Streetwise Professor

June 3, 2010

Initial Thoughts on the Spill

Filed under: Economics,Energy,Politics — The Professor @ 5:25 pm

Due to my involvement in energy issues, many folks have asked me for my reactions to the oil spill disaster in the Gulf.  Obviously the implications of the event will be seismic, but remain to be fully grasped.  Here are some initial thoughts.

I certainly do not blame the administration for failing to stop the leak, and I definitely shudder at the prospect of it “taking charge” of the efforts to stem the flow.  The government has neither the expertise nor the resources to do it.

Where I do find the government generally, and the administration particularly, culpable is in the containment efforts, if “efforts” can be used to describe what has transpired (and is transpiring) in the Gulf.  Contingency plans (e.g., burning in situ) were not implemented, and were apparently not resourced, and hence could not have been implemented.  I wish that I could say that lacking a feasible plan, the government has been scrambling.  But “scrambling” hardly describes the business as usual, bureaucratic, check the boxes behavior of the EPA, the Coast Guard, and the Corps of Engineers.  That is an outrage, and a tragedy.

What about Obama?  Well, he has acted perfectly to form.

A detached talker, rather than a doer or leader.  “Plug the damn hole” brings to mind an old Steve Martin routine.  It also brings to mind a stock joke about economists (or academics generally): When trapped on the top floor of a burning 100 story building, all about are panicking except the economist (academic).  When asked why he is so calm, the economist (academic) replies: “We just assume a 100 story ladder.”

A man disturbingly lacking in affect.  (Obama’s emotions appear to run the gamut from smug to annoyance to pique.)   In his disastrous press conference, Obama made George H. W. Bush’s “Message: I care” look like an example of deep empathy .  (I don’t have to identify which of Mr. Transparency’s press conferences, because he has held so few that there is no possibility of confusion.)

And hyperpartisan.  Given the criticism of the above two things, Obama turned to his old standbys, partisan attack and knocking down straw men and letting no good crisis go to waste.  In his has-to-be-read-to-be-believed speech yesterday, Obama turned the spill into a political bludgeon, blaming the spill on the Republicans and a mythical era of ideological hostility to regulation that rendered the government helpless.  He is using the event to flog his cap & trade proposals.  (The adoption of which, ironically, would undermine his desire—stated in the same speech—to create jobs.)  Post-partisan, my foot.  (I leave other body parts to your imagination.)

Look, things like the explosion of the platform and the subsequent leak are complicated events that almost always involve the unforeseen conjunction of myriad factors, decisions, errors, and bad luck.  To boil it down to a simplistic narrative is deeply dishonest; even if there is a kernel of truth to the narrative, that won’t be known fully until after a thorough examination of the entire event, if ever.  The narrative is also incomplete, because it overlooks myriad other government interventions, notably those that restrict drilling in less daunting environments.  Then to use that dishonest and incomplete narrative to advance grandiose and dubious policies, and as a stick to beat his political opponents, is manipulative and opportunistic, and anything but constructive.

The spill is an epochal event, environmentally, economically, and politically.  Now is not the time for political score settling and agenda advancement.  Obama’s actions may appeal to his base, but I strongly suspect that they will instead further alienate vast swathes of the electorate, including many who supported him out of good will and a hope that he would indeed be a transformative figure that would move the country forward.  They will only feed the country’s deep cynicism, especially so given Obama’s campaign pose of an idealist fighting cynicism—which may well be the most cynical thing of all.

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  1. The Messiah has declared a moratorium on drilling in the Gulf that will shut 33 deepwater rigs, including 22 near Louisiana, costing as many as 6,000 jobs in the next three weeks and 20,000 by the end of next year. Estimates are the U.S. will spend $10 billion to buy imported oil through the end of 2011 to replace lost production. 20,000 more unemployed Americans and an extra $10billion to our Arab friends. WTF?

