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.
