Libertarian Party says liability limits make oil spills worse

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You’ve probably seen a lot about the big BP oil spill in the Gulf of Mexico.

Libertarians are sometimes attacked for not having good answers to environmental questions. In this case, I think there are problems that Republicans and Democrats in Congress have created, and Libertarians would have handled things differently.

(If you’re not particularly interested in detailed policy studies or arguments, it’s always good to remember that Libertarians try to base our positions on fundamental principles of freedom and personal responsibility.)

I think a big problem here is the fact that federal law limits the liability of BP (and Transocean, the company that actually owned the rig.)

The New York Times has reported that federal law limits BP’s liability to $75 million, and Transocean’s liability to $65 million.

These kinds of artificial liability limits distort the markets, and basically create “moral hazard” by encouraging companies to act in riskier ways than they would otherwise. If BP’s well causes damage to property, then BP should be fully liable for all of the damage. It is BP’s reponsibility to “make whole” whoever gets damaged.

If Congress hadn’t limited BP’s liability, it’s likely that BP would have acted differently. Knowing that a spill could cost them billions, BP might have demanded additional safeguards for their well, or tested their safeguards more thoroughly. These choices would have been expensive, but they might have prevented the huge costs that the spill area is now facing.

BP has said that it will pay all “legitimate claims,” even if they go past the liability limit. The problem is that when it comes to property damage, a court should decide what “legitimate claims” are, not the offending company!

Of course, now we’re likely to see a flurry of reactive legislation, as members of Congress try to pile on BP for political reasons. And, Congress will probably use the spill as an excuse to increase its market interference and shovel more subsidies into uneconomical “alternative energy.”

(It’s possible that if energy companies did not have the benefits of artificial liability limits, the market might decide that some alternative energy would be cost effective. But that’s for the free market to decide, not Congress using taxpayer subsidies.)

As the Libertarian Party platform says, “Free markets and property rights stimulate the technological innovations and behavioral changes required to protect our environment and ecosystems.”

Congress should take this opportunity to get out of the market, but instead they’ll probably create new subsidies, special commissions and government agencies. It’s just one more good reason to support Libertarian candidates in the elections this November.

Finally, be wary of politicians who make it sound like government can lead us to a utopia free of accidents. Even if a world with no man-made disasters were possible, natural disasters such as volcanoes, earthquakes, hurricanes, and epidemics would still happen.

Sincerely,

Wes Benedict
Executive Director
Libertarian National Committee

30 thoughts on “Libertarian Party says liability limits make oil spills worse

  1. Brian Holtz

    Great press release! Note that the liability limit reportedly applies only to economic damages beyond direct cleanup costs, and not to the cleanup costs themselves. Still, it’s outrageous that there are any such limits at all.

    When I see the term “moral hazard” used in an LP press release, I know it’s time to send in another donation to LPHQ!

  2. Alexander S. Peak

    Liability limitation in a truly free market would be quite different from liability limitation under this system of government intervention.

    In a truly free market, a firm would only have limited liability with that with whom it has contracted to limit its liability. If John Doe does business with ABC Firm, and agrees contractually that ABC Firm’s liability shall be limited in a specified manner, then ABC Firm’s liability to John Doe will be limited in the manner specified.

    But, ABC Firm would have no limited liability with those with whom it has no contract. So, let’s say (1) Robinson’s farm is located next door to ABC Firm, (2) Robinson has no contractual relationship with ABC Firm, and (3) ABC Firm pollutes Robinson’s land. In a truly free market, ABC Firm would be completely liable for the damages.

    I agree completely with Mr. Benedict’s letter.

    Sincerely,
    Alex Peak

  3. John Jay Myers

    Wes has been doing a great job of sending out timely, pertinent emails that show the Libertarian side with a little bit of education thrown in.

    Keep it up Wes.

  4. Brian Holtz

    Going into the Vegas PlatCom meeting, I proposed adding Platform language like the following to planks 2.2 and 2.3:

    2.2. += Pollution of other people’s property is a violation of individual rights, and polluters must bear the full costs of their pollution.

    2.3. += Insurance markets and the courts are the proper way to regulate risks and liabilities such as those related to nuclear power.

  5. Alexander S. Peak

    I see nothing too problematic with those two sentences.

    I don’t find the first one perfect, but my suggestion of how to make it perfect would simultaneously make it rather wordy.

    For example, “Pollution of other people’s property is a violation of individual rights, and polluters must bear the full costs of their pollution, except in those specific incidents where the property owner has explicitely contracted with the polluter to limit the polluters liability in the event of pollution.”

    I like Mr. Holtz’s sentence better, even though I find mine more technically accurate. Perhaps there’s a way to say this without being as wordy as I have. I don’t know.

    The suggestion for 2.3 is perfect. I approve 100%.

    Cheers,
    Alex Peak

  6. Robert Capozzi

    Good release. I’d ask, however, how the current liability regime would be changed. If tomorrow the liability limits were lifted, would that be an ex post facto taking? Would existing wells be shut down until companies could assess the new risk/reward profile? Would existing wells be grandfathered with the limited liability, and only NEW projects subject to the unlimited liability?

    IOW, great analysis of the current state of affairs, but it’s not obvious to me what the way forward is.

  7. Brian Holtz

    In general, discontinuing a rent/privilege should not be considered a taking. However, if compensating for such dislocations is clearly the path that minimizes net aggression over time, then such compensation might be tactically advisable. Of course, that raises the question of what discount rate to use…

  8. www.newscience.com .......... Lake

    The blast which tore through the Deepwater Horizon drill rig was caused by a blowout – a high-pressure ball of gas, mud and oil that shot up from the oil reservoir.

