Thursday, September 11, 2008

Government Employees Trade Favors To The Oil Industry For Sex (and they got an ethics award from the government)

"the Interior Department agency that collects oil and gas royalties has been caught up in a wide-ranging ethics scandal - including allegations of financial self-dealing, accepting gifts from energy companies, cocaine use and sexual misconduct.

In three reports delivered to Congress on Wednesday, the department's inspector general, Earl Devaney, found wrongdoing by a dozen current and former employees of the Minerals Management Service, which collects about $10 billion in royalties annually and is one of the government's largest sources of revenue other than taxes."

That is from: Sex, drug use and graft alleged in U.S. Interior Department

(see below for the link about their ethics award)

The article also says:

"The report alleges that eight officials in the royalty program accepted gifts from energy companies whose value exceeded limits set by ethics rules. These included golf and ski outings; meals and drinks; and tickets to a Toby Keith concert, a Houston Texans football game and a Colorado Rockies baseball game.

The investigation also concluded that several of the officials "frequently consumed alcohol at industry functions, had used cocaine and marijuana, and had sexual relationships with oil and gas company representatives.""

Here is another article on this: Federal oil lease employees had sex with industry reps

In my 1301 class, we just read a chapter called "Sex, Booze and Drugs" (from the book The Economics of Public Issues), so this is a timely story!

But this story points out two important economic concepts. One is The capture theory of regulation. The idea is that although the government agencies are supposed to make sure companies follow the rules to benefit society, those companies can influence or control the regulators. They do this by lobbying (and giving perks like in these artilces). Also, the industry has the interest and incentive to influence these agencies while the rest of us are too busy to keep tabs on it. And sometimes the regulators are former industry employees.

The other concept it illustrates is The law of unintended consequences. We may have well-meaning laws that should benefit society but people react to those laws and change their behavior sometimes in unexpected and undesirable ways. We see this here in these articles. Another example would be rent controls. If you legally keep down the price of rent, landlords have less incentive to keep their buildings or construct new apartments. So the rental market (and renters) suffer even though that was not the intended result.

Days Before Scandal, Interior Got Ethics Award

1 comment:

Cliff Perez said...

There is no doubt that a government agency should not be engaged in any unethical behavior. Most people will see this as another failure of our government to manage the power awarded them (and it is). The larger we allow our government to become, the more problems like this we'll see. This news seems like more of a way to sway voters one way for the larger issue of how much the government should regulate offshore drilling. The article shows where it's support lies with this excerpt, "And Senator Bill Nelson, Democrat of Florida, suggested that Congress should not lift its ban on offshore drilling - a hot-button issue in his state - because of the problems identified." My feeling is that despite the U.S Interior Department's deficiencies, we should still move forward with offshore drilling. Whether we like it or not, oil is at the center of our economy and has been for a number of years. There is no way to shift us out of that pattern in a matter of months. When President Bush lifted the offshore drilling ban, the price of oil fell by about $20 a barrel. The price of oil is hurting our wallet now, and we can do something about it if our congress would remove the offshore drilling ban. No government agents should participate in illegal activities, but the criminals should be removed and the agency should move forward. For future reference, those of you wanting to live the lifestyle of a rockstar need not look any further than a government job.