Full Disclosure in Economics— the Role of the Economic Associations

George DeMartino, Guest Blogger

Last Thursday the Executive Committee of the American Economic Association (AEA) ratified a proposal of AEA President Robert Hall to establish a committee “to consider the Association’s existing disclosure and other ethical standards and potential extensions to those standards.” To non-economists that may not sound like much, but it represents a substantial break with a century-long practice of avoiding the issue. When the American Association of University Professors (AAUP) and others voiced concern about conflicts of interest in economics and the need for disclosure during the 1920s and 1930s, the AEA largely ignored the matter.

Then why now? Over the past few months the AEA and leading economists have faced intensive scrutiny by the press—including Reuters, the New York Times, NPR, the Chronicle of Higher Education, the Economist, Bloomberg radio and other media. The frenzy was sparked by Charles Ferguson’s new film Inside Job which exposes stunning failures by academic economists to disclose their relationships to the financial industry while taking public positions on matters pertaining to that industry. Additional pressure came in the form of a study by UMass-PERI economist (and TripleCrisis blogger) Jerry Epstein and PhD student Jessica Carrick-Hagenbarth. Like the film, the authors demonstrate that leading economists who speak on financial regulatory matters do not always disclose their ties to the financial industry. The AEA President also received a petition, circulated by Epstein and Carrick-Hagenbarth and signed by over 300 economists, which called on the AEA to adopt a code of ethics that would ensure disclosure of conflicts of interest.

The AEA press release announcing its decision provided a link to the existing AEA disclosure rules that pertain to its various academic journals. Those rules require the author to indicate “whether the research reported in their paper was the result of a for-pay consulting relationship or if they or their employer has a financial interest in the topic of the paper which might constitute a conflict of interest.” That is as far as the AEA goes in discussing or legislating the matter of conflict of interest, or any other aspect of economists’ conduct. Unfortunately, most other economic associations do even less to encourage economists to disclose or avoid conflicts of interest. The National Association of Forensic Economists (NAFE) is the notable exception.

Does the profession need disclosure rules, and how might adequate disclosure be enforced?

Economists are by nature skeptical of efforts to impose rules on the profession. As an ongoing symposium that responds to my essay on the Economist blog indicates, we just don’t agree about the need for reform or about whether reform will do much good. That’s unfortunate. In fact, our failure to ensure full disclosure is not just wrong-headed but also dangerous to those we purport to serve.

The case for rules pertaining to conflict of interest and disclosure in economics is simple. Economists exert influence over the life chances of others, and sometimes that influence can be substantial. In part, this is because economists enjoy an intellectual monopoly over a field that is vital to social welfare. And as economists know better than anyone else, those who monopolize something that others need enjoy power over them. When economists speak, decision-makers listen. Complicating matters further, economic interventions typically benefit some while imposing losses on others.

These insights illuminate an ethical fact: when academic economists offer testimony before government bodies; grant interviews, give public lectures, or write Op-Ed pieces or blog posts that are intended to educate or move public opinion on matters of consequence; and when they teach their university students in hopes of shaping their understanding of economic affairs, they must be required to disclose any financial relationships that may constitute conflict of interest, real or apparent. In failing to do so economists exploit their academic affiliation to move decision-making in areas where they may have material interests. The failure to disclose deprives their audiences with information they need to assess economists’ analyses.

A second ethical fact follows: if economists do not always make appropriate disclosure in the appropriate ways, then it’s the responsibility of the economics profession to ensure that they do so. And that’s where the AEA comes in. As the most important professional association of economists in the world, it bears a heavy burden to help fix the problem.

That said, it remains an open question how best to ensure adequate disclosure. Historically, and as I explore in my book The Economist’s Oath, the AEA has taken the view that it does not have the means or expertise to enforce rules pertaining to economists’ ethical conduct. Why? Because AEA membership is voluntary, and because no licensing is required to practice economics. Hence, the argument goes, the AEA has no real leverage over the profession. This line of reasoning has been taken as justification for doing nothing other than impose disclosure rules for its journals. But doing nothing can’t be right for a profession that enjoys influence over others and that is serious about meeting its ethical obligations. Even if the AEA and other economic associations don’t have the authority to police disclosure rules, they surely can take other steps to ensure that it occurs.

Examples come to mind easily as soon as we accept the profession’s ethical obligation to ensure disclosure. One that I’d propose for consideration is this: a consortium of economic associations could be established to debate, draft and ultimately adopt strict standards pertaining to conflict of interest that they would jointly publish on their websites and distribute to their members. The consortium could then exhort all institutions that seek economic expertise to demand that all the economists they engage meet these standards. As a practical matter, this would imply that newspapers, periodicals and blogs, Congressional committees, federal, state and local government agencies and other institutions that solicit economic expertise require that they contract only with economists who commit to the new standards. These standards ought to apply to universities as well, so that students would come to know the relevant financial entanglements of their professors. Many medical schools demand as much of their doctors who receive incomes from pharmaceutical companies (and some go much further in preventing conflicts of interest altogether) so that their students can assess for themselves the veracity of what they teach. Why shouldn’t economists face the same expectations?

Economists are creative people who love to solve pressing social problems. If we haven’t yet solved the problem of conflict of interest in economics, perhaps it’s not because the problem is so darn difficult. Perhaps it’s because we’ve never really tried.

George DeMartino is a Professor of International Economics at the Josef Korbel School of International Studies of the University of Denver, and is the author of the new book The Economist’s Oath: On the Need For and Content Of Professional Economic Ethics, Oxford University Press.