Separate issues display the trickle-up nature of statism.
Two dominating issues in the news have the Deepwater Horizon explosion in the Gulf of Mexico and the coming bailout of Greece’s short-term debt.
A liability cap could save BP tens of billions in covering damages and the International Monetary Fund (I.M.F.) will be covering about $40bn of the $147bn bailout of Greece. The U.S. government will likely cover the damages of the Gulf oil spill and supplies about 20% of I.M.F. funding.
Gulf Oil Spill
Thanks to uninhibited lobbying, the oil industry scored a great welfare deal in the event it caused catastrophe after the spill in 1989.
M.S. notes the corporate externalization of social costs at his Economist blog that make the direct billion dollar loss to BP dwarf in comparison:
As The Washington Post‘s Juliet Eilperin writes, “The prospect of an extended leak has intensified concerns over what compensation BP is willing to pay, since a law passed after the 1989 Exxon Valdez spill requires companies to pay for cleanup costs but no more than $75 million for other damage.” Estimates of total damages from the blowout run from a few billion dollars to Steve Kotok’s estimates of tens or even hundreds of billions in long-term damage to Gulf fisheries and Gulf-coast tourism….
Mr. Eilperin adds:
The economic implications of the disaster are potentially mammoth—but highly uncertain. The annual commercial seafood harvest in the gulf is $661 million, recreational fishing contributes $757 million and nearly 8,000 jobs, and tourism related to wildlife adds $517 million, according to the Harte Research Institute for Gulf of Mexico Studies.
It remained unclear Monday how much damage those industries will incur from the oil spill, and how long that damage will last. The research group estimates that $1.6 billion in annual economic activity is tied to the wetlands directly exposed to the spill.
This is much different from the costs of the 1989 spill “which contaminated 1,300 miles of largely untouched shoreline and killed tens of thousands of seabirds, otters and seals along with 250 eagles and 22 killer whales” that John Broder and Tom Zeller, Jr. write at The New York Times. They say this spill “will have to get much worse before it approaches the impact” of that spill, but in humble ignorance, I have to ask why.
How is an estimated $1.6bn on which who knows how many people depend to make their livings and survive less significant that some birds, whales and other water mammals? The “worst-case scenario” that Annie Lowrey wrote about at The Washington Independent yesterday of “emergency appropriations” reaching the “tens, and maybe hundreds, of billions” of dollars that’ll have to shoot out of the printing press and be added to the deficit is surely a greater catastrophe, no?
Gus Lubin at The Business Insider reports today that the Gulf states have a collective gross domestic product of nearly $2.2tn—a tourism industry that provides 620,000 jobs, equaling an estimated $9bn in annual wages—and the Gulf itself and its coast are home to:
- six of America’s top ten shipping ports, 27% of U.S. crude production;
- 4,000 oil and gas platforms employing over 100,000 workers;
- a $21bn share in the commercial seafood industry;
- 83% of U.S. shrimp, 56% of U.S. oyster and 14% of U.S. fishery landings;
- 40% of U.S. recreational fishing catches.
Another externalization is the effect on the prices of these Gulf products. A sharp escalation in scarcity will, alone, raise the price of doing business, feeding family and potential tourism. The loss can’t really be accurately quantified, but that doesn’t mean the social costs will not be felt in a very hard manner—inflation, unemployment, debt, increased leveraging.
Cassandra LaRussa at the Open Secrets blog estimates BP’s lobbying totals to show that:
top recipient of BP-related donations during the 2008 cycle was President Barack Obama himself, who collected $71,000…
BP regularly lobbies on Capitol Hill, as well. In 2009, the company spent a massive $16 million to influence legislation. During the first quarter of 2010, it spent $3.53 million on federal lobbying efforts, ranking it second (behind ConocoPhillips) among all oil and gas industry interests.
Almost $20 million in lobbying over the last 18 months to save billions in liability is a pretty good deal. Were the government not involved, this would be called a bribe—plain and simple, right?
In all honesty, my professional research on the Greece economic crisis has taken up too much time for me to really follow the details of the oil spill to give an accurate legal analysis, but Ezra Klein’s written so much about it at his blog, I looked a little, found this information I posted here and see an absolutely tyrannical example of government power externalizing the corporate costs on the population. This is regulation in theory and practice; what separates it from liability—a clear separation between statism and libertarianism, privilege and justice.
The market says the firms responsible for damaging others ought to be held liable for those damages. Regulation regimes of the State always result in the externalization of corporations’ liability onto people and it’s those who need the greatest percentage of their incomes the most who get screwed the worst. The inflation and deficit spending to (de facto) bailout BP will raise the cost of living as people are losing their jobs, heavily job insecure and experiencing wages declines and stagnation. Fiat funny-money monopoly to feed the pockets of few and cover corporate liability directly makes life more difficult for those already struggling.
Speaking of inflation, the I.M.F.’s participation in bailing out Greece will cost taxpayers ~$8bn off the bat, Henry Blodget notes at The Business Insider, which will cost the average household hundreds of dollars across 16 countries. But again we have unaccounted externalization.
The E.U.’s share and that of other I.M.F. suppliers lowers the value of those currencies held in U.S. reserves. The Federal Reserve’s money monopoly also ties working people of the world to the cover the liability of the wreckless financial sector, Mr. Blodget adds:
The second outrage is that, as in some of the U.S. bailouts, our bailout money is JUNIOR to Greece’s existing debt. That means that, over the next couple of years, the idiot banks that loaned bankrupt Greece money will get their money back. And then, when Greece runs out of cash again, we’ll be left holding the bag (along with Germany and the rest of the folks who bailed Greece out).
In any normal financing, the lender of last resort would be SENIOR to all existing debt. It would get its money back first, before the other idiots got a penny.
In the Greece bailout, however, the new money we’re putting in will be going right out the door to pay off existing lenders who would have lost their shirts….
(Why don’t the existing creditors have to lose a penny? Same reason the A.I.G. creditors didn’t lose a penny. Because it would apparently be too traumatic to ask them to do that. The idea that the existing creditors might have to lose money was apparently so unthinkable that it was never even on the table).
I don’t see people pointing to the giant gorilla in the room—that the hysteria over Greece being unbearably deep in the red has global effects because of the euro money monopoly over the nation-state. The Europeans and Americans are just trying to save their asses over a short-term at the expense of Greek people. This bailout doesn’t even solve Greece’s money problem, as R.A. points out at his Economist blog:
Aid to Greece has been generous, but it’s not clear that it will address the underlying insolvency of the Greek government. Forbearance worked in the case of the American financial system because banks could borrow cheaply from the government and then lend at a higher rate, thereby slowly recapitalising themselves. The 5% interest rate Greece is getting from Europe and the I.M.F. is much lower than market rates, but it’s higher than Greece’s expected growth rate. The aid strategy has bought time, but it won’t save Greece unless growth surprises strongly to the upside.
Larry Elliot, economics editor at the London Guardian, notes the large problem with this bailout is that Greece can’t devalue its currency and lower interest rates to even stimulate short-term export-led growth because their currency is international. This is why comparisons between a bailout of Greece are compared to one of the state of California.
All signs seems to be pointing to an inevitable second coming of the 2008 bailout related to the insurance fallout of this oil spill and a potential Wall Street crash from Greece’s forced inability to economically rebound.