When Good Contrarianism Goes Bad

So, I come up with a contrarian view on the BP issue that I don’t 100% hold, but which is a genuine aspect of the story and which has been completely neglected in any of the coverage I’ve seen. I mention it on Twitter, I spend a couple of days thinking about it, and then I write it up for a blog post.

…and then, the same bloody day, the sillier ends of the UK press have the same idea, although with far less research and more pointless nationalistic ranting. Had I known they were going to do that, I wouldn’t have bothered – there’s a difference between contrarianism where you float a viewpoint that nobody’s promoting, and Clarksonism where you float a viewpoint that lots of people are promoting and pretend that you’re being oh so brave and daring for doing so. The latter is no fun at all, and even the perception of the latter is a bit embarrassing.

Anyway.

There are elements of Obama’s public references to BP that can only be explained by Brit-bashing. The underlying problem in the US oil industry is regulatory failure, and if the US oil industry were to operate under the same regulatory framework that the UK oil industry adopted after Piper Alpha, then the disaster wouldn’t have happened. And the best way to deal with safety in general is the aviation industry’s one of heavy, preemptive regulation, with accident inquiries that avoid blame and stick to making recommendations that are enforced, rather than doing nothing until there’s a disaster and then throwing around massive amounts of blame and infinite lawsuits [*].

I’m in two minds about the US administration’s behaviour at the moment, though.

As I mentioned in comments to the other post, I don’t understand their strategy here: the incident is fundamentally George Bush’s fault, in that his government deliberately cut regulation from its already poor start and also granted permits for unprecedentedly deep-sea drilling, which the current government has had no time to fix. Any UK or Australian PM worth their salt would be milking this fact for all it was worth, and saying “unlike our inept, industry-beholden, corrupt predecessor, we’re going to create a proper regulator to ensure this doesn’t happen again”.

But assuming that slating former presidents is off the menu in US political debate, and given that the public are baying for blood, I can see what they’re doing on self-preservation grounds. And if it ends up with BP paying the expected actual cost of $20-30bn for the cleanup, compensation, and fines for any specific violations that led up to the disaster, and not being charged crazy punitive damages, expropriated, kicked out of the country, or similar, then that’s a reasonable outcome.

Whether the fact that the markets seem to think a worse outcome is likely is because there’s a genuine political risk that Obama is going to go Putin-y on foreign investors, or whether it’s because markets are paranoid beasts at the best of times, remains to be seen. I’m not sure it’s a good thing that the US president is using the kind of rhetoric that makes markets believe he might – but I’m not sure he has much of a choice.

In short, let’s see what happens. If the end outcome is a reasonable settlement, coupled with massive increases in regulatory requirements, enforcement and spending in the US oil industry, then bring it on and three cheers for Mr Obama.

[*] relatedly, my attitude towards dead oil rig workers is very similar to my attitude toward dead volunteer soldiers: “that’s sad for you and your loved ones, but it’s also why you were paid so much more than someone with your skill-base could have earned in a job that didn’t have a substantially elevated risk of death”.

9 thoughts on “When Good Contrarianism Goes Bad”

  1. One point I've not seen picked up anywhere is that it is election time n the US and both Obama's and the Democratic Party's popularity is very low. As we know from Hollywood painting Brits as evil plays well overs there.

    Secondly, we know that Obama and his party are prone to playing fast and loose with the business world – look at what they did by giving the car worker unions preference over senior creditors when forcing the bankruptcy of GM and Crysler. That alone increased political risks for investors in the US.

  2. Hmm. Agreed on the first, although the Republicans are also unpopular.

    Disagree on GM and Chrysler, though: their most substantial (in the sense of "couldn't be avoided without the company going not only into bankruptcy but into liquidation") obligations were employee healthcare and pensions costs. Without converting some of these obligations to equity, the companies would never have been able to generate enough cash to pay back bondholders – which is why only a vociferous, right-wing, short-sighted minority of bondholders opposed the settlement.

  3. my attitude towards dead oil rig workers is very similar to my attitude toward dead volunteer soldiers: “that’s sad for you and your loved ones, but it’s also why you were paid so much more than someone with your skill-base could have earned in a job that didn’t have a substantially elevated risk of death

    Your typical new officer, these days, has a degree plus a year of training at Sandhurst. He gets 16-17k. The median UK graduate starting salary is 25k.

  4. I thought lieutenants started on about £24-25k these days?

    (That said, the Junior Officers Reading Club raised a significant eyebrow with me as to how exactly he managed to fund a West End lifestyle on an ungarnished wage.)

  5. I'm sceptical of Ajay's numbers, but junior officers have always been a bit screwed over generally (in exchange for which you get uni paid and paid during Sandhurst). A private, on the other hand, gets a minimum 16k out of school without A-levels, which is definitely an improvement on anything private or public sector.

  6. Quick check – sorry, a new second lieutenant is OF1 Level 5 pay once he's through Sandhurst which was £23k in 2008. Still less than the median graduate salary though, isn't it.

  7. http://www.highfliers.co.uk/download/GraduateMark

    Chart 3.3 suggests that the Armed Forces have a higher than median graduate salary. (Which is odd – but looking at the other sectors I know something about, the accounting number feels about right (the Big Four pay their trainees about £26-£27k pa, IIRC, but the banking numbers feel a bit low (a friend started on £35k back in 1999, so it must be more than that now, surely?). Law is about right if you get a training contract with a City law firm, but all the smaller firms must really drag it down. I suspect there's some significant selection bias going on in the survey.)

  8. Sorry, missed Richard's response. Banking covers both investment banking and retail – if you get a job at Barclay's as a trainee manager on gbp22ish (can't remember, but +/- 10%) then that helps cancel out the chaps who go and be traders on unbelievable sums. My uni graduate friend (albeit in a non-degree-required job) who was a senior cashier at a building society was on gbp16k, from gbp12k starting (2004ish).

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