URL: http://www.nytimes.com/2010/06/06/magazine/06fob-wwln-t.html?emc=tnt&tntemail0=y

By DAVID LEONHARDT
       

Published: May 31, 2010

In retrospect, the pattern seems clear. Years before the Deepwater Horizon rig blew, BP was developing a reputation as an oil company that took safety risks to save money. An explosion at a Texas refinery killed 15 workers in 2005, and federal regulators and a panel led by James A. Baker III, the former secretary of state, said that cost cutting was partly to blame. The next year, a corroded pipeline in Alaska poured oil into Prudhoe Bay. None other than Joe Barton, a Republican congressman from Texas and a global-warming skeptic, upbraided BP managers for their “seeming indifference to safety and environmental issues.”

Much of this indifference stemmed from an obsession with profits, come what may. But there also appears to have been another factor, one more universally human, at work. The people running BP did a dreadful job of estimating the true chances of events that seemed unlikely – and may even have been unlikely – but that would bring enormous costs.              

Perhaps the easiest way to see this is to consider what BP executives must be thinking today. Surely, given the expense of the clean-up and the hit to BP’s reputation, the executives wish they could go back and spend the extra money to make Deepwater Horizon safer. That they did not suggests that they figured the rig would be fine as it was.        

For all the criticism BP executives may deserve, they are far from the only people to struggle with such low-probability, high-cost events. Nearly everyone does. “These are precisely the kinds of events that are hard for us as humans to get our hands around and react to rationally,” Robert N. Stavins, an environmental economist at Harvard, says. We make two basic – and opposite – types of mistakes. When an event is difficult to imagine, we tend to underestimate its likelihood. This is the proverbial black swan. Most of the people running Deepwater Horizon probably never had a rig explode on them. So they assumed it would not happen, at least not to them.         

Similarly, Ben Bernanke and Alan Greenspan liked to argue, not so long ago, that the national real estate market was not in a bubble because it had never been in one before. Wall Street traders took the same view and built mathematical models that did not allow for the possibility that house prices would decline. And many home buyers signed up for unaffordable mortgages, believing they could refinance or sell the house once its price rose. That’s what house prices did, it seemed.           

On the other hand, when an unlikely event is all too easy to imagine, we often go in the opposite direction and overestimate the odds. After the 9/11 attacks, Americans canceled plane trips and took to the road. There were no terrorist attacks in this country in 2002, yet the additional driving apparently led to an increase in traffic fatalities.           

When the stakes are high enough, it falls to government to help its citizens avoid these entirely human errors. The market, left to its own devices, often cannot do so. Yet in the case of Deepwater Horizon, government policy actually went the other way. It encouraged BP to underestimate the odds of a catastrophe.             

In a little-noticed provision in a 1990 law passed after the Exxon Valdez spill, Congress capped a spiller’s liability over and above cleanup costs at $75 million for a rig spill. Even if the economic damages – to tourism, fishing and the like – stretch into the billions, the responsible party is on the hook for only $75 million. (In this instance, BP has agreed to waive the cap for claims it deems legitimate.) Michael Greenstone, an M.I.T. economist who runs the Hamilton Project in Washington, says the law fundamentally distorts a company’s decision making. Without the cap, executives would have to weigh the possible revenue from a well against the cost of drilling there and the risk of damage. With the cap, they can largely ignore the potential damage beyond cleanup costs. So they end up drilling wells even in places where the damage can be horrific, like close to a shoreline. To put it another way, human frailty helped BP’s executives underestimate the chance of a low-probability, high-cost event. Federal law helped them underestimate the costs.               
In the wake of Deepwater Horizon, Congress and the Obama administration will no doubt be tempted to pass laws meant to reduce the risks of another deep-water disaster. Certainly there are some sensible steps they can take, like lifting the liability cap and freeing regulators from the sway of industry. But it would be foolish to think that the only risks we are still underestimating are the ones that have suddenly become salient.              

The big financial risk is no longer a housing bubble. Instead, it may be the huge deficits that the growth of Medicare, Medicaid and Social Security will cause in coming years – and the possibility that lenders will eventually become nervous about extending credit to Washington. True, some economists and policy makers insist the country should not get worked up about this possibility, because lenders have never soured on the United States government before and show no signs of doing so now. But isn’t that reminiscent of the old Bernanke-Greenspan tune about the housing market?        

