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The Nation's Pulse
Lost in the Gulf: Perspective
This is only the second significant spill in the more than 70 years of drilling there.
An inevitable casualty of an event such as the Gulf of Mexico oil spill is perspective. There are at least three prime examples of this — emphasizing costs of something while ignoring the benefits, focusing on the short-run and ignoring the long-run, and forgetting that everything is relative.
The oil spill in the Gulf makes it clear that there are costs involved in recovering fossil fuels from beneath the earth’s surface. Unfortunately, in the overabundance of news reports about the spill I have heard virtually nothing about the considerable benefits we derive from offshore drilling. Environmentalist groups are using the spill to argue that we should cease all offshore oil production.
The reaction and reporting of the Gulf oil spill is a sad example of perhaps the simplest but most common error of economic thinking. Politicians and media are focusing almost exclusively on only one side of the ledger — the costs, while ignoring the equally important consideration of benefits.
Every decision of consequence should involve a balancing of costs and benefits. No action would ever be undertaken if only the costs were considered. None would ever be rejected if only the benefits were considered.
Drilling in the Gulf has been going on for over 70 years. There are currently over 700 rigs in operation. This is only the second significant spill during that entire period. The oil rigs have even weathered numerous hurricanes. The Gulf of Mexico provides over one fourth of U.S. domestic oil production. Gulf oil production is currently over 1.3 million barrels a day and natural gas production is over 6 billion cubic feet a day. Gulf oil and gas production contributes over $100 million of benefit to the U.S. economy daily.
Everyone wishes the spill had not happened. Nevertheless, what will be the extent of the long-term, irreversible damage done by the spill? The largest oil spill in history occurred in the Persian Gulf during the first Gulf war, compliments of Saddam Hussein. The spill dumped approximately 8 million barrels of oil into the Gulf. Nevertheless, a UNESCO-sponsored study found only one year later that fisheries showed “few unequivocal oil pollution effects attributable solely to the 1991 oil spills.” The study concluded that about half the oil evaporated, a million barrels were recovered, and 2-3 million barrels washed ashore, mainly in Saudi Arabia.
Oil and water eventually do mix. Every drop of sea water all over the world contains decomposed oil, along with trace amounts of almost all other elements.
It is no accident that accidents have been so rare. A spill is the last thing any oil company wants to see occur. The companies involved have strong incentives to prevent such disasters. They don’t want to see their considerable investments lost or have to pay for the cleanup, and they definitely do not want to see lives lost. This is unquestionably a case of an ounce of prevention being worth a pound of cure. The rarity of blowouts demonstrates that the incentives work extremely effectively. The economic incentives are far more powerful and ever-present than regulations can ever be.
In the real world it is impossible to have a perfect track record. Real life necessitates choosing among imperfect alternatives. What if the probability is one major spill every fifty years? Should we cancel all future offshore exploration and recovery? We’ve had 70 years of highly beneficial production and only two significant spills. Much will be learned from the current spill which will reduce the probability of future spills.
The media has focused on the damage the spill has imposed on the fishing industry. They have not pointed out that the economic value of the oil and gas are over 50 times greater than the value of fish taken from the Gulf. How much of your own income is spent on gasoline and natural gas compared to what you spend on seafood? Which would cause mopain, the price of gasoline or shrimp increasing by 20 percent?
For virtually the entire 70 year period of drilling in the Gulf, oil rigs and fishermen have coexisted with very few problems. The periods of time during which there have been problems are a tiny fraction of that time span. Should we make choices based on the long-run or the short-run?
Environmentalism thrives on exaggeration. The media thrive on sensationalism. Most of us know that’s true, but it’s good to remind ourselves of it from time to time.
Perspective is one of the best defenses against going insane in this crazy world. Perspective, however, is just about the farthest things from the minds of politicians, environmentalists, and the media. Keeping perspective is pretty much a do-it-yourself responsibility.
About the Author
Ron Ross Ph.D. is an economist who lives in Arcata, California. He is the author of The Unbeatable Market. Reach him at rossecon@gmail.com.
Letter to the Editor View all comments (21) | Leave a comment
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Brian Mc| 5.27.10 @ 8:34AM
Thanks for a very 'mature' perspective. I told a friend the other day that I had read that oil, (and quite naturally), seaps to the surface in uncountable locations throughout the world, many of which happen on the sea floor. He did not believe it. When I went on to insist that a huge portion of this oil is dissipated without human intervention, he found this statement to be folly.
You can present the 'mature' facts of the matter here, on American Spectator's site, but so long as the immature sensationalism is the product of the media where most voters collect their views of the world, we can expect ramifications in a negative vein on par with the idea that Germany was winning the war until a couple liters of gasoline were poured over Hitler's body and someone struck a match.
barry milliken| 5.28.10 @ 8:34PM
See this report from the national academy of sciences: About half of all oil in the sea comes from natural seepage:
books.nap.edu/html/oil_in_the_sea/reportbrief.pdf
John Navratil| 5.27.10 @ 9:56AM
Well done, Mr. Ross.
