Oil Spills, Tort Law and Libertarianism

by on May 17, 2010 at 7:32 am in Current Affairs, Law | Permalink

Here is Paul Krugman's Nth reason why libertarianism doesn't work:

Thinking about BP and the Gulf: in this old interview,
Milton Friedman says that there’s no need for product safety
regulation, because corporations know that if they do harm they’ll be
sued.

Interviewer: So tort law takes care of a lot of this ..

Friedman: Absolutely, absolutely.

Meanwhile, in the real world:

In the wake of last month’s catastrophic Gulf Coast oil
spill, Sen. Lisa Murkowski blocked a bill that would have raised the
maximum liability for oil companies after a spill from a paltry $75
million to $10 billion. The Republican lawmaker said the bill,
introduced by Sen. Robert Menendez (D-NJ), would have unfairly hurt
smaller oil companies by raising the costs of oil production. The
legislation is “not where we need to be right now” she said.

And don’t say that we just need better politicians. If
libertarianism requires incorruptible politicians to work, it’s not
serious.

In other words, libertarianism can't work because government sucks. I am tempted to comment further on this creative line of reasoning but that is unnecessary since Paul has misunderstood the facts of the matter.

The Oil Pollution Act of 1990 (OPA), which is the law that caps liability for economic damages at $75 million, does not override state law or common law remedies in tort (click on the link and search for common law or see here).  Thus, Milton Friedman's preferred remedy for corporate negligence, tort law, continues to operate and there is no doubt that BPs potential liability under common law alone would be in the billions of dollars. 

Thus, Paul now has only (N-1) reasons why libertarianism doesn't work.

Moreover, Paul has actually been too unkind to government, a defect it falls upon me (!) to correct.  The point of the OPA was not to limit tort law but to supplement it.

Tort law, as traditionally understood, could only be used to recover damages to people and property rather than force firms to pay cleanup costs per se.  Thus, in the OPA as I read it–and take the details with a grain of salt since I'm not a lawyer–there is no limit on cleanup costs.  Moreover, the OPA makes the offender strictly liable for cleanup costs which means that if these costs are proven the offender must pay them regardless (there are a few defenses, such as an act of war, but they are unlikely to apply).  The offender is also strictly liable for up to $75 million in economic damages above and beyond cleanup costs.  Thus the $75 million is simply a cap on the strictly liable damages, the damages that if proven BP has to pay regardless.  But there is no limit, even under the OPA, on economic damages in the event that BP failed to follow regulations or is otherwise shown to be negligent (same as under common law). 

1 E May 17, 2010 at 8:06 am

So his argument is not only the logically weakest ever, but also factually inacurate? You wouldn’t have expected it…

2 Andrew May 17, 2010 at 8:11 am

Note how it is only “good” politicians who would have done something he probably wouldn’t even agree with, raise the tort maximum per Milton Friedman.

So, he must be for a priori regulation, then. Been there done that.

Okay Paul, “Dear oil companies, please don’t screw up.”

Really, when it comes to politics, the guy isn’t worth listening to.

3 JooJoo May 17, 2010 at 8:42 am

Am I the only one who feels like some of Krugman’s posts are not written by him at all? When I read his columns I just skip over the parts that are transparently written by his wife.

4 karl May 17, 2010 at 8:54 am

Since real-world outcomes are what matter here, let’s see how this disaster plays out in costs to BP versus the feds. I don’t have the time today, but if anyone wants to look at how other (relatively recent) similar occurances played out — that might be more indicative of the future than either of our interlocutors’ readings.

5 Max May 17, 2010 at 9:14 am

What is even more funny is that BP does a better job than the US in cleaning up disasters. Right now the big crisis is already averted and what had to be done? Not much, since a third of the oil already went from liquid to gaseous and will be dispersed in the athmosphere. Even the hated toxins like benzenes will join the rest of the oil in a few weeks.

