Is Statism Safer for the Environment?

0:00I'm Judge Andrew Napolitano and this is Freedom Watch. We keep an eye on government wrongdoing at Freedom Watch, but we often hear the argument that there are certain problems that only the government can handle and the free market should stay out. The massive oil slick in the Gulf of Mexico was a huge mistake on the part of an oil company, BP. But would stricter government oversight really have prevented the problem? Columnist Joe Connison, writing for Salon, even argues that the oil industry is more environmentally friendly in Norway precisely because it's owned by the Norwegian government. Of course, all industry was state-run until recently in Russia and China, and those countries have abysmal environmental records. My next guest, economist Walter Block of Loyola University in New Orleans, argues that the record of state-run enterprises is not so spotless, or even green.

0:54Professor Block, it's a pleasure. Welcome back to Freedom Watch. Thanks for having me on your show again. What could the government possibly do to have prevented this that private enterprise can't do? Well, the problem is, when you have a failure in the private sector, there are automatic feedback mechanisms that reduce the ability of the private company to operate. Whereas When you have a mistake in the government sector, there are no such safeguards or protections. Let's change the subject a little bit from BP for a second, and let's look at the aftermath of Katrina, which was the Army Corps of Engineers' fault, plus FEMA screwing up the rescue service.

1:42Are those two institutions still in business? Yeah, unfortunately they are. Because they don't have to please investors or consumers. Right. Now, who's actually doing the cleaning up as we speak? Is it BP or is it the military? Or is it the United States government directing BP? Well, maybe misdirecting, but certainly, you know, they say that you can't mine coal with bayonets, And the government can't do anything here. It has to rely on this company. But the government has given them a subsidy in the sense that they are only responsible for, I think, $75 million and $90 million limit. I can't tell you, Professor Block, how upsetting to me it is that these caps are imposed. If I punch you in the nose and I break your nose, I am responsible for all the natural and probable consequences from the punch.

2:40The pain and suffering, the medical bills, the reconstruction of the nose, the loss of lifestyle, the loss of employment, the loss of income, if any of that happens. If I pour oil in a stream behind your house, I am responsible for wherever that oil goes downstream to your neighbors as well. But if I'm a big oil company, like the Exxon or Mobil or Exxon Mobil or BP, and I let hundreds of millions of gallons of oil into the navigable waters, When the government puts a cap on damages or a safety net under a corporation, doesn't that encourage reckless behavior? Because they know that no matter what they do, they'll never have to pay more than the cap?

3:25Yes. Well, this is the economic concept of moral hazard. When somebody else is paying for the downside, you take more risks than you otherwise would. I've even heard it brooded about, although I'm not sure if this is true or not, but just speculate with me, that part of the problem is, another part of the problem is the government's fault in the sense that they precluded companies from drilling on the continental shelf, which is very close to the shore, where it would be safer and easier, and as a result they had to go out in the deep water where it's more difficult. So if this is true, and I don't say it is, but I've heard this rumor and I'm going to check it out, The Gulf of Mexico covers a variety of states, and the waters from the Gulf of Mexico touch hundreds of thousands of persons' private property.

4:22What is the free market, what is the libertarian position, if you will, on how something like this should be regulated if at all, or controlled if at all, or addressed after a catastrophe of the likes of which we've just seen. Well, I think the radical libertarian view is that we should have private property in the oceans in general and in particular the Gulf of Mexico. If the Gulf of Mexico Company owned the Gulf of Mexico and they were responsible for any oil seeping onto the shores, onto other people's property, they would have been a lot more in a preventative mode, they would have taken greater steps to insure against this. But again, you know, the reason we have erasers at the end of pencils is people make mistakes.

5:12Right. I realize that this is an accident. There's some evidence that they had some indication that this well wasn't going properly, that they couldn't turn it off when they wanted to, that the pressure was stronger in some spots than they expected to be. It's really not practical, at least not at this stage, that somebody would own the earth underneath the Gulf of Mexico. What is the practical free market way to clean it up? The feds don't know what they're doing and BP can't seem to get its act together. Well, certainly the cap which we spoke about before would be something that wouldn't have happened and they would be responsible for the entire damages, just as in the elephant case of punching me in the nose, you'd be responsible for the entire damages, not just up to a certain cap. So that would certainly be a moderate libertarian position of pulling short, say, a privatization of oceans and the Gulf of Mexico.

6:09Basically, taking the federal government out of the equation, out of the legal equation, out of the moral equation, and out of the economic equation. Professor Block, it's always a pleasure. Thanks for joining us. Thanks for having me again.