Obama’s Favor to BP: The Gift that Keeps on Giving

After BP’s oil spill in the Gulf of Mexico, President Obama demanded that BP turn over $20 billion to the federal government, to be paid as compensation to those who were harmed by the spill.  At the time critics lashed out at Obama for his strong-arm tactics, extorting that money from BP, but as I blogged at the time, the president was actually doing BP a favor.

Note that while others complained about the president’s actions, BP quietly went along with no complaints.

Because of their negligence, BP was going to be on the hook for a substantial liability in that case, and they would either have to go through the process of settling with claimants, or going to court to determine their liability for damages.  That would have been BP’s legal responsibility, but President Obama let them off the hook, and made it the responsibility of his administration to compensate those who were harmed.  People can still sure BP, but because of Obama’s claims process, lawsuits will be greatly reduced.

In addition to the expense involved, BP would have had a substantial loss of goodwill.  Lots of people would tend to estimate the harm done to them (in this case, and in any other) as greater than what they eventually would be compensated, and even if at the end of a trial claimants did feel they eventually got what they deserved, there still would be a loss of goodwill because of the adversarial relationship court cases would engender.  Claimants would engage in an adversarial relationship and have to defeat BP in court to get compensation.

President Obama has transferred that loss of goodwill from BP to his administration.  BP, by providing the $20 billion, is on the same side as the claimants, and they are in an adversarial relationship with the administration.

Earlier this month Kenneth Feinberg, who the president appointed to administer the claims process, met with hostile questioning in separate hearings before the Florida legislature and before a U.S. House of Representatives committee.  Florida Senator (and Democrat) Bill Nelson recently asked President Obama for a top to bottom review of the whole process.

Rather than BP taking the heat for any problems in compensating those who were harmed, the Obama administration is getting the bad press.  BP deserves that heat, because they caused the harm.  Thanks to President Obama, they’ve avoided the bad press and loss of goodwill.  Now, because he voluntarily took on the claims process, President Obama deserves the heat.  He asked for it.  His bad judgment led him to demand that he take on a responsibility that should have been BP’s.

So far the fund has paid $3.4 billion in claims, and has denied about half of the claims that have been filed.  That might be fair.  I don’t have sufficient knowledge of the cases to say.  But it’s not a way to build goodwill.  The establishment of that claims process was a big favor to BP, and as the Obama administration continues to get the bad PR that should fall on BP, a gift that keeps on giving.

Randall G. Holcombe is Research Fellow at the Independent Institute and DeVoe Moore Professor of Economics at Florida State University. His Independent books include Housing America: Building Out of a Crisis (edited with Benjamin Powell); and Writing Off Ideas: Taxation, Foundations, and Philanthropy in America .
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