Privatized Profit, Socialized Risk: Kiel Bros and the Pence Family

Brian Slodysko, writing for the Associated Press, reports that the State of Indiana has had to spend $21 million and counting on the cleanup of Kiel Bros. Oil Company sites. The company operated widely under the name “Tobacco Road.”

The collapse of Kiel Bros. Oil Co. in 2004 was widely publicized. Less known is that the state of Indiana — and, to a smaller extent, Kentucky and Illinois — are still on the hook for millions of dollars to clean up more than 85 contaminated sites across the three states, including underground tanks that leaked toxic chemicals into soil, streams and wells.

Indiana alone has spent at least $21 million on the cleanup thus far, or an average of about $500,000 per site, according to an analysis of records by The Associated Press. And the work is nowhere near complete.

The federal government, meanwhile, plans to clean up a plume of cancer-causing solvent discovered beneath a former Kiel Bros. station that threatens drinking water near the Pence family’s hometown.

Mike Pence is, of course, the Vice President and former governor of Indiana. His brother, Greg Pence, is the GOP candidate to take Mike’s former seat in Congress. Greg was running the company when it went bankrupt in 2004. According to the AP report, the company was founded by Carl Kiel in the 1960s. Pence father, Edward, became corporate vice-president. Mike and Greg worked for the company as well with Greg eventually became president of the company after Edward died in 1988.

The corporate bankruptcy filing and environmental damage in this story underlie a lot of what I find problematic about conservative and libertarian rhetoric about personal responsibility and small government. The rhetoric often involves a lot of talk about personal responsibility, the evils of government, and the wisdom of allowing people to keep their money away from the prying hands of the state. And, you know, that sounds great. Often there is truth to it. But it’s far too simplistic.

Let’s start with the corporation. It is a legal fiction created by and made available by the government and enforced by the government to shield individuals from personal responsibility. The individuals who owned Kiel Bros. were thereby allowed to cause damage to the environment, presumably pocket money from those activities, then retain the money after the bankruptcy was filed and the damage came to light. Bankruptcy is similar — a government created loophole to the enforceability of government created property rights that shields people from their obligations.

Then there is the environmental damage. Libertarians in particular, but often conservatives as well, have always been very weak in terms of their ability to reconcile their philosophy with an ability to deal with pollution. The general notion is that property owners should be allowed to do what they want with their own property without government interference (putting aside for a moment the fact that property is a legal creation that has no practical existence without the force of the government backing it up.) They might generally assert that if pollution caused by someone else’s property hurts you, you should be able to recover damages to compensate you. But, in practice, the culprits can be long gone before the damage comes to light, and the problems of proof and recovery can be immense. Meanwhile, pollution distorts the marketplace which is generally held in high regard by libertarians and conservatives. If you pollute, you are externalizing the costs of your operations. Operations cost more if they’re done in a way that doesn’t contaminate other people’s air and water. Because you’ve externalized that cost, the cost is not reflected in the price of your product. So, the market doesn’t get accurate information about the true cost of the service or product and money flows to people who are externalizing their costs. In this case, money is flowing to the Kiel and Pence families rather than to other oil companies or energy producers who create their product without surreptitiously harming others.

Which brings us to the last point about allowing people to keep what they’ve earned. If the State were to raise taxes on the Pence family to help mitigate these environmental costs, they would definitely moan about big government. I don’t know if they’d go so far as to say “taxation is theft,” but there is definitely a libertarian contingent who goes that far. Can the Pence family be said to have “earned” money that comes, in part, from offloading the environmental costs of their operation? They’ve earned some but not all of it. And I think that’s probably true of a lot of economic activity and its relationship to government and society at large. It’s complicated. You’ve earned some but not all of it. Sometimes you’ve offloaded costs. Sometimes you’ve skimmed off the value created by an employee. Sometimes you’re profiting from the infrastructure put in place by the government. So, sometimes taxes are too high. Sometimes, they’re too low. And, in any event, calling taxation theft just doesn’t capture the true dynamic.