Friday, July 30, 2010

President Obama’s $20 Billion Tactical Error

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By Randall Holcombe

When President Obama demanded that BP turn over $20 billion to the federal government to compensate those harmed by the oil spill, some people called the president’s demand extortion, but BP quickly agreed, and it should have.  Everything about that arrangement is beneficial to BP, and ultimately a liability for President Obama.

BP knew their liability for damages would be at least $20 billion, so it will cost BP nothing to turn that money over to Obama’s team to administer the payouts, rather than being responsible for doing it itself.  The $20 billion will go into an escrow account that will be overseen by Kenneth Feinberg, who will decide who will be compensated, and how much.  Any disputes about compensation will now be disputes between the claimants and the Obama administration, rather than between the claimants and BP, as would have been the case without the escrow account.

Compensation for damages is a no-win situation, from a public relations and political perspective.  In my local paper there was an article today about a man who buys seafood in Apalachicola, drives it to Jacksonville, and sells it on the street, making about $2500 a week.  No oil has come near Apalachicola, but he says his business fell off because people don’t want to buy seafood from the gulf, so he’s quit that business.  Is he entitled to compensation?

President Obama’s $20 Billion Tactical Error

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