Ethics and Economics

The New York Times recently reported that the American Economics Association (AEA) will be studying a proposal to adopt a code of ethical standards during its upcoming meetings, set to take place in a few days in Denver. This code of ethical standards could notably address situations where there could be a possible conflict of interest, such as when economists make policy recommendations which could affect directly firms or entities with which they are associated.

As the article in the NYT said, the movie The Inside Job probably had an effect in prompting the debate. One can think of several uncomfortable moments in the movie, such as the clip where Frederic Mishkin talks about his research on the stability of the Icelandic financial system (a clip to which he later responded, stating that the movie treatment was misleading), uncomfortable for some economists involved, at any rate. In this clip, for example, Mishkin admits that he never mentioned anywhere in the report that it had been commissioned by the Icelandic Chamber of Commerce.

Beyond the movie, however, recent research by Gerald Epstein and Jessica Carrick-Hagenbarth shows that many prominent economists who where important protagonists in the recent debates on financial reforms did not disclose their affiliations. They argue that the practice is widespread in the economist profession, leading them to recommend a code of ethics which would require the disclosure of public and private affiliations “in appropriate contexts”. This was followed up by a petition, which was sent to the president of the AEA. In the petition, they specifically recommend a code of ethics modelled on that of the American Sociological Association, which requires notably that:

Sociologists disclose relevant sources of financial support and relevant personal or professional relationships that
may have the appearance or potential for a conflict of interest to an employer or client, to the sponsors of their
professional work, or in public speeches and writing.

A couple of months ago – before the petition was launched – Nancy Folbre had also made the case for a code of ethics, mentioning both The Inside Job and the research by Gerald Epstein and Jessica Carrick-Hagenbarth, but also older cases of dubious behaviour. My favourite example remains that of Andrei Shleifer, at the time advising the Russian government in its transition to capitalism, who alledgedly made money by using his position as economic advisor to take advantageous positions on Russian markets. Preaching by example was he?

We’ll see how things turn out at the AEA meetings, but regardless, might it be a good idea to initiate a similar campaign, or at least a discussion, north of the border?


The AEA convention is now finished, some discussion occurred… and the only agreement seems to be that “standards of practice and ethical challenges” should be re-examined, as the NPR reports. What this means in practice, well…

Also, somebody pointed out to me recently that the National Association of Forensic Economics does have a code of ethics… though there as well, it seems that compliance is an issue.


  • This is such a good idea, and so overdue. I remember being appalled by reading about Shleifer’s deeds after having spent a couple of years of extensively referring to his more academic works as I researched transition economies in my last couple of years as an undergrad.

    If you ask me, the code should go beyond disclosing conflict of interest and look more like the code of ethics of the American Society of Civil Engineers. How’s this for fundamental principles:

    Engineers uphold and advance the integrity, honor and dignity of the engineering profession by:

    a. using their knowledge and skill for the enhancement of human welfare and the environment;
    b. being honest and impartial and serving with fidelity the public, their employers and clients;

    And how about the actual rules:

    1. Engineers shall hold paramount the safety, health and welfare of the public and shall strive to comply with the principles of sustainable development in the performance of their professional duties.
    2. Engineers shall perform services only in areas of their competence.

    Economists putting the public interest above all else when giving policy advice? Caring about the environment? Imagine that!

  • Yah but then how do you get a profession that for the most part believes that the public interest is most often best served by leaving individuals to determine their own best self-interest to have a conception of the public interest? A code of ethics would just be so much irrational hand-waving. I am afraid the only way to get economists to change their behaviour is to tax them. As Mankiw says ppl respond to incentives.

  • I think a code of ethics would certainly do no harm. But In my opinion, economists who really care about their profession and about ethics already follow such a code, even if its not on paper. So if you want to solve the problem of conflict of interest you really need to give some incentive like Travis Fast said. And a code of ethics might just be a little to short for that.

    And of course, the effectivity of the code of ethics would depend on the consequences if there is a conflict of interest. However, what would be the punisment of trespassing this rules? Jail seems far too harsh in my opion, a fine maybe. But still a hard question.

  • … Or convince the assembly that a code of ethics would help in preventing the negative externality coming from individual [unethical] behaviour… (In response to Travis Fast)

    As for the code itself, I must say I like the comprehensiveness of the ASCE’s code. Thanks for the link, Iglika. The issue of punishment is a good question, however. I was wondering if public shame could achieve a similar outcome – like a list of people having disregarded the code, list made available to the media and the general public. I think that may be more effective than a fine…

  • Public shame???????????????? We live in a shameless world! We have ppl posting the most how shall we say… shameless of things on facebook and heads of state getting caught in major lies like Iraq is in bed with El-kind-of and has weapons of mass distraction and you think public shame is going to get results. IT IS A SHAMELESS EPOCH. And that is the first time I have screamed on the internets.

    Somebody here please give me the acid test for “in the public interest.” I am not opposed to the idea I just think we would need some majoritarian sense of what that was. Conflict of interest is easier to pin-down but the public interest? Where is the invariant measure of value? Don’t get me wrong I like show trials (they are, after-all showy) but really just what is the public interest?

    If the Order of Industrial Relations barged into my graduate class and demanded the course outline they might reasonably say from their POV, maybe even the existing consensus of the majority of the population, that I was teaching materials contrary to the public interest and I would reasonably agree: Guilty as charged is my plea. It think it a feature they believe it a failing. Do I have to go North now.

    Look I do not have much praise for the majority economists, their departments, their arrogance, and their peacock feathers. But what of it? This stuff should get settled (even though in the real world it does not) by hard-nosed, take no prisoners debate. And even though I think my side is closer to the public interest and less well funded, respected, listened to, and therefore understood as right I am still not going to sign-off on monkey trials in the name of the public interest…the necessity of public executions in a revolutionary setting is of course a reserved question.

