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Home Publications Blogs Beat the Press Property Rights, Regulation, and Brain Dead Environmentalists

Property Rights, Regulation, and Brain Dead Environmentalists

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Saturday, 18 January 2014 09:35

The company (incredibly named "Freedom Industries") responsible for the massive chemical spill in West Virginia that left hundreds of thousands of people without drinking water declared bankruptcy yesterday. This means that all of the people who had to suffer through days without water, and some who became seriously ill from drinking contaminated water, will likely not be compensated by this company for the damage it caused them.

Many people have referred to this spill as a failure of government regulation and blamed free-market fundamentalism. All of these folks should get checks from the various industry groups for major polluters.

Last I looked, believers in the free market supported property rights. Property rights mean not having someone else throw their waste on your property. If this is a difficult concept to understand, try erecting a slaughterhouse where the waste gets dumped on Bill Gates' front lawn. It's a safe bet that you will quickly be given a court order to stop immediately. If you ignore it, you will quickly find yourself in jail.

Are Bill Gates and other rich people who will have those who pollute their property thrown in jail believers in big government? For some reason this view that they have a right to not have people pollute their property and have the government enforce it gets put down as being part of free market fundamentalism. But when a West Virginia coal processing plant throws its waste into people's drinking water this is a question of government regulation?

It is easy to see how it is an advantage to rich people and to those who would like to be able to pollute with others bearing the cost to have these issues seen as fundamentally different in nature. But it is hard to see any logic that would justify this difference. And it is hard to see why anyone who doesn't want corporations to be able to pollute with impunity would accept this distinction.

People who don't want polluters to be able to operate with impunity are no more nor less market fundamentalists than Bill Gates when he has people arrested for dumping waste on his lawn. The only difference is whose rights are being respected.

Comments (19)Add Comment
Same as Monsanto
written by Bob Spencer, January 18, 2014 9:12
I don't know the details, but I heard that a group of organic farmers tried to sue Monsanto because Monsanto's GMO crops contaminated neighboring farms. Those neighboring farms could no longer claim that their crops are organic because they got pollinated by GMO making those crops possess GMO genes. Monsanto won.
brain-dead economists?
written by Some Guy, January 18, 2014 10:02
I agree with this post, but I'm not sure where the reference to "brain-dead environmentalists" in the title came from. If you're talking about the big fundraising environmental groups, "brain-dead" is probably too generous. Try "corrupt". On the other hand, there are plenty of less well-known environmentalists who understand the point you're making perfectly well. The people who want to draw a specious distinction between "producing a bad" and consuming resources the consumer doesn't own (whether those resources are privately owned or held in common) are economists. And the people who support giving corporations personal rights with no corresponding personal responsibilities: also economists.
the "public" concept
written by Jennifer, January 18, 2014 10:08
I really appreciate the point you are making here. But actually doesn’t a case like this really illustrate the issue of public versus private? In most places in the US the 99% and the 1% share the same drinking water. Water is a public resource, and therefore requires public control, which generally means government regulation.

When libertarians get going about full privatization-owning roads and so forth-it immediately becomes clear how ridiculous the concept is. If you are going to live in any kind of actual community you need some kind of system-central government for example-to run things.

Of course private property is only as valuable as the public resources available to it and the strength of law to maintain it. I think we all know that some property rights are more valuable than others since Bill Gates doesn’t ever have to worry about eminent domain, a road coming through his property, or some corporation dumping toxins in his drinking water. But the people of West Virginia are less worthy apparently.
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written by PeonInChief, January 18, 2014 10:22
Freedom Industries is an entirely appropriate name. First they were free of the regulations and oversight that might have prevented the spill in the first place. Now they will be free of responsibility for their actions. Aptly named, I should say.
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written by ltr, January 18, 2014 10:28
I read this post 3 times and have no idea who the "brain dead environmentalists" are. Please a word of explanation.
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written by dick c, January 18, 2014 10:49
I'm not sure I'm following the argument here. I almost think I'm reading that we don't need more regulation because we should be able to put someone in jail for the chemical spill. I'd think both would be necessary.
So What's New? Financial Property Rights are More Important than Water Property Rights
written by Last Mover, January 18, 2014 10:59

No less than John Boehner has come forward to ask why government regulators didn't check those tanks for leaks.

It's a cheap shot, the usual loaded question designed to imply government failure over market failure.

It's Catch-22. If regulators are stripped of authority and funds to keep the water supply safe, they will be blamed for not doing enough in a lean and mean sort of way.

If regulators are given authority and funds to do their job, they will be blamed for too much, interfering with free markets, killing jobs and all the rest of the zombie lies while taking too many doughnut breaks.