The remaining problem will be dealt with in time and yet I wonder what would have happened if Barack Obama would have joined the frenzy. I mean it is surprising he didn’t take the effort up on himself (he seems to do that on every other occassion). I doubt that with all their power, financial backing, the government entities would have done a good job (despite having the biggest fleet available AND subs).

6 Karamole May 17, 2010 at 9:19 am

For some strange rease, Government never sucks at protecting shareholders and executives from citizens pitchforks. Therefore, the State efficiency at protecting culprits is the problem, not the solution.

7 Ken May 17, 2010 at 9:31 am

Thanks for the informative post. But I’m still curious — what is the real role played by the $75 million cap? Why 75 million vs. 0 vs. 10 billions? Is this the default assuming no tort liability (e.g. no negligence, all regulations met, etc.)? If so, then is this limit the “answer” to what to do about technological uncertainty (both the oil companies and the regulators misunderstood the true risk of breach, and misunderstood the true extent of damage when breach occurs)? Given that our good faith understanding of these risks will always be imperfect, why should the taxpayers bear the costs of worse than worst case scenarios? It doesn’t take much faith in regulatory capture to believe that oil companies will lobby for and obtain less costly regulation, assuming that if they perform under the less costly standard, they are safe from tort damages if breach occurs. For efficiency, don’t we want the party best able to cost out the risks and damages from breach to bear the costs “unexpected” breach? Further, suppose that between when the deep water well is first commissioned and now, new information arises that the old safety procedures and regulations are inadequate. What happens next is important — either the well is decommissioned or the better control technology (that we now understand given updated information) is installed. What legal rule will induce this result? A “peanuts” strict liability rule of $75 million coupled with a safe harbour from tort liability for the oil company as long as it obeyed then-current regulations when the well was commissioned and operating won’t get us there. If the government (taxpayers) are to bear the costs of massive spills, then wouldn’t that imply that it should be able to order off-shore wells to shut down if the government changes its mind about the potential risks?

8 D May 17, 2010 at 9:37 am

In his argument, Krugman is assuming the existence of the $75m damage cap. Does that sound like a law that libertarians placed on the books? It is, after all, another government regulation–just (as Karamole points out) one favorable to corporate interests.
The argument that libertarian solutions won’t work in the presence of some current laws is technically true, but massively disingenuous. The libertarian would argue that those laws shouldn’t be there.

9 soccertom May 17, 2010 at 9:47 am

First they came for the Krugmans…

10 Andrew May 17, 2010 at 10:13 am

Wait. No. I’m wrong. Krugman is right because (and I don’t know why this didn’t occur to me before) only tort law, in ridiculously visible disasters, in extremely visible legislation is open to tampering by non-ideal politicians who have ridiculous excuses like even-handedness that can’t actually be proven, disproven, or addressed by improving the proposal.

More esoteric things like a priori EPA regulation is precluded from bad politician finagling for obvious reasons.

11 James May 17, 2010 at 10:32 am

This spill is evidence that regulation doesn’t work. This doesn’t mean a libertarian system would have prevented the spill, but it’s pretty solid evidence that REGULATION DIDN’T PREVENT IT. Those oil rigs were regulated. They were Obama’s regulators, too. After 15 months in office, he can’t pass the buck to George Bush.

12 anon May 17, 2010 at 10:35 am

Liberterians are wrong, as well, by not recognizing rules are not some natural law that springs from the mind of enlightened self interest, without recognizing you need law and rules.

Typical lawyer gobblygook.

13 James May 17, 2010 at 10:40 am

And don’t say that we just need better regulators. If progressivism requires incorruptible regulators to work, it’s not serious.

14 EricR May 17, 2010 at 10:55 am

So how well did tort law work in making Exxon pay for the Valdez spill? Twenty years of litigation, followed by Exxon paying out 1/10th of the initial judgement. I’d say the oil companies know exactly how well the tort system punishes bad behavior that leads to oil spills.

