Welcome to Scribd, the world's digital library. Read, publish, and share books and documents. See more
Download
Standard view
Full view
of .
Save to My Library
Look up keyword
Like this
5Activity
0 of .
Results for:
No results containing your search query
P. 1
The Gulf Oil Spill: Lessons for Public Policy, Cato Policy Analysis No. 684

The Gulf Oil Spill: Lessons for Public Policy, Cato Policy Analysis No. 684

Ratings: (0)|Views: 4,830|Likes:
Published by Cato Institute
The oil spill in the Gulf of Mexico and the ensuing political firestorm brought to the fore some longstanding problems associated with the regulation of commercial activities of all kinds on federal lands. Unfortunately, those problems are not resolvable as long as the lands are governed by federal agents. Populist outcries against the "giveaway" of oil on public lands and the industry's refusal to drill even when leases are granted demonstrate the difficulty economists face when trying to construct a rational public lands management regime. The only promising avenue of reform is to privatize commercially attractive federal lands and institute a strict liability regime for damage to third parties in lieu of regulatory oversight. If privatization is too politically difficult to achieve, a second-best remedy would be to replace royalty payments for production with a one-time fee for use.

Unfortunately, the Democratic reform proposals fail to address the underlying problems that have contributed to regulatory dysfunction. Worse, they veer off into tangential campaigns against foreign oil imports, oil consumption, and climate change. Examination of both President Obama's reform proposals and the main piece of Democratic legislation designed to address the spill — the American Clean Energy and Security Act (the so-called Waxman–Markey Bill) — suggest that the spill is being used as a pretext to advance dubious policy agendas that have little to do with the spill itself.
The oil spill in the Gulf of Mexico and the ensuing political firestorm brought to the fore some longstanding problems associated with the regulation of commercial activities of all kinds on federal lands. Unfortunately, those problems are not resolvable as long as the lands are governed by federal agents. Populist outcries against the "giveaway" of oil on public lands and the industry's refusal to drill even when leases are granted demonstrate the difficulty economists face when trying to construct a rational public lands management regime. The only promising avenue of reform is to privatize commercially attractive federal lands and institute a strict liability regime for damage to third parties in lieu of regulatory oversight. If privatization is too politically difficult to achieve, a second-best remedy would be to replace royalty payments for production with a one-time fee for use.

Unfortunately, the Democratic reform proposals fail to address the underlying problems that have contributed to regulatory dysfunction. Worse, they veer off into tangential campaigns against foreign oil imports, oil consumption, and climate change. Examination of both President Obama's reform proposals and the main piece of Democratic legislation designed to address the spill — the American Clean Energy and Security Act (the so-called Waxman–Markey Bill) — suggest that the spill is being used as a pretext to advance dubious policy agendas that have little to do with the spill itself.

More info:

Published by: Cato Institute on Oct 03, 2011
Copyright:Attribution Non-commercial

Availability:

Read on Scribd mobile: iPhone, iPad and Android.
download as PDF, TXT or read online from Scribd
See more
See less

10/10/2013

pdf

text

original

 
Executive Summary 
The oil spill in the Gulf of Mexico and theensuing political firestorm brought to the foresome longstanding problems associated withthe regulation of commercial activities of allkinds on federal lands. Unfortunately, thoseproblems are not resolvable as long as the landsare governed by federal agents. Populist outcriesagainst the “giveaway” of oil on public lands andthe industry’s refusal to drill even when leasesare granted demonstrate the difficulty econo-mists face when trying to construct a rationalpublic lands management regime. The only promising avenue of reform is to privatize com-mercially attractive federal lands and institute a strict liability regime for damage to third partiesin lieu of regulatory oversight. If privatization istoo politically difficult to achieve, a second-bestremedy would be to replace royalty paymentsfor production with a one-time fee for use.Unfortunately, the Democratic reform pro-posals fail to address the underlying problemsthat have contributed to regulatory dysfunc-tion. Worse, they veer off into tangential cam-paigns against foreign oil imports, oil consump-tion, and climate change. Examination of bothPresident Obama’s reform proposals and themain piece of Democratic legislation designedto address the spill—the American Clean Energy and Security Act (the so-called Waxman–Mar-key Bill)—suggest that the spill is being used as a pretext to advance dubious policy agendas thathave little to do with the spill itself.
The Gulf Oil Spill 
 Lessons for Public Policy
by Richard L. Gordon
No. 684October 6, 2011
 Richard L. Gordon is professor emeritus of mineral economics at The Pennsylvania State University and adjunct  scholar at the Cato Institute.
 
