Gulf: Pricing risk

Government regulators capped offshore drillers' liabilities at the ludicrously low level of $75 million. That's nothing but a bad joke. If risk had been accurately priced, drillers would have been much more careful. With a liability cap of only $75 million, taxpayers were, in effect, forced to subsidize risky and irresponsible behavior by drillers. The excuse for the low cap was to allow smaller firms to engage in drilling. But if a company cannot pay the costs of the damage it may do, then it has no business being allowed to operate.

This pattern of nonsense is what you get when Government doesn't let the market price things; there is no other way to know what prices should be. The non-market "solution" is to rely on watchdog regulators, a supplementary step at best. (Google "regulatory failure" and see how many million links pop up.) Regulation is always behind the curve: it's rarely very effective in detecting violations, and when it is effective it stifles innovation. The recent Big Branch coal mine disaster in WV is a good example, with inspections always tipped off in advance, and then violations that were discovered left in place while the paperwork wandered in a bureaucratic purgatory. An operator who is liable for the full amount of damages will self-inspect and self-correct, because he knows he will have to pay the true costs of his own violations.

The point is made here, starting at 1:30

Byron