David R. Henderson  

Joe Barton is Wrong

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Yesterday, Republican leaders John Boehner, Eric Cantor and Mike Pence issued a statement castigating their fellow Republican Congressman Joe Barton. Barton had apologized to BP's CEO, Tony Hayward, for the shoddy treatment he received from Congressmen of both parties. He also accused Barack Obama of a "$20 billion shakedown" of BP. Boenher, Cantor, and Pence wrote, "Congressman Barton's statements this morning were wrong."

But they didn't say why he was wrong. He wasn't wrong for apologizing for his colleagues' horrible behavior. He was wrong for claiming that Obama had carried out a "$20 billion shakedown." As later news reports made clear, the shakedown could be more than $20 billion. So the correct statement is that Barack Obama carried out a "$20 billion or more shakedown."

Note that I'm not talking about whether BP should be held accountable for the horrible consequences of its actions. Rather, I'm defending the rule of law, something Barack Obama, at one time a professor of constitutional law, might have some dim memory of. His tactics--asserting executive power with no legal basis--were Bush-league.


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COMMENTS (22 to date)
Charlie writes:

Keeping with the theme of your post, you did not say why this was a breach of the rule of law. BP agreed to pay $5 billion over four years into an escrow account. Not only is the account not a cap, it's not a floor either. There is no reason BP has to pay $20 billion, though it seems quite likely that they have racked up that much in damages.

Anyway, where is the executive power argument? If the President asks you to do something and you don't want to do it, say no. I guess you could say, if BP says no, the gov't could do something illegal in retaliation, but then BP would have a legal recourse. If they agree to something freely, then what's the issue?

Doc Merlin writes:

"If the President asks you to do something and you don't want to do it, say no. I guess you could say, if BP says no, the gov't could do something illegal in retaliation, but then BP would have a legal recourse."

They don't really have legal recourse. The executive owns the water they drill on, and can arbitrarily deny them drilling permits almost anywhere. The game is rigged, and you do what the king says, or you pay. The current white house has also shown himself willing to use blackmail as they did against those filing the Chrysler bankruptcy lawsuits.

Furthermore, with the EPA's new power to regulate CO2 emissions, they can do whatever they want to screw with BP.

In short, the administration holds all the cards and they shook down BP, quite effectively.

Yancey Ward writes:

I am guessing- but we won't know for some time, if ever- that much of the $20 billion will be distributed to politically connected people. So, if you are small time fisherman, you will probably get trivial compensation, and to get it, you will likely have to sign a waiver on future claims. However, if you are a politically connected law firm, expect to to collect tens of millions.

David C writes:

It took me some thought to figure out why I wasn't bothered by this, and I eventually realized it was because I don't think blackmail should be illegal.

It's safe to assume the White House came up with a list of things that they would do if BP didn't agree to do this. There's also a possibility that the White House gave them several options and they chose this one. It's very likely that if I knew anything about those alternatives, I'd find things that I found objectionable (probably because I don't think the President should have those authorities in the first place) but since there's no way of knowing, I'm not going to jump to conclusions. I'm guessing all things considered, the White House would've preferred the $20 billion, and BP definitely preferred it to the other options or they wouldn't have gone through with it voluntarily. That means this was the best option for both parties. Why is that wrong?

So I don't find it objectionable that the President is allowed to do things like this. I find it objectionable that everybody else isn't.

Andrew_M_Garland writes:

Blackmail: I will reveal the truth unless you pay me.

Slander: I will tell lies unless you pay me.

Extortion: I will ruin your company unless you pay me.

Bribery: I will pay you to treat me well and give me administrative favors.

There is a slim argument that Blackmail should be legal, that people should be able to buy other's silence. And, settlement agreements often bind the parties to silence about what they have done.

What is the argument that a President should be able to commit slander or extortion, or that BP shoud be able to bribe Obama? Further, Obama is doing it with the power given to him by a free society under the condition that he use it legally and in accord with the Constitution.

Boonton writes:

Furthermore, with the EPA's new power to regulate CO2 emissions, they can do whatever they want to screw with BP.

Is no different from their power to regulate other emissions. Sure they could, in theory, ban all oil but they'd have to ban everyone's oil, not just BP's. In general regulation specially targetting BP would run up against a potent Equal Protection argument unless it could be linked to something objective (such as their below average safety record).

As for the $20B being neither floor or ceiling, so what? The $20B is held in an escrow account. Should claims happen to come in less, BP gets the change back. Should claims come in more, BP's eventual legal judgement will be reduced by the payments it made.