Introduction
The April 20, 2010, Gulf oil spill and theensuing political response demonstrate many important lessons about public policy.
1
Theimmediate and most relevant political issueis how best to reform the management of off-shore oil reserves in federal waters.The underlying problem is a mythology that holds that public lands are precious re-sources needing careful government manage-ment. This simply isn’t true. Little of the landis environmentally, recreationally, or histori-cally significant. The inherent drawbacks of government would prevent the success of  vigorous management programs in any case. Actual programs involve giving the agenciesinvolved limited resources to handle increas-ing responsibilities. Management of offshoreoil and gas leasing is only the most graphicrecent example of this incompetence. Predict-ably, the government commission to study thespill suggested massive, unworkable new regu-lations. In contrast, the classic drawbacks of heavy reliance on royalties and imposition of diligence requirements were ignored. The bestcure for the underlying problems of publicland mineral management is to privatize com-mercially attractive federal lands and institutea strict liability regime for damage to thirdparties in lieu of regulatory oversight.The spill also was used, albeit ineffectually,to energize the longstanding campaign to re-duce America’s reliance on petroleum.
2
Unfor-tunately, the wrong lessons are being learnedfrom the spill, producing counterproductivepolicy proposals.The arguments for reducing oil consump-tion rest on three entirely unrelated com-plaints: impending resource depletion, thedangers of import dependence, and the risk of global warming. The only thing that these con-cerns have in common is their invalidity. Evenwere these concerns legitimate, each involves a different response. In the case of depletion, nosensible government action exists that wouldimprove on letting market forces respond tochanges in supply. If imports are dangerous,they should be taxed. If greenhouse gases area threat, then only emissions should be taxed.This differs radically from the tendency of politicians to talk as if a single energy prob-lem exists. Moreover, the proposed remediesinvolve the same kind of extensive microman-agement of energy choices that has failed in thelast four decades. President Obama’s approachto energy policy involves unwise direct publicsupport for technical options that have failedin all prior efforts. The capstone 2009 Waxman-Markey bill supposedly meant to deal with allenergy problems actually only treated green-house gas emissions with any vigor. The many concessions needed to ram the law through theHouse of Representatives made the law so un-attractive that the Senate refused to act on it.
The Failure of Regulatory Oversight
Critics of the pre-spill legal regime are rightto highlight the regulatory dysfunction withinthe agencies charged with regulating publicland. Yet they have misdiagnosed the causesand thus support the wrong solutions. Theunderlying problems are well understood by academics and policy advocates specializingin the field, but the problems have proven im-mune to reform because until recently they did not contribute to any identifiable environ-mental or other calamity.
3
Indeed, the viewsof the few economists knowledgeable aboutpublic lands differ radically from those of politicians setting public-land policy. Withoutsome crisis to concentrate popular attention,reformers could not persuade politicians todevote the sustained attention necessary to ad-dress intelligently the underlying issues.
The Challenge of Public Land Management
The crux of the problem is the dramaticdisparity between the popular image of publicland and the reality.
4
When most people thinkabout public land, they think of national parksand wildlife refuges and thus associate federalstewardship with ecological protection. This isfiction.
5
Environmentally attractive lands arebut minor appendages of the federal estate.
2
The crux of the problem isthe dramaticdisparity betweenthe popularimage of publicland and thereality.
 
