Initial Thoughts on the Oil Spill

Due to my involvement in energy issues, many folks have asked me for my reactions to the oil spill disaster in the Gulf.  Obviously the implications of the event will be seismic, but remain to be fully grasped.  Here are some initial thoughts.

I certainly do not blame the administration for failing to stop the leak, and I definitely shudder at the prospect of it “taking charge” of the efforts to stem the flow.  The government has neither the expertise nor the resources to do it.

Where I do find the government generally, and the administration particularly, culpable is in the containment efforts, if “efforts” can be used to describe what has transpired (and is transpiring) in the Gulf.  Contingency plans (e.g., burning in situ) were not implemented, and were apparently not resourced, and hence could not have been implemented.  I wish that I could say that lacking a feasible plan, the government has been scrambling.  But “scrambling” hardly describes the business as usual, bureaucratic, check the boxes behavior of the EPA, the Coast Guard, and the Corps of Engineers.  That is an outrage, and a tragedy.

What about Obama?  Well, he has acted perfectly to form.

A detached talker, rather than a doer or leader.  “Plug the damn hole” brings to mind an old Steve Martin routine.  It also brings to mind a stock joke about economists (or academics generally): When trapped on the top floor of a burning 100 story building, all about are panicking except the economist (academic).  When asked why he is so calm, the economist (academic) replies: “We just assume a 100 story ladder.”

A man disturbingly lacking in affect.  (Obama’s emotions appear to run the gamut from smug to annoyance to pique.)   In his disastrous press conference, Obama made George H. W. Bush’s “Message: I care” look like an example of deep empathy .  (I don’t have to identify which of Mr. Transparency’s press conferences, because he has held so few that there is no possibility of confusion.)

And hyperpartisan.  Given the criticism of the above two things, Obama turned to his old standbys, partisan attack and knocking down straw men and letting no good crisis go to waste.  In his has-to-be-read-to-be-believed speech yesterday, Obama turned the spill into a political bludgeon, blaming the spill on the Republicans and a mythical era of ideological hostility to regulation that rendered the government helpless.  He is using the event to flog his cap & trade proposals.  (The adoption of which, ironically, would undermine his desire—stated in the same speech—to create jobs.)  Post-partisan, my foot.  (I leave other body parts to your imagination.)

Look, things like the explosion of the platform and the subsequent leak are complicated events that almost always involve the unforeseen conjunction of myriad factors, decisions, errors, and bad luck.  To boil it down to a simplistic narrative is deeply dishonest; even if there is a kernel of truth to the narrative, that won’t be known fully until after a thorough examination of the entire event, if ever.  The narrative is also incomplete, because it overlooks myriad other government interventions, notably those that restrict drilling in less daunting environments.  Then to use that dishonest and incomplete narrative to advance grandiose and dubious policies, and as a stick to beat his political opponents, is manipulative and opportunistic, and anything but constructive.

The spill is an epochal event, environmentally, economically, and politically.  Now is not the time for political score settling and agenda advancement.  Obama’s actions may appeal to his base, but I strongly suspect that they will instead further alienate vast swathes of the electorate, including many who supported him out of good will and a hope that he would indeed be a transformative figure that would move the country forward.  They will only feed the country’s deep cynicism, especially so given Obama’s campaign pose of an idealist fighting cynicism—which may well be the most cynical thing of all.

About Craig Pirrong 223 Articles

Affiliation: University of Houston

Dr Pirrong is Professor of Finance, and Energy Markets Director for the Global Energy Management Institute at the Bauer College of Business of the University of Houston. He was previously Watson Family Professor of Commodity and Financial Risk Management at Oklahoma State University, and a faculty member at the University of Michigan, the University of Chicago, and Washington University.

Professor Pirrong's research focuses on the organization of financial exchanges, derivatives clearing, competition between exchanges, commodity markets, derivatives market manipulation, the relation between market fundamentals and commodity price dynamics, and the implications of this relation for the pricing of commodity derivatives. He has published 30 articles in professional publications, is the author of three books, and has consulted widely, primarily on commodity and market manipulation-related issues.

He holds a Ph.D. in business economics from the University of Chicago.

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