I think this thread brings to mind Paul Krugman's excellent observation about libertarians. Libertarians tell us that tort law not only will resolve a problem like this but will also apply the incentives for other oil companies to be more careful. But look what happened with the Exxon Valdez case. It took decades for those damaged to receive a fraction of their claims. When dealing with huge, very huge corporations the tort system is vulnerable to the fact that they themselves can lobby to write the laws and influence the judges appointed to hear the cases.

As for a 'shakedown', I suspect its more of a plea bargain. From what I understand the law bases the fines on the amount of oil spilled and they triple if negligence was involved. It seems like it was and since we now know the daily rate was nowhere near BP's claim of 5,000 barrels a day (more like ten times that plus), it's criminal liability may be closer to the hundred billion mark rather than tens of billions. I suspect BP is less a victim of extortion and more like the guy whose nailed for capital murder taking a plea to manslaughter to dodge the electric chair.

David C writes:

Andrew, to take your argument in its two parts.

What is the argument that a President should be able to commit slander or extortion, or that BP shoud be able to bribe Obama?

As I said before, I am not going to speculate. The President might have only committed blackmail. Since I have no way of knowing if he did any of those other things, I will not condemn him for it.

Further, Obama is doing it with the power given to him by a free society under the condition that he use it legally and in accord with the Constitution.

I think it's impossible for a completely honest person to ever get elected President or even the Senate. They have to tell too many half-truths in order to get ahead in politics. So I will not begrudge a politician for being less than saintly or bending the rules. I expect politicians to do their best to improve society where they can. Attempting to legalize blackmail clearly doesn't fall into that category. And I think it would be impossible for a President to perform their job without any arm-twisting.

Vangel writes:

The big problem for BP is not that it has to pay for the damages that it is responsible for but that it is being held back from doing what must be done by government incompetence. While BP has a poor track record its level of competence is higher than that of the government bureaucrats who can't seem to make any decisions other than to hold up progress. A better solution for BP might be to bankrupt its American subsidiary and have the assets it holds serve as payment for the damages.

frankcross writes:

I don't get the without legal basis claim. Obama states that the Oil Pollution Act provides legal basis. Were you aware of that? If so, shouldn't you have rebutted this claim rather than just asserting it was without legal basis?

tim writes:

I'm going to agree with others - please Henderson - you are speaking as an obvious expert in constitutional law - provide the basis in why you disagree with this administrations approach.

I look forward to the peer reviewed paper on this. But I won't hold my breath considering your lack of grasp of this country's laws and traditions.

Andrew_M_Garland writes:

To David C,

I wouldn't grant Presidents the power to use blackmail, even if arguably legal for private citizens. Presidents owe the public the truth, absent any national security reason. And blackmail to hide a crime is conspiracy after the fact, further limiting its legality even for private citizens.

In the world as I understand it, corporations don't hand over $20 billion except under pressure. That pressure should be legal, not arm twisting (extortion) as you call it.

You have an interesting position. Politicians are dishonest, so you are OK with them bending the rules. Of course, that was everyone's opinion as regards GWBush.

Further, the $20 billion and other amounts is not under transparent, independent control, as it would be if administered by a court. It is under the control of Obama and his crony, the "Payment Czar".

We have courts to limit the arbitrary power of the President. You don't see the need.

You don't want to speculate, and neither do I. So, Obama should explain in detail what the arm twisting was. Open and honest. I won't hold my breath.

Matt Flipago writes:

Boonton comes up with the argument, we need government to have more power, b/c they are too corrupt and inefficient to use the power we gave them efficient. Makes sense to me. ;)

Boonton writes:

Actually Matt it's a pretty clear cut case of property rights. If your kid hits his baseball and breaks your neighbor's window you will probably pay for it immediately. If you're a jerk it will take a month or two for your neighbor to sue you and get a judgment. Either way property was respected by law. The neighbor's property was destroyed by you (or your kid who you're responsible for) therefore you are obligated to compensate him.

Now when you kid causes $20B in damage and you're able to tie up the courts for twenty years you've effectively used the gov't to void property rights. So far as I know BP never purchased the entire Gulf, all the fish and seafood in the Gulf and all the beaches of the Gulf. Whoever owns all of that is someone other than BP.

