I agree the guilty need to be identified and punished, but that doesn’t stop with those responsible at BP, their suppliers and contractors, or the regulators who failed us. It runs much deeper, extending to our failed political process.

The financial crisis is analogous. The criminals need to be tracked down and prosecuted, as Bill Black did in after the savings and loan crisis. But the financial architecture/institutional structure that set it all up is at least equally at fault, as is the political process that created that institutional structure, as per my response to Roger.

I do think costs and losses should be paid for by BP, even if that means insolvency proceedings and 100% losses to shareholders and creditors.

I consider this a no bailout zone.

And any drop in aggregate demand/increase in unemployment should be ‘offset’ with whatever size tax cut and/or revenue sharing is necessary to sustain full employment.

And adding to Rogers idea again, my proposal for an $8/hr job for anyone willing and able to work should include those jobs for anyone wanting to join in the clean up efforts. (Not to say that clean up efforts should be limited to those workers.)

Punish BP or . . . ?

By Rodger Malcolm Mitchell

Those rotten scoundrels have ruined our oceans and our shores. They should pay not only for the cleanup, not only for the jobs lost because of the pollution, not only for the damage, but they even should pay for jobs lost because of President Obama’s decision to stop deep-water drilling. BP should pay, pay, pay until they bleed, then pay some more. These people must be held accountable.

Phew! Now I feel better.

But, wait. What is BP? It’s a legal description, nothing more than words on a piece of paper. It has no physical existence. You can’t punish BP any more than you can punish a law or a page of sheet music. BP, as a legal entity, neither caused, nor can cure, the oil spill. That disaster was caused by people, and it is people, not a piece of paper, who must be held accountable.

So the question becomes, which people should be punished? BP has a huge number of employees, the vast majority of whom had nothing to do with the oil spill. It has a huge number of innocent shareholders, a huge number of innocent suppliers, a huge number of innocent oil users. In some ways, you and I are part of BP, because as users of oil and oil-related products (i.e. all products) we are affected by what its employees do.

Which of those people should be “held accountable”? What if holding all of BP “accountable” means thousands of innocent people will be fired, or innocent suppliers will be put out of business, or all of us will have to pay more for our oil and gas, or all of us who hold BP stock, either directly or as part of a fund, will lose? What if punishing BP has an adverse effect on the whole economy. Is that wise?

Somewhere between vengeance and economic reality lies the answer. Punishing BP, as a company, punishes all of us who already are suffering from the gusher. And though widespread vengeance may feel good, there is a “cut-nose-spite-face” aspect to be considered. So, what can be done to help prevent a repeat?

First, let’s identify the people specifically responsible. Certain BP employees. Certain employees of BP suppliers. The guys who mixed and poured the rotten cement that didn’t hold.

And, with all the focus on BP, let’s not forget those government employees who failed equally. I’m talking about the people who, after having been bribed with nice gifts, so readily approved all of BP’s actions.

Yes, we should fine, fire, even jail all the responsible individuals. That would help prevent future problems. Of course, that doesn’t pay for all the efforts to cure the situation nor for all the losses. Who should pay the billions for that?

If you really care about the economy, and are not just flailing out in retribution, you would agree the economically wise approach would be for the federal government to pay. That way, the guilty would be punished, the innocent spared and the economy stimulated.

Government pays = people benefit. BP pays = people pay.

So what’s your choice: Vengeance or money in your pocket?

warren mosler says:
June 15, 2010 at 7:15 am

Well stated!

And we do know we all are responsible.

Our government regulators failed us much the same way they failed us in the financial crisis.

We have failed to create the alternative transportation (including user friendly public transportation, alternative fuels, incentives to reduce our travel needs, etc.) that could cut our use of crude oil by 50% or more, removing the need and incentives for what we know is dangerous offshore drilling.

We should know that the strategy of rushing to use up our domestic oil as soon as we discover it, rather than saving it for later when the rest of the world has used up theirs, is not in the best long term interest of our children and grand children.

We have elected representatives at all levels based on most everything but the wisdom of proposed agendas, often due to incentives we allow to remain in place regarding campaign finance, the power of special interests, and the incentives in place for our two party system to deliver candidates on criteria unrelated to their capabilities to provide the leadership on these critical issues.

Don’t get me started!


