Free Books and Board Seats

By James Kwak

Here in the blogging world, some of us are very sensitive to the potential appearance of impropriety. A year ago, the FTC published new rules requiring bloggers to disclose cash and in-kind payments they receive for reviewing products. The upshot, for most of us, is simply that now, when we discuss a book, we say if we got a free copy of the book from the publisher. (Although it’s not clear that that disclosure is required, since getting a free copy is something that readers should expect; I don’t think the New York Times Book Review bothers pointing out that, for every book they review, they got a free copy, although they almost certainly did.)

All the more relevant, then, is Gerald Epstein’s post about conflicts of interest in the economics profession.

“Jessica Carrick-Hagenbarth and I did a study of 19 prominent academic financial economists who were members of two influential groups that have played a key role in the financial reform and regulation debate in the U.S. Of the 19 academic economists in these groups, 70% advised, owned significant stock in or were on the board of private financial institutions. But you wouldn’t know by looking at their self-identification in media appearances, policy work or academic papers.”

There are certainly economists who were talking up the housing market in the summer of 2008 without disclosing their financial ties to banks–who were desperately hoping that housing prices would not collapse.

C’mon, guys. I don’t even get very many free books (maybe one per month on average–I decline most of them), and I always disclose that. I know it’s not feasible to list every company that ever paid you to give a speech. But really, if you’re a paid director of a bank and you write about the banking industry, can’t you at least point that out?

20 thoughts on “Free Books and Board Seats

  1. Bruce took the words right out of my mouth, only he worded it better than I would. An amazing amount of University professors are beholden to the Federal Reserve. If for no other fact than hopes of getting future employment there. Also it’s a huge resource for statistics and data. Lots of cushy jobs in a cushy environment, with solid salaries and a very sweet network. By that I mean social network for career advancement.

    I remember one of my professors skipping teaching a class to go hear Volcker give a speech in the city I live. I like Volcker a lot, and if I was him I would have done the same thing. But I do think it gives some indication the immense weight the institution has within the profession.

    On a separate but somewhat related topic, I’ve always been curious that when the Fed makes some of these major announcements with certain economic numbers, say for example the Philadelphia Fed’s manufacturing activity report as one example, if those privy to the info. don’t “give a taste” out to their friends working in the private sector before the numbers are officially released to the public. I mean the numbers which will affect market prices, let some in the private sector who are friends or give them kickbacks, know the data before it is officially released and moves the markets. I would wager a lot more of that goes on than people would imagine.

  2. I don’t believe anyone at the Fed leaks statistics. I think that would be a violation of federal law. What does go on is something more insidious. Private economists who agree with the Fed’s perspective are invited to off the record events or get private letters and e-mails from high level Fed officials, which make the economists’ bosses think they inside information. This encourages private economists to praise the Fed and withhold criticism.

  3. When a corporate executive orders an expensive bottle of wine (say over $1000)and an expense deducted meal to entertain another corporate executive (expense account) as a “cost” of doing business, shouldn’t THAT perk be considered at least as importantly as a free book? Perhaps disclosures should involve all and every write off that a corporation assesses as a “cost” of business?

  4. Re: @ Bruce Bartlett____Of course not…that would be foolish – that’s why the wise still use the carrier pigeon with one tag for land…two by sea – with land being a solid? PS. One of my best friends growing up had the best carrier pigeon pedigree houses in the North-East. You wouldn’t dare mention the clientele!

  5. Okay, how many papers do I have to get published to get my first board seat? What does my abstract have to say?
    Do I need to get a PhD first? I need to get some good numbers on the remuneration to calculate my rate of return on my tuition.

  6. So, ya spend hours, days, months, years, and, perhaps decades, thousands of dollars and get a sheepskin sayihng you’re an expert in your field. You benefit, as you should, from that hard earned expertise, and yet, that does not qualify you to be an ethical participant in our society. Why is that? Because there are conflicts (being paid by someone who wants to flaunt your sheepskin and your name, while you want respect that comes from fair, unbiased judgment). You are left on your own, an island to do what you do and say what you say. If you didn’t, somewhere along that journey, develop a backbone and a desire for honesty and fairness, you are left to follow Machiavelli. Heroes are not made, but made by taking appropriate action in an appropriate situation, without regard to consequences. What this means is that those (many) economists (and countless others) who spoke out of the purest of self-interest and with a high regard for the consequences, are one of the main reasons why humanity is failing itself. They are but a symptom of our vast cultural malaise, but a very real one. And I am saddened for having to write this.

