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Big Government Paul Krugman

Monday, 10 May 2010 04:46

Paul Krugman rightly notes the enormous regulatory failure that allowed BP to drill in the Gulf without an emergency plan to deal with a spill. However, he misses part of the story when describing the problem as one of anti-government sentiment.

The government actually played a big role in this spill. Congress passed a law following the Exxon-Valdez spill in 1991 that restricted the liability of oil companies in these incidents to $75 million. There are estimates that the damage from this spill to the fishing and tourism industry in the region could exceed $100 billion. Would BP be as anxious to drill recklessly if it knew that it could be picking up this tab?

The problem is not just a failure of the government to regulate. The problem was a government policy that effectively expropriated property rights from the people in the region and gave BP and other would be polluters the right to do damage without providing compensation. We need government to do the right things, but as a first step, let's not have it actively intervene on the wrong side.

Comments (18)Add Comment
written by izzatzo, May 10, 2010 8:18
To say the government "played a big role in this spill" as if the role itself was not part of anti-government sentiment is unnecessarily confusing. There's not much difference between what Krugman and Baker are saying on what caused the spill.

When government strips down regulations, and liability penalties in this case, to the point of useless facade, the causal result is accurately described either as BP caused the spill because it didn't face its true full cost, or the government caused the spill because it didn't impose the true full cost of the spill onto BP.

In a broader context, this theme runs repeatedly through the political left and right as government failure or market failure depending on whether the glass is half full or half empty.

Market failure requires regulation and government failure causes markets to fail. Baker is asserting the latter in this case, not because of regulation per se, but because there wasn't enough regulation to make it successful and prevent market failure.
too big to drill
written by frankenduf, May 10, 2010 9:12
i kind of agree with isthatso (the non-haiku, non-sarcastic version), but i think the obfuscation is worse- that is, the anti-government propaganda feeds on deliberate confusion about the role of government v corruption- the fact is that in some cases, the large corporations ARE the government- their lobbyists gain access in order to draft policy, at the expense of the public and to the gain of corporate domain- so it becomes the case that rationally speaking, we need less government (corruption from corporations) and more government (protection from corporations)- drop off the tails for soundbites, and you get that we need less government and we need more government- exactly the type of rhetorical conundrum that baker and isthatso descibe
Wild estimate
written by AndrewDover, May 10, 2010 9:57
The GDP of the whole state of Louisiana is $222 billion, which makes $100 billion in damages to fishing and tourism unlikely.

written by izzatzo, May 10, 2010 12:41
GDP is a flow that reflects the annual output value of goods and services. It doesn't include wealth, especially the cumulative economic non-market stock value of the environment in Lousiana or anywhere else, regardless of the potential effect of negative or positive externalities within annual GDP.

The cost of an environmental disaster, meaning whatever it cost to restore the environment to its prior state before the disaster, could easily exceed $222B for Lousiana in lost environmental wealth, or that amount necessary to restore it. The only way it wouldn't is if the value of environmental wealth for the entire state was less than $222B, which is not likely.
Wouldn't help against looting.
written by Brad, May 10, 2010 1:33
To be sure, BP should be fully liable for the damage it causes--that is just a matter of justice. On the other hand, profits from skimping on safety are immediate, while big spills are rare. Even if this spill drove BP into bankruptcy, would that do anything to the personal well being of Lord Browne of Madingley? Hoping that full exposure to liability would improve behavior requires more CEO concern for the long-term well-being of the firm than I think is actually the case.
written by patient renter, May 10, 2010 4:29
"let's not have [government] actively intervene"

It's nice to see you find agreement more libertarian minded folks once in a while.
Let's not for get who was the POTUS in 1991
written by Motorod, May 11, 2010 12:53
Ronald Reagan's anti-tax & deregulation heir apparent, Iran-Contra-law-breaker-pardoning, NAFTA championing, Saudi-loving Carlyle-group member & Bin Laden Family friend Texas Oilman G.H.W. Bush
If anything, $100 billion seems low
written by tgirsch, May 12, 2010 4:11

For starters, who said that the damage would be limited to Louisiana? At a minimum, you can expect the damage to impact LA, MS, AL, and FL (at least on the panhandle, if not the rest of the gulf shore).

Also, the GDP is an annual figure, and it's foolish to believe that the damage from this incident will be limited to a single fiscal year.
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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.