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Academic Economists to Consider Ethics Code

December 31st, 2010 · No Comments

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NY Times December 30, 2010
Academic Economists to Consider Ethics Code
By SEWELL CHAN

WASHINGTON ? When the Stanford business professor Darrell Duffie co-wrote
a book on how to overhaul Wall Street regulations, he did not mention that
he sits on the board of Moody?s, the credit rating agency.

As a commentator on the economy, Laura D?Andrea Tyson, a former adviser to
President Bill Clinton who teaches in the business school at the
University of California, Berkeley, does not usually say that she is a
director of Morgan Stanley.

And the faculty Web page of Richard H. Clarida, a Columbia professor who
was a Treasury official under President George W. Bush, omits that he is
an executive vice president at Pimco, the giant bond fund manager.

Academic economists, particularly those active in policy debates in
Washington and Wall Street, are facing greater scrutiny of their outside
activities these days. Faced with a run of criticism, including a popular
movie, leaders of the American Economic Association, the world?s largest
professional society for economists, founded in 1885, are considering a
step that most other professions took a long time ago ? adopting a code of
ethical standards.

The proposal, which has not been announced to the public or to the
association?s 17,000 members, is partly a response to ?Inside Job,? a
documentary film released in October that excoriates leading academic
economists for their ties to Wall Street as consultants, advisers or
corporate directors.

Universities and medical schools have tightened disclosure requirements
and conflicts of interest policies for scientists, engineers and doctors
in recent years, and the main professional associations for political
scientists, sociologists and psychologists have all adopted ethical codes.

During the American Economic Association?s annual meeting, in Denver next
week, its executive committee will take up a proposal to ?consider the
association?s role regarding ethical standards for economists,? according
to an internal committee agenda obtained by The New York Times.

The association?s president, Robert E. Hall of Stanford, would not
elaborate on the proposal or say where he stood on it.

?Like my predecessors, I?m skeptical that the A.E.A. is well-positioned to
cure any ethical lapses that economists may be committing outside the
A.E.A. itself,? he wrote in an e-mail. ?Still, the topic might benefit
from further discussion within the organization.?

The proposal is likely to raise a host of questions: Should economists be
required merely to disclose who finances their research, as many academic
journals already require? Should they have to reveal which corporate
clients they advise, consult for or give speeches to? Should they even be
allowed to serve as corporate directors and officers, as many business and
finance professors do?

Some scholars say the discussion is long overdue.

?I?m glad the A.E.A. is taking it up,? said Dale W. Jorgenson, a former
president of the association and a longtime Harvard professor (he advised
the undergraduate thesis of Ben S. Bernanke, now the Federal Reserve
chairman). ?I?m hoping they take an activist position.?

Professor Jorgenson said that academic economists had fallen behind
scholars in other fields in their attentiveness to transparency, and
should follow the example of the biomedical sciences, where money from the
private sector is subject to rigorous disclosure rules. But another former
president of the association, Robert E. Lucas Jr., said universities were
better suited to handle the matter.

?It?s good to get this stuff out in the open, but I don?t like the idea of
the A.E.A. watching over this,? said Mr. Lucas, a Nobel laureate at the
University of Chicago.

Mr. Lucas added: ?What disciplines economics, like any science, is whether
your work can be replicated. It either stands up or it doesn?t. Your
motivations and whatnot are secondary.?

Since economics emerged as a modern discipline in the late 19th century,
its practitioners have resisted formal ethical codes, said George F.
DeMartino, an economist at the Josef Korbel School of International
Studies at the University of Denver.

In ?The Economist?s Oath: On the Need for and Content of Professional
Economic Ethics,? to be published in January, Mr. DeMartino describes
concerns dating to the 1920s about the influence of business on economic
research, and cites multiple calls within the association for a code of
conduct ? all of which have been rebuffed.

After one such debate in 1994, the committee concluded that it might not
have the relevant expertise to fairly judge ethical disputes; that a fair
mechanism to resolve complaints would be hard to establish; and that any
such effort could result in lawsuits and prove toothless because of a lack
of sanctions for violators.

?I can see the case for specific rules on conflicts of interest, but that
doesn?t begin to exhaust the ethical challenges that confront economists,?
Mr. DeMartino said.

What is clear is that the film has rattled the profession.

?You could call this the ?Inside Job? effect,? said David H. Autor, an
M.I.T. professor who is a nonvoting member of the committee but had not
heard of the proposal. ?Certainly the implication of the movie was that
people were selling their academic reputations to further the interests of
moneyed individuals and institutions.?

The film is particularly critical of R. Glenn Hubbard, dean of Columbia
Business School and a director of MetLife; Frederic S. Mishkin, a
professor at the same school who advises investment firms; and Martin S.
Feldstein, a Harvard professor who resigned from the board of the American
International Group, the insurance giant, after it was bailed out by the
Fed and the Treasury.

All have held top posts. Professor Feldstein was chairman of the Council
of Economic Advisers under President Ronald Reagan, a job Mr. Hubbard
later held under Mr. Bush. Professor Mishkin was a Fed governor.

Mr. Hubbard said the association proposal ?sounds like a very good idea,?
and Professor Mishkin said: ?I strongly support having the A.E.A. clarify
standards for disclosure, because increased transparency would benefit the
public and the economics profession.? (Professor Feldstein said he could
not discuss his work for A.I.G. on the advice of lawyers.)

A recent paper by Gerald Epstein and Jessica Carrick-Hagenbarth of the
University of Massachusetts, Amherst, found that many financial economists
who weighed in on the Wall Street overhaul signed into law in July did not
prominently disclose potential conflicts of interest.

As an example they cited Mr. Duffie, who like Mr. Mishkin was an author of
?The Squam Lake Report,? a volume of recommendations on financial reform
that was published in June.

?Looking back on it, it was probably an oversight not to say that we not
only talk to regulators but have affiliations with players in the
financial services industry,? Mr. Duffie said.

Others said they saw no problem with their multiple roles. Professor
Clarida, of Columbia, said his experiences at Treasury and Pimco ?enhance
my academic work and my effectiveness in the classroom.?

Ms. Tyson, who is an unpaid adviser to the Obama administration, said,
?Provided everything is disclosed, there is no reason why an economist who
happens to have associations in the private sector should be precluded
from speaking out on policy issues.?

But while many economists disclose corporate work on their Web sites,
others do not. Professor Clarida provided a copy of his résumé that lists
his work for Pimco, but his Web page has an older version that does not.

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