    I would mention something about the history of my Germanic cousins but then apparently I would loose the debate.

  • Making somebody virtually scream is a first for me as well… 🙂 I like the spirit and the tenor, though.

    That said, while I agree that we do live in a shameless era, I don’t like the logic behind fines either. If the mainstream is to be subverted, we must move away from its vision of the world. Espousing monetary incentives would probably reinforce such a logic (e.g. the possibility of subsuming human relations to monetary exchanges). Moreover, the danger is that it simply puts a price on a set of actions, giving it an implicit license.

    Sam Bowles is fond of a story where this logic was tried with parents in a daycare centre. The centre was tired of having to deal with late parents, so it started imposing fines to parents picking up their kids after hours. This actually resulted in an increase of the number of cases: Whereas parents were previously trying to abide by a norm of punctuality, putting a price on lateness relieved them of bad feelings in that respect, exchanging them for a cost-benefit analysis.

    Of course, given high enough fines, I am sure the desired result could have been obtained. Nonetheless, the cultural shift would have been effected. I am not sure we want to push people further in that direction, though given the crowd we are dealing with, there might not be much to lose…

    As to conducting a hard-nose debating campaign, I am all for it, but we must remember that in economics, the battle was already fought and lost once, a few decades ago, with a resulting banishment into virtual oblivion of any point of view not in accordance with the “synthesis”. We can fight it out again, but it seems to me that at least in the academic world, the balance of forces looks worse than it did back then… hence perhaps the idea of getting the issue out of an academic setting.

    The point is not so much to make examples with public execution, but to erode the very thing conflicts of interest should affect; Credibility. As for a definition of the public interest, that should be part of the discussion as well, though I entirely agree that it could be a slippery slope as well.

  • The issue’s definitely sparked some strong feelings. There was an interesting article on the topic on the Slate yesterday.

    The enforcement is an important issue, I agree, and it’s hard to conceive how it could be implemented when there’s no licensing body for economists. Other professions, as far as I’m aware, enforce ethics codes through revoking one’s license (at the extreme).

    The ASCE code is pretty hardcore, eh? I only know about it because my brother is a civil engineer in the US and we’ve had many a discussion about the application of ethics in our respective professions.

  • I think we need to recognize that academics are not like other professions in that both the harm and good we do cannot be directly related back to us by individual citizens. Are service of disservice to the public good is hard to measure to say the least. With other professions there usually is a trail of negligence that relates the professional to specific and verifiable injuries of another. XYZ civil engineering builds a roof and it collapses under a snow load; police officer Rock Star tasers a random Eastern European to death; etc., etc.,. Whether or not the civil engineering firm or the police officer get adequately dealt with is another matter. But the lines of causation are pretty clear. Both hard and soft scientists get to hide behind the fact that they can’t anticipate all the uses to which their discoveries and inventions will be put. This gives us plausible deniability. Economists are not alone in taking advantage of this existential fact.

    In all disciplines we are accountable only to our peers and this is why the ideological mono-culture that has become the vast majority of economics departments is so dangerous: When everyone of your colleagues has six fingers on each hand the one with five looks abnormal. The royalty just changed fashion sense when this became a problem.

    So I agree with Mathieu that:

    “As to conducting a hard-nose debating campaign, I am all for it, but we must remember that in economics, the battle was already fought and lost once, a few decades ago, with a resulting banishment into virtual oblivion of any point of view not in accordance with the “synthesis”. We can fight it out again, but it seems to me that at least in the academic world, the balance of forces looks worse than it did back then… hence perhaps the idea of getting the issue out of an academic setting.”

    Yes economists must be challenged in public outside of their safe-houses and witness protection programs.

    The point though is that to move the policy sciences you have to move the public conversation. Economics, political science and sociology do not set the socio-economic agenda they for the most part serve it.

    This is something the right understands better than the left at this point in time.

  • It seems to me that the abuses coming up that prompt the call for a code of ethics all pretty much come under some “academic dishonesty” heading. That and insider trading. Selling one’s opinions for gain and failing to acknowledge that this is what is happening.

    Given this, if you want a punishment presumably you could try to get the academic institutions they are employed at to apply whatever sanctions those have for such problems, and the scholarly presses they publish in to blackball them.

  • I agree and that is why I said conflict of interest is much easier to police then in public interest. Just remember though that you will only catch those who get a direct material benefit. If you want to catch those who just like being listened to with consequences be damned you can”t.

    Also, liberal economists are not the only ones who want to change the world we all do. And as long as the systems we create (or want to create) deliver half (or less in practice) of what we promise, we will feel vindicated in our efforts. That is the paradox: no matter what system citizens suffer under they will find a way to prosper and thus leave the intelligentsia feeling self-satisfied.

    This yet another the thing the right understands better than the left.

  • I am in the Travis camp. However, it must be understood that many progressive economists are already pushed to the fringe. Any kind of ethical standards would only work against us. I can garuntee that.

    Given the rift within the field, And the far reaching irreconcilable differences, I do not believe there would be any legitimacy in such efforts.

    Sorry, but if you truly understand economics, then you have no choice but to know that a code of ethics is not possible. From where I stand, any right wing intepretation of economics cannot claim to be ethical in any light that provides adequate lumination.

  • I finally got around to watching the Inside Job, and it makes a powerful case for the complicity if not leadership of economists in pushing the financial deregulation agenda. Pointing out that many personally benefitted is fair game. I see no reason why external funding of “academic” research should not be disclosed when published.

  • Inside Job has not yet made it to theatres in Brussels, is never coming, or was here so briefly that I missed it. And it did not seem to be playing in Regina when I was home for Christmas.

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