[THS] BP, Obama and the Economics of Disaster

[The Harder Stuff in news and commentary]

http://www.truth-out.org/bp-obama-and-economics-disaster61406

BP, Obama and the Economics of Disaster

Friday 16 July 2010

by: Max Ajl, t r u t h o u t | Op-Ed

photo
(Image: Lance Page / t r u t h o u t; Adapted: Talk Radio News Service, Jeremy
Bushnell)

The unceasing dribble of bad news from the Gulf of Mexico has been running before
our eyes for weeks now: dead plankton; hypoxic zones looming and worsening, the
product of massive methane releases into the Gulf waters; withered marsh grass;
dolphin carcasses. This ruin is plenty bad on its own terms. No one wants to live in a
filthy post-industrial wasteland. You don't need to read metaphysical or
transcendentalist philosophy to understand that clean, sparkling, azure seas rife with
life are preferable to seawater lacquered with oil and peppered with Styrofoam and
the rotting corpses of sea mammals. Everyone - almost everyone - knows this
instinctively.

But a healthy ecology does a lot more than make the world aesthetically enchanting.
When marsh grasses absorb the tidal swell from hurricanes, they prevent coastal
communities from being destroyed. Marsh plants also absorb CO2 from the
atmosphere, as does plankton. When those marsh grasses and plankton are
damaged or destroyed, there will be more atmospheric CO2, and human beings will
feel the effects of that CO2. Hurricane storm surges will hammer coastal cities
previously protected by vegetative buffers much harder, and in a warming world, the
largest storms will come far more frequently. This destruction will cost money to fix -
money that would not have been spent if the oil had never been spilled in the first
place.

The Mississippi Delta provides climate stability, food, furs, habitat, natural waste
treatment and hurricane protection for its inhabitants. More than 90 percent of these
benefits come from coastal wetlands, which can include both freshwater and
saltwater marshes, tidal bays, estuaries and cypress swamps, and their value adds up
to a ridiculously large sum.

Researchers from Earth Economics, a think tank focused on applying economic
analysis to ecological issues, recently compiled a rough-and-ready estimate of that
sum. They found that "The Mississippi River Delta ecosystems provide at least $12-47
billion in benefits to people every year. If this natural capital were treated as an
economic asset, the delta's minimum asset value would be $330 billion to $1.3
trillion," assuming a discount rate of 3.5 percent a year.

The discount rate is slightly abstruse, but deserves a bit of an explanatory detour.
The rate refers to how we value the present relative to the future. In that way, it is
inversely related to compound interest. The National Oceanic and Atmospheric
Association (NOAA) explains that, "Compounding measures how much present-day
investments will be worth in the future, discounting measures how much future
benefits are worth today."

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So, how do we value the well-being of future generations as compared to those
currently alive? And to what extent will future generations live in a more affluent
society, better able to mitigate the effects of current ruinous activities?

3.5 percent is a relatively "low" discount rate, meaning it values the future relatively
highly, although many argue - I think correctly - that discounting is fundamentally
immoral, because a long-enough time frame will make even a very low discount rate
able to reduce ecological holocaust to a mere accounting problem. In that sense,
discount rates are unacceptable, a "polite expression for rapacity," as economist Roy
Harrod put it. Some economists agree. Others do not. (Economists never agree about
anything).

Still, ecological economics is certainly far better than most other economic paradigms,
in which, as the authors continue, "Ecosystem service values are outside the market.
They continue to produce benefits unless an action like the spill damages them." It is
when the birds are silent that we miss their songs.

Ecological economics relies on discount rates to consider and valorize ecosystems and
ecosystem services, accomplishing in theory what is already descriptively accurate
about the real world: that the economy is "embedded" in society and the
environment, and the limits imposed by human society and ecology necessarily
impose themselves on those operating as actors in a market system. Pretending
otherwise would be folly.

As Hungarian economist Karl Polanyi put it, "A self-adjusting market implied a stark
Utopia. Such an institution could not exist for any length of time without annihilating
the human and natural substance of society; it would have physically destroyed man
and transformed his surroundings into a wilderness." Utopia for Polanyi was literal: a
no-place, from the Greek, a place that could never exist.

The projected damages from the Deepwater Horizon explosion begin to suggest why
Polanyi was correct. The team from Earth Economics notes that the pipeline leak is
already harshly affecting the Mississippi Delta, although open water systems will also
be polluted by the effusion, as well as the coasts of countries and states that ring the
Gulf: Alabama, Mississippi, Louisiana, Texas, Mexico and Cuba. They add, "If we
assume that the Mississippi River Delta will be the most affected region and that
there will be a 10 to 50 percent reduction in the ecosystem services provided by the
Delta, this amounts to a loss of $1.2 - $23.5 billion per year into the indefinite future
until ecological recovery, or $34 - $670 billion in present value (at a 3.5 percent
discount rate)."

Before the spill, BP was worth about $189 billion, or a fraction of the total measured
value of the Mississippi Delta. Now, shareholders have dumped BP stock as projected
damages mount, and the stock-market valuation of the company has dropped. It's at
roughly $100 billion, while BP spokesmen bandy about rumors that their new "cap"
has securely clamped down on the well. BP's assets, according to Fadel Gheit, an
industry analyst, are "theoretically" worth $350 billion, while the projected clean-up
costs run from $10 billion to $70 billion (although some high-end estimates put the
costs at $560 billion). BP is getting walloped, but it is far from moribund. Soon
enough, it will either (a) again be humming healthily along; (b) it will be temporarily
taken over and managed by the federal government, which will restore it to fiscal
health, socializing losses and the "costs" of trying to abate the damages to the
ecosystem; or (c) it will be bought by another company in another massive illegal
mega-merger.

