Walter E Williams:The Entrepreneur As American Hero

Speech at Hillsdale College: March 2005

Oil Pollution Act of 1990 & BP Part Deux

The Deepwater Horizon oil spill is still ongoing in the Gulf of Mexico as I write this. What is interesting though is how analysts, journalists, and other people are trying to predict the liability that BP will face. Too many variables are unknown in order to determine how much the true liability will be. Clearly, I think everyone agrees that BP deserves to pay some time of fine. The million or perhaps billion dollar question is how much? The Oil Pollution Act of 1990 was passed after the Exxon Valdez went aground. The legislation prohibited any vessel that had caused a spill of more than 1 million gallons of oil operating in the Prince William Sound. Obviously, this should have been renamed the Exxon Valdez Act of 1990 since the Valdez was the only ship to cause a spill. From March of 1989-2002 the legislation only prevented 18 ships from entering the Prince William Sound. However, what we don’t know is the unintended consequences such as higher costs and logistical problems in terms of oil companies not being able to enter.

Congressional committees are under way to figure out what caused the BP spill and who was at fault. As I have said before, I don’t believe it was solely BP’s fault but most likely a collection of BP, Transocean, and Halliburton. Since The Oil Pollution Act of 1990 limited liability to $75 million it seems as if BP lawyers will use this precedent as a rule. Another lingering question is whether or BP will even be in business. If BP were to file bankruptcy then everyone including the government would be creditors and have to wait in line until the company went through bankruptcy court. Although, I think the probability of BP going bankrupt is l know the probability isn’t 0% since the probability of any company (even Fortune 100 companies have gone bankrupt!) is never 0%. Some people in Congress want to make the Oil Pollution Act of 1990 retroactive before the spill and make the limit $10 billion. What also may be taken into account is that BP will have compensatory and punitive damages that they will face. Not to mention to date BP has spent over more than $1 billion voluntarily to clean up the spill. Will this be credited against liabilities? I am no lawyer but it doesn’t seem to make sense to be able to change laws in order to punish one party. What about the idea that precedent cases are part of the judicial system which makes the law predictable?

Freedom At A Bookstore Near You

This week I was a little shocked, surprised, and stunned that F.A. Hayek’s Road to Serfdom reached #1 on Amazon under the books section. For libertarians/very conservatives/capitalists this is a victory that should be seen in the November elections. On another note Milton Friedman’s Free to Choose is currently #70 on the books list even though the book was written in 1980. Could this knowledge and understanding lead the nation into leaning more conservative? Is the Tea-Party really code for libertarians? I think there is some disagreement within the Tea-Party among certain issues. For instance, I don’t know how they feel about pro choice vs. pro life. Rand Paul has stated that he is pro life although this violates the fundamental of libertarian principle of letting people be free to choose as long as they don’t violate anyone else’s rights. The Tea-Party/conservatives could face a crossroads if they can’t decide what their true principles are. Although, I am pretty certain that they want less government and to cut spending. Other issues such as terrorism, immigration, the drug war are important issues that could make or break either party in upcoming elections.

BP = Beyond Pollution?

British Petroleum has recently come under fire for an oil spill in the Gulf of Mexico. BP, Deepwater Horizon, and Halliburton have also been accused of wrong-doing in the case of the BP spill. The spill started at 9:45 P.M. April 20, 2010 and will continue to spew out oil. At first the oil rig caught fire killing 11 employees. At first BP stated that they believed 5,000 barrels of oil per day were spilling but then later revised that number to 100,000 barrels per day. With the current price of a barrel of oil around $66 the company is losing $6.6 million per day on just the oil alone. This figure doesn’t include the clean-up costs, lawsuits, and other expenses related to the spill. BP claims that the cost per day to clean up the spill is around $10 million. What seems clear is that some party is at fault for the spill. BP, Deepwater, Halliburton or a combination of all three could be at fault for the accident. However, it might be hard for some people to understand that perhaps no one party cause the spill it could be shared among all these companies and maybe other contractors that worked on the rig. Obviously these companies didn’t want the spill to occur since they would lose their reputation which is worth billions of dollars. The companies involved have been hurt dramatically since the spill. As of today, BP is down close to 27% since the oil spill started. Halliburton has been down 17% since the spill started. These stocks could still continue to go down since the market does not know what the true liability for these companies are. Exxon had a spill in 1989 that took many months to clean up. The difference however was that Exxon Valdez ship only had so much oil as opposed to a rig that can keep spilling oil until it gets fixed. The plaintiffs that sued Exxon in 1989 didn’t receive their final judgment until June 15, 2009 nearly 20 years after the spill occurred! Not only did it take a long time the judgment was decreased from $5 billion to $507.5 million. I believe a similar situation will happen with the BP case since the company will voluntarily put in billions to clean up and have to deal with lawsuits. Should the government get involved in oil spills? I think the answer is somewhat of a yes since an oil spill does impose an externality onto the environment and the people. We have courts to dispute torts (wrongs against people). Not only can this but the no amount of regulation can make up for the loss of reputation of the firms involved in the spill. Also why were these rigs so far off shore? Was it because of regulations or just because it would have been easier to find oil? In addition to this, why don’t we have more above grounds rigs? At least if the rig is above round than it is easy to fix the spill. Drilling for oil is not an easy thing and risks are always involved. To say we should drill less or just not drill at all assumes people would be willing to pay European prices for gasoline. More drilling will result in fewer spills since people will become more experienced in figuring out what problems might arise or what could go wrong. This spill will make future oil spills less likely since companies will spend money on preventing oil spills or by making sure that if a spill occurs they have the resources to take care of it. People in Washington D.C. don’t agree with this logic and simply want to create new regulations which will increase cost not only to oil drillers but also to consumers since companies pass on costs. Perhaps less regulation would have not caused the BP spill. Time will only tell as to what the ramifications are of the spill, what parties were affected, and how things will be done differently in the future. However, it is a really good time to be a litigation lawyer or a fisherman in the Gulf Coastal area.