15 libert May 17, 2010 at 11:06 am

Krugman was way off-target. But it brings up an interesting issue: Democrats are pursuing the libertarian solution (uncapping legal liability), while Republicans like Murkowski are attacking them for it.

16 DanC May 17, 2010 at 11:12 am

Dangerfield lists a variety of legal nightmares that can occur if something goes wrong. Then claims that the firms ignore all these competing claims because who knows how they will work in practice. As if the threat of possible litigation from multiple sources isn’t a potential nightmare.

Then Eric claims that the tort system is broken so that doesn’t work. Who runs the tort system? Who runs the regulations? Who passes the laws?

17 Floccina May 17, 2010 at 11:40 am

IMO the Government should manage the use of traditionally public property like water ways and local roads. One problem is if the damages are too much to pay back or can not be fixed after the even in a reasonable period of time.

18 Yancey Ward May 17, 2010 at 12:10 pm

People keep bringing up Exxon and the Valdez accident. The payment that was reduced was the punitive payment, not actual damages. At some level, a punitive award becomes completely arbitrary.

19 Andrew May 17, 2010 at 1:15 pm

Sooo….did the technocrats not think to demand fail-to-close valves, or did the libertarians veto that?

20 Dana May 17, 2010 at 1:27 pm

Reality has a well known anti-libertarian bias.

21 anon May 17, 2010 at 1:51 pm

Thinking about Drunk Driving: in this old interview, Milton Friedman says that there’s no need for drunk driving regulation, because people know that if they do harm they’ll be sued.

Interviewer: So tort law takes care of a lot of this ..

Friedman: Absolutely, absolutely.

22 DanC May 17, 2010 at 2:10 pm

Bill

Laws are created by government agents. Ok. How does this invalidate Friedman?

Friedman understood how laws are made – they are often the result of competing interests. Laws can be used to drive some out of business or to encourage others to expand. If one group damages another group they can settle their differences using legal proceedings. As long as the rules and process are understood by both sides how does this invalidate Friedman?

He also understood that government regulations can be a takings that cares little about efficiency or individual freedoms. Two things that he was very concerned with. The well documented evidence that regulators enforce rules without regard to efficiency or individual freedoms invalidates Friedman how?

What incentive does a driller have to pollute? Which group has the greatest incentive to insure the continued exploration of deep sea wells? While an individual firm may have an incentive to risk polluting (depending on their situation), the industry has a huge incentive to prevent such incidents.

The ability of an industry to self police, using contracts and tort law, can be, and often is superior to government regulation.

“A person who suffers legal damage may be able to use tort law to receive compensation from someone who is legally responsible, or liable, for those injuries. Generally speaking, tort law defines what constitutes a legal injury and establishes the circumstances under which one person may be held liable for another’s injury.”

“From the late 1950s a group of legally oriented economists and economically oriented lawyers emphasized incentives and deterrence, and identified the aim of tort as being the efficient distribution of risk. They are often described as the law and economics movement. Ronald Coase, one of the movement’s principal proponents, submitted, in his article The Problem of Social Cost (1960),[27] that the aim of tort should be to reflect as closely as possible liability where transaction costs should be minimized. ”

Why did Coase want to limit transaction costs. Because absent transaction costs firms will negotiate for the efficient outcome that is economically beneficial. The more layers of government control you impose the more you have people game the system, the farther you drift from the efficient outcome.

Why Bill, the master of jibberish, fails to see this is amazing. Friedman was not calling for anarchy or enlightened judges or politicians. He was talking about cutting the layers of regulations that cared nothing about efficiency and little about individual freedom.

23 Bill May 17, 2010 at 2:46 pm

Sigh.

People would rather have unelected judges, the creators of commonlaw, make the law rather than elected representatives.

Oh well, I get to pick the judges.

24 Charlie May 17, 2010 at 3:14 pm

I was hoping there were going to be some lawyers in the comments actually providing some expertise. I don’t know enough to understand the law, but to me it reads like $75 million in damages plus cleanup, but then the total is capped at $350 and not uncapped as Tyler read it.

