The explosion of the BP oil rig on April 20 and the subsequent saturation of the Gulf of Mexico with oil will go down as the biggest environmental catastrophe of all time. We still don’t know what caused the initial blast that took the lives of eleven workers, but there is one important lesson we have learned from the incident. Crony capitalism is the culprit once again.
Our old friend, crony capitalism, unlike free market capitalism, is that mutation of the latter caused by unconstitutional reaches of government. As discussed in previous editions of this column, the most egregious example of cronyism in our economic system is the financial cartel run by the Federal Reserve Bank. We are all familiar with the way banks are permitted to inflate our money supply through fractional reserve banking ensuring huge profits for them and higher prices for the rest of us. Of course, when the banks overstretch their lending and run into trouble the Fed is there to bail them out with more of our money.
Besides an endless stream of money to bail out fraudulent banking practices, crony capitalism has attempted to remedy union induced bankruptcies in the auto industry and has also provided cash subsidies to wheat farmers and price supports to dairy farmers to keep their products’ prices artificially high and our purchasing power artificially low. Then there are the hidden cronyisms in our system. One of them has been exposed with the current crisis in the Gulf.
Under current law, it turns out that BP is responsible to pay for 100 percent of the cost of the clean-up of oil. Beyond that, the company’s liability for economic damages is limited to $75 million. This means that BP must pay to clean up their mess but all the fisherman, crabbers, restaurateurs, hotel owners, and others that rely on the gulf for their livelihood will have to split the $75 million pot. Clearly, the losses suffered by the locals on the coasts of Louisiana, Alabama, Mississippi, and Florida will far exceed $75 million. Given that BP earns multibillions every year, a $75 million cap on damages is a pittance of what they should be paying to make lives whole. Perhaps BP wouldn’t have taken such risks by drilling in deep water, if faced with catastrophic losses or they would have at the very least put in place more precautionary measures.
But it’s the same old story – crony capitalism. BP and other oil companies grease the palms (no pun intended) of members of Congress and in return receive special protections in the law. At the end of the day, the taxpayers will foot the bill for this malfeasance.
Of course, it is all about perception, not reality in Washington. On a recent trip to the Gulf, President Obama spoke of BP’s responsibility, “I don’t want them to nickel and diming people down here. I don’t want somebody else bearing the costs of those risks that they took. I want to make sure that they’re paying for it.” This is nothing more than tough talk to make the president seem righteous to the voters since he has no legal authority to make it happen. Naturally, there is talk now in Congress to either raise or eliminate altogether the liability cap. There is even talk of changing the law and making it apply to BP’s current disaster. But, as readers of the U.S. Constitutional know this is what is known as an ex post facto law or after the fact law which is unconstitutional. Washington is not allowed to hold a party to a law that didn’t exist when the action took place. In the long run, I suppose it will take another violation of the Constitution to right the first wrong.
If we had a true free market capitalist system, the accident may not have happened in the first place. If it did BP would be responsible for every penny of damage it caused. There would be no protectionist laws that put others (other businesses, taxpayers) at risk. If it bankrupted the corporation then so be it. The market would be rid of a major polluter; its assets would be sold to pay off the damaged parties and utilized by another provider alleviating the possibility of an oil shortage. If criminal activity was found, the perpetrators would be punished further. The Minerals Management Service would not exist to bilk taxpayers while its bureaucrats participated in conflicts of interest, illegal drug use, and elicit sex with the very people they were supposed to be regulating. Lastly, and this is currently happening, BP’s stock would take a dive opening the company up to takeover bids.
Yes, crony capitalism has its fingerprints all over the Gulf oil catastrophe. It may not have happened without it and the taxpayers will be on the hook because of it. Members of Congress and the president can squirm and rant and rave about how they are going to go after BP all they want. As usual they are a day late and billions of dollars short. The best thing they can do is immediately eliminate all laws that protect corporate America at the expense of the rest of us. Naturally, that won’t happen since corporate America finances their reelection campaigns.
Article first published as Crony Capitalism Strikes Again on Blogcritics.