Also is the increasingly common middle road, with adequate authority and funds but nothing happens because the agency is rotten to the core with cronyism and favoritism, paralyzed by the entities supposedly regulated. It works as the perfect shield against effective regulation because the shill agency is always put forward as "sufficient regulation already in place" whenever a problem arises.

To make Dean Baker's point, if John Boehner had a shred of consistency in the way he defends "free market property rights", he would be asking why Freedom Industries gets off the liability hook with a free pass of bankruptcy when for example, default on college loan debt cannot be declared as bankruptcy in order to protect the property rights of the financial predators who make those loans.
Exactly, Who U Mess With
written by James, January 18, 2014 11:03
In Malibu, CA, owners of multi-million beach front estates that have given easements to CA for expanding or building their beach-front estates had closed off or denied the CA those previously-given easements.

The easements were largely private path/road for public to walk past from the Pacific Coast Hwy down onto the pristine Malibu beach.

The estate owners built private fence or gate block off those public paths. Even the Malibu mayor was on the owners' side.

So those rich folks could transform a public beach into their PRIVATE PLAYGROUND with kayak not needed to tied at all but just left them out on the sand (no one can come to steal them) and go topless or totally nude as well.

The power always win, though they are few in term of vote but $ speaks volume.
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written by skeptonomist, January 18, 2014 11:03
Corporations are a subversion of true free markets, in that they screen individuals from liability for their actions. As Dean explains in one of his books, corporations were originally intended for enterprises which were supposed to be for the public welfare, but could not be undertaken by private persons for reasons of liability among others - governments were definitely involved at the beginning. The freedom from personal liability has been retained and the "rights" of corporations have been extended to free speech and probably others, but corporations now are assumed to have no fundamentally public purpose - they are just assumed to be a means of making money for individuals. No public purpose needs to be demonstrated to incorporate.

If the CEO's and stockholders of companies like "Freedom Industries" were personally liable for damages there would be less need for regulation and supervision by the government. Should libertarians even approve of corporations? This is one thing that environmentalists should probably emphasize more - corporations are renegade "persons" when it comes to possible damages to others(though I wouldn't call them "brain dead" for not doing so).
It's worse than that
written by S Brennan, January 18, 2014 1:25
This is an example why Milton Friedman's concept of "unregulated capitalism", is an unworkable fraud. As Fukushima shows, you just can not act "after the fact" to malfeasance.

Read how the owner of company that poisoned thousands of W Virginians, has made himself a "creditor", who has first priority...on all assets...on a bankruptcy initiated by the himself to avoid paying claims. Clearly, he accepts no financial responsibility for his mayhem.

"Chemstream Holdings Inc. is the sole owner of Freedom Industries, according to the filing...Chemstream Holdings is owned by >>>J. Clifford Forrest
Libertarian property rights process.
written by chris herbert, January 18, 2014 1:46
Back in the 1800s the son of a big rancher was in the far reaches of the ranch, checking on the property, some fence repair etc. etc., when he came upon a squatter who had erected a mud house and was farming to feed his family.

"You can't be here," the owner's son said.

"Why, who owns this land?" replied the squatter.

"My father owns this land, as did my grandfather," said the young man.

"How did your grandfather acquire this land?" Asked the squatter.

"He fought the Indians for it," the boy replied.

"Fine," said the squatter. "Get down off your horse and I'll fight you for this land."

The state makes private ownership possible.

A little reflection shows that "free markets" cannot be about "property rights"
written by Yoram Gat, January 18, 2014 2:30
The notion that "free markets" are about property rights and (everybody has those rights) is part of the problem. "Free markets" cannot be about "property rights" since any relationship can be cast in terms of "property rights".

"Free markets" is indeed about transferring resources from the many to the few. Bill Gates does get to have "property rights" while the average person doesn't.

http://probonostats.wordpress.com/2010/07/02/free-market-revisited/
Without regulation or joint liability, the free market will over-produce bad consequences
written by Jed Harris, January 18, 2014 2:38
Like other commenters I don't understand your argument. But there's a specific point you seem to be missing.

In this and similar cases, it is rational for the members of a group of companies to take on excessive risk. Maybe they know or should know that catastrophe will befall some of them and they'll go bankrupt (as in this case). But still the expected value for each of them is positive -- some lose that bet but most win.

This applies to oil spills, chemical spills, financial collapse, etc.

One solution (perhaps not sufficient) is to impose joint liability. If there's a catastrophe all the companies bear the burden. We've done that with deposit insurance and with superfund cleanup, and probably other areas -- with varying degrees of success, fairness, etc.

