The Secret Life of Economists

Article excerpt

Would Americans be more concerned about the financial deregulations that helped trigger the Great Recession if they knew that some of the economists publicly advocating for them profited from their implementation?

It's tough to know, because in opeds and media appearances, academic economists often do not disclose their investments in or positions at private financial institutions that could bias their policy recommendations. But after two researchers exposed a rash of potential conflicts of interest among members of their profession, economists are now for the first time considering ethics rules that would require them to divulge any connection between personal finances and the public policies they advocate.

Late last year, University of Massachusetts Amherst economists Gerald Epstein and Jessica Carrick-Hagenbarth published a paper titled "Financial Economists, Financial Interests and Dark Corners of the Meltdown." They suggested a previously unexplored cause of the crisis: Economists didn't see the collapse coming because many were profiting from the policies that led to disaster. "[E]conomists, like so many others, had perverse incentives not to recognize the crisis," Epstein and Carrick-Hagenbarth wrote in the paper, which was published by their university's left-leaning Political Economy Research Institute.

The study examined 19 unnamed academic financial economists whose opinions have been prominent in the media during the push for financial reforms before and after the market crashed. Thirteen of the academics had a stake in or held positions within financial institutions whose investments could have jumped in value if and when the economists' suggestions became policy. Eight of those 13 did not report such conflicts of interest.

Epstein says economists' silence about the dangers of deregulation can be partially attributed to those academics' economic interests. "If you are a financial economist and can make thousands of dollars consulting for a financial firm, and they might be less likely to hire you if you come out publicly for financial reform, you might think twice about promoting such reform. …