  7. A more damaging conflict of interest exists as a result of the influence that economists possess regarding the value of the contributions made by ‘skilled workers’ as opposed to ‘unskilled workers’. Over the past couple of years, for example, many economists have redefined the contributions of construction workers as ‘unskilled’. Naturally, some construction workers do perform tasks that require very little skill but they have been defined as ‘laborers’ for thousands of years. But most construction workers are in fact trained in specific trades which require many year’s worth of experience to meet the journeyman requirements. Building codes have in fact become more and more complicated over time and this is a very competitive industry. Trade unions allow advancement only as test requirements are met in conjunction with work experience requirements yet economists make statements such as this:

    Alex Tabarrok ~

    “The first puzzle about unemployment when thought about from within the search-matching framework is that unemployment rates are highest among the least skilled and most homogeneous skills, i.e. among those worker/jobs with the easiest matches. It’s hard to believe that it takes a year to match a construction worker to a job.”

    Unfortunately for those who have been busy building things, they were unaware that economists have ‘invested’ countless hours in the theoretical machinations that measure contributions based on what contributors are able to earn, regardless of the societal benefits or detriments, as if choices on policies play a minuscule role as compared to market forces. On the one hand, economists would have us believe that their social engineering skills are indispensable, worth many times that of lowly construction workers, while also excusing their failures as the result of unforeseeable ‘market forces’, always exacerbated by ‘animal spirits’ as proof that the stupidity that exists among the rest of us, is immeasurable.

    The all too common existence of conflicts of interest related to economists should therefore come as no surprise, such as those mentioned in this post, and those like the now notorious conflict of interest that was so obvious involving the rating agencies and the AAA fraud fiasco.

    Economics has become a field that thrives because its practitioners are adept at not just ignoring integrity and equity issues, but more importantly, economists provide the ruling-class with the necessary justifications to redefine truth as needed in an ever-changing world.

  8. “….ties to banks–who were desperately hoping that housing prices would not collapse….”

    James, how do you even make up this nonsense?

    Most banks already knew about the impending collapse of the housing market and the good banks even profited from it….those who did not, including Lehman, Bear, Wamu are gone!!

  9. The issue of illegal immigration provides an example of just how disingenuous some economists can be. I should probably first explain though that I have been campaigning, in my own small and humble way, on behalf of Latin Americans for about 35 years. In the mid 1980s for example I spent a few months in Central America and I have traveled the full length of Mexico overland with nothing more than a toothbrush a comb and a change of clothes in a back-pack. I have lived and worked alongside the poor in Latin America and I speak functional Spanish that was once borderline fluent. And I have lived most of my life near the border and so my cultural back-round is closely tied to Hispanic traditions. My ancestors were pioneers who settled in a small town that bears my name: Lovington, New Mexico. I am in other words about as far from being a bigot in regards to Hispanics as a Caucasian person can be, yet if I don’t preface my position with this lengthy qualification, my views on illegal immigration, if presented in short, routinely lead to my being categorized as being from the right when I am in fact well to the left on these issues.

    I believe for example that the ag subsidies should be phased out and that this would help the largest number of Hispanics, and, this would do the most good where it is needed the most, in Latin America. This would reverse some of the pressure on Latin American job markets and shift wealth flows from urban to rural. But of course this would also make it much more difficult to keep the low end of US job markets in a state of oversupply because the job markets in Mexico must be oversupplied so as keep the migratory trends moving to the North, to the factories along the border, and to the job markets in the US.

