Finance & economics | Economics focus

Dismal ethics

An intensifying debate about the case for a professional code of ethics for economists

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THE annual meeting of the American Economic Association (AEA), which was due to begin in Denver, Colorado, on January 6th, will be the usual mêlée of receptions, networking events and seminars (more than 500 of them) on the latest economic research. But this year's shindig finds economists in an unusually reflective mood. One panel will discuss the failings of the discipline in light of the financial crisis. Another will consider how economics needs to change as a consequence. Most striking of all, for a profession that tends to pay little explicit attention to such matters, the first day's schedule also contains a debate on the role of ethics in the economics profession.

Some would like to move beyond mere discussion. Economists—unlike sociologists, anthropologists, statisticians or political scientists—do not formally subscribe to a professional ethical code. Close to 300 economists have signed a letter urging the AEA, as the discipline's foremost professional body, to adopt such a code. The signatories include such luminaries as George Akerlof, a Nobel laureate, and Christina Romer, who recently returned to the University of California, Berkeley, after heading Barack Obama's Council of Economic Advisers.

Sceptics scoff that codes like this are often ignored. And many economists are rightly suspicious about any professional body decreeing what should constitute acceptable lines of inquiry for economists or how economists ought to apply the fruits of their knowledge. So the letter-writers have sensibly chosen to concentrate on the conflicts that may arise when economists opine about matters that affect industries or companies with which they have financial links.

Such conflicts of interest exist across many professions, of course. But they are particularly common in the dismal science. Economists analyse issues that affect particular industries, making it more likely that companies will ask them to sit on their boards or employ them as consultants, and that governments will ask them to get involved in areas of public policy. Doing such work should not be discouraged: it enhances economists' understanding of what really goes on in the industries they study. But asking that existing affiliations be disclosed seems entirely fair.

Critics of the profession argue, for example, that it is no coincidence that financial economists, many of whom were engaged as consultants by Wall Street firms, were by and large extremely averse to regulating the financial sector. It could well be that economists whose prior research convinced them of the benefits of greater financial liberalisation were more willing to speak up for Wall Street. But it is hard for economists to claim that being paid by firms in no way affects how they approach or select the issues they study. After all, modern economic theory rests on the idea that incentives matter in determining how people behave.

You might assume that economists already disclose their links to organisations. But when economists write articles for the opinion pages of newspapers and magazines, appear on television to discuss matters of economic policy or testify before parliamentary committees, the audience is often unaware of their non-academic affiliations. A study by Gerald Epstein and Jessica Carrick-Hagenbarth of the University of Massachusetts, Amherst, looked at how 19 prominent academic financial economists who were part of advocacy groups promoting particular financial-reform packages in America described themselves when they wrote articles in the press. Most had served as consultants to private financial firms, sat on their boards, or been trustees or advisers to them. But in articles written between 2005 and 2009 many never mentioned these affiliations, and most of the rest did so only sporadically and selectively. Readers may have assumed they had more distance from the industry than was in fact the case.

Yet it is also fair to point out that there is little clear evidence that economists' professional judgment was clouded by their affiliations. In their study Mr Epstein and Ms Carrick-Hagenbarth find no discernible difference between the degree of financial regulation espoused by economists in their sample who had affiliations with financial firms and those who did not. This is hardly definitive, given the small sample, but it does caution against jumping to the conclusion that economists are biased simply because of their relationships with firms.

As for academic research, some disclosure requirements already exist. The National Bureau of Economic Research (NBER), America's foremost publisher of working papers, requires its fellows to disclose any financial relationships that could pose a conflict when they submit an article. Many journals already ask that funding sources for research projects be mentioned but may want to consider adopting additional NBER-style disclosure forms. Forums like the AEA meetings, where economists are forced to defend the validity of their research against their peers' attempts to poke holes in it, are another vital way to ensure that economic research is credible, robust and valid.

Faith or failure?

Some argue that economists face greater ethical questions than those about financial conflicts of interest. A forthcoming book by George DeMartino of the University of Denver argues that economists have too often pushed too strongly for free-market policies—whether shock therapy for transition economies in eastern Europe or unchecked financial liberalisation—on the basis of limited understanding or, worse, because they ignored ways in which the real world departs from the idealised one of neoclassical economic theory. Given the enormous impact their opinions and analysis have on people's lives, Mr DeMartino argues, economists should be a bit more humble about the limits of their knowledge. Hubris, he reckons, has led to some of the profession's most egregious ethical failings. A code on disclosure will not be much use in addressing that charge.

This article appeared in the Finance & economics section of the print edition under the headline "Dismal ethics"

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