11 Responses

  1. I disagree with you partially Warren. BP should be made to pay for the cleanup in full, but only for the losses above $75MM that it agrees to. That is what the law was at the time of the accident, and that is what the law still is as of today. If there is evidence of criminality or fraud, of course that should be pursued. But the rule of law must be upheld.

    Much of the damage to BP’s credit rating and stock price is due to the petulent and unpredictable behavior of the US government. The market is pricing in a significant probability that Obama and Congress will lash out and do something of dubious legality to punish BP, and we are seeing the first signs of such activity with the proposed $20B(!) escrow fund.

    As for how we’re all responsible because we all use oil, well, that’s just silly. If there is an externality that is not being paid for in the consumption of oil (and clearly there is), then the cost of that externality should be calculated and a tax instituted to account for it. I doubt such a tax would exceed $1 per gallon, and in a way we’re already paying a percentage of that tax because the Saudis are taking advantage of their near-monopoly power to set the price above where oil would normally clear and earn an excess rent. By raising the consumption tax domestically, we would capture some of that excess rent for ourselves, and we could let the market sort out the optimal balance between the use of oil and alternative fuels.

  2. The last few sentences of Rodger Mitchell’s article assume that stimulus is brought by having government pay. False logic: government can bring stimulus any time it wants and in numerous ways, e.g. a payroll tax cut.

    I agree with ESM: externalities (like the cost of blowouts) should be in the price of oil. Come to that, if (as Alan Greenspan said) “Iraq was all about oil”, why don’t we debit the cost of the Iraq war to oil companies? That would make oil so expensive that the entire world would go green in a year or two. Nirvana.

  3. Ralph, A tax cut per se isn’t the stimulus, its the government continuing to spend the same even after the tax cut. If taxes and spending are cut at the same time, you’ve simply hit the gas and the brakes at the same time.

    ESM, the $75 million cap is the no-fault cap. if Uncle Sam can prove BP acted with gross negligence or recklessly, there is no cap. That won’t be a hard case for the Government to win, the House Energy & Commerce Committee has already come up with some damning emails.

    Halliburton, the contractor hired by BP to cement the well, warned BP that the well could have a “SEVERE gas flow problem” if BP lowered the final string of casing with only six centralizers instead of the 21 recommended by Halliburton. BP rejected Halliburton’s advice to use additional centralizers. In an e-mail on April 16, a BP official involved in the decision explained: ” it will take 10 hours to install them… I do not like this.” Later that day, another official recognized the risks of proceeding with insufficient centralizers but commented: “who cares, it’s done, end of story, will probably be fine.”

    Cement Bond Log. BP’s mid-April plan review predicted cement failure, stating “Cement simulations indicate it is unlikely to be a successful cement job due to formation breakdown.” Despite this warning and Halliburton’s prediction of severe gas flow problems, BP did not run a 9- to 12-hour procedure called a cement bond log to assess the integrity of the cement sea l. BP had a crew from Schlumberger on the rig on the morning of April 20 for the purpose of running a cement bond log, but they departed after BP told them their services were not needed. An independent expert consulted by the Committee called this decision “horribly negligent.”

    1. Beowulf, I agree that the cap doesn’t apply if BP acted recklessly or with gross negligence, but my understanding is that’s a pretty high bar, and I don’t think the government’s case is a slam dunk at all. Any time there’s a screw-up you’re going to be able to point to certain employees who cut corners or made bad decisions, and it won’t be hard to find a so-called expert who claims everybody was “horribly negligent.” Otherwise, it wouldn’t be a screw-up. I’m not a lawyer, but I have had my lawyers re-work contracts to insert that word “gross” to protect myself.

      Negligence is typical human negligence — being lazy, cutting some corners because you have to get home for dinner, thinking that you know better than some other expert, that kind of thing. But gross negligence means you forsee a strong likelihood of causing a great deal of damage, and you take that risk knowingly because you don’t care.

      Maybe BP was indeed grossly negligent, but I think it would take a finding that BP had instituted firm-wide procedures which deviated significantly from the industry standard. I’m not sure that a couple of bad decisions by experienced people at the job site would be enough.

      1. Look at the Exxon Valdez incident. The litigation stretched out 20 years, and many were dead or bankrupt by then, if they could afford a lawyer to begin with. We are talking about the survival of the Gulf region here, and NOLA as well.