Now the other libertarian argument for tort law is incentive over regulation. The next time a company is pondering whether to short change safety practices to save $1M on a deep sea rig they might just consider whether they have $20B to stash in an escrow account.....just as when you see your kid playing ball you consider whether you want to pay for your neighbor's window. Libertarians should be happy about the escrow account because it should provide the incentive that would otherwise be provided by hiring an army of regulators.

But as Krugman points out, you rarely get ideological purity from politicians. Politicians elected spouting the most libertarian rhetoric will not only short circuit regulation but will also go along with corporate efforts to frustrate the tort system. When Krugman pointed this out a lot of libertarians scoffed that such politicians weren't 'real libertarians'. But that's the point! Like communism if your ideology depends on electing a class of 'purely good' humans it has a fatal flaw.

Boonton writes:

Again I doubt 'extortion' or 'blackmail' had anything to do with the $20B escrow fund. BP probably figured that like the father of the kid who broke the window, there was no way for them to avoid liability and that liability was almost certainly $20B if not more (as an escrow account it doesn't really matter, should by some miracle the total damages is less than $20B BP can take back the change).

Insisting on taking every case to court and nickle and dimming everyone would just be a public relations disaster. Also by being forthright with paying for damages BP might just buy enough good will for the gov't not to throw the book at them in terms of criminal charges.

Economiser writes:

Boonton, and Krugman, routinely mis-characterize libertarians. Libertarians don't require purely good politicians, they require (relatively) powerless politicians.

Any criticism of libertarianism that invokes the power of private actors to influence politicians fundamentally misunderstands libertarianism. A libertarian government wouldn't have favors to hand out no matter how strong the lobbying.

Yancey Ward writes:

What are the rules for the dispensing of these funds? Absent any clear rules for determining damages, this is a slush fund, pure and simple. We now have to trust the political appointees to treat both claimants and the company equally under the law. And what are the means of appealing a judgment?

This is why damage funds like this, outside the normal tort process, are a particularly pernicious idea.

Boonton writes:

Boonton, and Krugman, routinely mis-characterize libertarians. Libertarians don't require purely good politicians, they require (relatively) powerless politicians.

How are the civil courts run then? Who writes the civil code? Is it all derived from first principles of libertarian theology? Krugman raised this issue in context of using tort law in place of regulation.

You can kick the can of who watches the watchmen down the road for only so long. At the end you either get politicians or some type of libertarian philosopher-king..... It would be nice if libertarians would explore exactly what is down this road they would travel rather than just pretending, like Ayn Rand did, that all questions are as obvious as 2+2=4 and at no point does anyone properly trained in logic ever have to actually make a real judgment.

Yancey,

I imagine the 'rules' would work pretty much along the lines of the 9/11 victims fund with the probable exception that taking payments from the fund would not require you to waive your right to sue. Since BP is writing the $20B check, I'm sure they will insist on seeing some type of charter for this fund which will delineate a process for determining damages.

As far as being outside the normal tort process. It hardly is. It's no different than writing the neighbor with the broken window a check for $100. If his damages are $1000 he may still sue you and win. He will just receive a judgement for $900.

Yancey Ward writes:

Boonton,

Well, no, it isn't the same as the actions between neighbors. The correct analogy would be the neighbor writing a check to local police for the window, and the police chief could decide whether or not to pay it to the owner of broken window or to someone else who claimed the same person broke his window, too.

The question is this- since BP has been paying claims already, so why didn't they just keep control of this process like the neighbors with the windows?

And, with the 9/11 fund, that doesn't really offer much comfort, and, in any case, that was the government giving away it's own revenue.

I predict you will see truly massive fraud with this fund.

Boonton writes:

Actually sometimes you do effectively give the check to the police. In criminal cases oftentimes the sentence is lightened or charges are even dropped by promptly compensating the victim. Example: A friend knew of a woman who stole $44K from her employer. She had a gambling problem and her family was rich. They quickly reimbursed the victim and charges were not filed (yes the police were involved). This stands in contrast to stories of people stealing far less getting one to five years that appear every few months in my local paper.

The analogy isn't quite a broken window from a baseball game, though. It may be more like setting off an insane amount of fireworks causing serious roof fires on half the houses on the block. There the damages would be a mix of civil and potentially criminal. Also it's not quite like giving the check to the police chief. It's more like giving it to a neutral arbitrator or mediator.

The question is this- since BP has been paying claims already, so why didn't they just keep control of this process like the neighbors with the windows?

