Tuesday, May 04, 2010

A Short Post On A Serious Topic



The topic is how to create proper incentives for taking into account the potential risks of any new endeavors, including drill-baby-drilling. Right now private firms do not tell us how they calculate the risks or how they allow for them, even though the negative consequences (such as oil leaking and leaking and leaking) do not stop where the imaginary limits of the firm are.

The BP scandal is an example of that. It is also an example of the biased incentives we give politicians. An elected representative of the people may get away not fixing a bad bridge, say, as long as she or he acts all decisive once it starts sinking. Even a fatal collapse doesn't have to mean the end of the politician's career. All you need to do is to act decisively AFTER the disaster has happened. You can even raise taxes then! You might even be taken for a good politician!

But a good politician would have had the bridge checked and repaired if needed BEFORE accidents could happen. As such work is mostly invisible and may mean higher taxes the next rival to the position will certainly use the tax-and-spend claims against someone who just did the job properly.

This is how the after-disaster stage goes in the drill-baby-drill case:

Schwarzenegger is only the latest politician to move away from offshore drilling in the aftermath of the BP disaster. Charlie Crist and even Marco Rubio have equivocated on their support in Florida. Bill Nelson, who supported the President's proposed expansion of drilling, now has introduced legislation to put a moratorium on it. Today on a conference call, Dick Durbin, a key ally of the President, said that offshore drilling would be "an issue reconsidered by many." He insisted that the best place to turn for our energy future is "our renewable resources."