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Clay Rossi
Clay Rossi
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Big Oil Rigging the Game

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What is a black swan? It’s not a new cell phone model or a chic new wine label or even a bird. Coined by Nassim Nicholas Taleb in his 2007 book, The Black Swan, black swans are events which unexpectedly occur and have major impact. Think of the stock market crash in 1929 or the Titanic hitting an iceberg.

We can now add another black swan to our flock: the disastrous Gulf of Mexico Oil Spill of 2010. Like the captain of the Titanic, BP has stated that the accident which lead to the oil spill was “virtually impossible.” But it did happen, and lawsuits have followed. At the end of the day, the legal question to BP and their consorts on Deepwater Horizon will be “Was the cause of the accident something you should have seen coming and failed to do something to prevent?”

Generally, when a jury answers “yes” to that question, the responsible party pays compensation for the damages it caused. If the jury finds that the responsible party behaved in a manner which shows that a “simple mistake” was not made, but instead that the defendant had an overall disregard for the health and safety of others, then the jury can give a punishment – punitive damages. This very common-sense approach to law has served the English-speaking persons of the world for centuries and is a system which any average person can consider to promote justice.

That type of cut-and-dried, feel-it-in-your-gut system of justice will, unfortunately, have very little to do with the law suits attempting to sort out what went wrong and who got hurt. Instead, the conversation will be directed towards “caps” and “retroactivity” and “new legislation.” Why?

Shortly after the (black swan) Exxon Valdez oil spill disaster, Congress passed the Oil Spill Protection Act (OPA). It did away with our elementary notions of wrongdoers paying for what they broke and those who flout the law getting punished. In its place, the OPA requires the responsible party (RP) for the oil spill to pay to clean it up – which is good – but places a cap on the amount of money the RP has to pay for damages to things and injuries to people, i.e. compensatory damages. Those with a gut-sense of justice no doubt start to feel uncomfortable with the idea that the havoc caused by the “responsible party” doesn’t have to get fully fixed. But the OPA goes further. For dealing with the property and lives which have not been put back the way they were before the oil spill due to the fact that the “responsible party” doesn’t have to pay for all the damage it did, the OPA has a special fund called the Oil Spill Liability Trust Fund (OSLTF). While it might sound pleasant that there is money out there to help people wronged by the fact that the “responsible party” doesn’t have to pay, the OSLTF doesn’t sound so great when you learn that it is funded by a per-barrel tax on oil paid by refineries, the same refineries who sell their gas to our local station, the same refineries who have enough business sense to pass along the costs of that tax to the people at the pump – you and me.

So what does a law which shields a wrongdoer from paying for the damage he has done, and forces everybody else to pay instead, have to do with oil spills and black swans?

Nassim Taleb’s book isn’t about giving a cute name to disasters, nor does it make the claim that every horrible occurrence can be stopped in advance. What Taleb identifies is that the policies in place can make a black swan worse or even encourage the conditions for more black swans. One of his ten commandments of what not to do is “privatizing profits and socializing losses.” An example of what Taleb means is allowing an oil company to keep all of the profits it has made from oil exploration but when something goes wrong making everyone else pay – in other words, the system that the OPA has given us.

It seems that the “head I win, tails you lose” protection given to the oil companies under the OPA should offend the sense of natural justice in lawmakers as well as everyday Americans. Some members of Congress were trying to at least raise the cap level that BP would have to pay – until U.S. Senator Lisa Murkowski from Alaska, whose has received almost $300,000 in campaign donations from oil companies, helped to defeat the effort.

If Taleb’s warnings are correct, and we continue to live under unwise laws fashioned by bought-and-paid-for legislators, we will have more and worse black swans – and for us on the Gulf Coast, black egrets, black pelicans, black fish, black boats, black shores . . . .