Texas Watch—Consumer Protection. Corporate Accountability. Citizen Advocacy.

What do the Deepwater Horizon tragedy and medical malpractice have in common?  The same public policy of limiting accountability is failing.  In The New York Times Magazine, economist David Leonhardt discusses  human nature’s tendency to minimize the likelihood of catastrophic incidents because we just can’t get our heads around them.  In those cases, it is up to policymakers to ensure that the law of the land forces us to prepare for these never-events by ensuring there are real consequences.

Leonhardt writes that when faced with low-probability, high-cost events – like the Gulf oil spill or a doctor operating on the wrong part of the body – people often dismiss the possibility and bury their heads in the sand:

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.

So, if it is in our nature to minimize the likelihood that a tragedy could happen, how should we make sure we are prepared for it?  Leonhardt says that it is up to the government to enact policies “to help its citizens avoid these entirely human errors.  The market, left to its own devices, often cannot do so.”  He adds that the policy of limiting the oil company’s liability “encouraged BP to underestimate the odds of 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.

The same is true in our state’s law limiting the liability of physicians who commit malpractice.  A small percentage of doctors commit the majority of malpractice.  Our policy of allowing them to escape responsibility for their actions puts all patients in greater harm by expanding the possibility that other doctors will underestimate the chances of a catastrophic medical error.

Shouldn’t our laws be designed to protect us from the worst by ensuring full accountability?  Another fact of human nature: We are all more careful when we know there are consequences for our actions.