SEC. 1004. LIMITS ON LIABILITY.
(a) GENERAL RULE.—Except as otherwise provided in this section,
the total of the liability of a responsible party under section
1002 and any removal costs incurred by, or on behalf of, the responsible

party, with respect to each incident shall not exceed—
(1) for a tank vessel, the greater of—
(A) $1,200 per gross ton; or
(B)(i) in the case of a vessel greater than 3,000 gross
tons, $10,000,000; or
(ii) in the case of a vessel of 3,000 gross tons or less,
$2,000,000;
(2) for any other vessel, $600 per gross ton or $500,000,
whichever is greater;
(3) for an offshore facility except a deepwater port, the total
of all removal costs plus $75,000,000; and
(4) for any onshore facility and a deepwater port,
$350,000,000.

Then the question is, is the federal government paying the clean up costs over $350 million? And can the federal gov’t sue in state court or under some other legislation to get costs occurred above $350 million?

If the answers are yest and no, then Krugman’s point stands with only a minor factual correction.

25 ray l love May 17, 2010 at 4:21 pm

It seems that that there is an important difference regarding the timing between the collections of liabilities from tort laws, and the collections from a regulatory cap. A regulatory cap such as the Oil Pollution Act of 1990 (75M) is applicable immediately and so the government is able to hold corporations accountable from when an accident occurs until that corporation runs out of money. Tort laws on the other hand allow corporations to prepare for impending losses and of course corporations are very adept at hiding assets and using bankruptcy as a means to avoid liabilities.

Plus, there is an important consideration regarding a corporations incentive to accept responsibility. If corporations know that they are to be held accountable up to a predetermined cost they will be more inclined to spend as needed based on the acceptance that they must pay up to the cap regardless. The option of tort law gives corporations an opportunity to negotiate their costs down at some later date and of course these cases can drag on for a very long time.

26 Mark May 17, 2010 at 4:33 pm

I like when Alex gets angry and then posts ridiculous stuff. Credit Snobs 4eva!

27 DanC May 17, 2010 at 5:32 pm

Bill is still lost.

The preference is to avoid the legal system and achieve mutually beneficial outcomes. In the case of zero transaction costs two groups can come to mutual agreement that is efficient and maintains liberty.

So no, I often have no need nor any desire for legislatures to get involved in private transactions. If you are Obama or Bill, you see market failures everywhere and demand that government do something. Even if something makes the system less efficient and less free. It is bad regardless of how many lawyers are employed as leeches on the system.

If the fines in the tort system are too low to discourage bad acts, increase the penalty. That is consistent with Friedman.

Throwing more money at a regulatory structure that can not be sued for it’s bad acts, regardless of how stupid or inefficient it is, hardly seems like a superior system.

If you ever wonder how parts of this country went wrong look at the people who brag that they helped shape the system as lawyers and teach others nonsense.

28 ray l love May 17, 2010 at 6:19 pm

…Anyway, in my earlier comment I failed to include a tie-in to Libertarianism. The rub though is that I find it difficult to see what Libertarians could possibly have to do with oil-spills and tort laws in anything other than one of their counter-factual fantasies. If the the subject matter were to include something ocean-related such as ‘pirates’, instead of oil-spills, well, that would only have tort laws in the way of an interesting discussion of Somalia. The Somalians might even embrace tort laws and go-after all of the corporations that have already over-fished their coastal waters and then… the Somalians could pursue all of the other European organizations that have been using their coastal waters to dump Europe’s garbage.

Then I suppose it could be argued that oil might be discovered in Somalia’s coastal waters and then tort laws might be applicable because their government is not stable enough, nor is it organized well enough for regulatory protections, so tort laws suit Somalia rather well. But in a conversation about oil-spills, tort laws, regulations, and the USA, well, regulations offer the advantage of requiring secured funding for disaster relief, so this conversation should have been about Somalia if Libertarianism is included.

