Mark D. White
Yesterday I attended the "The Role of Economists and Their 'Ethics' in the Financial Crisis" session at the Eastern Economic Association meetings in New York, which I previewed earlier. One of the presenters didn't attend, but the three remaining presentations, by Martha Starr (editor of Consequences of Economic Downturn: Beyond the Usual Economics), George DeMartino (author of The Economist's Oath: On the Need for and Content of Professional Economic Ethics), and Gerald Epstein and Jessica Carrick-Hagenbarth (University of Massachusetts-Amherst), provided much for the standing-room-only audience to discuss.
Martha's paper, "Contributions of Economists to Housing-Price Bubbles," provided a fascinating and insightful look at how the predictions of future trends in housing prices leading up to the burst of the recent bubble depended on economists' affiliations, casting a particularly dark light on economists in the real-estate industry, who were extraordinarily bullish about housing prices after most other economists had recognized the existence of a bubble.
George's presentation, "The Economic Crisis and the Crisis in Economics," based on both his own book and his contribution to Martha's, argued that one of the causes of the economic crisis was the implicit use by economic analysts and decision-makers of a maxi-max rule, in which only the best possible outcomes of various policy options are considered and then the best is chosen, regardless of the likelihood of those successes or the harm that would accrue if the policies were not to succeed. As if he hadn't made the point strongly enough himself, George cited philosopher Robert Nozick, who argued in Anarchy, State, and Utopia that:
Everyone who has considered the matter agrees that the maxi-max principle... is an insufficiently prudent principle which one would be silly to use in designing institutions. Any society whose institutions are infused by such wild optimism is headed for a fall or, at any rate, the high risk of one makes the society too dangerous to choose to live in. (p. 298)
Finally, in their presentation titled "Financial Economists, Financial Interests and Dark Corners of the Meltdown: It’s Time to set Ethical Standards for the Economics Profession," Gerald and Jessica investigated how often academic economists report their affiliations with the financial industry when giving statements and forecasts to the press, and found that around two thirds of them never report their ties to financial concerns when quoted in the media regarding matters that may influence those very concerns.
This, of course, is one of the points that George also makes in his work, and much of the discussion after the presentations turned to how to solve the problem, especially how to institute standards, codes, or norms of ethical behavior, not just in terms of the narrower problem of transparency in affiliation, but also broader ethical concerns with respect to modeling, research, and policy recommendations. Similar to the session on the same topic at the ASSA meetings in Denver, featuring Dean Baker, David Colander, and Deirdre McCloskey alongside George, much of the attention focused on the enforceability of ethical codes in the economics profession. (See here for my summary of that session and my opinions on the issues of ethics codes and enforceability.) But there was also some interesting commentary on self-selection and the systemic nature of bias in the economic profession, which reminded me of recent discussions of widespread bias in fields like social psychology.
Another terrific session on a critically important topic--let's all hope the efforts of Martha, George, Gerald, Jessica, as well as others such as Dean, David, and Deirdre, soon start to bear fruit...