Monday, December 8, 2014

Private Interests Over the Public Good: Energy Companies Capture an Attorney General

In Wealth of Nations, Adam Smith argues that the aggregation of the preferences of consumers and producers for a given good is in the public interest for the product or service. Often overlooked is Smith’s Theory of Moral Sentiments, in which the famous economist wraps a moral sentiment around the individual preferences, hence hopefully constraining them, albeit voluntarily. Herein lies the rub, for it is shaky to assume that a preference that seeks to maximize itself will voluntarily restrain itself when it rubs up against an ethical limit that is felt. Such a moral constraint is like a semi-permeable membrane in that the sentiment naturally triggered when a person comes on an unethical situation or person can be ignored or acted on.

To be sure, a sentiment, such as that which a person naturally feels when he or she learns of an innocent person being killed, can be written into law and applied as a new regulation; the individual preferences otherwise triggering the sentiment of disapprobation would thus be constrained involuntarily from doing so. It follows that if a private actor, such as a company’s management, with a preference (which is inherently self-maximizing) can emasculate a restraining regulation without any concern for people’s moral sentiments, then we are back to trusting in voluntary restraint—only now that actor has political power rather than merely being one of many participants in a competitive market. I contend that trusting in the regulated to regulate its regulator is unethical not least because of the underlying conflict of interest.

To illustrate the problem, I discuss the influence of certain energy companies on certain attorneys general in some of the American States. In late 2014, The New York Times reported that Oklahoma Attorney General Scott Pruitt wrote a critical letter to the U.S. Environmental Protection Agency. In particular, he claims that the regulators were grossly overestimating the amount of air pollution caused by companies drilling new natural gas wells in Oklahoma.[1] The public good is salient here because methane, a gas having ten-times the greenhouse effect of carbon, had been shown by independent tests to be leaking from natural gas wells and urban pipe systems.[2]

So the public interest in keeping global warming to within limits palatable to human survival may have been put at risk were Pruitt wrong in his charge. That the letter had actually been written by lawyers for Devon Energy, one of Oklahoma’s biggest oil and gas companies—the attorney general’s staff copied it onto government stationery with only a few word changes and Pruitt signed it as if it was his own—raises serious doubts as to Pruitt’s claim of overstatement.  That is to say, a government  may have been colluding with a private vested interest in a regulation at the expense of the public interest.

An email exchange from October 2011 between attorneys general and large energy producers “offers a hint of the unprecedented, secretive alliance . . . to push back against the Obama regulatory agenda,” according to The New York Times.[3] The newspaper had “reported previously how individual attorneys general have shut down investigations, changed policies or agreed to more corporate-friendly settlement terms after intervention by lobbyists and lawyers, many of whom are also campaign benefactors.”[4] Shutting down investigations is particularly suspect, as it cannot be said that concluding them would run counter to the public good. Moreover, for the regulated to also be campaign benefactors places both the regulated and the regulators and attorneys general in conflicts of interest.

For the energy companies, their roles as the regulated and benefactors conflict because the temptation to obligate regulators and attorneys general to remove a certain regulation goes against being regulated, which implies that government regulation is a viable rather than voluntary constraint. I submit that it is unethical for a society (via its government) merely to allow the regulated to have the other role because of the latent lure of the temptation to obligate government officials to remove unpleasant regulations that are nonetheless in the public interest.

For government officials, taking the campaign contributions from companies whose regulations the officials can relax or expunge creates a conflict of interest between acting on a private interest’s behalf at the expense of the public interest and protecting the public good through non-voluntary constraints on private interests. According to The New York Times, attorney generals “in at least a dozen are working with energy companies and other corporate interests, which in turn are providing them with record amounts of money for their political campaigns, including at least $16 million” in 2014.[5] Also in that year, the U.S. president, Barak Obama, admitted publicly that the federal elected-representatives must take the huge contributions in order to compete in elections “and that obligates us.”[6] We can fill out the president’s point by adding that the large contributions, such as the $1 million from Goldman Sachs to Obama ’08, obligates elected representatives to put particular private interests over the public interest even though being a law-maker or enforcer-of-law carries with it the duty to protect the public interest from otherwise maximizing private interests.

If enough parts of a ship are allowed to go their own way at the expense of the ship itself, steering a steady course and maintaining speed are impeded. Similarly, if powerful private interests in a republic are allowed to obviate measures that restrict them so the republic may remain viable over the long term, then the whole will weaken as if leaking energy. Put another way, prick enough tiny holes in a flat balloon and inflating it will not last very long. Even though a particular pin-prick does not deflate the whole over time, a system enabling such hole-making enables enough tiny holes that a slow deflation becomes a mathematical certainty.

[1] Eric Lipton, “Energy and Regulators on One Team,” The New York Times, December 7, 2014.
[2] The E.P.A. had taken the industry’s own “estimate” of 1 percent as the leakage rate, whereas independent tests showed leak rates up to 18 percent. Cities tested include Washington, D.C., Denver, and Los Angeles.
[3] Lipton, “Energy and Regulators.”
[4] Ibid.
[5] Ibid.
[6] Barak Obama at a news conference in late 2014.