Monday, June 28, 2010

Jindal Follow-Up

Seems there is some actual reporting going on in relation to the political tug-of-war going on between Jindal and the White House over the oil spill:

1. This report by Faiz Shakir at The Progress report seems to be the best summary of attacks made by the Jindal regime, and the steps not taken to try and address the spill. Seems the EPA and Army Corps have looked into the most promising of Jindal's ideas, the Sand Berms, and ruled them to be exorbitantly expensive and impossible to predict their long-term effectiveness due to wear and tear of environmental factors.

2. This next article in the NYT captures the heart of modern anti-government/free market sentiment. Even after the knowledge of that same EPA review which ruled the berms ineffective, at best, environmentally destructive, at worst, they were still allowed to be created. But once dredging was halted in an environmentally pristine area, Jindal went full Sarah Palin (the Thrilla from Wasilla, as Louis and I aptly call her) on the White House,

"But the public disagreements have not stopped. This week federal authorities halted the dredging of sand for the berms in a certain part of the Chandeleur Islands, saying it violated the state’s permit and could jeopardize the islands themselves. Mr. Jindal replied by urging the federal government to “get out of the way” of a necessary defense strategy."

This notion that all the federal government has to do is lower the barriers and let the invisible hand do its work, makes little to no sense in the context of disaster management. This is a moment where disequilibrium, not equilibrium, rules. As was shown in the financial crises, when incentives are not aligned to make sure someone actually takes responsibility not just for the mess they created (i.e. securitizing mortgages), but also for the cleanup (i.e. resolution authority/bailout funds) then people/firms/governments do not easily come to a consensus about what is the right course of action. Instead, when disaster strikes, everyone is caught off guard and equilibrium is shattered, causing chaos to reign, and no one to be at the helm of a ship that has been left to steer the "free waters" for years. The bailout was a good example. Though a necessary pain to prevent an outright depression, it still left many of the critical decisions (executive pay, creditor haircuts, future management choices etc.) up to the financial firms, believing that all the government had to do was provide the map and the market would steer everything back on course. It seems Jindal's response to this off-course ship, that is the oil spill cleanup, follows this same sort of chaos. Let anyone and everyone try their hand at righting the ship, and if enough people are in on it, then the ship will inevitably get back on course. Unfortunately, this type of response means that the costs of failed attempts at righting existing wrongs are ignored. The smartest people, who have navigation skills, only get their chance at the wheel once some people have steered the ship for hundreds of miles in the wrong direction. It's the inability to internalize those externalities that causes much clouded thinking by proponents of the powers of the invisible hand, when, instead, regulation is what's needed when the equilibrium is shattered.

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