BP a problem for the libertarian i.e conservative economic theories?

Please take out your textbooks and turn to the page titled: Oil Rig Explosions and Classical Liberalism

Government, as explained by Adam Smith has only three functions: protection against greedy foreign oil companies, protection of citizens from huge Michael Bay-esque shlt-in-your-pants explosions, and building and maintaining oil rigs that do not blow up in your face and crap the entire ocean.

Spoiler

 

I would argue for other government functions that don't fit into Adam Smith's model. Non profitable public services, non-profitable very long term enterprises.

The former to make it a better place for people as a whole, like buses and community centers. Rich people have cars and can afford rec centers.

The latter to induce future development that would cost billions with no short term profits, like the space telescopes and atom colliders.

Theses things aren't profitable, are not efficient, and doesn't make our country safer, but in the words of Robert Wilson on why these things things are important,

"It has nothing to do directly with defending our country except to make it worth defending."

 

Adam Smith, and the idea of capitalism, are woefully out of date - when Smith designed his system, he had no way of seeing the massive irresponsible corporate entities that run the world today.

There is no way a 'free market' can ever exist in this world - and those who believe in such a thing are basically the shoeshine boys of the ultra-rich.

 

So is communism. Everything taken to the extreme is never good.

 

I'm not sure how BP will "learn" from their mistake if the government didn't force them to pay. The free market isn't going to, especially if it's more profitable for them to take risk and deal with the consequences. What if they didn't have to re-enburst the blue collared fishermen or clean up the beaches? I guarantee you, the market will always need oil in one form or another and thus allow them to exist. There is no amount of bad publicity that will put them out of business unless the government gets involved.

 

Sorry, but the "everybody is capable of being evil/inept, so why bother?" argument is bunk.

 

He's forgetting how long victims of the Exxon Valdez had to wait for their money and how little they finally got.

 

Actually no the only way a free market will work on its own is if you can eliminate the structural problems information asymmetries, collective action problems, externalities etc.

Those are preconditions for an efficient market, and in a situation where you can't eliminate or at least compensate for them, an unregulated market is going to produce a suboptimal outcome 10 times out of 10.

 

Asymmetries such as implicit government backing and moral hazard?

 

Yes let's settle for the Japanese style lost decade (actually 2 decades now) instead. Great.

 

nice - id take it a step further and say not all libertarians are absolute anti-regulationists. i think even a ron paul would say that we cant give the BP's out there free reign. and the premise of the question is flawed - libertarians are not neo-cons. the people who got us into this mess are not libertarians. they were neo-cons or fascists, if you will.

the problem here, imo, was cronyism, not capitalism. the regulations were in place, but as is usually the case w/ our government, they were not enforced. this is another case of bush-era 'government' coming back to bite us in the ass - and it wont be the last time.

lobbyists write the laws and give them to their puppets (our elected officials) to legislate on. there is nothing libertarian about that.

and there is nothing libertarian about lobbyists going around having sex and providing drugs for government regulators.

 

Actually the asymmetry I would like you to explain is how does moral hazard work when the consequences of the bad behavior isn't borne by the person taking the risk.

If I smoke a cigarrette and throw it on the ground and walk away and set an apartment building on fire, should the fire department not put the fire out due to moral hazard?

 

The system of capitalism has been the greatest creator of wealth, lifestyle and greater good than any other force in history.

Capitalism, however, will always cause bubbles. As trends turn to euphoria, the inevitable regression will always occur as those that wish to invest looking in the rear view mirror will jump in late. Whether in tulips, tech-stocks or home prices the bursting of a bubble is painful.

I truly feel any institution, whether government or corporation, weakens at large levels and eventually will fail on its own as it becomes un-manageable and beauracratic. There will always be entrepreneurs and small businesses that innovate and become the dominant players in the industry.

I think this whole reaction to the financial crisis is ignoring why all the i-banks failed. It can be summed up in one word: LEVERAGE.

High leverage killed Fannie/Freddie, Bear, Lehman and almost swallowed everyone up.

Simply re-instate the net capital rule. This rule limits leverage on all institutions to 10 to 1, and they must reduce leverage as they approach these limits.

Institutions over $5 billion were able to leverage more than this after 2004 and leverage skyrocketed. The one caveat was they needed insurance which Joe Cassano of Drexel Fame at AIG came up with in Credit default swaps. Moral hazard ablaze.

Reinstate the net capital rule instead of some nutty huge pressing overhaul of the industry and that will do the trick. Of course this means a bunch of politicians can't add their name to a bill and say they've done some sweeping reform to make sure this travesty never happens again!

Reinstate the net capital rule and move on.

 

I meant that the necessity for oil is a reality in today's market and probably 10 years from now. It is a risky business. The government can try to impose stricter regulations on oil drilling which should help mitigate some of that risk. But my mindset is that all companies will take a harder look at their own safety procedures because it is in their best interests not to end up like the next BP.