29 q May 17, 2010 at 6:57 pm

“The rub though is that I find it difficult to see what Libertarians could possibly have to do with oil-spills and tort laws in anything other than one of their counter-factual fantasies.”

WTF??? Tort law isn’t a “counter-factual fantasy.” Tort law prevents disasters by pricing externalities. Regulation prevents disasters by arbitrary rules, which may or may not be effective. That’s really the difference, although some commenters are correct in their implication that libertarians have no a priori reason to prefer tort law over regulation. OTOH, Friedman’s justification for tort law uses a utilitarian framework, not a libertarian one.

30 DanC May 17, 2010 at 7:30 pm

Tom

If big corporations control the politicians who appoint judges, then who controls the politicians who appoint the regulators?

31 JC May 17, 2010 at 7:52 pm

Hate to interrupt the love-fest here for corporate welfare masquerading as laissez-faire, but in simple terms, the problem with the myopic understanding of liability that you’re putting forward here is that it doesn’t account for externalities. So-called libertarians seem more concerned with supporting corporate interests than protecting individual liberties. Surely you’ve read Hayek, Buchanan, Knight? What we’re talking about here is not a free market.

Yes, costs for oil cleanup ARE theoretically unlimited. If you can only hold them accountable for proven property damage, they’re able to profit hugely off of negative externalities that they have imposed on other free actors without their consent. Maybe if they had to be responsible for the negative externalities they’re generating they wouldn’t undertake operations which carried risks this high. But instead those costs are borne by others against their will. At least if we were getting our energy from a more costly source we could elect not to purchase it. In this case, we are all subjected to economic losses from environmental degradation and we have no choice in the matter.

Institutional systems that shove costs onto others are not furthering the cause of freedom. They merely offer a different kind of slavery than the nanny state.

32 Opir May 17, 2010 at 8:39 pm

Something missing here, which goes beyond his or your statements: what happens when a company commits an offense/causes an externality far beyond their ability to pay? Let’s just say we could value the “destruction of the gulf” at 100 trillion dollars. BP doesn’t have anywhere near that, so things that prevent it from happening (i.e. regulations that require certain kinds of equipment to be used or procedures to be followed – and actually have them enforced, obviously) seem extremely prudent. In this way, tort in place of regulations are a blessing for a potential violator. They allow disasters to happen without really forcing the true costs to be paid, even if you take away the assets of every single employee and sold every last piece of equipment, it STILL wouldn’t even be close to enough to pay off the real costs.

The other issue is that tort does not help you if this sort of destruction winds up being priceless by ruining the existence of underlying, irreplaceable infrastructure. Example: a reckless company has a nuclear meltdown and /destroys a whole country/. In this case, it somehow has the money to compensate the victims, but that’s not really very helpful since they are a) without a country and b) irradiated and will die soon. They could be given 1 billion dollars each, but that doesn’t really help them.

33 DanC May 17, 2010 at 9:02 pm

Opir and JC

What are the incentives for the driller and the industry. If they screw up they lose millions in profits.

In the world that you paint no risks can be taken, it is not a question of regulation but a total ban.

34 VCrespi May 17, 2010 at 9:26 pm

Viewed with fresh baby eyes, the decision to poke a hole into a reservoir of high pressure fluid in the deep ocean kinda sounds negligent on its face. It doesn’t matter what regulations or safety practices one follows: the world is imperfectly knowable and imperfectly controllable, and decisions must be taken in full knowledge that accidents will happen. From a pragmatic point of view, the allocation of costs after the fact should be based on driving the behavioral adjustments that best reduces future costs. Whose behavior do we want to change?

35 Opir May 17, 2010 at 10:33 pm

@DanC Absolutely not. I want risks to be taken with preventative safeguards in place based on the best available scientific/empirical/take your pick style evidence. Not just the threat of lawsuits.

