Free markets versus perfect competition (Wall Street Journal letter to the editor)
McCloskey on Why "Life in the Market Is Good for You" (from Accepting the Invisible Hand)

"Inside Job" is a Provocative Movie

Jonathan B. Wight

 Inside Job (2010) is a new documentary that exposes the seamy underside of the financial bubble and its bust.

 What’s different here from other revelations of skullduggery is that academic economists take a lot of the heat—and a sharp jab is aimed at the alleged ethical misconduct of economists.  Aside from the usual suspect—the ubiquitous Larry Summers—this movie also castigates two big names:  Fred Mishkin and Glenn Hubbard, both at Columbia’s Business School (where Hubbard is Dean). 

 These are both highly admired economists who have served their country—Mishkin as a Fed governor and Hubbard as Council of Economic Advisors leader.  And both men could have made a lot more money on Wall Street had they desired.  Both did take consulting assignments from financial markets—and that’s where the movie kicks in. 

 According to the movie, Mishkin took over $100,000 in consulting fees to write a glowing report about the financial market takeoff in Iceland, including a statement about how well the banks were regulated.  Of course, in hindsight, we know that Iceland’s three major banks were grossly over-leveraged and took very big risky and soon came crashing down.  When confronted on screen, Mishkin had a completely lame answer: he said he simply “trusted” the central bank of Iceland.  He stammered horribly when he was asked why the information that he’d been paid by the government of Iceland was never disclosed in his report, so as to warn of potential conflicts of interest.

 In a similar vein, Hubbard was slowly roasted.  He took great offense at his personal integrity being questioned.  Indeed, it appears the movie producers hijacked the interview, hitting Hubbard with personal financial questions without forewarning.  I did feel sorry for these individuals, who as far as I know are, and have been, upstanding citizens.  But Hubbard has also lent his name and been paid in the hundreds of thousands of dollars to companies seeking help with financial deregulation. 

 The point raised in the movie is compelling:  have academic economists sold out?  Is there too much money to be made peddling the ideology of laissez-faire?  Are there adequate ethical ground rules in place?

 John Campbell, Harvard’s Chair of the Department of Economics, also stumbled badly when asked if there were any conflict of interest regulations regarding outside consulting fees and full disclosure. If a doctor were being paid hundreds of thousands of dollars by a drug company, should that information be disclosed to patients when the doctor prescribes that drug?  Hubbard was adamant about NOT disclosing his private consulting gigs, even when they are financial market related and he was an architect of Bush’s financial deregulation team. 

 Inside Game is beautifully filmed and raises troubling questions about the big elephant in the room: namely, should economists ascribe to an ethical code of conduct?


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Excellent post, Jonathan. I think the problem is much more widespread, with economists accepting money or perks to support all kinds of political agendas, not just laissez-faire (not to excuse ones who support that for money, of course), often contradicting what they said or wrote in the past in the absence of such overt outside incentives.

I remember an article in The Wall Street Journal years ago that detailed how economists were willing to sell expert testimony to the higher bidder in antitrust trials, and said openly and proudly that they would be willing to argue for either side--government in one case, defendant in the next--that paid them, and that it was no big moral issue. I was stunned, and lost a lot of faith in economists that day. (Present company excepted, of course!)

Have you gotten George DeMartino's recent book on a code of ethics for economists? Someone ought to write it up for this blog... maybe we can even invite George to contribute.

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