That being said, I am willing to budge on that stance. Problem with drilling for oil is one screw up can destroy an entire Gulf and all it takes is one guy screwing things up. Will government regulation actually prevent this one incident from happening? One would hope. My view is that government regulation will probably result in a generally inefficient allocation of resources.

 

The only way to get rid of moral hazard is for consequences of bad behavior to be borne by the risk-taker. We agree on the point.

 

For a certain population.

It's arguable whether or not 80% of this world have benefited much otherwise. I can pull all the access to clean water statistics, the fact the HIV/AIDS cocktail can cost up to thousands of dollars, how many people are living on a dollar a day etc. but I think we're all to some level familiar if not with the exact stats then with the implicit meaning of them.

Capitalism can be saved by implementing certain features but as of now, it's nothing more then a callous resource grab. If we started measuring economic results with efficiency measures, there would be no question that capitalism wastes a large amount of resources for a concentrated elite. Think of all the resources spent over the last 150 years, 150 years that have brought the planet to a brink it has not seen in millions.

I'm always reminded of Keynes when I think of the capitalist mindset. "The long run is a misleading guide to current affairs. In the long run we are all dead." Yes, but our children are stuck with immeasurable amounts of debt as soon as they are born, the planet is in poor shape and well, let's leave our burden to future generations.

The only chief virtue of capitalism is that it spurs innovation/research. I like to think of the Green Revolution so even as I somewhat anticipate Doomsday, I also think that it's possible technological innovation can once again save us. The only problem is that we're on a short leash this time around and it will only get shorter as long as our attitude to resources and exuberance never changes.

 

I'm going to quote these two posts because they dovetail nicely into what I wanted to post.

If I were to label myself as aligning with a political ideology, I would say I most closely consider myself a libertarian. However, even I believe that some measure of regulation is necessary. I don't like widespread government involvement, but I also believe that a perfect free market cannot be trusted (e.g. Profit motives. Greed. The amount of time it takes for a free market to weed out incompetence, if that even happens. The fact that calamities typically occur first before negative market forces have a chance to act on those companies).

In BP's case, they presumably made a cost/benefit decision to continue drilling even though there were signs indicating a potential hazard. That risk blew up in BP's face. But life will go on for BP, and they'll continue to rake in big profits in the long-term, while the American people are left with mucked up beaches and ocean water, and many have had their livelihood significantly impacted.

I think the bottom line is, too much regulation impacts the free market (and ultimately the American people) in a negative way. However, no regulation can negatively impact the American people when companies take on a measure of risk for profit and it results in that risk becoming realized. There is a fine line between too little and too much government regulation, but no regulation simply puts us at the mercy of large corporations rather than the government.

 

I think there needs to be the ability to become financially 'Elite' in order to push people to strive for innovation and creation and see the financial rewards that comes with it.

Look at the United states. The incredible creation of wealth has created opportunities for all. Don't tell me there are starving people in the US and those that are 'poor' still have shelter, food and entertainment.

Lets look at the poor of the USA, versus the poor of most of the world. The US also has a large immigrant and illegal immigrant population which may skew statistics of the value for all and trickle down lifestyle effect of those in the USA.

 

The fact is, our abundance in resources comes straight down the fact that we have adopted a system that canvasses resources without restraint and without the insight into how long-term effects can outpace short-term gains (An example: in the calculation of GDP, cutting down a forest would net a certain positive. HOWEVER, GDP fails to calculate the long-term benefits of having such a forest even in economic terms, never-mind environmental ones.).

That's the problem. Any incidental trickle-down is meaningless in the long run since we have so much to play with. Not to mention the fact that the poor of the United States still represent the very elite of the world->what becomes of the African who cannot access clean water etc. etc.

When I mention the "elite", I define it as the hereditary nepotistic class of the top 1% of the American economy that controls so much wealth in the world and furnishes it on 20 bedroom mansions that are fit for three and a fleet of cars that are never driven. Things of the like. I'm sure you yourself can think of other examples of meaningless extravagance.

This hereditary "hand-me-down" has to be a greater force for less innovation and is one of the first things I'd look at. When certain family lines are ensured perpetual wealth, ability becomes irrelevant. Barriers to entry become frequent. Monopoly poses a problem.

Capitalism can be a potent force but it needs to be harnessed even more then it is now.

 

Those that don't create great wealth usually don't have the means to maintain it. Most great wealth is gone in 2 and a half generations anyway and that consumption however silly it may be is consumer spending which drives 70% of our GDP growth.

I applaud the Buffet's and the Gates of the world as they made their choice to give a majority of their net worth to charitable endeavors, which I could never see happening in the various 3rd world countries you speak of.

There are those small % of people that become ultra wealthy and that cheese keeps people working and wanting more as somethign to strive for. They may pass some funds down to their children/heirs but eventually that money will be gone and some other innovator will be the one to create great wealth that others will usually spend.