Burt Folsom: How Not to Pay For Damages from the Oil Spill

Roundup: Historians' Take

[Burt Folsom is professor of history at Hillsdale College.]

Yes, the BP oil spill is a disaster. And BP needs to reach in its deep pockets to compensate businesses and restore the Gulf Coast. But should BP set up an “independently administered fund” to cover claims for people and businesses in the Gulf Coast damaged by the oil spill? That is the current proposal by the Obama administration–that BP set up a large fund that will be, in effect, administered by government officials, who will listen to people presenting financial claims from the oil spill.

The “independently administered fund” idea is a stinker for two reasons. First, it separates the sinner from the restoration. In other words, BP causes a disaster but government officials hand out checks for damages. That reinforces the false notion that capitalists cause problems and government solves them. In fact, government helped cause this problem, as Dick Morris has explained, by creating tax incentives for deep water drilling and environmental laws that discouraged the safer shallow water drilling. Yes, BP made mistakes, but let BP through legal means pay for the mistakes it committed. And change government laws that create perverse incentives for deep water drilling.

Second, whenever government officials have a big pot of cash to distribute, the process always becomes politicized. There is never an exception to this rule: Friends of the party in power are rewarded; enemies are punished. In the case of Franklin Roosevelt, for example, Congress voted $4.8 billion (a huge sum in 1935) to establish the WPA, which would give money to build roads, buildings, and airports to create jobs during a time of 20 percent unemployment. Just like the “independently administered fund” now proposed, the WPA was going to give cash where it was needed. But FDR quickly made sure that WPA projects went mostly to friendly New Deal politicians or to states where he needed support in order to win re-election to the presidency. For example, V. G. Coplen, the Democratic county chairman of Indiana, bluntly said, “What I think will help is to change the WPA management from top to bottom. Put men in there who are . . . in favor of using these Democratic projects to make votes for the Democratic party.”

What that might mean for the proposed fund of cash from BP is that governors or mayors who were Democrats, or prepared to speak well of Democrats, would be reimbursed at a higher level and more quickly than Republican governors like Bobby Jindal of Louisiana, who has already complained bitterly at the failure of federal officials to bring needed equipment and help to the Gulf Coast to mitigate the damage. Such a fund would tilt the discussion in favor of the current administration and force claimants to talk more favorably about the government in order to receive rapid reimbursement.

The lesson of the BP disaster is not that government is needed to make business work better–but that will be the lesson federal officials will try to teach if they have a mountain of cash, meaning that people with grievances have to come hat in hand to try to get some of it.

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