36 ray l love May 17, 2010 at 11:21 pm

q,

Do they teach quoting out of context in law school as if it were a skill to aspire to? It is the combination of tort laws and ‘oil spills’ that makes their relationship to libertarianism a counter-factual fantasy. That is because there is no libertarian nation that might be used empirically due to the ‘factual’ that no such nation exists that has offshore oil-rigs. That is why I used Somalia, which is commonly referred to as an example of a Libertarian nation (sarcastically of course), in an effort to explain that tort laws might be suitable for primitive nations because:

“Then I suppose it could be argued that oil might be discovered in Somalia’s coastal waters and then tort laws might be applicable because their government is not stable enough, nor is it organized well enough for regulatory protections, so tort laws suit Somalia rather well. But in a conversation about oil-spills, tort laws, regulations, and the USA, well, regulations offer the advantage of requiring secured funding for disaster relief, so this conversation should have been about Somalia if Libertarianism is included.”

In other words, why rely on after-the-fact tort laws, that have proven to be unreliable, when the regulatory requirements could demand “secured funding”, or, as someone wisely asked above, if liability insurance is required for driving an automobile, why would operating an oil-rig in the ocean not be held to a similar standard?

37 Benny Lava May 18, 2010 at 12:41 am

“Libertarians who view well defined property rights coupled with an efficient tort system as the cure-all alternative to regulation have to seriously start looking at this issue, maybe even start to question the limited liability nature of the corporation and its owners.”

When push comes to shove I find most libertarians to be corporatists more than anything else, which is why you’ll never find a Tea Party rally against Wall Street.

I’m sure the polemicists will take umbrage at this assertion, but to quote J. Maguire, show me the money. Show me libertarians that are working to force corporations to pay negative externalities and remove liability restrictions.

For example, chemical companies that poison drinking water:
http://www.encyclopedia.com/doc/1G1-77478961.html

Where are the libertarians seeking to collect for negative externalities that are ultimately borne by tax payers? Not a single one. Instead the clean-up goes to federal, state, and municipal governments; the enemy of libertarians.

38 Russell Nelson May 18, 2010 at 2:16 am

But Bill, the judges *are* elected … by the parties in conflict. You pick two judges, I pick two judges, and they pick a fifth one they believe to be impartial. If they can’t agree, we start over again.

Oh, you want a system where the government picks the judges? Okay, then how libertarian is THAT?

Honestly … people who criticize libertarianism know practically nothing about it.

39 Russell Nelson May 18, 2010 at 2:25 am

beezer, if only libertarians had any actual political power, THEN we might be guilty of something. Instead, we’re only guilty of hoping and wishing that YOU IDIOTS WOULD SHUT UP AND TRY LIBERTY WHEN ALL ELSE HAS FAILED.

And why do people think libertarians are idealists?? Where did they get that idea from?? Not any real libertarians. I don’t think that ANY political philosophy is capable of creating an ideal world. Shit happens, and it’s gonna happen no matter what. Libertarianism just attempts at reducing the total amount of shit, and making sure that if you create shit, you have to sit in it.

Idealists should go away and be socialists — the real idealists’ philosophy.

40 linfp2009 May 18, 2010 at 5:44 am

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41 DanC May 18, 2010 at 10:32 am

Boonton

Drunk driving is criminal, it has nothing to do with torts. Friedman never argued that drunk driving should be a simple civil matter. Insurance companies often have a clause in your insurance policy that states they will not cover you if you were DUI at the time of an accident. Insurance is a contract between you and the insurance company, if you drink and drive they can refuse to cover you. If you want to continue to drink and drive it is really a criminal matter. (Although you can sue for damages if you are a victim of a drunk driver.)

Nothing about Libertarianism requires perfect people. Just that people left free to choose will seek work with others to achieve mutually beneficial outcomes.

To mulp

Something clearly went wrong at this drilling location. The government regulators failed. Was the project manager greedy, stupid, unlucky, drunk, or crazy? I don’t know? How high will the fines need to be so that no firm would ever take this kind of risk again? I don’t know but I assume very high. Sometimes, even in the best run organizations, stupid events happen. BP should be and will be punished. Nobody argues against that. Hopefully other firms will understand the need to put in place redundant safety measures.