Genius of Richard Epstein

21:42-Introduction to Epstein
21:45-36:50 Explaining problems with Obamacare
40:40- 42:23 Insurance
After 45:00 Q&A

YouTube and Profitability

I often wonder how YouTube is still in business. YouTube is owned by Google and provides free video content to millions of people. Although, let's think about this if I never pay YouTube a penny for using it I get a free service since advertisers are paying to place their ads on the site. YouTube may have millions of viewers buy how many of them actually look at or use the product advertised? This is probably why I have a problem with marketing in general. Marketing can rarely be quantified or measured for success. It is not like investing where you can see your return or how much you made. With marketing it is almost impossible to quantify how much of an impact the advertisement made. This brings me back to YouTube.

"An April 2009 report from Credit Suisse did nothing to suggest that YouTube had finally figured things out: It predicted that Google would spend $470 million this year on YouTube, the result of high infrastructure costs without revenue to match" according to InformationWeek.

Google bought YouTube for $1.65 billion in 2006. YouTube manages 200 million uploads per day! The cost of storing data, video, and music on a hard drive has decreased dramatically. YouTube will eventually have to increase storage or figure out some way to get more revenue if they want to remain in business. My own personal view is that Google which is full of free cash flow will hold onto YouTube as a loss leader and either have to either a)start charging people b) restrict the amount of uploads c) go out of business. YouTube can't sustain its exponential growth rate without some serious changes.

However, the positive is that YouTube has benefited many businesses, doctors, performers, and entrepreneurs by allowing people to share their content and to use as a marketing strategy to leverage for their business. This group has benefitted from the ability of posting free content since it is free advertising to help get the word out.

I personally wouldn't mind paying for YouTube if it was relatively cheap and was constantly adding quality material. For instance, why can't I buy or find online an interview on The Tonight Show unless it was a memorable interview? Couldn't the companies that own this content release it and charge it similar to an I-Tunes system? With millions of hours of content somewhere companies that own the content could increase revenue but letting people buy it. The content has opportunity costs since it is isn’t broadcasted and could be making money for the owners of the content. Maybe Hollywood needs to take some business classes.

Markets in Everything: Trophy Wives

Recently, Larry King divorced for the 8th time. You would think after a few times he would get a hint. On April 14 Larry filed for divorce from his wife Shawn of 13 years. It should be pointed out that he is 26 years older than her. Mr. King has a net worth of around $144 million. He did not have a pre-nuptial agreement with his wife which could cost him big time. Let's examine this from an economic point of view. Larry for over a decade got the company of a much younger and attractive woman. Shawn got to be with a well known TV personality who was worth big bucks. Since they are divorced now they will get zero utility from the other person. Most likely Shawn will get at least half of Larry's estate which would be around $72 million. Remember this was for being with Larry for 13 years. Do you think more women would have done this if they had known the payout? A payout of $72 million would equal $5,538,461 per year, $106,508 per week, $15,215 per day, or around $634 per hour. Clearly, this is a large sum of money. However, it should be pointed out that in a sense Shawn is an outlier because Larry can only pick one woman out of many thousands to be his wife (okay maybe a few thousand - 7). At a rate of $634 this is clearly more than most conventional jobs and is probably more than a prostitute. However, prostitution is illegal and marrying trophy wives isn't. Both groups have incentives to engage in this type of behavior and their function is pretty similar yet one is legal while the other puts people in jail. How can we tell people it’s wrong to buy an hour of "fun" yet it’s okay to marry someone that you will have to provide "fun" for many years?

