Bloomberg News Joins the “Inside Job” Team, Objects to Economics’ Inadequate Conflict of Interest Standards

It’s surprising and refreshing to see Bloomberg News, via an editorial, take on the way the economics profession has failed to clean up its act not simply in the wake of a massive intellectual failure but after the movie Inside Job highlighted some examples of corruption in the ranks of Famous Economists.

As the Bloomberg piece notes, the American Economics Association has responded to criticism about conflicts of interest, but the remedy is insufficient. The AEA will now require economists making public pronouncements or presenting papers to disclose any funding they received. That’s better than nothing, but short of what is necessary.

First, an economist may have a past client that he would very much like to be a future client. So he might be disinclined to ruffle their feathers and might blunt some research findings so as to keep the door open.

Second, the conflicts don’t merely lie with those writing papers, but with those selecting papers for publication and presentation at conferences. Bloomberg cites the work of its sometimes contributor Luigi Zingales:

As a small test, Zingales looked at the 150 most-downloaded papers that had been done on executive pay — a subject he reasoned could legitimately be argued either way. He found that papers supporting high pay for top executives were 55 percent more likely to be published in prestigious economic journals, suggesting that the editors, also academic economists, have a bias.

And Zingales points to a systemic bias in the discipline:

Even the best-intentioned economists — and particularly those in the area of finance — face a litany of influences pushing them toward a rosier view of the industries they study. In a yet-to-be-published paper, Luigi Zingales, a finance professor at the University of Chicago’s Booth School of Business, likens the pressure to regulatory capture. A pro-business attitude, he notes, can increase an economist’s chances of landing lucrative consulting, expert-witness and research contracts, and can facilitate publication in academic journals whose editors are themselves captured.

Although this is a small step, it is still refreshing to see a major publication, and one with an audience of major consumers of economists’ output, speak out on this issue. And I particularly like idea:

Zingales, for example, envisions a university center that would name and shame academics who do suspect research for money.

Can I have that job?

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    1. ScottS

      I’ll be glad to do it, taking my cut for not outing corrupt economists! Quis custodiet ipsos custodes?

  1. liberal

    A pro-business attitude, he notes, can increase an economist’s chances of landing lucrative consulting, expert-witness and research contracts, and can facilitate publication in academic journals whose editors are themselves captured.

    It’s pathetic that so few economists are willing to apply their own theory of the effect of incentives to their own profession.

    1. F. Beard

      Pro-business or pro-banking? Steve Keen says that economists have ignored debt calling it a wash because “for every debtor there is a creditor” completely missing what “credit” is – counterfeit money (my words not his) except that the money is lent, not spent into circulation.

  2. Middle Seaman

    On a smaller but not less pervasive scale, this problem permeates the whole scientific world. Grants, consulting, expert witness and lectures are available in many areas. If you criticize a company, don’t expect to consult it in the future. The lucrative offerings do influence heavily way too many.

    Medicine and the pharmaceutical companies are well known for their conflict of interest and quite frequently.

    Eliminating the problem is impossible and lowering the extent is a tall order.

    1. just me

      I’m remembering Yves’ April 4, 2011 post,
      Blacklisted Economics Professor Found Dead: NC Publishes His Last Letter

      What would you identify as the central insights of Academic Choice theory? The theory begins by identifying three principal ways in which economists try to maximize their utility. First, they receive salaries from universities, which can be increased if their course enrollment increases. Course enrollment is primarily driven by students with future careers in business and the financial sector, so an economist has an incentive to propound theories that CEOs and financial institutions find attractive. Even if adoption of these theories leads to substantial public costs, these costs will not be shouldered by the economist personally. Second, by developing such theories an economist can open the door to future wealth as a lobbyist or consultant. Third, the support of economists is critical to creating and maintaining special privileges for the financial services industry and for top corporate officers. By threatening to withdraw this support, economists can engage in rent-seeking. I call this last practice academic entrepreneurship.

    2. Jessica

      We could eliminate the problem by changing how we as a society fund academic research.
      Although that will require regime change.

    3. Travizm

      Do you think it permeates the whole scientific world equally?

      I think not!

      I agree that it will require a special change in conditions for economic to evolve into a low-COI science but I see more promise coming down the stream then ever before.

      I may yet bare witness to this if my forever-beating heart outlasts the forever-conflicted field of Economy.

      1. MacCruiskeen

        No, it doesn’t effect the world of scientific research to quite the same degree as economics. There are surely serious issues with the way much research is funded: the need to beg for corporate sponsorship affects firstly what is researched (scientists do projects sponsors will benefit from, and ignore other areas) can affect the willingness to report results that are contrary to what the sponsor wants. Openness about funding is considered crucial. The peer review system is still fairly good at filtering, though hardly flawless (and don’t get me started on corporate control of academic publishing). Scientists generally have a much higher awareness of the problem than economists (it is nicely ironic that economists are disinclined to look into a problem of the influence of money). And scientists know that when cutting-edge research is published, it should be considered a tentative result until confirmed. This is the real difference: ultimately, in science, the data will trump the politics. The path to get there is not always as straight and smooth as we would like, but more often than not, it works.

