March 31, 2011
Inside (The Academy) Job
I realize I'm late to the party here, but I just watched "Inside Job." The thing that was most striking to me was the indictment of academics.
[T]he film … portrays an academic environment festering with direct and indirect conflicts of interests. Economists and B-school professors appear content to churn out papers and reports without revealing the full web of financial ties affecting their thinking…. Ferguson goes on to describe a multi-billion dollar industry of “academics for hire.”
The film does an excellent job of discussing the lack of professional standards governing disclosures of conflicts of interest in economics. Ferguson asks why economists who have been paid by Wall Street banks to write papers that support Wall Street's agenda are not required to disclose that fact. Various prominent economists tell him that this is absolutely no problem. When Ferguson points out that medical journals rightly insist that researchers disclose the sources of their funding, one Harvard economist is literally rendered speechless.
Buchanan, however, is not satisfied with director Charles Ferguson's apparent conclusion that this is somehow about academics telling lies to get paid. Rather, "[t]hey are true believers whose arguments are congenial to Wall Street." Buchanan continues:
The better question, therefore, is how it has come to pass that the economics profession is dominated by men (and it is still very much a boys' club) who believe such nonsense. Some of these guys still think that there was no bubble -- that the financial crisis was actually a rational, equilibrium response to economic fundamentals. And even those who will not say anything quite that crazy publicly are still unfazed by the manifest failures of their ideology.
One possible explanation (and I really am just thinking out loud here) may go as follows: Imagine that the pool of really smart academic economists is made up of two evenly divided sides in terms of ideology. One of the sides, however, has the added benefit of liberal (pun intended) financial support that includes opportunities to write reports, present papers, and testify before important panels, etc., that the other side does not. When academic institutions are making hiring/promotion decisions, which group will be favored?
It is very, very difficult to change a paradigm, a matter considered not only by Kuhn but, with regard to liberal economics, by Galbraith, in the brilliantly written opening of the Affluent Society (worth (re)reading for the style alone).
That said, I have been very disappointed that this enormous financial crisis seems to have taught us so very little. Be that as it may, in my recent book, "Out of Crisis: Rethinking Our Financial Markets," I tried to sketch what a new theoretical paradigm might look like, based on actions actually taken by the federal government. I also tried to provide some new metaphors for thinking about markets, without undue reliance on the tropes of the old edifice that failed, as Greenspan put it. Anyway, information and endorsements of the book are available here.
A short form version of the argument is available here:
Hope this is useful.
David A. Westbrook
Prof. of Law
Posted by: David A. Westbrook | Apr 2, 2011 10:08:15 AM
Great question. I think that one can find direct evidence of influence in many cases.
Kenneth M. Davidson has shown that the Chicago School's view of antitrust changed markedly in the mid-20th century. Rob van Horn and Philip Mirowski's book chapter "The Rise of the Chicago School of Economics and Birth of Neoliberalism" (and Rob van Horn's "Reinventing Monopoly and the Role of Corporations") strongly suggest that a "politically motivated benefactor, the Volker Fund," had a great deal to do with the shift (208). As van Horn argues,
"In a period of just ten years (1946-1956), the contents of liberalism at Chicago underwent a radical transformation. [Aaron] Director and other neoliberal advocates and converts no longer regarded monopoly as the great enemy of democracy. . . . Rather, they characterized corporations--even behemoth corporations---as relatively benign entities that naturally gave rise to market conditions that would eventually undermine them."
van Horn and Mirowski look to primary sources to explore how the "Volker Fund would stage-manage" a key project at Chicago (152). As they demonstrate, in the rise of Chicago, "Volker officers were not mere pecuniary accessories to the rise of the Chicago School: they were hands on players, determined and persistent in making every dollar cont, supervising doctrine and organization" (157). After this initial success in establishing a freshwater beachhead, it was much easier for neoliberal ideas to seem a necessary dictate of economic science rather than a reflection of the interests of one part of the business community. Their closing comment on Hayek, a key powerbroker and mediator in the establishment of a distinctive school at Chicago, is worth quoting:
"The neoliberal project was being advertised as philosophizing in full swing at Chicago [by 1950], and, at least initially, Hayek was its public face. Later, in August, Hayek remarked to his private secretary . . . that he was forced from now on "to do everything for money." In retrospect, what else could he have expected? (165)"
And just think of the role powerful advertisers play in magazines (a point I make obliquely in my post at CoOp today re the Atlantic).
Posted by: Frank | Apr 2, 2011 2:46:29 PM
Oh, and the Anderson is here:
The book chapters are in "Road from Mt. Pelerin."
Posted by: Frank | Apr 2, 2011 2:47:30 PM
In our legal system what is the penalty for being wrong if huge financial losses and human suffering are the result? From my perspective Summers, Geithner, the economics professors, and many others deserve to be indicted.
Posted by: Sandy Maliga | May 7, 2011 6:23:29 PM