Economists and Ethics: Is There an Effect On the Economy?

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Code of Ethics: A code of ethics is a set of guidelines which are designed to set out acceptable behaviors for members of a particular group, association, or profession. Many organizations govern themselves with a code of ethics, especially when they handle sensitive issues like investments, health care, or interactions with other cultures. In addition to setting a professional standard, a code of ethics can also increase confidence in an organization by showing outsiders that members of the organization are committed to following basic ethical guidelines in the course of doing their work.

I am not currently a member of the American Society for Quality (ASQ) but since I do consider myself a Quality Assurance professional, I have no problem adhering to the ASQ Code of Ethics. When I got my first QA position back in the early '80s, ASQ was known as the American Society for Quality control (ASQC) but the Code of Ethics was then as it is now. One of the many technical books I have read and used to help me in business is Ethics in Quality, which I found an interesting read, if only because the case studies used were not all black and white but showed the nuance of everyday life where sometimes there is no right or wrong answer nor are there always good choices available to folks.

If you Google the phrase "ethics code" there are millions of responses. Ethics codes for Psychologists, Public Relations, Journalists, Lawyers, and even Investment Advisers. Social Workers and Librarians have Codes of Ethics. Even the Word of Mouth Marketing Association (WOMMA) has a Code of Ethics.

But professional economists do not have a Code of Ethics.

Until now.

Back at the end of December 2010 and early January 2011, there a few articles and blog posts on the subject (here from the NY Times, via Slate, plus here and here. On Friday (July 8), Reuters had this article on the lack of response to a proposed code by professional economists:

The world's largest association of economists is considering ethics guidelines after outrage about undisclosed conflicts of interest, but only a handful of its 18,000 members have bothered to offer any input.

The American Economic Association earlier this year charged a five-person panel with looking into ethics and economics -- in part a response to the 2010 documentary "Inside Job" that vilified a number of big-name economists for arguing in favor of deregulation while on Wall Street's payroll.

...snip...

The AEA has already taken a small step: As of July 1 it requires that anybody reviewing a journal article be told the name of the author, which they hope will help the journal referee spot potential conflicts of interest.

George DeMartino, who recently published a book on ethics and economics, said he is worried the committee might take too narrow an approach.

...snip...

The NBER code stipulates that the source of funding for the research must be noted at the start of any research paper.

It also states that researchers should disclose any "relevant and material" financial ties that bear on their work, such as consulting or ownership relationships with firms that may be affected by the research. A reasonable guideline, it says, is that a relationship is material if its value exceeds $10,000 per year.

Card said it is possible the AEA's conflict of interest guidelines will be written along similar lines but said any code would be difficult to enforce.

My bold. Here we have the cop out "...any code would be difficult to enforce."

I know that a Code of Ethics for economists would in no way operate as some sort of magic wand, forcing the economists to disclose the embarrassing facts about who and how they are being paid off funded no more than campaign finance disclosure laws have forced politicians to be embarrassed by the groups paying them off providing funding. I've read articles on psychologists participating in the torture programs. I'm sure a little extra time would allow me to find all sorts of Investment Advisers who have run Ponzi schemes or other investment rip-offs. Pick a profession and I'd wager we can find corrupt members of said profession who have violated any associated Code of Ethics.

Nevertheless, a Code of Ethics for Economics professionals would be one small step forward in helping people to have insight into biases and vested interests. The so-called "Free Market" economists seem to be the economists of choice for TradMed; it seems like it would be nice to know who is paying the freight for so many of these economists who are wrong so often yet keep being presented as the experts. While a Bernie Madoff rips off millionaires and billionaires, there is still a limited effect on the vast majority of people in the economy. While corrupt judges and lawyers have a larger impact, it still is somewhat confined to set area. But when corrupt economists are wrong about the US and global economy, the end effect is of a national and global impact. The economists who missed the tech bubble, the economists, who missed the housing bubble, the economists who missed the banking and over all financial frauds are still the same economists who are consulted by government at all levels. Maybe we should know that the people Paul Ryan was sharing $350 bottle of wine with are (via TPMMuckraker):

When TPM asked Ryan who he was dining with Wednesday night, he declined to identify them, saying only that they were economists, not lobbyists. But TPM has confirmed that the two other men with Ryan were Cliff Asness and John Cochrane. Both men have doctorate degrees in economics and are well-known in the conservative media world as die-hard proponents of the free market's ability to right itself without government bailouts when the crisis hit in late 2008.

Asness, who ordered the wine and who, according to Feinberg was the one who said "Fuck her," is better known as a high-profile hedge fund manager. Asness founded and runs AQR Capital, which manages an estimated $26 billion in a variety of traditional products and hedge funds, and his life story has been the subject of numerous books and articles about the rise and fall of Wall Street. He's also grabbed headlines for being one of the most voluble opponents of President Obama's economic policies.

...snip...

Cochrane, the other, more tempered dinner companion, is the AQR Capital Management Distinguished Service Professor of Finance at the University of Chicago, an apparent tip of the hat to the contributions Asness' AQR Capital Management has made to the Booth School of Business there.

Surely, this information should be available to folks when Rep. Ryan as quoting economists who support his perspectives. Surely, this information should be available so that when opinion pieces show up in TradMed from Mr. Asness or Mr Cochrane, we can have an informed perspective of any biases they might be harboring?

After all, I'm sure Rep Ryan and Messrs. Asness and Cochrane would absolutely demand to know (and would use freely) any knowledge they could find to discredit the views of folks who disagree with them. Maybe an Economists' Code of Ethics would not be enough to get all this information out to folks, but I'm sure it wouldn't hurt the effort to try.

And because I can: