Bird Brief II

"You're not the only one who does research."
--Darby Shaw (The Pelican Brief)

In the film The Pelican Brief, a big campaign contributor (who, ironically, is a Gulf oil driller) to the president's campaign, appears to be knocking off Supremes in order to pave the way for more favorable judicial treatment. When the president and his chief of staff figure out that any connection to Mr Oil would unleash a political halocaust in their direction, they decide to turn their hats around and become environmentally friendly in future decisions, as well as disavowing any current friendship with Mr Oil.

Like, oil and water (sorry), politics and consistency don't mix well.

The Gulf spill currently and correctly positions British Petroleum (BP) as antagonist in the story. But is BP THE antagonist--or are there accomplices worthy of mention? Given the Special Interest Group (SIG) world we live in, it's hard to be intellectually honest without exploring ties between BP and the federal government.

It doesn't take long to find connections. BP has been a big political contributor for years and significantly so to the current administration. Moreover, as Ron Paul notes, BP has been a size acquirer of government subsidies, a big promoter of competition-reducing regulation, and a major lobbyer for cap and trade legislation. It would be interesting to slap a dollar estimate on these endeavors. Clearly, this company is not a free market operator; it has relied on government to help protect its franchise.

SIG city, baby.

Because of the highly regulated state of the oil industry, and the general axiom that regulation often generates more problems than it solves, it is also worth asking whether government actions may have increased the chances of a deepwater accident.

There is evidence to support this thesis as well. More than a month ago we noted the 1990 legislation that limited non-cleanup liability related to a spill at $75 million. Not only is this a laughably low number but it theoretically caps the consequences of potentially reckless behavior. Furthermore, the Deepwater Royalty Relief Act, signed into law in 1995, incentivized drilling for oil far offshore, which is clearly riskier (as we all now clearly observe) than drilling in shallow depths. Since the DRRA's passage, deepwater drilling has multiplied many fold.

We could discuss other regs as well, such as those that have prohibited drilling on big land-based fields such as those in Alaska which has also pushed oil exploration and production offshore. However, it seems clear that government regs have dealt moral hazard and and other cards onto the table that elevated risk of an accident.

As such, government appears a noteworthy accomplice in the Gulf spill story. Don't expect government officials to bill themselves as such, though.

no positions