None of those paths are acceptable. We know that other oil companies are operating
their rigs in roughly the same manner as BP - they all had the same dim-witted
emergency response plan. Even if we take the numbers on the ecosystem damages
listed above as simply nebulous estimates, it's clear that catastrophes like the
explosion aboard the Deepwater Horizon oil rig are literally intolerable. The paths
above don't even target symptoms, and make further catastrophes inevitable.

Are there alternatives? Always. The best medium-term option would be a de-facto
governmental takeover of America's energy infrastructure: massive gas taxes to bring
gasoline's market-price to its real price of $15-or-so a gallon, which excludes the costs
of CO2 emissions (with rebates for those without transportation alternatives),
alongside government-built clean energy products funded using the proceeds from
that tax. Energy production would be transformed into a socialized industry, like
libraries or public hospitals. It might take a bit more than a nudge to bring Obama
and a recalcitrant Congress around to that plan. People would need to flood the
streets.

A more realistic option would be to dismantle BP, sell off its assets and use the money
to repair the ecosystem to the extent possible - then set up a trust fund to be
invested in green-energy products and distribute its profits to the injured parties. BP
executives would see their pensions punitively garnished along with their houses and
mutual funds, the misbegotten proceeds of BP's planet-killing added to the pot.

There is a precedent for this. Congress passed special legislation to target the
bonuses of firms that received bailout money from the government, legislation which,
recall, Obama proceeded to castrate nearly immediately. Congress has the power of
taxation; it can tax what it wants and how it wishes to. The Supreme Court, under
the impression that corporations are human beings, will certainly balk. Obama should
pack it.

Perhaps the plan shouldn't stop at taxes. Perhaps we should be throwing oil
executives into an Angola prison along with other thieves and murderers. As
economist Dean Baker wonders aloud, "We still punish drunk drivers for their
recklessness. This would be a good pattern to follow more generally. The executives
of the major oil companies whose clean-up plans for the Gulf of Mexico involved
procedures for rescuing walruses would find the matter far less humorous if it
involved jail time. Is there any reason it should not?"

Baker's not an idiot. There's a reason we don't throw oil execs in jail. It's just a
crappy reason: the defining measure of the American legal system is "special
privileges for high-class criminals."

Does the electorate agree with such steps, steps which are not nearly as radical as
$13-a-gallon gasoline taxes? Who knows? Pollsters don't compose surveys while
looking at pictures of pelicans suffocating to death or oil workers burning to death,
juxtaposed with snapshots of Obama in a harness with the reins in the hands of
petroleum executives and financial firms. (Congress is worse, comprised mostly of
marionettes who are almost incapable of independent action in the absence of a gale
from below). Polls never ask, "Should we dismantle the oil companies and use the
proceeds to transition to a green economy? Should oil company executives be thrown
in prison? Is Obama, like every president, Republican or Democrat, in total thrall to
large corporations, and if so, how should we deal with it?"

But polls do offer a few clues. They show that 62 percent of Americans think we're on
the "wrong track." Forty-eight percent disapprove of Obama, while 45 percent
approve of his presidency. The honeymoon is over, it's done. The only two things
that voters dislike more than Obama's comportment in the White House are Congress
- with 73 percent disapproval ratings, and 57 percent of respondents wanting a new
representative - and BP. Right now, the American electorate probably likes Osama bin
Laden and the National Socialist Party more than it likes BP. Two percent of the
electorate has a "very positive" view of BP - they have probably been shorting its
stock - and six percent has a "positive" view of BP; they probably were on Paxil when
they were asked the question. Sixty-five percent want "more regulation" of the oil
industry.

So what's the Obama administration doing? Well, the Mineral Management Service
issued a permit recently to the Bandon Oil & Gas Corporation for a new offshore oil
well some 50 miles off the coast of Louisiana. Bandon applied for the permit in April
before the explosion, according to the San Francisco Chronicle. Obama is trying to
impose a new moratorium on deepwater drilling. Who knows if our corrupt judiciary
will toss it out. Increasingly large swathes of the population despise Obama, while
their mirror image defends him religiously, perhaps amidst receding hope that
Obama is retaining a miracle in reserve to repair his failing presidency and our failing
country.

There are no miracles, just the slow grind of policymaking. If Obama wants to quiet
his critics, perhaps he should do stuff instead of talk about doing stuff. Two-thirds of
the population wants a transition to green energy. They don't like seeing the
environment desecrated, seabirds floundering in hellish marshes and people
incinerated on oil platforms.

Perhaps the oil companies should be disbanded and oil extraction categorically
illegalized. Perhaps we can divert half of that $1 trillion defense budget to windmills,
railroads, urban farms and an Apollo Project for green energy. That would be at least
be a good start.

Does Obama get the depth of popular fury, or perceive the popular disappointment
that will lead to a one-term presidency? Signs aren't good. Does Obama's bonhomie
about the folks in Wisconsin needing jobs and $2 billion in "conditional" commitments
to solar energy seem like enough to turn things around? It's like trying to stop a car
going 60 miles an hour by using a toothpick as a roadblock. It's not an effort. It's a
joke.

Writer Al Sandine comments on the "taming of the American crowd," the historical
retreat from confrontation in the street. We better get untamed, and fast, because
Obama isn't going to turn things around for us. We will have to turn him around, and
give him a push, too. And we'd better do so before it's too late.