Wednesday, June 9, 2010 0 comments ++[ CLICK TO COMMENT ]++

Opinion: US government over-stepping property rights?

Barack Obama is having a bad few months. The Gulf oil disaster has been an absolute disaster for all, with the helpless wildlife taking the most damage so far. On the positive, some environmentalists suggest that the ocean will be back to "normal" in 5 years. Depending on when the leak is brought under control, the Gulf and some of the Florida coast may never be the same.

One of the biggest losers in all this has been the Obama administration. In addition to the questionable back-room startegy to push out Hamid Karzai in Afghanistan—I'm no fan of Karzai but this is a terrible strategy in my opinion—Obama had horrible timing with his move to open up the sea for drilling, just a few weeks before the BP oil disaster unfolded. In order to combat the perception that the government has been slow, it appears, at least to me, the Obama administration is on the verge of trampling property rights and setting all sorts of precedents.

I don't have any vested interest, either positive or negative, in BP but I do think the Obama administration is proposing some dubious penalties for BP. In particular, I am totally against one proposal floated by a senior official to force BP to pay the damage suffered by competitors and oil service companies. In particular, the government wants BP to pay the lost salaries and wages of oil service workers. Let me quote the relevant portion from Nathan VanderKlippe's article in The Globe & Mail:


One worry: that BP could be forced to pay salaries for a huge number of oil workers laid off by the current six-month moratorium on U.S. deepwater drilling. Interior Secretary Ken Salazar said Wednesday that BP will be asked to make whole service companies that go bankrupt and the workers they are forced to lay off.


Mr. Salazar said the moratorium could actually be cut short depending on the speed with which a presidential commission into the spill is able to report. But he warned that “significant additional” safety rules will be have to be met before activity resumes.

The number of salaries could be enormous. In one state alone, Louisiana, as many as 330,000 jobs are at risk, Democratic Senator Mary Landrieu has said.

That's ridiculous. You can't force a company to pay the lost wages of workers impacted by some catastrophe. I know that Ken Salazar, the Interior Secretary responsible for labour, cares a great deal about the unemployed workers but it would be a disaster of epic proportions if companies were liable for indirect losses of others.
 
If this policy was passed and sets a precedent, can you imagine the cost of doing business? Can you imagine what would happen to all the trucking companies when they are involved in accidents on the highway? They would be instantly bankrupt from everyone suing them for lost wages. Or how about a factory that blows up or sees a fire, causing all its suppliers to shut down temporarily?
 
I don't know what BP should be liable for but the government shouldn't force it to pay indirect losses caused by the catastrophe. Ironically, the loss of wages and salaries are mainly due to the government ban on deep-sea drilling (jobs are being lost in tourism, fishing, and the like too, but that is very small compared to the number that depends on the oil & gas industry in those states. An exception is Florida but let's hope that the oil doesn't seriously pollute its beaches.) Politically the government had to ban that for the time being; but, if you didn't care about politics, the ban makes little sense.  There is going to be deep-sea drilling in the future so banning it now makes little difference other than to improve public perception. If politics didn't matter, the government shouldn't have banned anything and instead, enforce tighter safety mechanisms and force the existing platforms to retro-fit their operations to meet tighter standards—I'm not too knowledge about oil & gas drilling but it appears that the safety requirements in the Gulf are very lax compared to what Canada and Brazil, which has major deep-sea operations, require. Having said that, Barack Obama runs a government and image & perception matter more than reality.

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