Less glamorous and less ecologically desirablelands make up the bulk of the federal lands,and it is these lands—which support activitiessuch as grazing, forestry, and mineral extrac-tion—that demand the bulk of public agen-cies’ time and attention.
 
Naturally, they aregoverned by public officials using criteria thatoften and appropriately have little to do withenvironmental protection.The growing demand for environmental pro-tection even on traditionally “commercial” landshas forced agencies accustomed to facilitatingprivate use of public lands to change priorities.Unfortunately, this transition is hindered by both a lack of clear political guidance about thenew regime and the requisite expertise necessary to perform this new mission.
6
Thus it is not sur-prising that public land management is a chron-ic problem about which only a few specialistscare until real or imagined crises arise. Even then,interest is superficial and fleeting. The prevail-ing reluctance to examine seriously the nature of the challenge associated with public land man-agement both preserves the status quo and pre-cludes devoting adequate resources to do the as-signed regulatory jobs. When politically chargedproblems do arise, the political outrage andresulting demands for action run well ahead of the government’s ability to respond intelligently.Politicians and journalists have made responsesynonymous with more intervention; deregula-tion is dismissed as negativity. With obscure poli-cies, indignation is usually limited to the insidersand other specialists. In none of these cases doesa rational public policy emerge.The key reason that federal stewardship of realms such as public lands is likely to disap-point no matter how competently adminis-trated or well-intentioned it may be was fa-mously explained in Friedrich A. Hayek’s 1945essay “The Use of Knowledge in Society.”
7
Thearticle is a concise argument for why marketsare superior to centralized control. In it, Hayekconvincingly demonstrated that when dis-persed, specialized knowledge is required tomanage an enterprise (such as, say, the com-mercial exploitation of mineral deposits be-neath the Gulf), private actions and privatemanagement are preferable to public actionand public management. A subsequent essay observed that governments regularly assertcontrol over economic sectors even while fully aware that they cannot devote the resourcesnecessary to achieve desired outcomes.
8
Plan-ners’ inability to manage the task they have setfor themselves explains their critics’ antipathy toward complex procedures to regulate, oneshared across all ideologies and epitomizedby the dismissal of such micromanagement as“command and control.”The difficulties are aggravated by deliberatemisstatements about the nature of science. Alltoo often, science is made synonymous withthe precision of physics and chemistry. Theshortcomings of this vision are well illustratedby geology and meteorology.
9
Systematic, im-partial, “scientific” analysis cannot resolve thesubjective issues affecting policy choice.The knowledge problem identified by Hayek is thus only one of many that bedevilgovernment when it attempts to intervene inthe economy. Milton and Rose Friedman, forinstance, have noted that government has a limited ability to act and cannot properly treatall the problems thrust at it.
10
Ronald Coasehas highlighted the income distribution andtax distortion effects of intervention.
11
A fur-ther “rent-seeking” literature documents thepolitical temptation to aid strategically locat-ed special interest voters to the detriment of others.
12
Of course, intervention is often basedmore on ideology than analysis, and “action”is assumed to require more intervention with-out considering whether prior policies werethe cause of the disaster of concern. Thus, theresponse to flawed land management and en-ergy policies is always tighter regulation.These observations apply to many govern-ment policies, which is why a large and expand-ing literature exists on the failure of governmentintervention in the economy. Nevertheless, ev-ery massive public policy failure—whether we’retalking about the September 11 attacks, homemortgage defaults, poor public school perfor-mance, or industrial accidents such as the Gulf oil spill—leads to calls for action, and that ac-tion is always defined as an elaborate new gov-ernment program or regulation regime.
3
Governmentsregularly assertcontrol overeconomic sectorseven while fully aware that they cannot devotethe resourcesnecessary toachieve desiredoutcomes.

You're Reading a Free Preview

Download
/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->