Martha A. Starr

Thanks, Mark, for your invitation and warm and enthusiastic welcome! And also for your support and persistence in "nudging" us to get this book project done.  ;)

The central idea of Consequences of Economic Downturn: Beyond the Usual Economics is to discuss issues that usually get left out of discussions of the 2008 financial crisis and the "Great Recession" that accompanied it –- which threw one in 10 members of the labor force out of work. Such discussions usually emphasize specifically economic dimensions of the financial crisis: What role did mortgage securitization play in causing the crisis? Was it Greenspan’s fault for leaving monetary policy too lax for too long? What is wrong with incentive structures in financial institutions and markets that cause people to take on too much risk? Not that these questions are not important, but they’re only part of the picture. A much wider range of factors led to the crisis and downturn -- social, ethical, political, cultural, educational -- and this wider range needs to be discussed if we are to have any hope of bolstering the economic and financial system’s resilience against convulsions like this.

So over the next few weeks, I’m going to lay out some of the core ideas of the book -– beginning today with those of someone whose ideas Mark has already discussed, George DeMartino of the University of Denver, whose book The Economist's Oath: On the Need for and Content of Professional Economic Ethics has attracted attention on a global scale.

George’s chapter addresses the question of whether knowledge practices in economics may have contributed to the crisis and downturn. Unlike just about every other academic profession (statisticians, mathematicians, physicists, sociologists, and more), economists have always resisted adopting a code of conduct or ethical code spelling out how they are expected to act –- as matters of keeping the profession’s members from using their specialized knowledge in ways that could advantage them but harm others, and/or that could cast doubt on the value, integrity and competence of the profession’s work. George doesn’t actually advocate such a code, because he thinks it would oversimplify the thickly tangled ethical questions here. Rather he calls for the establishment of a field of professional economic ethics which, like the field of medical ethics, would seriously study how economists should tackle specific problems that come up in the course of their work.

Important here, for example, is the principle widely found across the professions that people should avoid courses of action that could do harm to others (like the physician’s oath). George argues that reasonable concern for the wellbeing of others –- especially vulnerable groups lacking the wherewithal to deal with a period of significant economic and financial distress -- would have impelled economists to think more squarely about the risks inherent in the constellation of developments in the years before the financial crisis (the housing price bubble, rise of subprime lending, proliferation of collateralized debt obligations, and so forth). This, in turn, would have clarified their social responsibility to try to stop practices that were contributing to these risks, and/or advocate policies that would tamp them down.

Personally, I think the economics profession does need a code of ethics because, as Deirdre McCloskey says, “words matter,” and a well-done code could go a long way towards making people think twice before (say) taking $135,000 speaker's fees from Goldman Sachs, then giving them privileged access to the White House. But George’s argument against oversimplifying is powerful and thought-provoking.

Up next: Robert Prasch’s chapter on policies and institutions that shift risk away from wealthy and powerful institutions onto folks like average taxpayers.