his work has appeared in the Nation, Mother Jones, the American Prospect and Salon.