    Such sudden spikes in pressure should be controlled by a device known as a blowout preventer (BOP).

    In this case, however, it failed completely. With no other systems in place to prevent it, oil was free to pour from the open well head into the water.

    And yet the risks posed by deep-sea operations – and specifically the potential impact of the failure of key systems – have long been understood ……..

  9. Robert Capozzi

    bh, yes, not quite a taking, but sort of like one. The investments were made with factset X (inc. the liability landscape), so a change to the landscape certainly imposes a new set of business calculations.

    If Ls ever get near the table, we should be prepared to address these sorts of on-the-ground considerations. While the general idea of lifting these artificial liability limits is indicated on a lot of levels, I really doubt it could be sold if it meant, for example, that most/all offshore drilling would cease. The dislocative effects would be rather massive.

    Something like a grandfathered phase out over, say, 10 years seems more sellable.

    If I recall, Rothbard would sniff at the idea of specifying what his transition plans might be, but even when I was under his sway, I found that lack of practicality wanting.

  10. Robert Capozzi

    bh, I like the sentiment of 2.2, but it begs the question: How would the “full costs” be determined? There are so many sources of pollution, and so many affected by it. Environmental damages ain’t a garden-variety tort, as I know you know.

    Still, the language is vague enough that old-school Rothbardians and geo-friendly Ls can probably live with this language.

  11. Brian Holtz

    Speaking of Rothbard, he also sniffed at worrying about the effects of oil spills on anything other than property-like claims of people like fishermen. 45 minutes into his speech to the 1989 LPMI convention (which I recently watched on YouTube), he scoffed at environmentalists who object to the Exxon Valdez oil spill changing the color of the ocean water from blue to black. He said that to worry about the color of the water is to claim that the water itself has a “right to be blue”.

  12. Robert Capozzi

    bh, yes, Murray was a laugh a minute.

    He seemed to have a lot of amusing/shocking takes on the Valdez incident: http://www.lewrockwell.com/rothbard/rothbard224.html

    I vaguely recall Rand suggesting that air pollution wasn’t a problem…it was just dirt in the air.

    Is it any wonder why L-ism is not ascendant with baggage like this?

  13. Brian Holtz

    Yes, that article covers much the same ground as in his LPMI speech. I like the part where he writes: “Well, hell, maybe a coating of black on blue waters provides an interesting new esthetic experience; after all, once you’ve seen one chunk of blue water, you’ve seen them all.”

  14. Robert Capozzi

    You’d think that loopy statements like that might cause the LM to reassess some, at least, of the basic tenet of L-ism.

    You’d THINK so, but that would require actual thinking. Instead, we get from the current dean of the abolitionist school of L-ism, this:

    http://www.lewrockwell.com/rockwell/feel-sorry-for-bp144.html

    I’ll grant some glacial progress here in 2010, but feeling sorry for polluters? I’m still scratching my head.

  15. Brian Holtz

    Look on the bright side, at the faint sparks of thought in Rockwell’s article: “But what about a world in which government owns vast swaths, and the oceans are considered the commons of everyone? It becomes extremely difficult to assess damages. […] But such a liability rule presumes ownership, so that owners themselves are in a position to enter into fair bargaining and there can be some objective test.”

    He seems to recognize that negative externalities are a problem, and you can practically hear the gears grind as he realizes that his worldview can’t address them.

    My mom reported yesterday from the Gulf Coast that she can smell the oil when the wind blows the right way. Well, hell, maybe oil smell provides an interesting new aesthetic experience; after all, once you’ve smelled one breath of fresh air, you’ve smelled them all.

  16. Erik G.

    *Another* great press release by Wes = *Another* grear reason to oppose WAR as Chair

  17. Mik Robertson

    Good release. Did I miss something? Do WAR and Wes dislike each other?

  18. Erik G.

    WAR has made multiple threats to Wes that he should be replaced since he doesn’t regularly post all of WAR’s media appearances on the front of lp.org.

  19. Danny S

    Anybody who doesn’t want Wes Benedict to stay put as Executive Director should not be considered for LP Chair. It is that simple.

  20. norris hall

    If you really want to see what an unregulated free market looks like you have only to look to China.
    In China a business can sell anything it wants.. tainted baby food, leaded toys, buildings that collapse all without government interference. Government regulations are non exisitant
    Yeah. I really want to move to China where I can eat free market poison food.

  21. paulie

    Does China have state-aided and state-run corporations? Yes.

    Does China limited non-contracted liability by businesses? I don’t know, but I suspect it does.

    Thus, I doubt this contention that China is an unregulated free market.

  22. Lead or Fallow

    NH@27:
    “If you really want to see what an unregulated free market looks like you have only to look to China.
    In China a business can sell anything it wants.. tainted baby food, leaded toys, buildings that collapse all without government interference. Government regulations are non exisitant
    Yeah. I really want to move to China where I can eat free market poison food.”

    Business in China is run by party leadership and cronyism. It is the ultimate in government and business incorporation. It is regulation that protect schills but if there is a big enough PR stink some heads will roll.

    Two cronys got 5 and 4 years prison time and ~US$50,000 fine for the milk thing BTW.
    http://www.upi.com/Top_News/International/2010/04/24/Court-upholds-tainted-milk-sentences/UPI-93341272137346/

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