    What is being ignored, by economists and then in turn by US citizens, is just how much saturated job markets affect poverty in the US and military recruitment. The transition of the economy from one based on manufacturing to one based on services has left a vast shortage of opportunities in our urban areas; while, simultaneously, our rural areas have also had a contraction regarding opportunities due to a combination of factors. Economists will commonly cite advances in technology being the reason for this opportunity-void in our rural areas but in truth, the innovations actually had the most influence during the Green Revolution. What has since eliminated opportunities and living wage jobs is social-engineering related. That being a combination of labor inputs being artificially low due to the lower cost of undocumented workers, and artificially low values of ag goods as a result of subsidies. This lower value of goods is difficult to quantify, corn grown locally in Mexico for instance sells for about 25% less than corn grown in the US and then sold in Mexico, but this becomes something of a counter-factual loop. This because corn prices in Mexico have a downward competitive influence from corn grown in the US and this price pressure has existed for decades, so it is impossible to say what the actual value of corn should be now. It is safe to say though that lower food prices have a direct influence on wages, and, ag subsidies therefore have, combined with artificially low labor costs, a great deal more influence on our economy than what most economists are willing to consider.

    What the elimination of opportunities has done though is to solve the military recruitment problem that existed during the Viet Nam turmoil. Most economists avoid this subject even more-so. Many economists do in fact hold to what might best be described as a 3-way contradiction. One side of this triangle of untruths is that undocumented workers are good for the US economy. Another side is that ‘unskilled-labor’ is less and less in demand but this contradicts the demand for undocumented workers. And the third side is that public assistance programs have been largely successful but economists ignore that those who receive public assistance could and should be doing the work that the undocumented workers are doing. They also ignore that the US, which is 4% of the global population, incarcerates 25% of the global prison population.

    So… what if we were to add half of what we spend on prisons, to half of what we spend on social programs, to what undocumented workers are paid, and then use that gazillion dollars to pay a living-wage to anyone willing to work. The additional income being offered must be enough to make working substantially better than living on public assistance and this seems beyond obvious but again this goes almost entirely unsaid. But then of course there is that military recruitment consideration and so solving the labor market issues has this all powerful constraint. Empires are complicated.

  10. From personal experience, I can attest that the G.20 contains “massaged” data from at least one of the largest domestic financial institutions in the reporting sample. Additionally, in at least one of the manufacturing outlook surveys released by a regional Federal Reserve, the seasonal adjustment, although based on an accepted SAS algorithm, shows economic improvement despite the comments non-adjusted data showing deterioration.

  11. From personal experience, I can attest that the G.20 contains “massaged” data from at least one of the largest domestic financial institutions in the reporting sample. Additionally, in at least one of the manufacturing outlook surveys released by a regional Federal Reserve, the seasonal adjustment, although based on an accepted SAS algorithm, shows economic improvement despite the comments non-adjusted data showing deterioration.

  12. I think the unfortunate truth of why economists have taken such a prominent role as of late is because they provide excellent cover if not justification for political operatives.

    That is, they provide backup for predetermined policies or, in a sense, “the intelligence and facts were being fixed around the policy”. They gave an air of legitimacy to offensive policies that were already chosen because of their benefits to the ruling class.

    That is part of why “freshwater economics” became so favored – freshwater economics basically told the oligarchs what they wanted to hear – that they could have their cake and eat it to.

    Unfortunately it is us, the little guys, who reap capitalism’s “creative destruction” with the words, “Let them eat cake”.

  13. Exactly, these are not scientists, they are PR men.

    Along with regulatory “capture” we have academic and professional “capture”, it never ends.

  14. The last economist to tell the truth was Veblen. Read The Theory of Business Enterprise (1904) if you care to understand how things really work. I believe it is available free on line.

  15. In 2006, Professor Frederic Mishkin co-authored a report called “Financial Stability in Iceland”.[3] The report maintained that Iceland’s economic fundamentals were strong. The report was commissioned by the Icelandic Chamber of Commerce in response to critical coverage of the Icelandic economy and certain Icelandic companies in the international business media.[2] Mishkin was paid $124,000 to co-author the report.[4] Iceland subsequently experienced a spectacular collapse within a year of Mishkin’s good report.

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