Then, of course, there are the greenhouse gases that oil wells (among other things) send into the atmosphere even when the wells function properly. Scientists say the buildup of these gases is already likely to warm the planet by at least three degrees over the next century and cause droughts, storms and more ice-cap melting. The researchers’ estimates have risen recently, too, and it is also possible the planet could get around 12 degrees hotter. That kind of warming could flood major cities and cause parts of Antarctica to collapse.           

Nothing like that has ever happened before. Even imagining it is difficult. It is much easier to hope that the odds of such an outcome are vanishingly small. In fact, it’s only natural to have this hope. But that doesn’t make it wise.

 David Leonhardt is an economics columnist for The Times and a staff writer for the magazine.

Special thanks to Richard Charter

Scenes like this played out along miles of shoreline Saturday, nearly seven weeks after a BP rig exploded and the wellhead a mile below the surface began belching millions of gallon of oil.

“These waters are my backyard, my life,” said boat captain Dave Marino, a firefighter and fishing guide from Myrtle Grove. “I don’t want to say heartbreaking, because that’s been said. It’s a nightmare. It looks like it’s going to be wave after wave of it and nobody can stop it.”

The oil has steadily spread east, washing up in greater quantities in recent days, even as a cap placed by BP over the blownout well began to collect some of the escaping crude. The cap, resembling an upside-down funnel, has captured about 252,000 gallons of oil, according to Coast Guard Adm. Thad Allen, the government’s point man for the crisis.

If earlier estimates are correct, that means the cap is capturing from a quarter to as much as half the oil spewing from the blowout each day. But that is a small fraction of the roughly 24 million to 47 million gallons government officials estimate have leaked into the Gulf since the April 20 explosion that killed 11 workers, making it the nation’s largest oil spill ever.

Allen, who said the goal is to gradually raise the amount of the oil being captured, compared the process to stopping the flow of water from a garden hose with a finger: “You don’t want to put your finger down too quickly, or let it off too quickly.”

BP officials are trying to capture as much oil as possible without creating too much pressure or allowing the buildup of ice-like hydrates, which form when water and natural gas combine under high pressures and low temperatures.

President Barack Obama pledged Saturday in his weekly radio and Internet address to fight the spill with the people of the Gulf Coast. His words for oil giant BP PLC were stern: “We will make sure they pay every single dime owed to the people along the Gulf coast.”

But his reassurances offer limited consolation to the people who live and work along the coasts of four states — Louisiana, Mississippi, Alabama and Florida — now confronting the oil spill firsthand.

In Gulf Shores, Ala., boardwalks leading to hotels were tattooed with oil from beachgoers’ feet. A slick hundreds of yards long washed ashore at a state park, coating the white sand with a thick, red stew. Cleanup workers rushed to contain it in bags, but more washed in before they could remove the first wave of debris.

Alabama Gov. Bob Riley and Allen met for more than an hour Saturday in Mobile, Ala., agreeing to a new plan that would significantly increase protection on the state’s coast with larger booms, beachfront barriers, skimmers and a new system to protect Perdido Bay near the Florida line.

Riley, who was angered by a Coast Guard decision to move boom from Alabama to Louisiana, said the barriers must be up within days for him to be satisfied. Allen said he needed to report to the president before confirming more details of the agreement.

The oil is showing up right at the beginning of the lucrative tourist season, and beachgoers taking to the region’s beaches haven’t been able to escape it.

“This makes me sick,” said Rebecca Thomasson of Knoxville, Tenn., her legs and feet smeared with brown streaks of crude. “We were over in Florida earlier and it was bad there, but it was nothing like this.”

At Pensacola Beach, Erin Tamber, who moved to the area from New Orleans after surviving Hurricane Katrina in New Orleans, inspected a beach stained orange by the retreating tide.

“I feel like I’ve gone from owning a piece of paradise to owning a toxic waste dump,” she said.

Back in Louisiana, along the beach at Queen Bess Island, oil pooled several feet deep, trapping birds against containment boom. The futility of their struggle was confirmed when Joe Sartore, a National Geographic photographer, sank thigh deep in oil on nearby East Grand Terre Island and had to be pulled from the tar.

“I would have died if I would have been out here alone,” he said.