    4. Jim3981

      It seems like most everybody in important positions of power has been co-opted by the special interests.

      Co-opting so pervasive it goes anywhere and everywhere control is needed. Universities, medical journals, media, government agencies, etc…

      Somehow the guys/gals pulling the strings can continue mostly unnoticed by their peers and really keep a good lie going…..

      Hard to explain, but it is certainly happening.

      It all seems rigged to me.

  3. Michael Fiorillo

    Isn’t this how “the marketplace of ideas” is supposed to work?

    Those with money pay to have their premises and interests tarted up with all sorts of pseudo-scientific embellishments, presented by academics-for-hire as representations of reality, and then broadcast to the rest of us as worldly gospel.

    Everyone should stop whining, as this is the best of all possible worlds.

  4. Benedict@Large

    The importance of the capture of academic journals is glossed over in the Bloomberg piece. Top academic journals enforce a gateway to tenure at top institutions; if you want tenure at top institutions, you must be published by top journals. Since the top journals providing this gateway are all captured by the orthodoxy (something even Krugman mentions from time to time), you cannot get tenure at top institutions unless you are able to spout orthodoxy with the fluency of a true believer.

    1. tyaresun

      Yes, I am one of the many victims. I work in the industry now and am much more happy. I have earned the respect of a small group of people for helping them protect their nest eggs and avoiding the housing bubble. Much more satisfying than publishing what others have predetermined to be true.

  5. Gerard Pierce

    What would you have me do?
    Seek for the patronage of some great man,
    And like a creeping vine on a tall tree
    Crawl upward, where I cannot stand alone?
    No thank you! Dedicate, as others do,
    Poems to pawnbrokers? Be a buffoon
    In the vile hope of teasing out a smile
    On some cold face? No thank you! Eat a toad
    For breakfast every morning? Make my knees
    Callous, and cultivate a supple spine, —
    Wear out my belly groveling in the dust?
    No thank you! Scratch the back of any swine
    That roots up gold for me? Tickle the horns
    Of Mammon with my left hand, while my right
    Too proud to know his partner’s business,
    Takes in the fee? No thank you! Use the fire
    God gave me to burn incense all day long
    Under the nose of wood and stone? No thank you!
    Shall I go leaping into ladies’ laps
    And licking fingers? — or — to change the form —
    Navigating with madrigals for oars,
    My sails full of the sighs of dowagers?
    No thank you! Publish verses at my own
    Expense? No thank you! Be the patron saint
    Of a small group of literary souls
    Who dine together every Tuesday? No,
    I thank you! Shall I labor night and day
    To build a reputation on one song,
    And never write another? Shall I find
    True genius only among Geniuses.
    Palpitate over little paragraphs,
    And struggle to insinuate my name
    In columns of the Mercury?
    No thank you! Calculate, scheme, be afraid,
    Love more to make a visit than a poem,
    Seek introductions, favors, influences? —
    No thank you! No thank you! And again
    No thank you! — But . . .
    To sing, to laugh, to dream,
    To sing in my own way and be alone,
    Free, with an eye to see things as they are,
    A voice that means manhood — to cock my hat
    Where I choose — At a word, a Yes, a No,
    To fight — to write. To travel any road
    Under the sun, under the stars, nor doubt
    If fame or fortune lie beyond the bourne —
    Never to make a line I have not heard
    In my own heart; yet, with all modesty
    To say: “My soul, be satisfied with flowers,
    With fruit, with weeds even; but gather them
    In the one garden you may call your own.”
    So, when I win some triumph, by some chance,
    Render no share to Caesar — in a word,
    I am too proud to be a parasite,
    And if my nature wants the germ that grows
    Towering to heaven like the mountain pine,
    Or like the oak, sheltering multitudes —
    I stand, not high it may be — but alone!….
    — Edmund Rostand, Cyrano de Bergerac, Act II, Scene 2. VIII.

    1. jake chase

      I think Cyrano was talking about those clowns on CNBC.

      As for the main piece, does the writer understand that a 55% result in a universe of 150 can best be explained by randomness rather than bias?

      1. TB

        Jake – I only post this for clarification. I read it that way at first as well, but it says “55% more likely” not just 55% of papers.

    2. JCC

      Just goes to show that the issues of 17th Century Cyrano, 19th Century Rostand, and 21st Century everyone are pretty much the same – personal integrity vs the cold hard cash of bribery.

  6. Patrick

    An historical parallel to the current situation within economics would be the Reformation in the sixteenth century. With the Great Collapse playing the role of Luther nailing his thesis to the cathedral door and establishment economists playing the role of the Catholic Church.

    Corruption has perverted the supposed high ideals of the relevant bodies and the response is not to correct the vile practices but to drown out the contending views. Not sure if the “profession” of economics has a “bull of excommunication” but I’m sure pressure is being applied to get everyone in line.

