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As the Spill Expands, So Does Presidential Power

More fallout from the BP oil spill

Steve Chapman
June 17, 2010

The other day, White House press secretary Robert Gibbs was asked what will happen if the people running BP decline to go along with everything the administration demands of it. "The president," he replied with chilly menace, "has the legal authority to compel them to do so, and if they don't, he will."

As a matter of strict truth, Barack Obama may not have all the legal authority he would need. But punctilious adherence to the law is rarely the hallmark of American presidents.

When the head of the executive branch makes his desires known to a private corporation, the company defies him at its peril. Given the vast centralization of power in the Oval Office, Obama wields enough weapons to make BP come to heel or wish it had.

Lately, the administration seems more focused on meting out punishment than solving concrete problems in a measured way. Interior Secretary Ken Salazar boasted of his intention to "keep our boot on their neck," and Obama resolved to find out "whose ass to kick."

A villain as hated—and justifiably hated—as BP creates a temptation to indulge in excess, and Obama is not inclined to resist.

First there was the announcement that the Justice Department is considering criminal charges. It's entirely possible that in the fullness of time, evidence will emerge to support prosecution. But as a first resort, it discourages BP from working closely with the government to cope with the current emergency.

"Criminal prosecution kills cooperation," laments University of Chicago law professor Richard Epstein. "How do you give information to someone who will use it to indict you?" You don't. But the president seems to think catering to populist outrage is more important right now.

Members of his party also demand that the oil company stiff its shareholders by canceling its dividend, while turning over billions to the feds to distribute as they please. Not many Democrats seem to worry about BP's obligations to its investors—which, in an economy based on property rights, take priority over the whims of politicians. But that assumes we still respect property rights.

On Wednesday, Obama forced BP to set up a $20 billion fund to compensate everyone who suffers economic harm from the spill. But it's a pernicious solution to a fictitious problem.

The idea is that if BP doesn't conserve its cash, it will run out later and leave injured claimants high and dry. Not likely. Estimates of the total costs of the spill range up to $70 billion, which sounds large only if you are not a multinational petroleum company.

The oil giant had profits last year of nearly $17 billion, reports MSNBC, and its untapped reserves are worth $1.35 trillion. The quarterly dividend is just $2.6 billion. And BP won't have to bear the whole burden, since its partners on the Deepwater Horizon rig, Transocean and Halliburton, will probably be on the hook for a large portion of the damages.

About the only thing that could keep BP from paying its share is a criminal conviction, which would wreck its ability to do business. So the administration purports to worry about BP's bankruptcy while entertaining actions that would probably lead to bankruptcy.

Even if the escrow fund were justified, turning it over to the administration isn't. Instead of trying to limit payouts to the truly deserving, the people in charge would have every incentive to err on the side of generosity to anyone who claims to have been hurt.

In his Tuesday address to the nation, Obama made a point of saying that "this fund will not be controlled by BP." He didn't say how he will assure that the administrators don't fall into a jolly impersonation of Santa Claus.

David Pettit of the Natural Resources Defense Council, which is not exactly an apologist for polluters, says the pitch from Senate Democrats to BP is: "We'd like you to escrow $20 billion, with a 'b', and we'll take over claims processing. So we'll write the checks, and it will be your money that backs them up, and you're out of the loop. If I were BP, I'd have some problems with that."

Bypass longstanding legal procedures that protect everyone in favor of granting unchecked discretion to the president? BP is not the only one that should have some problems with that.

This column first appeared at Reason.com.

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