With no oil response workers on Queen Bess, Plaquemines Parish coastal zone management director P.J. Hahn decided he could wait no longer, pulling an exhausted brown pelican from the oil, the slime dripping from its wings.

AP – Plaquemines Parish coastal zone director P.J. Hahn lifts an oil-covered pelican which was stuck in oil …

“We’re in the sixth week, you’d think there would be a flotilla of people out here,” Hahn said. “As you can see, we’re so far behind the curve in this thing.”

After six weeks with one to four birds a day coming into Louisiana’s rescue center for oiled birds at Fort Jackson, 53 arrived Thursday and another 13 Friday morning, with more on the way. Federal authorities say 792 dead birds, sea turtles, dolphins and other wildlife have been collected from the Gulf of Mexico and its coastline.

Yet scientists say the wildlife death toll remains relatively modest, well below the tens of thousand of birds, otters and other creatures killed after the Exxon Valdez ran aground in Alaska’s Prince William Sound. The numbers have stayed comparatively low because the Deepwater Horizon rig was 50 miles off the coast and most of the oil has stayed in the open sea. The Valdez ran aground on a reef close to land, in a more enclosed setting.

Experts say the Gulf’s marshes, beaches and coastal waters, which nurture a dazzling array of life, could be transformed into killing fields, though the die-off could take months or years and unfold largely out of sight. The damage could be even greater beneath the water’s surface, where oil and dispersants could devastate zooplankton and tiny invertebrate communities at the base of the aquatic food chain.

“People naturally tend to focus on things that are most conspicuous, like oiled birds, but in my opinion the impacts on fisheries will be much more severe,” said Rich Ambrose, director of the environmental science and engineering at program at UCLA.

The Gulf is also home to dolphins and species including the endangered sperm whale. A government report found that dolphins with prolonged exposure to oil in the 1990s experienced skin injuries and burns, reduced neurological functions and lower hemoglobin levels in their blood. It concluded, though, that the effects probably wouldn’t be lethal because many creatures would avoid the oil. Yet dolphins in the Gulf have been spotted swimming through plumes of crude.

Gilly Llewellyn, oceans program leader with the World Wildlife Fund in Australia, said she observed the same behavior by dolphins following a 73-day spill last year in the Timor Sea.

“A heartbreaking sight,” Llewellyn said. “And what we managed to see on the surface was undoubtedly just a fraction of what was happening.”

The prospect left fishing guide Marino shaking his head, as he watched the oil washing into a marsh and over the body of a dead pelican. Species like shrimp and crab flourish here, finding protection in the grasses. Fish, birds and other creatures feed here.

“It’s going to break that cycle of life,” Marino said. “It’s like pouring gas in your aquarium. What do you think that’s going to do?”

___

Flesher reported from Traverse City, Mich. Contributing to this report were Associated Press writers Holbrook Mohr on Barataria Bay, La.; Melissa Nelson in Pensacola Beach, Fla.; and Jay Reeves in Gulf Shores, Ala.

Gulf oil spill: Jimmy Buffett tells Florida beachgoers to stay upbeat despite looming oil slick

Musician Jimmy Buffett, wearing his Margaritaville-brand flip-flops, stood Saturday on a pier at tar-ball blotched Pensacola Beach and led a pro-beach rally, urging Floridians to “not get a ‘sky is falling’ attitude” over the looming oil slick.

Buffett said he has survived hurricanes, getting shot at in Jamaica and a plane crash, and he insisted he’s ready to ride out the oil-spill disaster that in the last two days has hit the white sand beaches of the Florida Panhandle.

“This is an environmental disaster nobody asked for, but Floridians are a tough people,” Buffet said to the crowd of 1,000 beachgoers.

Tar balls swept along by strong winds hit more of the Panhandle coast Saturday, including Perdido Key at the far west end of the state and Grayton Beach, about 60 miles east of Pensacola Beach. A dozen tar mats — slabs of thickened crude as long as 30 feet  — were found near Navarre Beach.

As spill-response workers collected oil blobs in the background, Buffett was joined by Gov. Charlie Crist. Although the expanding slick is largely offshore, it continues to drift east and threatens to devastate the state’s crucial tourism industry.