    Comment by Charles — June 3, 2010 @ 5:39 pm

  2. […] This post was mentioned on Twitter by Craig pirrong, Craig pirrong. Craig pirrong said: Updated my SWP blog post: ( ) […]

    Pingback by Tweets that mention Updated my SWP blog post: ( ) -- — June 3, 2010 @ 5:43 pm

  3. Great analysis Craig! I am the furthest thing possible from an Obama fan (ask Rhonda :)), but here’s a genuine question: Do you think he should show “rage” about this? Yes, it is one of the most horrible tragedies we have faced as a nation but to have the POTUS out of control emotionally (as Spike Lee and others would have him be) is not helpful nor is it very attractive. Is his (Obama’s) detachment just indifference, politics or an attempt to project a “Presidential” image of “don’t panic, we can conquer this” sort of thing? I think his strategy (conscious or not) of being cool and detached from this tragedy is failing miserably. He needs to be more sincere about his concern for what is happening to the southern part of this country. I am, for the lack of a better word, flabbergasted by his arrogance and dismissive, divisive attitude to this date so I find myself doubtful of anything genuine or Presidential coming out of his mouth but I can’t help thinking about the criticism of GW Bush’s reaction on 9/11 sitting in front of elementary school kids (though he more than made up for that later) and his subsequent criticism on his “slow” reaction to Katrina. I mean, we can’t expect a “Rudi Guliani” scenario here…this is an ongoing, seemingly, unfixable thing right now but, really, how should we expect Obama to be acting….more face-time (address the nation) kind of thing, more empathy, stop golfing an vacationing, go to the traditional wreath-laying at Arlington, etc., or like I said, just a sincere concern for what is happening…does he even have that capability? Okay, so he said “plug the damn hole” in a moment of weakness but we don’t need the POTUS to fix this (he can’t)…we need the best-minded engineers, scientists and whomever else down there fixing it and $$$ & help to clean it up. Meanwhile, he can at least respect the people down there who are losing everything by not flaunting his lifestyle and maybe give the appearance that he cares. Having said that, I am opposed to absolutely everything he stands for, has done, said and probably will do – he is not qualified for this job in my opinion. Sorry for this being all over the place but I have kids running back and forth behind me…very distracting!

    Comment by Jean Grev — June 3, 2010 @ 7:39 pm

  4. Disasters happen, and will keeping happening in the future. But we can take heart in the fact that there are certainly fewer disasters on the whole than say 20 years ago. We will learn and move on. Govt. has to show they are doing something hence the moratorium. It will be lifted eventually. In the meanwhile there will be a whole lot of hoo-hoo-haa-haa, fines, litigations, jobs & careers lost – but that is the price for progress.

    Comment by Surya — June 3, 2010 @ 8:19 pm

  5. Not quite as bad as Sarah Palin blaming environmentalists for the oil spill, but quite close.

    As Obama himself said, “I would love to just spend a lot of my time venting and yelling at people, but that’s not the job I was hired to do. My job is to solve this problem and ultimately this isn’t about me and how angry I am. Ultimately this is about the people down in the Gulf who are being impacted and what am I doing to make sure that they’re able to salvage their way of life.” And normal Americans say that they don’t want Obama to show more emotion either on the whims of drama-seeking media personalities and ultra right-wing ideologues. I can only agree. I would take a cool-headed, competent technocrat like Obama over a hypocritical, crocodile-tears slimeball like GW Bush any day of the week.

    Then you start to harp on about Obama’s partisanship. Pot meet kettle? It was under the Republicans that oil company liabilities were reduced so much that it no longer made much sense for them to invest anything but the most minimal resources into oil well safety, even as high oil prices allowed them to make off with hundreds of billions of profits with the blessings of their bought-off DC flunkies.

    Linking this to cap and trade is eminently fair. The original deal was that the ANRW would be opened in exchange for Republican cooperation on this effort to tackle climate change.

    Meanwhile, billionaire BP godfather says he wants his life back (what a poor soul!) while his freedom loving goons hijack the police to prevent reporters and photographers from accessing the oil spill at ground zero.

    But no, things are all just fine and the “vast swathes of the electorate” should just bend down and take it from their corporate masters and betters. Of course knowing their history they will do it with gusto.

