Overreaction: The real damage from the BP oil spill

By Allan Sloan, senior editor-at-large

FORTUNE -- If you're searching for yet another reason to hate BP and distrust Washington, here it is. No, I'm not talking about the dead birds, befouled beaches, or zillions in damages inflicted on millions of Americans by the incompetents at BP (enabled by clueless federal regulators). Rather, I'm talking about the way our nation will overreact to the Deepwater Horizon disaster. That overreaction will cause us far greater damage than the disaster itself will, because we'll import more oil than we otherwise would and produce less of our own.

Our country's economic clout is already diminishing because we're importing huge amounts of capital to cover our budget and trade deficits, while exporting huge numbers of production jobs to the rest of the world. The last thing we need: increasing oil imports and becoming even more vulnerable to pricing and political pressures from oil-producing countries that aren't exactly friends of Western democratic principles -- while watching money gush out of our country to oil exporters even faster than oil is gushing into the Gulf of Mexico.

Yeah, I may sound a little over the top. But as someone who used to write about regulated utilities for a living, I can't help but remember the damage we did to ourselves as a nation because of the partial meltdown at the Three Mile Island nuclear generating plant near Harrisburg, Pa., in 1979. It was a terrifying incident, but it turned out that there was only minimal damage to the environment and probably none to the local citizenry -- other than scaring them half to death.

The only economic damage of consequence was to the plant's owner, General Public Utilities. But there was huge collateral damage to our country. The environmental and regulatory fallout (pun intended) from TMI led us to shun new nuclear plants for almost 30 years. Although some of the nukes under construction at the time were completed, it wasn't until 2007 -- that's 28 years after the incident -- that we got our first post-TMI application to build a new one.

Meanwhile, we grew increasingly dependent on coal, oil, and natural gas to generate electricity. We now see that carbon dioxide-spewing coal plants weren't such a great idea, and that using oil and gas rather than gradually growing nuclear wasn't very smart either. But Three Mile Island trauma left us a generation behind the rest of the industrial world at building and running nukes.

I can only imagine what the overreaction will be to Deepwater Horizon, which, unlike Three Mile Island, is a genuine environmental and economic disaster. There's already a deepwater-drilling moratorium. How many bureaucrats will risk their careers by approving future drilling offshore, or in environmentally sensitive areas like Alaska? When even Republicans -- the "drill, baby, drill" party -- carry on about BP (BP), it's going to take extraordinary bravery and wise, long-term-oriented political leaders to keep us exploring and developing our own oil and gas.

We certainly shouldn't let industry run itself. Left to their own devices, free markets tend to excesses, followed by collapses. That's how we got the 2007-08 financial meltdown and the Great Recession. But we can't keep running our country reactively. We overreact to horrifying but fluky events like Three Mile Island and Deepwater Horizon, costing ourselves dearly. How likely is it that we'll see a second explosion in an ultra-expensive well a mile below the surface spew hundreds of millions of gallons of oil into the sea? How much will it cost us to try to prevent it?

In an ideal world BP would make everyone whole for the damage it's caused, its top managers would be fired and impoverished for having failed as stewards, and the company's shareholders would be wiped out in an orderly, controlled bankruptcy that doesn't create worldwide chaos. That would dramatically demonstrate the costs of screwing up, thus making future screwups less likely. We'd adopt reasonable new rules, greatly increase the financial penalties for operators who pull another BP, and get on with our lives, realizing that there's no realistic, affordable way to eliminate all risk from the world.

Want to keep hating BP? Be my guest. But let's not penalize the rest of us in the process.

--Reporting by Marilyn Adamo. To top of page