Ross Kenyon comments on the "shakedown" of BP and the American government's inability to be trusted to handle this situation in an ethical or productive manner.

The left-wing blogosphere is alight with anti-corporate sentiment, and rightfully so, at Congressman Joe Barton’ s (R-TX) apology to British Petroleum.  He recently called the $20 billion restitution fund a “shakedown.” Although the congressman has rescinded his comments, I also share his strong dislike of this scheme, but not because this is any more of a shakedown than anything else the state does.   The American government has a magnificently horrible record of managing any quantity of money both practically and morally, and I don’t see how they would be any better at distributing funds to innocent victims of environmental disasters.  The state has also made it standard operating procedure to protect aggressive firms from being brought to complete justice through limited liability laws in an anti-market and fascistic way.

The American government has some of the most disingenuous accounting practices imaginable.  Every cost they estimate is really a logarithmic function, and they cannot keep the United States Post Office from losing about $5 billion a year.  They systematically sap the value of Federal Reserve notes through inflation and cannot be trusted to leave funds appropriated for Social Security in the designated account.

They literally take money from those worst off in society for retirement, supposedly for their own benefit, remove the money from that account, leave an unfunded liability, and then use the money on something more politically expedient while the weakest lose their coerced investment and are reimbursed unwillingly by those who remain productive.  What a racket!

As an institution, one should be extremely skeptical of both the practical ability of the government to be able to deliver quality results and the motivations behind the actions of state actors.

Many of the people who argue for the necessity of the state believe that humankind is essentially petty and cruel and thus make the case for a centralized political system to maintain order, peace, and prosperity.  But if humankind is all of those naughty things, then how are the people in government any different?  If people are profit-seeking and brutal, then they don’t become magnificently well-intentioned and public-spirited after joining the state.

Conversely, centralized power might even attract the cruelest in society, and any government would thus become infinitely more dangerous if the humankind were inherently evil.  I am far from the first to point this out.  Hayek famously wrote about this in The Road to Serfdom in the chapter “Why the Worst Get on Top.”  This idea is also central to the economic study of public choice theory.

Worse still for libertarians, the right has thoroughly embarrassed itself with its mercantilist defense of BP after the Deep Horizon Disaster and further sullied the reputation of markets in the process.  The juxtaposition of free market rhetoric and the fascistic reality of their position is responsible for an ever-increasing amount of damage to the perceived credibility of market liberalism.

In the haste to defend their mythological and hollow admiration of markets, the GOP’s ranks have closed around BP, in an effort to prevent a guilty-by-association wave of anti-market eruption from the political left.  Their smoke screen dooms liberty’s message and begs the question:

“How is defending an aggressive company a virtue for a free marketeer?”

I know the feeling. As a market-oriented thinker there can be pressure to defend every single market interaction.  “Walmart did what?  Oh, well, they have a right to, even though that’s ridiculous.  This is really a problem of state-granted corporate privilege.  In a freed market without a state these incentives and interactions would not actually exist, and this poor behavior would be very unprofitable…”  This isn’t always so convincing to the uninitiated, but libertarians walk a tightrope on issues like this.

This debate in the popular and mainstream media sources truncate the acceptable lines of argument between the fascist right, who are currently blocking legislation to raise liability caps, and the cries for more well-intentioned but economic progress-strangling regulation from the left.  There is a better way though, with a free market and without a state.

I’d argue that one should react with a “don’t hate the player, hate the game” attitude with regard to this incident.  BP, like all market actors, respond to the forces of supply and demand mostly outside of their control in order to internalize economic gains for their staff and investors.  However, with this statist anti-market and dangerous liability cap, firms like BP and their shareholders are are predictably incentivized to be less cautious than they would be without state protection.

With unlimited liability for civil damages through torts (private non-criminal damages suits) and a freed market, BP and all companies would be positively incentivized to keep the likelihood of negative (and expensive!) externalities to the most minimal amount conceivable.  This is precisely the kind of ‘regulation’ libertarians support.

This one change against caps on liability would make business extremely responsible and would do so without all of the inflexible bureaucratic regulations which produce sluggish and impoverishing economic conditions.  Unlimiting torts will make the world freer, safer, and more sustainably productive.  This is but one step on the road to the ideal of a stateless society, but if you are currently arguing for justice as a result of BP’s actions, please don’t forget to include this essential point.  Without this necessary reform, any new laws reacting to the Deep Horizon Disaster will only be polishing brass on the Titanic, and it will only be a matter of time until the perverse incentive structure strikes again.

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