    1. Joshua Simeon

      Well, if the Reformation is the model, don’t forget that those corrupt Popes were creating St. Peter’s Basilica and all the rest of the great Vatican buildings as we know them today, funding Leonardo da Vinci, Michaelangelo and Raphael, not to mention “lesser” characters. As the Catholic Encyclopedia says of Pope Leo X:

      > He was lavish in works of charity; convents, hospitals, discharged soldiers, poor students, pilgrims, exiles, cripples, the blind, the sick, the unfortunate of every description were generously remembered[.]

    2. steelhead23

      The Reformation was a bloody mess as Christianity broke into sects and papal excommunication was variously seen as a badge of honor or a death warrant. We simply wish to unseat economic orthodoxy, to force the profession to recognize that erroneous assumptions underlie their elegant calculus and while the answers are pretty on paper and are mathematically correct, they lie on a bed of lies. I have no interest in burning Krugman, or even Summers, at the stake with their academic writings tied to their chests. To follow the analogy a tad further – we disciples of Yves Smith are the heretics and Bernanke is the Pope.

  7. Valissa

    OK, it’ time for Economics jokes again…

    Q; How many central bank economists does it take to screw in a lightbulb?
    A: Just one — he holds the lightbulb and the whole earth revolves around him.

    Q: How many Chicago School economists does it take to change a light bulb?
    A: None. If the light bulb needed changing the market would have already done it.

    Q: How many marxists does it take to screw in a lightbulb?
    A: None – the bulb contains within it the seeds of its own revolution.

    Q: How many neo-classical economists does it take to change a light bulb?
    A: It depends on the wage rate.

    Q: “How many economists does it take to screw in a light bulb?”
    A: “10 economists and one grad student. One economist to make a model, one to run the regression, one to test the hypothesis, one to interpret the results, one to conclude how to screw it on, one grad student to screw it on, and five economists trying to fight off the dinosaurs trying to eat them.

    Q: Why did the market economist cross the road?
    A: To reach the consensus forecast.

    1. KnotRP

      Q; How many central bank economists does it take to turn on a lightbulb?

      A: How dare you? Any answer from you would sully the process with political influence, so it’s best to let central bankers decide amongst themselves and their connected cronies, who are all apolitical elite benevolent (towards themselves, at least) dictators (which we all agree is much much better than electorally influenced control, where the trains aren’t assured to run on time).

      Q: Q; How long does it take a central bank economists to turn on a lightbulb?

      A: Good question. Empirical data says it varies. They will flip the switch on and off from now until eternity if you let them….and when the power company finally restores power, which is the real reason the light is off, the economist will declare that their tireless efforts have saved the world from darkness, yet again, and publish a paper detailing the nuances of switch flipping, and how the coaxed the light back into service.

      1. F. Beard

        Empirical data says it varies. They will flip the switch on and off from now until eternity if you let them…. KnotRP

        Good one!

        After all, one should not take on faith that systematic violation of “Thou shalt not steal” is bad, should one? That would not be scientific, would it?

    2. Patrick

      Q. How many central bank economists does it take to screw in a light bulb?

      A. You can afford a light bulb? Not enough austerity in your country!!

  8. Doctor_K

    More dangerous than anything are the foundations who help Randian-Hayekan loons to achieve academic posts.

    It is sad that those who spend our youth discussing with ultra-ideologist marxists need to spend our adultship discussing with ultra-capitalist anti-State anarchoid nuts.

    There is a mainstream of thinking in economics and we need to make visible and respected by rebuffing ideologists of all colours, specially those who are paid to spread anti-science crap.

      1. Jim

        Bloomberg objecting to inadequate conflict of interest standards???!!!

        What about its anchors. Not even CNBC is this bad. Perhaps that’s why CNBC’s ratings are FAR above Bloomberg’s.


        ERIK SCHATZKER: “I was going to thank you for coming here and standing up for the industry, because this is a debate that is not going away. People like you need to come and answer questions from people like me and Stephanie

  9. Eric L. Prentis

    The current publishing procedure in the best journals is centralized, very expensive and makes ideas different from the status quo easy to bury. It seems that Wall Street bankers have designed this system to protect theories that support “free market fundamentalism.”

    The two leading journals in economics and finance require paper submission fees:
    1. American Economic Review: $100 dollars for AEA members and $200 dollars for nonmembers.
    2. Journal of Finance: $70 dollars for AFA members and $140 dollars for nonmembers.
    Many journals in economics and finance follow a similar submission fee policy.

    The editor and associate editor first read the submitted paper and decide to either reject or send it on for further review. This is where controversial papers are stopped, without further recourse. I assume that editors and associate editors of the best journals are handpicked to support the prevailing wisdom and will not let anything get by them, if they want to remain in their positions.

    In my case, I had an empirical paper with solid methodology that disproves the Efficient Market Theory. Over five years, I submitted it to about fifteen US journals, costing me hundreds of dollars in the process, and none would publish it. Finally, I sent my paper to Canada for publication. I believe that most researchers would have long ago given up in frustration, which is what the designers of the current paper review process expect.

  10. Crazy Horse

    The Economics profession is simply an outgrowth of the world’s oldest profession. A propaganda sandwich wrapped in two slices of mathematics.

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