How would the free market have handled the BP oil spill?

The latest headline from the AP reads "Oil pours from cap over Gulf gusher, some captured" as BP's latest attempt to abate this Gulf disaster appears only marginally successful at best. The article notes "[s]ix weeks after the April 20 oil rig explosion that killed 11 workers, the well has leaked somewhere between 22 million and 47 million gallons of oil, according to government estimates."

On June 2 Louisiana finally got the OK from the White House to build sand bars to cut off the spread of the oil spill throughout the Gulf, this after languishing in limbo for weeks while the Army Corps of Engineers conducted a study to assess the environmental impact of building sand bars. They initially made the request on May 11; by June 2 the oil slick was within seven miles of the Florida Panhandle.

As I've written previously, the government is considering quadupling the oil tax to help to pay for the cleanup effort. That's because BP's liability for damages is capped at $75 million. This cap was a gift to the oil companies in exchange for an 8 cents per barrel tax on oil after the Exxon Valdez spill in 1989.

We have a regulatory body, the federal Minerals Management Service, that inspects rigs like the Deepwater Horizon for safety. According to an AP report, the MMS issued an award to the Deepwater Horizon for its safety history just last year. This should be of comfort to those in the Gulf given that according to CNN "[o]il company BP had three indications of trouble aboard the doomed drill rig Deepwater Horizon in the hour before the April 20 explosion that sank the offshore platform" which were ignored.

President Obama has responded by issuing a moratorium on deepwater drilling. According to the NY Times, "[t]he Obama administration plans to halt new deepwater drilling for six months, suspend exploratory drilling that had been scheduled off Alaska this summer and cancel a lease sale off Virginia." Aside from the disastrous effect that this could have on Louisiana's economy, this knee-jerk reaction is eerily reminiscent of the almost 30-year moratorium on new nuclear plants in the US following the near-meltdown at TMI in the 70's. In the meantime, nuclear power in countries like France has grown to generate almost 80% of their power needs while our dependence on oil has only increased.

So how would the free market respond?

BP should be prosecuted to the fullest extent of the law for the damage that they have caused to the environment and Gulf businesses that have been injured due to BP's actions should be free to seek full restitution in civil court. BP should be liable for 100% of the damages resultant to this disaster. If they go out of business in the process, so be it. Louisiana should be free to take whatever measures it deems necessary to protect its land and its citizens without interference from the federal government. Furthermore, the cleanup efforts should not be subsidized by the taxpayers. If additional money is needed, then charity should be the answer. Americans are and have always been extremely generous in times of need:

There was a time in this country when it was recognized to be improper for the federal government to provide humanitarian relief even within the United States. President Grover Cleveland vetoed a bill in 1887 that would have provided seed for farmers in drought-stricken Texas. In his veto message, he wrote that aid from Washington only "encourages the expectation of paternal care on the part of the Government and weakens the sturdiness of our national character." The Texas farmers ended up getting ten times as much in private assistance as they would have received from Uncle Sam.

Regulation hampers entrepreneurship and results in both the destruction of wealth and a poorer standard of living for everyone. Regulation did not stop this disaster from happening and further regulation will not prevent future accidents from occurring. Regulation merely results in granting virtual monopoly rights to a select few that are politically favored. Additionally, regulation creates a moral hazard as companies like BP have no incentive to take the proper safety precautions. Why would they when they fully expect the government to step in and pay for their mess should anything happen?

A sea of government did not stop this; no amount of regulation can stop accidents from happening. So what's the answer? The answer is freedom.

Capitalism is a system based on risk and reward. A perversion of this system where the government subsidizes risk but allows market participants to keep the rewards can only result in catastrophe. We don't need more regulation; what we need is accountability.