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We Have Yet to Come Face to Face with the Biggest Cost of the BP Spill

The BP spill must be a wake-up call -- to re-imagine our economy, our politics and our energy needs, or else to calculate just how much more we are willing to lose.

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That said, even if the government goes easy on BP, as it already appears to be doing, there are other constituencies ready to make claims. One report calculates the economic cost to be $1.2 billion and 17,000 jobs by the year's end. Some figures are even higher—the US Travel Association commissioned a back-of-envelope study from Oxford Economics, which estimated the losses to tourism alone at $22.7 billion over the next three years. In response, BP is trying to minimize, avoid and obfuscate, settling with claimants for as-yet-undisclosed lump sums in exchange for waiving the right to sue BP, and buying in scientists from Louisiana State University, the University of Southern Mississippi and Texas A&M at $250 an hour for its legal defense teams. After claims from the government and private sector are settled, BP expects to have some change left in the clean-up fund when the years of litigation come to an end.

We oughtn't to be surprised that corporations like BP behave in this way, committing capitalist acts, externalizing environmental and social costs while internalizing profits. After all, these are the rules of the economic game. But the real reason why BP will likely never see a full tally for its actions lies not in its Machiavellian plotting, nor in its hiding damage and muddying the water with doubt, but in the everyday blindness built in to modern capitalism. Our economic system just isn't set up to measure the wider costs of our activities, and the gulf spill illustrates this painfully well.

Perpetually out of sight in the reckoning of economic damage, for example, are the broader benefits of the gulf ecosystem provides humans. Gulf coast residents draw on a range of services that the environment provides "for free," but which have immense material value. Ecological economists studying the Mississippi River Delta before the spill valued "hurricane storm protection, water supply, climate stability, food, furs, habitat, waste treatment, and other benefits" provided by the Delta alone within a conservative range of $12 to 47 billion a year. The same scholars recently approximated the damage caused by the oil spill as somewhere between $34 to 670 billion, a figure that dwarfs the standard measurements of harm in the gulf. Had these researchers cast their net further, to include the wider gulf's ecology, their figure would be higher still. And then there is the physical and psychological damage done to the communities along the coast. This harm is real and devastating and hard to quantify. But if in normal times, 6 percent of American adults suffer serious mental health issues—a population that earns at least 40 percent less than healthy adults—how will this translate to the gulf, where depression is rife, and where the full mental toll has yet to be counted?

Even in the absence of a devastating spill, the reality is that oil companies are damaging simply in their day-to-day operations. Like the tobacco industry, the oil industry makes a product that, when used according to its instructions, causes great harm. The US government just released its annual State of the Climate report, cementing the findings of human-caused climate change, a phenomenon that Big Oil continues to shrug off, and lobby against addressing. The devastation of the BP spill compounds costs that, in reality, are no less part of the toll, and no less hidden from us. One recent study suggests that by 2030 the global costs of dealing with climate change might be as high as $300 billion a year. These costs will ultimately get paid—just not by the oil industry.

To do a full accounting of the spill—and to look ahead at what comes next—it's worth using a central idea from economics: the notion of "opportunity cost," or "the next-best-thing that might have been done with a given set of resources." So, what is the next-best-thing to a multi-billion-dollar industry, spills and all? To pose the question is to ask what kind of economy we have and want. Evaluating opportunity cost means looking at the existing alternatives and comparing them against one another. And some of those alternatives, on closer examination, don't look terribly different to the present.