Economics: Dismal Science, Dismal Ethics

We have been covering the healthcare industry quite heavily and noted a number of ethical issues that arise. Most recently, here, we noted that there is a problem in assembling panels of experts to provide treatment guidelines because so many of the experts have conflicts of interest.


The Economist suggests that there may be similar issues with economists.

“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 (American Economics Association), 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.”

“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.”

Is there any evidence that there might be an ethics issue?

“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.”

There is actually a study investigating the disclosure habits of economists.

“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.”

The Economist points out that there is little direct evidence that economists are swayed by their financial affiliations, but those of us who have experience with human beings have a right to be suspicious. The article concludes with this cheeky comment.

“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.”

So—the greatest threat to humanity from economists comes not from financial chicanery, but from incompetence. That is certainly comforting.