BP Shakedown?

I do not know, at this point, whether BP plc (BP) was negligent or grossly negligent in its drilling and related activities leading to the Gulf oil-spill. They may well have been but I leave that to further investigation.

It seems, however, the federal government’s regulatory policy was and continues to be a mess, as Chidem points out. The moral outrage of the Congress and the Administration in view of their “gross negligence” or worse is absurd, but not unusual.

Nevertheless, these are not the only issues.

Congressman Joe Barton (R. Texas) accused the Obama Administration of a “shakedown,” that is, some form of extralegal extortion, in getting BP to set up a $20 billion compensation fund. He was forced to apologize by his political masters.

But Congressman Tom Price (R, Georgia) made the point succinctly in a press release entitled, appropriately enough, “Chicago-Style Political Shakedown”:

“We all agree that BP should be held fully responsible for its complicity in the oil tragedy in the Gulf,” said Chairman Price.  “In fact, BP has already begun paying claims.  Any attempt by the company to sidestep that responsibility should be met with the strongest legal recourses available.  However, in an administration that appears not to respect fundamental American principles, it is important to note that there is no legal authority for the President to compel a private company to set up or contribute to an escrow account.

“BP’s reported willingness to go along with the White House’s new fund suggests that the Obama Administration is hard at work exerting its brand of Chicago-style shakedown politics.  These actions are emblematic of a politicization of our economy that has been borne out of this Administration’s drive for greater power and control.  It is the same mentality that believes an economic crisis or an environmental disaster is the best opportunity to pursue a failed liberal agenda.  The American people know much better.”

The Economist also stressed the probable violations of the rule of law in Obama’s behavior:

“After the macho rhetoric came the demands for cash. Mr. Obama decided to “inform” BP that it must put adequate funds to meet all compensation claims into an escrow account beyond its control, although he has no authority to do so. …. If he sees any impropriety in politicians ordering executives about, upstaging the courts and threatening confiscation, he has not said so. The collapse in BP’s share price suggests that he has convinced the markets that he is an American version of Vladimir Putin, willing to harry firms into doing his bidding.”

On ABC’s This Week program yesterday, White House Chief of Staff  Rahm Emanuel didn’t tell us what exactly Obama said to the BP officials. He simply called it “jaw-boning.”

But what went on? This is not an issue of political gossip. There are rule of law issues and well as substantive political ones. The news media worried about secret discussions between then Vice President Dick Cheney and oil company executives. They should be worried now too.

One function of law is avoidance of regime uncertainty. When the state is unclear about the rules of the game private planning is made difficult and prolonged periods of economic stagnation may result.

But apparently our law-professor president either never heard of this or is simply too concerned with politics to care.

About Mario Rizzo 75 Articles

Affiliation: New York University

Dr. Mario J. Rizzo is associate professor of economics and co-director of the Austrian Economics Program at New York University. He was also a fellow in law and economics at the University of Chicago and at Yale University.

Professor Rizzo's major fields of research has been law-and economics and ethics-and economics, as well as Austrian economics. He has been the director of at least fifteen major research conferences, the proceedings of which have often been published.

Professor Rizzo received his BA from Fordham University, and his MA and PhD from the University of Chicago.

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