Saturday, October 02, 2010

"...the financial industry has corrupted the study of economics itself."

From NPR:

A Searing Look At Wall Street In 'Inside Job'

BLOCK: You make some claims toward the end of the film that have to do with academia, with people at institutions of higher learning. And your claim is that the financial industry has corrupted the study of economics itself. What do you mean by that?

Mr. FERGUSON: What you find is that very prominent professors of economics, often people who have also held high government posts, are paid to testify in Congress. They are paid to be expert witnesses in both civil and criminal trials. They're often paid to write papers that praise the financial services industry and argue on behalf of deregulation of the industry. They make millions, in some cases tens of millions, of dollars doing this. And this is usually not disclosed. And in fact, university regulations do not require disclosure of these payments.

BLOCK: You include an exchange that gets increasingly angry with Glenn Hubbard, he was the chief economic adviser to President George W. Bush, he's now dean of Columbia Business School. And you're asking him about this outside income that you're talking about, the income he gets from being on the boards of companies in the financial services industry. And it leads up to this. Let me play you this bit of tape.

(Soundbite of film, "Inside Job")

Mr. FERGUSON: Do they include other financial services firms?

Mr. GLENN HUBBARD (Dean, Columbia Business School): Possibly.

Mr. FERGUSON: You don't remember?

Mr. HUBBARD: This isn't a deposition, sir. I was polite enough to give you time, foolishly I now see. But you have three more minutes. Give it your best shot.
Read or listen to the rest here.

I think I've done a pretty decent job over the years of explaining how public discourse on the economy very often parts ways with the actual study of economics. For instance, all Republicans, and a very large percentage of Democrats, speak and vote as though tax cuts are the best and most acceptable way to stimulate the economy, even though the actual economic data suggest that most people, especially the rich, simply put their tax savings in the bank, instead of spending it, which hardly stimulates the economy at all. But perhaps more importantly, I think I've also, with a lot of help from Paul Krugman, done a nice job revealing how economists themselves get caught up in a neoliberal herd mentality, ignore data and evidence, and make unfounded assumptions about human behavior, all of which leads them to make dubious conclusions about the state of the economy and what to do about it.

This new documentary, Inside Job, apparently makes a very compelling argument that such groupthink comes from the top down: when the most prominent academics in a given field are in lockstep on a particular idea or ideas, the very careers of pretty much everybody else who is less prominent in that field depend on getting in line with the elite. I mean, in the humanities. As scientific as economics might seem, with its charts and graphs, and wonky vocabulary, economics is one of the liberal arts, a "social science," not one of the actual sciences--if, say, the top chemists in academia started believing that sodium and chlorine combined in a particular way do not make table salt, they'd no longer be the top chemists; indeed, they'd be out of a job. Not so in the humanities. Reality is much more mushy there.

It's a bit intimidating to criticize a field with as much respect and influence as economics has, but, like I said, it ain't rocket science. I mean, economics can get extraordinarily complicated in terms of its reasoning and number crunching, but when economists' conclusions don't reflect what's happening in reality, you don't really even have to have a high school diploma to make the observation. This shit was not brought down on stone tablets from Mount Sinai, after all.

Nonetheless, economics is treated as though it were as certain as chemistry: the notion that the best and brightest of economists are tailoring their views according to the desires of Wall Street, rather than economic reality, is frightening, indeed. It means the people who run the country are living in a total fantasy land.