42 anon May 18, 2010 at 12:13 pm

if “drunk driving is criminal” some might say
“polluting the gulf of Mexico is criminal”

43 Boonton May 18, 2010 at 2:05 pm

Ryan,

First, let’s agree the criminal laws against drunk driving are a regulation.

Second, I think it is true that the harsh sanctions on drunk driving have caused many people to avoid it. Even if there will still remain some who are immune to both insurance market incentives and regulatory incentives.

Evidence? Presumably drunk driving hasn’t become any more dangerous over the last twenty to thirty years. If anything its probably a bit safer. Yet drinking and driving has decreased dramatically with the rise of much stricter DWI enforcement and sanctions. This would indicate that a non-trivial portion of the population didn’t care so much about the liability incentives to avoid drunk driving but were motivated by criminal sanctions heaped on top.

This would indicate that an optimal DWI policy would include both market incentives such as tort law and insurance company activity as well as regulatory incentives.

44 Boonton May 18, 2010 at 4:25 pm

I don’t have any stats on me but it’s my impression that the social acceptability of drinking and driving has dramatically changed in the last few decades and likewise the number of incidents and accidents related to incidents. Just note that “one for the road,” meaning have an extra drink, is not longer socially accepted. That being the case I heard somewhere that something like only 1 out of 1000 incidents of drunk driving is actually caught by a cop so even regulatory enforcement requires a major deterrance effect to work.

Torts have worked. For example bars are more careful about serving drunks because they can be financially liable for any accidnets they cause. But what’s interesting about this is that this is just a type of regulation. The law could just as easily say that the drunk is 100% liable and the bar 0% liable thereby putting all the ‘incentive’ on one entity. The reasoning behind having the bar be partially liable is not some reasoning from ‘property rights’ but the ‘zero bound’ of bankruptcy. The drunk is likely to have his wallet tapped out before he can pay off his judgements. The bar less so.

If libertarians really want to say torts should replace regulation entirely they have to do some hard thinking and consider:

1. Reformulating torts as purely based on property rights.

2. Addressing the ‘zero bound’ issue. Abolishing the liability protection of corporations and possibly a return of debtors prisons to address the issue of the person who has no assets to loose should he incur massive judgements on himself.

45 Boonton May 18, 2010 at 7:31 pm

Well from a libertarian POV debtors could be considered a type of criminal. You destroy $10,000 worth of someone’s property and you can’t pay for it you can think of that as a type of theft. Ditto for owning a corporation that incurs lots of debts only to then declare bankruptcy. The problem is that limited liability for corporations & the abolition of debtors prisons has generated a huge amount of economic growth. Libertarians like to claim they are operating off of pure ideal principle BUT they also like the idea that their principles correspond to excellent economic growth.

I vaguely remember hearing about suing bars on TV years and years ago. I recall the issue was somewhat controversial as bars claimed they had no control over whether their drunk patrons walked, hitched a ride or drove home. The cases didn’t go their way so today bars will take precautions against drunk drivers including refusing to serve intoxicated patrons and offering cab rides and such. How much of this, though, was really juries applying the law coldly and logically and how much was juries and even judges saying in the back of their heads that bars probably had deeper pockets to make victims whole plus the incentive factor that bars had more to loose from judgments than some ‘judgment proof’ drunks.

I’ll tell you one thing that has really changed and that is parents who are willing to host or allow underage parties with drinking. Both criminal and civil incentives have more or less put a stop to that which happened much more often in the 70’s and 80’s.

46 Weeksie May 19, 2010 at 10:00 am

Tort law? Are you kidding? I was a claimant on the Exxon Valdez oil spill settlement. It only took 19 years for us to get 10% of the original claim. To say that tort is somehow a deterrent is ridiculous, if anything civil law is an incentive to go ahead and continue to ignore safety regulations. Feh.