I have required that my children read Thomas Sowell's "Basic Economics" before I have written the first college tuition check in hopes that they will be able to think through economic problems as lucidly.
Dixie Pixie| 5.27.10 @ 12:21PM
Just in off the AP wire.
Obama is reversing policy and is cracking down on offshore drilling.
New drilling permits will under increased scrutiny to find reasons to deny or delay the permits.
Director Birnbaum of the US Minerals Management Service is out.
She was removed to make room for a true “Green” environmentalist.
No more offshore drilling ever again!!!!
"Drill Baby Drill" is dead at the White House.
Christopher Holland| 5.27.10 @ 9:28PM
I never knew that 'drill baby drill' was alive in the White House to begin with.
L. Ross| 5.27.10 @ 1:10PM
Goodness, gracious. Actual perspective on this spill. How refreshing. I mean, yes the spill sucks, but for pity's sake, it is literally a drop in the ocean.
owyheewine| 5.27.10 @ 3:27PM
One quibble with the article, which is excellent. Every drop of seawater doesn't contain "decomposed oil". Oil is consumed by microbial sea life and after the digestive process become the same products as any other food stuff consumed by living beings.
As a reinforcement of the fisheries argument, gulf production platforms have become the most productive fishing grounds anywhere. They function as artificial reefs, and become a hiding place for small species, and a feeding ground for larger ones.
Oldefarte| 5.27.10 @ 3:53PM
Yea, try putting a WIND MILL or SOLAR PANELS atop your car, and see how far down the road you get!!!!!!
Oil Eating Bacterium| 5.27.10 @ 4:56PM
The author neglects to mention the other serious oil spill that occurred in the Gulf of Mexico, Ixtoc1 in 1979. That one was caused by the incompetence of the Mexican GOVERNMENT oil company. Ixtoc1 spewed oil at rates exceeding the current spill for NINE MONTHS before the Mexican government managed to stop it. It dumped oil from the Bay of Campeche (where the Ixtoc1 well was located) all along the Mexican and Texas gulf coasts. There were some human clean up efforts but most of it was cleaned by me and my brethren and the actions of hurricanes and evaporation over the next couple of years after the spill. I and my brethren look forward to eating the oil from this one too. YUM! YUM! Thanks BP for all the tasty oil, but I am glad that you got it stopped in only a month. The natural seeps provide plenty for us to eat normally and it's fun to eat a big spill, but we don't want to get fat from too much oil too fast like in this spill cause then we won't fit inside our cell walls. The NINE MONTHS of oil from the Ixtoc1 was WAAAY too much, had to go on a diet after that one.
Mel Torme| 5.27.10 @ 9:28PM
Haha, not only perspective, but good humor too. I appreciate it, O.E.B.
Don't expect any fat years for awhile up in America's end of the Gulf, as new drilling rigs will probably not be worth the effort (as some commenters already stated).
You should probably spend the rest of your life back down Ole' Mexico way, ya greasy wetback. ;-)
You know that crap's got a ton of saturated fat, too, don't ya. Sure, it's tasty, but the mayor of NYC says No Mas, Muchacho!
c.j. acworth| 5.27.10 @ 6:36PM
If the article in today's Wall Street Journal is correct, it appears that BP cut one to many corners on this well. They are (and ought to) get one heck of a bill for this. But if the accident was due to corner-cutting, that means we can still be reasonably confident that the equipment and industry-standard procedures are up to the task of getting oil under the extreme conditions of deep-water drilling. The trick is to make sure the procedures are followed religiously. After the lawyers in and out of government get through with BP, I hope everyone else in the industry has enough sense to do so. Drill baby drill!
Ned| 5.27.10 @ 7:54PM
Man, think of all the future grant money that will go to the jokers that can now do study after study on the effects of the oil spill. Talk about job security.
Disease info | 5.28.10 @ 9:08PM
hmmm... i like this
Richard Baker| 5.30.10 @ 9:10AM
Two spills in 70 years. How many government programs have gone bust in the same time frame? Perspective is such a nasty concept for the environmental wackos, isn't it?
Richard Baker| 5.30.10 @ 9:20AM
Addendum:
Two significant spills in 70 years.
scotchieguy| 6.4.10 @ 5:01PM
" Environmentalism thrives on exaggeration...the media thrives on sensationalism." Will commit that to memory. Thanks for such a reasonable article. Perspective, indeed.
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Bill Reeder| 12.31.11 @ 12:05AM
OSE II was staged for the US Navy during the Gulf war for the Persian Gulf spill. Admiral Kelso US Navy Pentagon, had numerous conversations with the OSEI Corporation for staging OSE II on shoreline areas, and for vessel support. OSE II was used to keep the Navy vessels intakes clear of oil to prevent the engines from overheating. The Navy had used OSE II on their vessels bilges, ballast water, deck cleaning, for fuel spills during fueling, and for mechanical breaks with hydraulic systems. The US Navy's extensive past experience with OSE II, and OSE II's ability to quickly remediate oil and fuels converting them to CO2 and water, while within minutes diminishing fuel or oils flammability made OSE II the best choice for the Navy.