  4. Poor leadership from day one by the President.

    He could have

    1. Declared the US coastline was under attack and at risk.

    2. Assigned a direct oversight committee with reps from the border states, the US EPA, Congress, and an array of ‘experts’ in the field to sit in at BP and hear first hand all high level meetings and discussions and report back daily to the President and his cabinet.

    3. Kept the public informed as to exactly what was known regarding the leakage and all attempts to fix it in real time.

    4. Kept the public continuously informed as to all alternatives that had been discussed and the merits of each.

    5. Kept the public informed to exactly what was happening regarding cleanup efforts in real time.

    6. Maintain a ‘hotline’ open to all ideas.

    We are all concerned and we all feel we are being kept in the dark.

    There is no reason to not disclose and publish everything in real time.

    1. 7. Cut through the federal bureaucracy as only the president of the US can.

      The EPA is worried about air pollution from burning surface oil? Sign a waiver.

      The Coast Guard won’t allow barges to participate in the cleanup until it has certified the required number of fire extinguishers and life vests onboard? Sign a waiver.

      The Jones Act is preventing the most advanced oil skimming ships in the world from helping out? Sign a waiver.

      Really, the incompetence displayed by the federal govt here is much worse than during Hurricane Katrina. In the case of Katrina, the local and state governments had primary responsibility and did a horrible job. And in any case, the US military was performing at an extraordinary level (something like 15K rescues) by day 6. This disaster is clearly a federal responsibility, and it hasn’t done much more than finger-point in almost two months.

  5. It’s not the first time I am dumbfounded by Rodger Malcolm Mitchell’s line of reasoning, if it even deserves that epithet. Is this guy the best advertisement for an MMT political platform, really?

    “Punishing BP, as a company, punishes all of us who already are suffering from the gusher.”

    Absolutely wrong. It would reward the other oil companies and other energy suppliers, which, apparently, have incomparably better practices in the gulf than BP, and set a precedent that will carry significant deterrent not to repeat such mistakes. From this all of us who are already suffering from the gusher will benefit.

    “What is BP? It’s a legal description, nothing more than words on a piece of paper.”

    That piece of paper effectively recognizes it as a person under the law. That is precisely the concept of corporation which is distinct from its members. It gives it certain rights, such as giving campaign donations, which have probably helped engender a slack regulatory structure. Buying the sheriff’s leniency towards committing reprehensible behavior would normally be an aggravating factor.

    “It has a huge number of innocent shareholders, a huge number of innocent suppliers, a huge number of innocent oil users….What if punishing BP has an adverse effect on the whole economy”

    Shareholders may be ignorant of the risk of the business but none are innocent. Besides they are already protected by limited liability. As for suppliers and oil users, RMM’s position, once again, ignores basic precept of corporate law which is that the assets and the architecture around it may and very likely would exist beyond bankruptcy. There is no shortage of oil companies that could take over.

    “First, let’s identify the people specifically responsible. Certain BP employees. Certain employees of BP suppliers. The guys who mixed and poured the rotten cement that didn’t hold.”

    Those specifically responsible will probably pay for a culture of profit before safety that is endemic, that is accepted by both shareholders and management, and is a consequence of unbridled crony capitalism in general. Nonetheless, it does not absolve them. Both the company and the identifiable wrongdoers, including those of the lax regulatory agencies, should be punished to the full extent of the law. By the way, under the criminal charges, the the 75M cap, which only testifies to the cozy relationship between congress and the industry, would be inconsequential.

    BP did not commit to a $20bn fund without a strong sense that it was in its own interest to do a significant gesture in view of the biblical proportion of the catastrophe that their bad safety practices have caused. Yet, it only amounts to one tenth of their yearly sales.

    1. Good summation, Bx12. Just another instance of “privatize the gains and socialize the losses.”

      I am not dumbfounded in Ralph’s saying this, though. After all, he is a Brit, and BP is big chunk of their economy. They really do have a different take on this across the pond, so I can write that off as patriotic self-interest.

      Nor am I surprised by the right screaming for the government to keep its boot off BP’s neck and pick up the tab. “Privatize the gains and socialize the losses” is their mantra, after all. There’s no money for social welfare, but corporate welfare? That’s a different story. We are “dependent” on them and should just roll over and give them what they want, or they might be offended. Now those folks are beyond the pale.

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