I was golfing the other day with my brother-in-law Ed, a University Professor and proud FDR-liberal, discussing a variety of subjects from Alexander Hamilton to Oklahoma Sooner football when the subject of the role of government as the disciplinarian of Big Business came about. Ed was of the opinion that without the mighty force of the Federal Government laying down large fines to reckless corporations like BP, there is no disincentive to prevent corporate tragedies like the 2010 oil spill – a line of reasoning I have frequently encountered.
Of course, as I attempted to explain to Ed, the market itself has its own ways of punishing business malpractice. I asked Ed if he ever saw a BP commercial before the oil spill, of course he had, and then asked him why BP paid for the commercial. “PR”, he replied. I responded by asking him what comes to mind now when he thinks of BP, those commercials or the oil spill? The oil spill, over night, eliminated the value of billions of dollars of investment in public relations, and that’s not considering the time. During the summer it seemed never a day went by without an invitation to a Facebook group encouraging a boycott of BP – a market driven punishment to the spill (if not a misplaced one).
Then there was the cost of cleaning up the oil itself. Growing up in Panama City Beach for most of my life, I was quick to volunteer my services in cleaning up its beaches. BP paid the cost of my and my fellow technician’s HAZWOPER Certificate (valued over $300), allowing us to work with tarballs with OSHA’s blessing. We received a starting salary of $12 an hour, a guarantee of 80 hours a week (meaning $18 an hour with overtime) and our contractor received a nice profit for every head they hired. I was taking home over $1000 dollars a week. At one point we had 1,000 workers at my base camp in Port St. Joe, and we didn’t even have oil. BP paid for our meals. BP supplied our hard hats, our gloves, our neon safety vests, our medical personnel, our work trucks, our work ATV’s. BP rented out entire marinas and fisheries and dirt lots to set up camps. We enjoyed air conditioned work tents (necessitated by working in 110 degree heat) and all the water and Gator-Aid we could drink. BP rented the services of private fishing boats. BP deployed almost 4 million feet of boom in the water. All of this at a cost.
And then there were the settlements. Though I did not apply for a “BP Check” as it is referred to locally, most everyone else I know did. It is normal to hear stories of people receiving $12,000 check for being fired due to laziness and then blaming it on the oil spill. A former co-worker of mine has received a total of $7,000 dollars, in spite of the fact her tax receipts showed she made more money in 2010 than 2009. Recently BP has offered $5,000 to anyone who filed a claim and agrees not to sue. Local businesses are getting even more. And this in Panama City Beach, where we never saw our beaches covered in oil.
When I bring up these naturally occurring costs, I typically hear a few standard replies. My favorite is “but BP is so large that they will still end up making billions in profits this year.” That may be true, but wouldn’t they have made billions more by not filling the gulf with oil? (I typically choose not to bring up the opportunity costs associated with BP not being able to sell the spilled oil.) Ed asked me whether I believed BP would have paid the cost of recovery if not for the Federal Government, I asked whether he would ever buy BP gas again if they didn’t. And then there is the legal system, which obviously wouldn’t even be eliminated in Murray Rothbard’s state of anarchism, that would supply an avenue for victims to be compensated for their losses. Even with the government imposed escrow fund, a coffee shop owner I know, who opened his business nearly three months after the spill, is using the court system (or threat of it) to receive his own BP check after being denied through the typical claims process.
Of course BP is not the only example of the morality of free markets. When a fast food chain allows tainted food to be sold, even if isolated to one specific store, nation-wide demand for their food goes down, along with their profit margin. When a pharmaceutical company puts out a bad drug, they have to deal with similar legal and liability costs that BP endures. When Toyota makes a car whose breaks don’t work, they have to pay for the nation-wide recall while at the same time suffering from the resulting decrease in demand. When a coffee shop sells a lukewarm cup of coffee, they suffer the opportunity cost of never enjoying the business of the dissatisfied consumer.
It’s easy to develop a near spiritual celebration of the market when you come to understand how the natural morality of the markets is applicable to the individual as well. If you realize that the income an individual enjoys is the direct reward for their labor (be it from selling it to another or applying it to their own enterprise) then one can understand the significance of their budget. The person who spends $50 dollars every two days on a bottle of Jack Daniels experiences the fiscal price of their vice. The person who spends $60 dollars on bag of marijuana, they experience not only a fiscal price for the vice of the drug, but the price of breaking the law (the illegality being directly reflected in the price.)
It is, of course, the government that does its best to destroy this natural morality. When we are told that all food carries with it the endorsement of the FDA, it is only natural for consumers to worry less about the reputation of its producer and to instead focus on cost. When the Southern Pacific Railroad was granted by government a monopoly in California, the resulting corruption was blamed on the railroad industry as a whole, not the politicians who granted the special favor. When criminalizing a relatively harmless drug like marijuana forces its consumers to interact with drug dealers on a black market, it is the plant that is blamed as a gateway drug. I remembered watching in amazement when the aftermath of the oil spill brought about discussion of raising the liability cap for BP, why should any corporation receive protection from the results of their recklessness?
The more I understand the true nature of the markets, the most enthusiastic I become about the economic freedom of capitalism and the more passionate I become about seeing its return to this country. As Mises sagaciously stated “The alcoholic and the drug addict harm only themselves by their behavior; the person who violates the rules of morality governing mans life in society harms not only himself, but everyone.”