BP oil spill and the failure of the free market

June 30, 2010

In an interview on National Public Radio this week, Mississippi Gov. Haley Barbour said that the Gulf oil spill was an example of the free market working properly. He reasoned that BP had the most to lose from the spill, namely $100 million per day in costs. And thus, BP had the greatest incentive to clean-up the oil spill.

His conclusion is odd: The market functions properly when an oil company has repeated safety violations, ultimately causing an oil rig explosion that causes a loss in lives and perhaps the greatest environmental catastrophe in history. That is a proper functioning market?

His reasoning is equally odd: Because the accident is costing BP a fortune, the free market is working properly. Governor Barbour should be less of a zealot. If monetary costs are the greatest incentive for BP, it is not the market that should be celebrated; it is government regulation. If deterrence through heavy costs is the best method to address problems like this, then regulatory fines are a better deterrence than the free market (which by itself does not impose any obligation on a company for negative externalities).

Focusing on deterrence implies that preventing the problem is the larger goal. Just as with deterrence, regulations are better than the free market in preventing such problems. When the oil spill occurred, did you think to yourself, boy, the free market really let us down, how could the free market have allowed this to happen? I'm sure you didn't. But you might have asked, how did we not regulate this? This is President Obama's fault. This simply emphasizes our subconscious belief that regulations, not the free market, are a more realistic method to prevent problems like this. And this event isn't an anomaly (think: Ford Pinto).

Governor Barbour should call it like it is: This is not the free market working properly. This is a catastrophic oil spill, and the free market and loose regulations are responsible. Further, it is regulations, not the free market, that are going to clean up the spill and prevent future ones. And if this is the free market functioning properly, working at its best, then something is utterly wrong.

Jeffrey Bright, York, Pa.

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