the audit

The Economist Off the Deep End on BP and “Vladimir Obama”

June 18, 2010

The Economist has a pathetic leader this week criticizing Obama for hammering BP and raising the ridiculous idea that his corporate-friendly administration is anti-business.

It actually (really!) calls the president “Vladimir Obama” and writes:

The collapse in BP’s share price suggests that he has convinced the markets that he is an American version of Vladimir Putin, willing to harry firms into doing his bidding.

The normally sober Economist has gone off the wagon here.

First, it knows better than to “suggest” what “the markets” think. Second, that blew up in its face rather quickly. Instaputz points out that BP shares soared 10 percent on news of the $20 billion fund.

Most importantly, you have a giant oil company that cut corners while drilling a mile-deep well, killed eleven people, and sprung a hole in the ocean floor that’s gushing an Exxon Valdez-size spill every four days. The company has consistently lowballed the amount of oil it’s spilling (remember the 5,000-gallon barrel days?), and has caused an environmental and economic disaster in the Southeast United States. It’s a true national emergency.

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The Economist knows all this, and it spends much of its piece telling us. Oh, and it also notes this:

BP already had a miserable safety record in America. In 2005 an explosion at one of its refineries in Texas killed 15 people. In 2006 corrosion in its pipelines led to a sizeable spill on Alaska’s North Slope. Since then, regulators have often fined it for breaking safety standards. There are indications that BP’s approach to the drilling of the Macondo well was similarly slapdash. Engineering measures that might have prevented the calamity were not carried out, tests of safety equipment delayed. The firm’s emergency-response plan spoke of protecting the area’s walruses—an easy task, since there aren’t any—and consulting an ecologist who had died in 2005.

But then this:

Investors seem to be worried that the wrath of American officialdom will ruin BP. They have driven down its value by $89 billion since the well erupted, far in excess of all but the most dire forecasts of the ultimate costs of the spill. Corporate America, normally quick to resist government intrusion, has kept strangely silent, as though businessmen are afraid of the consequences of sticking their heads above the parapet.

First, there’s that “investors seem” thing again. But the Economist‘s spin here is obnoxious. If anything ends up ruining BP, it will have been its own actions. Go read this The Wall Street Journal piece for a look at the company’s negligence.

And BP should have to pay for all the associated costs of its actions, not just the actual bill for cleaning up the oil. These are known as externalities (an economic concept the business press doesn’t seem to grasp, but which a magazine calling itself The Economist very well should) and they will be very, very costly.

Moreover, a company’s market capitalization is based on expectations for future earnings. This disaster will surely make it harder for BP to get drilling rights that investors expected it to have just two months ago. The political climate for offshore drilling has just undergone a seismic change.

Another big factor in BP’s share decline is pure uncertainty. Investors don’t like it. Right now, the only thing certain is that BP’s hole is going to be spewing toxic oil into the Gulf of Mexico for at least another two months. It’s uncertain that it will be able to plug it even by August. The environmental and economic consequences of this are unknown and unknowable. These are major weights on BP’s share price.

Think about the Exxon Valdez disaster, which Deepwater Horizon makes look picayune. It cost Exxon $4.3 billion two decades ago. That’s roughly $7 billion in 2010 dollars. The cleanup alone was more than 80 percent of that bill. Exxon Valdez spilled 250,000 gallons barrels. Deepwater Horizon has spilled that much since Tuesday. And it’s been spewing for two months now.

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And this paragraph is a doozy:

The vitriol has a xenophobic edge: witness the venomous references to “British Petroleum”, a name BP dropped in 1998 (just as well that it dispensed with the name Anglo-Iranian Oil Company even longer ago). Vilifying BP also gets in the way of identifying other culprits, one of which is the government. BP operates in one of the most regulated industries on earth with some of the most perverse rules, subsidies and incentives. Shoddy oversight clearly contributed to the spill, and an energy policy which reduced the demand for oil would do more to avert future environmental horrors than fierce retribution.

BP was still being called “British Petroleum” here before the oil spill. The “newspaper” says that the administration is “vilifying BP,” as if it’s not a villain here. Hey, be nice to those guys that just spilled a hundred-million gallons of oil (and counting) on your shores and in your waters because they cut corners on their oil well! It’s unsporting to “vilify” them.

The Economist is part of the problem I talked about yesterday: Corporations get personhood under the law, but we’re warned you can’t retaliate against them for their bad actions. It would be bad for business!

But the biggest laugher is this, which it writes in arguing that the government should get its share of the blame (which it most definitely is, including from Obama himself in case The Economist hasn’t noticed):

BP operates in one of the most regulated industries on earth with some of the most perverse rules, subsidies and incentives.

So, it’s in one of the most regulated industries, but at the same time, regulators are responsible for its actions because they didn’t regulate? Huh?

Yes, regulators get plenty of blame for not forcing BP to act right, but BP is ultimately at fault here—especially since it helped get the regulators called off in the first place. That laissez-faire stuff didn’t happen in a vacuum.

Very poor show by The Economist.

Further Reading

But Why Didn’t Regulators Regulate? The government, in not regulating the financial industry, was acting not as a government of the people but of the financial industry—the one that paid for its campaigns and waited on the other side of a gold-plated revolving door.

Beleaguered Pensioners: It’s a good thing that BP investors are taking it on the chin.

The Journal Excels on BP: An investigation shows the company repeatedly cutting corners in the Gulf

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR’s business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.