    Comment by Sublime Oblivion — June 3, 2010 @ 10:25 pm

  6. […] Streetwise Professor: Initial thoughts on the spill […]

    Pingback by Friday’s Caught On The Web - The Source - WSJ — June 4, 2010 @ 1:57 am

  7. S/O: “I would take a cool-headed, competent technocrat like Obama over a hypocritical, crocodile-tears slimeball like GW Bush any day of the week.”

    Shutting down operations in the Gulf will not only cost tens of thousands of jobs in the oil patch (and send scarce offshore rigs to foreign shores not to be seen in the U.S. for many years) but the lost production from domestic waters will mean greater imports from foreign producers. Those supplies will come in via tanker. Tankers are far more likely to suffer accidents than are domestic offshore platforms.

    So, at the end of the day, your “competent technocrat” will cost tens of thousands of jobs, reduce domestic production for years, require tens of billions of dollars in oil imports from countries not always friendly to the interests of the U.S. and increase the probability of further accidents. Obviously, you and I define “competent” in different ways.

    Comment by Charles — June 4, 2010 @ 7:12 am

  8. Charles: “Shutting down operations in the Gulf will not only cost tens of thousands of jobs in the oil patch (and send scarce offshore rigs to foreign shores not to be seen in the U.S. for many years) but the lost production from domestic waters will mean greater imports from foreign producers. Those supplies will come in via tanker. Tankers are far more likely to suffer accidents than are domestic offshore platforms.”

    There’s some confusion in the market right now, but it looks like the six-month moratorium will only apply to deepwater wells. Shallow-water permitting is likely to be reinstated much sooner, although there will probably be a short delay in permitting while government inspectors ensure that safety and environmental standards are being met. I’m not sure from where the figure of ‘tens of thousands of jobs’ is coming; my back-of-the-envelope calculation suggests a figure closer to ‘a thousand’ on an annualized basis. Furthermore, most of these jobs are deepwater rig crews, which may remain as the rigs move elsewhere.

    As far as “and send scarce offshore rigs to foreign shores not to be seen in the U.S. for many years,” I disagree. There’s likely to be a surplus of deepwater rig supply in the near future, anyway, as a large number of these units are slated for delivery between now and 2012. When the moratorium expires – which I’m certain it will, even if after more than six months – it won’t take long for these units to come back to the US Gulf.

    Regarding Craig’s analysis… As usual, I find myself both impressed with his analysis. I do agree with Jean Grev that Obama is simply attempting to put forth a face of ‘presidentialism’. Whether he’s failed at this (as Craig seems to think) or not is up to the public to decide. I do believe that his administration’s working very hard behind the scenes to do what they can. That a man known for his oratory skills is not standing at the pulpit more often in a situation like this is off-putting, but I don’t think it’s an example of ineptitude.

    What I’d like to see more of – and the administration can coordinate this – is the (public) inclusion of far more engineers from other E&P firms. While BP certainly has more US Gulf deepwater experience than most if not all of their rivals, bringing the best minds in from around the industry can only help (if well-coordinated), and may stem the tide of unemployment that Charles predicts/cites.

    Comment by Neal — June 4, 2010 @ 8:57 am

  9. Neal –

    The deepwater moratorium alone, affecting just 33 rigs, is expected to cost 20,000 jobs by the end of the year. The rigs that rent for $500k/ day will not stand idle until the politicians get done grandstanding. Deepwater rigs are scarce resources. The are needed badly off the coasts of Africa and Brazil. Since the political risks from the Obama administration add uncertainties for deepwater drilling in the Gulf, the rig owners will unquestionably move them to foreign shores as soon as possible. Historically, once rigs are moved to other fields, the tend to stay in those fields (or fields in close proximity) for long periods.

    The bottom line is that the moratorium declared by the Obama administration will unquestionable cause the loss of thousands of American jobs and require the U.S. to increase oil imports. Our political leaders are making insipid decisions that are damaging our economy. The stupidity arising from the blowout in the Gulf is just starting and it is already or epic proportions.

    Comment by Charles — June 5, 2010 @ 4:38 pm

  10. …of epic proportions.

    Comment by Charles — June 5, 2010 @ 4:40 pm

  11. Are teh Chinese raising wages so they could afford the astronomical property rents?

    Comment by Surya — June 7, 2010 @ 7:11 am

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