However the typical idea of "free markets" doesn't include this sort of joint liability so this gets labeled "regulation". I think that is just a conceptual error -- the market won't produce the presumed good outcomes if companies can on average win by taking on excessive risk.
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written by Kat, January 18, 2014 4:27
This is an interesting post because I thought if ever there was a case where libertarians could put their money where there mouth is, this is it-- if Rand Paul wants to say that seeking redress through the courts is preferable to regulations, then he should be leading the charge to sue Freedom Industries. Where is he?
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written by Alex Bollinger, January 18, 2014 6:26
The main point here is that "regulation" has always been a silly term. If I stab someone and get sent to jail, can I claim that I'm being over regulated? But if I poison someone, apparently I can.

It's an elusive term made up to justify why some people in a very authoritarian culture should be allowed to break the law. Of course, that's the very nature of authoritarianism: those at the top of the heap are allowed to act with impunity and those at the bottom face severe punishment for any minor infraction.

Calling laws that restrict rich people's behavior "regulation" and then waging a war on them only prevent cognitive dissonance among those willing to go along with the game.
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written by JSeydl, January 19, 2014 9:44
I agree with Dean in theory here, but it has traditionally been very difficult to assign property rights to public properties such as rivers or lakes. The Coasian solution only workers when property rights can be clearly delineated. This is certainly true for the Bill Gates's example - he and only he owns his land. But it is less true for the water example in WV. Who owns the river? The people collectively? What if some would be perfectly fine with allowing Freedom Industries to produce near the river and even pollute in the river so long as Freedom Industries directly compensates those who own the river. On the other hand, maybe not all of the river owners - if it's owned collectively - would agree to allowing Freedom Industries to produce nearby even if they were compensated.

There are two solutions that we've traditionally used to deal with these complex property-rights issues on public lands: either ban all polluting production, or allow the production to occur but tax it to externalize the negative externalities. More and more, we seem to go for the second solution - this is what the whole debate about carbon taxes is all about. But in going for the second option, we are glossing over the complex property-rights issues I just spoke about. For, the tax solution fails to respect the rights of the few owners of the river who may not want any production to occur nearby even if the negative externalities of production are fully paid for by the company. To put this into "willingness to pay/accept" terminology, which is the standard benchmark to use for these complex cost-benefit cases, the willingness to accept the production near the river by those who don't at all want to take the risk of mass polluting failures may be infinity. The Pigouvian solution glosses over that fact.

Finally, there is an issue of when the taxes are paid even if the Pigouvian is implemented. I have no idea whether Freedom Industries was paying pollution taxes prior to its massive chemical spill. But even if it was, it's likely that the money raised from those taxes is not high enough to cover the costs of this spill. And now we would like to charge Freedom Industries for the extra costs, but, as Dean notes, the company has declared bankruptcy, so apparently the extra money won't be raised. So the Pigouvian solution may require some foresight, in the sense that we will need to tax companies now in order to pay for their future pollution costs, which include one-time blunders like the one occurring in WV. Those future one-time blunders, though, are incredibly hard to predict.
Where do people think authority comes from?
written by Ryan, January 19, 2014 9:49
Two things:

1) In the case of Monsanto, I wouldn't be surprised of Monsanto counter-sured because the contaminated fields would be claimed to be illegal farming, as the owners didn't purchase the seeds.

2) I'm still baffled as to the free market fundamentalists' views on authority and enforcement. We don't have a community coming together in consensus, or everyone pitching in to a common effort. We have appeal to a central authority, the state. Why? The state is seen partly as the sole legitimate arbiter between any two private parties, partly because it possesses control over the specific definition of actual capitalism (which is why corporations appeal to the state for the protections they can receive), and partly because the state is the sole legitimate user of force and violence (tax authority, company dissolution, incarceration, etc.).


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written by liberal, January 19, 2014 9:37
JSeydl wrote,
To put this into "willingness to pay/accept" terminology, which is the standard benchmark to use for these complex cost-benefit cases, the willingness to accept the production near the river by those who don't at all want to take the risk of mass polluting failures may be infinity.


It's great that you mention willingness to pay/accept.

That's the big problem with Coaseian theory. It assumes there's a good price that can be settled upon. The problem is that Coase's argument is completely undermined by the fact that for many, WTP =/= WTA.
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written by dax, January 20, 2014 8:04
Yet another who doesn't understand "brain dead".

And while I know Dean's heart is in the right place, I'm not sure we want to go down the road as criticising pollution because it infringes on property rights.

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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.

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