47 Ryan Vann May 20, 2010 at 7:09 am

“The problem with the libertarian concept of tort law replacing regulation is that there are so many consequences that cannot be translated into a cash value.”

That really doesn’t add any valid level of criticism though. Most regulations are simply enforced via fines. So basically if tort law fails due to cash value inconvertibility, regulation does the same. Unless we are talking criminal proceedings here, I really don’t see a regulation-tort difference. Honestly the only difference, in practice, between the two is who receives the money for infractions. This is obvious to anyone not enthralled with making anti-libertarian diatribes.

48 Tom May 20, 2010 at 1:28 pm

“That really doesn’t add any valid level of criticism though. Most regulations are simply enforced via fines. So basically if tort law fails due to cash value inconvertibility, regulation does the same.”

The other major difference is that regulations have effect before the potential loss, while tort occurs after, if at all. Air bag regulations have saved thousands of lives and millions of dollars worth of injuries, with a very clear positive cost-benefit ratio. I honestly cannot imagine how the same socially positive result could have been achieved via the tort process.

Emissions control regulations have had a tremendous effect on air quality in US cities, reducing deaths and disease by tens of thousands of cases annually. Two decades ago, breathing in LA was literally painful. Again, there is no practical mechanism for achieving these societal gains via the tort process. Smilarly with the seismic building codes which meant that 5 people died in the same magnitude earthquake in California that killed 200,000 in Haiti.

So in the real world, relying on torts and ignoring regulation would mean living in polluted surrounding with many unsafe products and conditions. While libertarians argue the theoretical benefits of their ideology, democracies will continue enacting common sense regulations, and the Chinese will continue drinking melamine-contaminated milk.

49 Jim May 21, 2010 at 4:14 pm

Krugman is simply saying that libertarianism requires incorruptible people. People will always be corruptible.

Libertarianism (as well as socialism) are economic/political systems created for saints which there are few. Capitalism is an economic system created for sinners which there are many.

Libertarianism is a utopian ideology that assumes/requires efficient markets with rational players void of fraud, negative externalities and manipulation. It principles are always being tested (at least from the 19th century to present). Regulatory CAPTURE creates environments void of regulations for many markets. Libertarians will think of some “anomaly” why this isn’t equivalent to libertarian system. And that’s the point–there will always be anomalies, inefficiencies, corruption, etc to break down this their utopian system.

Milton Friedman clearly states that markets must be free of fraud and significant negative externalities. It’s too bad that “free” market advocates always forget this.

I guess I’m too cynical. I wish I could viewed the world as being made up of only saints. Do libertarians have a naive view of the world or are they simply the sinners who are using fraud and conflicts of interest to rip off everyone else?

50 James May 22, 2010 at 10:37 am

Krugman is also assuming that public safety regulation could have prevented the spill, or not counter-factually caused other spills. Accidents like this are going to happen occasionally no matter what is done. Look at the Challenger disaster, NASA had all the public regulation in the world and no profit incentive. Look at plane crashes. There is an upper asymptote to the safety you can embed in inherently complex and dangerous activities like aviation, spaceflight, and offshore oil drilling.

51 joshua corning June 11, 2010 at 3:38 am

Oil companies do not pay for damages caused by oil spills twice. Under your theory a company would pay 75 million for the strict liability then tort liability after that. Not so. The OPA acts as an insurance company where the government pays out the rest for damages. If all the damages are payed no one can come back and sue again under a negligence claim.

Try again Alex.

52 aewga November 18, 2010 at 3:50 am

The Times used herveleger a statistical approach known as value-added analysis, which rates teachers based on their students’ progress on standardized tests from year to year. Herve Leger Strapless Each student’s performance is Herve Leger Dresses compared with his or her own in past years, Herve Leger Skirts which largely controls for outside influences often blamed for academic failure: poverty, prior learning and other factors….

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