Andrew,
Thanks for the write-up. What I think I'm hearing you say is that for most goods and services, the market works pretty well at rewarding good producers and punishing the not-so-good ones. However, in the special case of oil (and perhaps other commodities?) adequate punishment by normal market forces may not be possible, or timely, and therefore fines should be levied. Is that about it?
Now for the debate...
astanley said:
Oil is in a special class of commodoties that define the overall economic landscape in our fine nation. A number of economic indexes both discount and consider the cost of energy on our daily lives (CPI does exclude energy). On a cash-flow basis, energy is one of the single most expensive consumables that a given person in our economy uses on a daily basis.
Yes oil is important, but that alone IMO isn't enough to confer "special class" status upon it. How about silicon for semiconductor wafers? Electronics are quite important to the economy. Or maybe fiber optic cable? Harder to do business if we can't communicate. Heck, let's add planes to that list. Getting butts (and cargo) from here to there makes for a vibrant economy too.
Sorry, but a commodity is a commodity - it's the same whether you buy it from company A or company B.
astanley said:
However, we also all accept the concept that you must be responsible with your service. If you cut corners at your refinery and industrial accidents are the norm, our government fines you. You clearly have safety issues and must be held accountable the only way you are rewarded - financially.
Not letting your employees get maimed and killed is a different responsibility than keeping the product flowing to minimize price to the consumer. As such, I'd agree that fines are appropriate for safety issues. But the genesis of this thread was (1) BP's making record profits, but (2) they couldn't be bothered maintaining the pipeline, so (3) we're all gonna get reamed more at the pump.
astanley said:
If you purposefully collude or set prices on a given product, service, or commodity the government fines you. You clearly have violated the law and spirit of the free market.
Agreed. Them's our rules.
astanley said:
In this situation, BP has a DUTY to provide their product in an expedient manner. Force majure and error rates aside; if you fail in your duty to ensure your firm is working efficiently you are punished, generally via the markets. Most firms meet this duty. Before my argument is taken out of context, I'd like to frame it up - not using the latest technology? Not a failure of duty, unless it adversely impacts safety or product quality. Not performing regular inspections of your facilities? Failing your duty, as it impacts safety and product quality. So the duty I speak of is limited in focus, but the rules within that focus are astonishingly black and white.
OK, I'll quote you whole so I don't take it out of context, but you're starting to lose me. Their duty to provide their product in an expedient manner is by way of duty to make a profit for their shareholders. I can give you half a point if BP's lack of inspections breaks the safety laws (and probably environmental ones if inspection is to prevent leaks and spills), but how does it rise to the level of governmental fine-able offense if their quality deteriorates? Either they're meeting government-imposed quality mandates or not. If they are, even by a lesser margin, then no fine.
astanley said:
In the oil situation, and in any commodity producing situation, the table is turned. Your lack of efficency drives up the overall cost (making a commodity more scarce), and if you do this in a negligent way (i.e. do not maintain your supply chain and regularly inspect it, as per regulations), that is an issue which is being negligent to the market.
What does "being negligent to the market" even mean? Is there a law against being negligent to the market? Seriously. I don't know. Commodity buyers seek the lowest price. Seems to me if you're not able to provide it, whether through negligence or buffoonery, you'll get corrected by the market.
I'm also not convinced that shuttering your own production and losing 400,000 barrels a day in revenue is the smart way for BP to increase profits. Since oil trades in a global market, they're leaving themselves wide open to a drop in prices (a la yesterday's post-terror arrest drop).
astanley said:
We have few ways to hold them accountable. A windfall profits tax is ethically, morally, and legally wrong - as it discounts force majure. However, in an OPEN, COMPETITVE market such as oil (where we have enough supply-side players to consider the market as open), our only recourse against firms who reap any profit based on poor business practice is legislative or punative. The market is unable to correct for and properly redress these firms which act in a negligent or unsound manner.
Now I'm totally lost -- You seem to be claiming oil is an open competitive market (in all caps even) yet one would think that's exactly the situation where market forces would work best! To me, your argument that the market isn't able to correct for this doesn't follow.
astanley said:
It still hasn't come out if this was due to negligence, collusion (i.e. purposeful mismanagement of the pipeline to drive up prices), or was seriously a more advanced state of wear and tear than would have been expected.
I'm gonna side with Occam and his razor and guess it's none of the above. The guys running the show now are the ones who survived the 80's plunge and saw Houston's economy decimated. I'd wager a good part of it was not wanting to get burned again.
astanley said:
I am merely supporting the notion that if you behave incorrectly, especially in a commodity scenerio, you need to be held fiscally accountable in the same way you are fiscally rewarded.
Welp, I don't see why commodities are any different than "widgets" and the way of reward is the market, so reckoning will come that way, too.
-Rich