1 BP is not trusted. They have made it clear they will try to game the process every opportunity they can get.

2. PR. As BP is not trusted, they have no credibility if they deny a claim. However if a claim is denied or reduced by what an arbitrator running the escrow fund BP can claim that it took its hands off the money and the call was made by an objective source. The alternative is to further stoke the fires of public hatred. The court system is not entirely insulated from public opinion. If the claim system looks like a black box run entirely by BP those rejected will be more inclined to file suit and I'm sure BP would rather not have those cases decided by juries and judges who despise the company even more than it currently is.

And, with the 9/11 fund, that doesn't really offer much comfort, and, in any case, that was the government giving away it's own revenue.

Actually I don't recall any cases of massive fraud with the 9/11 fund. 9/11 fraudsters more often than not bilked private charities and individuals, you can correct me if I'm wrong. Other than that I'm not quite sure what the objection is to the fund. Congress wanted to give 9/11 families money and the fund, IMO, appeared to do a fair job of deciding how much to dole out. Yes you can point out that 9/11 families got more than other victims got (such as the Ok city bombing). But that wasn't the job of the fund's manager to decide.

I predict you will see truly massive fraud with this fund

Care to offer an objective way to measure this prediction? Or will you just wait for Fox News to find 5 men who claimed to be fishermen whose boats were ruined and got $10K each and declare the entire $20B wasted?

Let's think about this carefully.

Say the 'true damages' are above $20B:
If there's massive fraud, the fund will run out of money leaving lots of people who the fund declares are entitled but can't pay. BP will either pay these people or they will go to court.

If there isn't massive fraud this will still happen.

However, BP could sue those who collected unfairly from the fund to pay those who still need compensation. If the individual cases are honestly frauds, BP's PR problems should be minimal. Just as with 9/11 fraudsters, the public is unlikely to side with people stealing from those who were really harmed.

Say the 'true damages' are under $20B

In this case the fund, even if it has massive fraud, may be able to pay off everyone. In that case it may decide not to sue small time fraudsters in order to just let the bad press die (I can't see why it would let big time fraudsters go, if someone bilks, say $1M out of the system the return on suing is just too high to pass up, remember BP's lawyers are probably on salary!) Additionally BP can request state AGs file criminal charges against fraudsters.

Given this, massive fraud only seems like a real possibility if the true damages are very much under $20B leaving a huge pot of money that BP may, for PR reasons, not wish to defend very well. If the true damages are above $20B then BP has a strong incentive to guard that pot of money AND has the added PR credibility since they did agree to establish the fund with neutral oversight.

Boonton writes:

Of course if the fund manager made it a pattern of permitting fraud or made it clear he would not be unbiased he would open himself up for personal lawsuits by BP as well as give BP the ability to make a motion for him to be replaced. So while BP does give up direct control of the money its not exactly defenseless....which is what the purpose of an escrow account is.

John Fast writes:

Boonton wrote:

I think this thread brings to mind Paul Krugman's excellent observation about libertarians. Libertarians tell us that tort law not only will resolve a problem like this but will also apply the incentives for other oil companies to be more careful. But look what happened with the Exxon Valdez case. It took decades for those damaged to receive a fraction of their claims. When dealing with huge, very huge corporations the tort system is vulnerable to the fact that they themselves can lobby to write the laws and influence the judges appointed to hear the cases.
Thank you for saying what I wanted to say!

I'm an anarcho-capitalist and I am disgusted with Exxon's behavior, and their refusal to pay fair compensation -- and am even more disgusted with the court system which lets them get away with it. I have refused to buy gas from Exxon for over 20 years and I wish I could boycott the government-monopoly court system as well . . .

I despise government bullying as much as I despise private bullying, and I can understand why some people support forcing BP to set aside money for compensation: they don't want a repeat of what happened with the Exxon Valdez claims.

Boonton writes:

Right now if some engineer is looking at a $100K piece of equipment that will dramatically reduce the odds of a deep water leak happening his management will consider that such a thing might save the company $20B or more someday. Likewise companies that own multiple rigs are probably considering whether they should form a safety audit committee to objectively measure what are the greatest risks their rigs might be facing. Again the fact that this cost is offset by a potential $20B+ savings alters incentives in a positive way..... Unless you believe $20B is an outrageously high figure for the damage caused by this spill, if you do say so please.

The alternative is intense gov't regulation which means hiring an army of inspectors, writing tens of thousands of pages of (additional) regulations and having to worry about regulatory capture or even just plain corruption.

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