The Big Shakedown

The Art of Misconstruction

As you know, BP agreed to set aside a $20 billion fund for those affected by the oil spill. It was a moment of high drama yesterday when Congressman Joe Barton (R-Texas), ranking member on the House Energy and Commerce Committee, held BP CEO Tony Hayward’s feet to the fire, noting:

“I’m ashamed of what happened in the White House yesterday… I apologize. I do not want to live in a country where anytime a citizen or a corporation does something that is legitimately wrong is subject to some sort of political pressure, that is again, in my words, amounts to a shakedown. So I apologize.”

After being subjected to some significant pressure by House GOP leadership, Barton quickly apologized for his apology, noting: “If anything I’ve said this morning was misconstrued from that I want to apologize for that misconstruction.”(I will leave it to my colleagues in the humanities to deconstruct the misconstruction).

Did the agreement to set aside a $20 billion fund amount to a “shakedown?” There is little question that BP caused significant damages.   It also seems both politically expedient (for Obama and BP) and prudent to establish such a fund immediately. One can only hope that the fund will allow for some immediate compensation free from the extraordinary transaction costs that turned Superfund into a lawyers’ trust fund.

Of course, “shakedowns” are ubiquitous in Washington. Elected officials commonly extract campaign contributions as the cost of access (without, of course, referring to them as “shakedowns”).  Joe Barton, for example, may find some “shakedowns” unpalatable, but his campaign committee and leadership PAC have extracted close to $14 million in “donations” in the past decade (the leading industry contributors, unsurprisingly, have been in the energy sector).

Members of the House Energy and Commerce Committee have extracted some $3.2 million from the oil industry since 2008. This  may seem like a pittance, given that the industry as a whole has invested $88.3 million in House and Senate races since 2000.

Does any of this matter?

One of the core insights of public choice was that we should assume that the same models of behavior should be applied across institutions (the symmetry argument). We cannot restrict the model of homo economicus to the market and presume that different models of behavior (altruism, public-spiritedness) prevail in nonmarket settings. This is not to say that there are not altruists or public-spirited individuals. But, as Geoffrey Brennan and James Buchanan remind us in The Reason of Rules, they are “delicate flowers, and crucial to their blooming may be the existence of institutions that do not make social order critically dependent on their effectiveness.”

Our political institutions are designed to facilitate mutually beneficial exchanges between transfer seekers (corporations, interest groups of any given stripe) and vote-maximizing officials. One should not expect that such exchanges are normally executed with more than fleeting consideration of altruism or the public good (those “delicate flowers”).  Such exchanges usually have a monetary component (as the campaign donations to Barton, the Energy and Commerce Committee, the House and Senate suggest) and they almost always impose costs (some financial, some environmental) on the unorganized. That, my friends, is the big shakedown.

Most of the pieces on the misconstruction of Barton are rather predictable. Here is a sampling.

Michael Kieschnick at Huffington Post is obviously pleased by Barton’s comments and begs him: “please keep talking!”

Erick Erickson at Red State makes the case that Barton was right and the congressional hearing was little more than a show trial.

At NRO, Daniel Foster recognizes the political ham-handedness of Rep. Barton but argues that the $20 billion fund “if not illegal, [is]at least extra-legal, and another example of Democrats’ selective disdain for the rule of law when it gets in the way of a government-run redistribution scheme.”

At WaPo David Weigel correctly sees the political consequences of Barton’s statement, providing Democrats with “an opportunity here to discredit the GOP’s rhetoric in support of small government.”

2 thoughts on “The Big Shakedown

    1. From what I understand, the creation of the $20 billion fund has not absolved BP of its liability. Rather, it has created a mechanism (hypothetically) to disperse funds without the transaction costs and delays associated with the system of torts. Of course, the devil is always in the details.

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