When the game is rigged in your favor, why not cash in?


Government and liability shields
By now I'm sure you've heard about the $75 million liability cap on offshore oil spills.

Steven Horwitz sums it up nicely in his entry Oil Spills, Incentives, and the Economic Way of Thinking.

If this all sounds familiar, it's because it looks like it works much like bank deposit insurance does. Each bank pays premiums to the FDIC which in turn caps the liability banks face to their depositors if they should fail. There's a nice long literature on the incentive effects of deposit insurance and the "heads I win, tails I don't lose" nature of the deal. (I wish I had the equivalent kind of blackjack insurance when I was in Vegas last month!) It would seem reasonable, without having looked at the empirical data, that this Fund would have similar effects. And it would also be interesting to explore the history of the Fund and to see whether the arguments for creating it have as flimsy a basis as did the creation of deposit insurance.

If we're really interested in preventing oil spills and bank failures, punishing to the fullest those who screw up would seem to be a very effective way of doing so. Why doing so isn't in play in both cases might have something to do with the political pull of large banks and oil companies. Crony capitalism/corporatism strikes again.

Remember, the $75 million is in addition to the clean up costs.

Still, if the government is going to shield you from the consequences of your own actions, why should the taxpayers be surprised if companies and people take advantage?

Especially when the government agencies don't follow their own rules and give an award for your failure.

One lesson Obama should learn is that to really screw things up, you need government.

— NeoWayland

Posted: Mon - May 17, 2010 at 12:20 PM  Tag


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