For Crist, a sharp decline in visitors could drive up coastal unemployment and drive down state tax revenues. And for Buffett, crude oil washing ashore could spoil summer revenues as he opens his $50-million Margaritaville Beach Hotel in Pensacola Beach.

“People ought to come out here — it’s beautiful,” said Crist, putting up with an already hot and humid morning and sweating through his shirt. “Jimmy’s opening a hotel here next week.”

“Just batten down the hatches,” Buffett said.

–Kevin Spear, Orlando Sentinel, reporting from Pensacola Beach, Fla.

Photo: Musician Jimmy Buffett, left, with Florida Gov. Charlie Crist. Credit: Associated Press

Yesterday, I visited Caminada Bay in Grand Isle, Louisiana — one of the first places to feel the devastation wrought by the oil spill in the Gulf of Mexico. While I was here, at Camerdelle’s Live Bait shop, I met with a group of local residents and small business owners.

Folks like Floyd Lasseigne, a fourth-generation oyster fisherman. This is the time of year when he ordinarily earns a lot of his income. But his oyster bed has likely been destroyed by the spill.

Terry Vegas had a similar story. He quit the 8th grade to become a shrimper with his grandfather. Ever since, he’s earned his living during shrimping season — working long, grueling days so that he could earn enough money to support himself year-round. But today, the waters where he has worked are closed. And every day, as the spill worsens, he loses hope that he will be able to return to the life he built.

Here, this spill has not just damaged livelihoods. It has upended whole communities. And the fury people feel is not just about the money they have lost. It is about the wrenching recognition that this time their lives may never be the same.

These people work hard. They meet their responsibilities. But now because of a manmade catastrophe — one that is not their fault and beyond their control — their lives have been thrown into turmoil. It is brutally unfair. And what I told these men and women is that I will stand with the people of the Gulf Coast until they are again made whole.

That is why, from the beginning, we have worked to deploy every tool at our disposal to respond to this crisis. Today, there are more than 20,000 people working around the clock to contain and clean up this spill. I have authorized 17,500 National Guard troops to participate in the response. More than 1,900 vessels are aiding in the containment and cleanup effort. We have convened hundreds of top scientists and engineers from around the world. This is the largest response to an environmental disaster of this kind in the history of our country.

We have also ordered BP to pay economic injury claims, and this week, the federal government sent BP a preliminary bill for $69 million to pay back American taxpayers for some of the costs of the response so far. In addition, after an emergency safety review, we are putting in place aggressive new operating standards for offshore drilling. And I have appointed a bipartisan commission to look into the causes of this spill. If laws are inadequate, they will be changed. If oversight was lacking, it will be strengthened. And if laws were broken, those responsible will be brought to justice.

These are hard times in Louisiana and across the Gulf Coast, an area that has already seen more than its fair share of troubles. The people of this region have met this terrible catastrophe with seemingly boundless strength and character in defense of their way of life. What we owe them is a commitment by our nation to match the resilience they have shown. That is our mission. And it is one we will fulfill.

Thank you,

President Barack Obama

Paid for by Organizing for America, a project of the Democratic National Committee — 430 South Capitol Street SE, Washington, D.C. 20003. This communication is not authorized by any candidate or candidate’s committee.

http://www.heraldtribune.com/article/20100605/ARTICLE/6051061/-1/RSS02

The blobs — some are as small as nickels and dimes, others more than 7 inches in diameter — marked the ominous arrival of the Gulf of Mexico spill that has been creeping toward Florida’s vast coastline since the April 20 explosion of a BP oil rig near Louisiana.

It marked the first time a spill of this magnitude has scarred Florida. Yet the oil that washed up across the Panhandle is expected to be only a sliver of what will be seen across the state in coming weeks.

The impact of the oil spill could potentially be devastating to beachfront communities all along the Florida coast, including the Atlantic if the Gulf currents take the oil spill around the Florida Keys. It could undermine the state’s economy, which remains critically linked to the tourism trade, and could decimate fragile beaches, marshes and coves.

University of Central Florida economist Abraham Pizam said the oil slick could become the worst disaster in the history of Florida tourism.

“It could be the beginning of a major catastrophe for this state,” said Pizam, dean of the Rosen College of Hospitality Management at UCF. “Florida survives on the back of the hospitality industry. For us it’s do or die.”