Michael Lewis

Seems like Michael Lewis is having a very good year… Some stats from Amazon.com

The Big Short- #5 in books as of 4/11/2010 has been on Top 100 for 40 days
The Blind Side (movie) - #3 in movies has been on Top 100 for 49 days
Liar’s Poker- #108 in books was at #65 last week however has first published in the 1989
The Blind Side (book)- #320 in books

I bet someone is seeing the money come on in…

Killer at Large: Obesity

Recently I watched Killer at Large the Obesity Epidemic. The documentary focused on obesity in America particularly looking at kids and their diets. When I was a kid growing up in the early 1990’s I remember we didn’t even have soda or candy machines until we got to high school. For lunch nearly everyone bought their lunch with a few people (including myself bringing their own lunch). This hasn’t seemed to change in today’s society. Kids are able to purchase candy, soda, and other baked goodies. I see no problem with this. People try to blame Coca Cola and Pepsi for being greedy and installing these machines. Don’t parents have a role in raising their children?

The documentary starts out with a 12 year old girl getting liposuction by a plastic surgeon (I really wonder if he is board certified). The girl gets liposuction after years of emotional eating. The girl gets her liposuction but the liposuction is short lived because she puts the weight back on. I see a few problems with this. First, no reputable plastic surgeon would be doing this to a 12 year old girl. Although, I am not a doctor I do know that children by that age have not reached their full potential in terms of growing and development. Also the emotional eating part was interesting. The girl claims that she used to get really stressed when her parents fought and she just began to eat. How do we know that this wasn’t part of some deeper psychological issue? Instead of eating for comfort she could have turned to some other vice such as spending too much, drinking too much, or becoming a drug addict.

Around 15 percent of children ages 6-19 are overweight during the 1999-2000 period. The percent of obese and overweight kids is much greater than this. My question would be why do we as a nation have to care so much about our children’s weight? Just because healthy weight is desired doesn’t mean we all have to achieve it. What if children and adults would like to be obese? We can’t make assumptions on what other people want. For the sake of argument let’s assume we want to solve this problem what needs to change? I would go out on a limb and say that the public school system is partly to blame for this. Since the public school system is virtually a government run monopoly parents and students have little say in what goes on at the schools. If we were able to let the schools compete with one another this would create competition between schools. For example, if the Myers family felt that Johnny was overweight and wanted a school that focused on getting their child fit. By allowing parents and students choices in the school system could to students that were not as obese. Schools could compete on what types of meals they offered students , what type of physical exercise was involved, and what type of curriculum students learned about fitness and health. Yes, school choose could reduce the number of obese and overweight kids by creating competition.
Being overweight sends signals to not only our friends, but the general public. Robin Hansen professor of George Mason University was on EconTalk and discussed signaling. In essence, signaling is economic jargon for how we want to be perceived through the eyes of others. For example Hansen argues that people that show up to the hospital to see an ill or dying relative to signal that they care about that person regardless of whether they actually do. Being overweight is no different. If a person if overweight they are signaling to others that they don’t burn as many calories as they take in. Also people can’t lie about being overweight like they can about their status, power, or money because people can obviously see how big or small they are.

If you read this far you might be wondering what solutions I might have. Since you asked I have a few. First, if the government rewards good behavior in the form of tax credits why not give people tax credits for working out. Especially with Obamacare being passed it the government will have more of a say in what people eat and how they treat their body if the government is paying for it. Next, I would break up the government run monopoly for schools and allow parents and children to choose what they fitness and workout regimen is taught in school. Lastly, I would not place a tax on soda, candy, and other assorted goodies because this would just make people fatter. You might argue, “Well if you tax anything you get less of it!” I understand this principal however a “sin” tax on these goodies would just induce people to create their own sinful goodies. If the taxes were too high it could lead to smuggling and people would just find a way around higher taxes like they do for nearly everything else. We have to remember that we ultimately control our destiny and we can’t blame it on genetics because genetics did not simply overnight make us fat. We might want that extra piece of pie or extra chocolate chip cookie but we have to remember the future might be uncertain.

Bryan Caplan on Healthcare

Bryan Caplan on the healthcare debate.

Debate: Separation of Health & State from GMU Econ Society on Vimeo.