What a Conflicted Web We Weave: More About Leaders of Financial Firms Influencing Policy in the Guise of Independent Academics

The issue of conflicted academic economists providing public policy recommendations just got bigger.  As discussed by Felix Salmon in his blog for Reuters, and by Nancy Folbre in the Economix blog for the New York Times,  a new study by Epstein and Carrick-Hagenbarth showed that some very prominent economists who frequently make pronouncements about financial policy often failed to disclose some major conflicts of interest. 

In summary, they identified "two groups of economists that were prominent in the field of financial economics and which had taken a public stance on financial regulation."  Some of these economists also had prominent advisory roles for government economic agencies, including the US Federal Reserve, the US Council of Economic Advisers, the Indian Finance Ministry, the Bank of Finland, the World Bank, and the International Monetary Fund. The authors did an extensive search for the economists' financial ties to financial corporations, which probably detected most relationships such as membership on the boards of directors of public companies, but may have missed consulting arrangements.  They found that 12 of 19 had such relationships, mostly positions on boards of directors or ownership interests.  They found that all but one of the economists with such relationships failed to identify these relationships in the majority of their academic papers and writings in the media.  The one economist who always disclosed his relationships in the media only wrote articles for the private financial firm for which he worked.

So major financial conflicts of interest were prevalent among "prominent economists who write op-eds for newspapers, they testify on public panels, they take positions as advisers for politicians and they are interviewed by the media. Academic economists often convey the impression that they occupy these positions as independent objective experts."  The authors concluded:

Academic economists serve as experts in the media, molding public opinion. They are also important players in government policy. If those that are creating the culture around financial regulation as well as influencing policy at the government level for financial reform also have a significant, if hidden, conflict of interest, our public is not likely to be well-served.

They also noted that economics as a profession does not even have a formal code of ethics, and in particular has never embraced any necessity for disclosing, managing, or restricting conflicts of interest.

We had previously discussed anecdotal but striking evidence that some of the most prominent economists who influenced public policy up to and after the great recession/ global financial crisis also had major but undisclosed financial ties to financial institutions. It now looks like conflicts of interest could be as prevalent among those who are influential in economics as they may be among those who are influential in medicine, health care, and health care policy.

This further corroborates the hypothesis that academic medical institutions are so comfortable with their faculty and leaders' conflicts of interest because they exist in a larger academic culture in which such conflicts are standard operating procedure.  Academic institutions may be particularly happy with economists' conflicts of interest because they involve such large amounts of money. Felix Salmon gave the example of  Paul Krugman who when he worked as an economist could command a $40-50,000 fee per speech, easily more than an order of magnitude more than the going rate for medical talks.  Furthermore, as we have noted before, (e.g., here, here, and here) many prominent academic institutions that incorporate medical schools and academic medical centers have boards of directors dominated by leaders of finance.  Now it appears that these leaders' economic interests may lead them to encourage conflicts of interest among their faculty and administration.

So not only do conflicts of interest appear to be a fundamental problem for medicine and health care, they may pose a fundamental problem for society as a whole.

Clearly, as Epstein and Carrick-Hagenbarth wrote, economists, like all professionals who can influence public policy, ought to have a code of ethics, and that code, at a minimum, ought to require full disclosure of all conflicts of interest.  Economists who write about policy in the media, write policy-relevant academic articles, and/or who advise non-profit organizations and government agencies should at a minimum reveal all such conflicts.  Similarly, of course, physicians and health policy/ care/ services researchers who write about or otherwise may influence health care policy should at a minimum reveal all such conflicts.

Meanwhile, extreme skepticism about policy advice by apparently independent academics and experts is warranted.  We risk sliding into the cynical position that all major policy is now being made by imperial CEOs and their cronies and paid agents.