State Sen. Don Gaetz, R-Niceville, said he is hopeful the tourism industry can recover but believes it will take time.

“Picking up tar balls is going to be a way of life on at least some Florida beaches for months and maybe years,” said Gaetz, in line to become the Senate president in 2012, whose district includes the popular beach town of Destin, where oil is expected soon. “People here have faced extraordinary natural disasters. We’ve rebuilt. We’ve come back and I think we’ll come back from this as well.”

But Gaetz conceded this has the potential to be an unprecedented challenge for Florida

“How could anyone prepare for a catastrophe of this magnitude?” he asked. “This is like a year-long hurricane. The consequences could be much more far reaching than anything I’ve thought about so far.”

In the Pensacola region, the state is countering the spill with an of strategies, among them a flotilla of skimming vessels, booms to block the oil flow into inlets, conservation efforts to save injured animals, and cleanup crews to respond quickly to reports of oil.

Yet the arrival of the tar balls Friday showed those efforts may only deflect and not blunt the oil, which is being pushed toward Florida’s coastline by a strong prevailing wind from the southwest.

State environmental officials said the immediate threat is expected to continue through Tuesday, stretching from Escambia County eastward to other Gulf areas, including Santa Rosa and Okaloosa counties.

Tourists, residents and local officials woke up Friday morning in this beachfront community to find tar balls along the beach. Floating tar mats were found and removed from the Pensacola Pass, which leads into the bays and estuaries surrounding Pensacola.

In less than five minutes, Kaycee Klisart, a bartender at The Dock, a beachside bar, picked up enough tar balls to fill a 16-ounce cup, saying the largest were about the size of her palm although they dissolved when she handled them.

“This is really my livelihood,” Klisart said about the potential impact on the local tourist trade.

Klisart said the beach was “crowded but not like it would be.”

But she also said as a mother of a 10-year-old and a 13-year-old she would not let her children go into the water, although local officials, who are testing the waters, said they remained safe as of Friday.

Lee Mullikin, a retired contractor, and his wife, Pamela Kaster, a retired carpenter’s helper, who have been coming to Pensacola Beach for years, went swimming Friday morning and reported seeing no oil in the water, although they had seen lifeguards picking up small objects earlier in the day.

Mullikin, who went through Hurricane Katrina in New Orleans, said he remembers tar balls on the beach in the late 1970s.

“We’ve come full circle,” he said. “There’s an air of apprehension. It’s like we’re on a death watch here.”

County Commissioner Grover Robinson waded knee deep into the Gulf waters, calling the tar balls an “inconvenience.”

“The beach was open and it looked like a beautiful Escambia County day otherwise,” Robinson said. “We’ve gotten through a number of tragedies and catastrophes. We will do that and we will overcome this issue.”

Robinson said local officials are relying on a strategy to stop the oil at the Pensacola Pass, with plans for as many as 17 booms to block oil if it gets through the pass and starts to threaten the inland marshes and bays.

BP-hired cleanup crews were visible at Pensacola Beach, carrying shovels, plastic bags and gloves as they searched the beach for tar balls.

“We’re doing everything possible,” said Lucia Bustamante, a spokeswoman for BP.

She said 120 workers had been deployed to scour the beaches, beginning Thursday night, with more available if needed and more cleanup crews ready in Panama City if the oil moves further east.

“We have enough resources,” she said.

Mike Sole, secretary of the state Department of Environmental Protection, told local emergency officials that the state had requested more vessels to skim the oil before it reaches the shores and BP has agreed to provide another 20 boats — although Sole said it was not clear when they would arrive.

Dire predictions were the order of the day, as environmentalists woke up in tears and economists worried about the oil spill’s impact on the state’s $66 billion tourism industry.

Environmental activist and Navarre Beach resident Linda Young cried for an hour in the morning, 20 years after founding an anti-oil drilling group in the Panhandle in the hopes of never experiencing a day like Friday.

“It feels like one of your best friends is dying,” said Young, director of the Clean Water Network of Florida, after photographing tar balls on the beach near her home.

Young said the stakes for Florida are enormous as oil keeps gushing from the blown well.

“This is just the beginning. It’s coming wave after wave, and there’s no place on Florida’s coast that’s not at risk,” Young said. “It’s just a nightmare that you can’t wake up from. The full impact of the spill may be felt for years.”