This is Not Capitalism
Note: This was originally posted to my Tumblr blog on 17 Oct 2010.
It seems BP may seek shelter from liability for the Deepwater horizon spill through a law that Congress (those guys are so awesome) passed after the Exxon Valdez spill.
Most people always expected them to get off the hook for the majority of the destruction they caused. After all, they're "too big to fail", right?
Here's what bothers me in all this: we've got politicians out there competing to see who can claim the most libertarian/free market credentials, and yet, when they had the chance to get rid of the liability cap they flinched.
Why? Shouldn't the government support business in a free market?
Yes and no. In a free market the government would avoid interfering in the business community and would basically let people solve problems for themselves. The government wouldn't attempt to actively help any specific company or industry though. Companies would rise and fall according to the skill and ingenuity of their employees and executives, not their lobbyists and lawyers.
One central principle of a free market is that if you hurt someone you can (and should) be forced to compensate that person.
This isn't some sort of hippie "do the right thing" garbage either, it actually matters for the health of the economy.
If businesses (and individuals in their capacity as business owners) know that they are protected from punishment if they hurt people they will be more likely to take risks that might put people in harm's way.
Think about all the idiots who took out mortgages they couldn't afford to buy houses they couldn't afford.
They assumed they would be protected either by the government or by the rapidly (and artificially) increasing housing prices. Then when reality came knocking they lost everything.
Capping BP's liability is like cutting every person facing foreclosure a fat government check.
They made the mistakes, they should have to pay for those mistakes. If we bail them out (by capping their liability) then what incentive do the executives and shareholders of BP have to do a better job next time?