Why economists are part of the problem
Charles Ferguson is the director of Inside Job, a documentary about the financial crisis. The opinions expressed are his own.
Both Glenn Hubbard and Laura Tyson (pictured above, left to right) have played major roles in American economic policy, and both also, unfortunately, exemplify the disturbing, opaque conflicts of interest that pervade the economics discipline.
Over the last thirty years, academic economics has been penetrated by special interests, particularly financial services, in the same way that America’s political and regulatory systems have been compromised by campaign contributions and the revolving door. In fact, the “revolving door” is now a triangular trip between industry, government, and academia.
Prominent economists are now routinely paid to testify in antitrust cases, criminal trials, and regulatory proceedings; to testify in Congress; to give speeches to the industries and firms they study; to serve on boards of directors and as advisors; and to write supposedly objective analyses of industries, companies and policies. These payments and the conflicts of interest they generate are rarely disclosed, except when required by Federal law.
These activities are not marginal; they are now, literally, a billion dollar industry, managed by firms such as the Law and Economics Consulting Group (LECG), The Analysis Group, Compass Lexecon, Charles River Associates, and others. Professors’ income from such groups often dwarfs their academic salaries. That neither universities nor most publications require such disclosure was one of the most shocking facts I learned while making Inside Job, my documentary on the financial crisis.
From 2001 to 2003, Glenn Hubbard was chair of the Council of Economic Advisors in the George W. Bush administration. He was a major force behind the Bush administration’s tax cuts, over half of whose benefits went to the wealthiest 1% of the American population. Since becoming dean of Columbia Business School, Hubbard has written and spoken widely on financial regulation, and has served as co-chair of the Committee on Capital Markets Regulation, whose other co-chair is John Thornton, who is chairman of the Brookings Institution – and the former president of Goldman Sachs. Hubbard’s recent or current affiliations include but are not limited to Met Life ($250,000 per year), Capmark (a major commercial mortgage firm during the bubble, which went bankrupt in 2009), KKR, and Black Rock. In our on-camera interview, Hubbard refused to disclose his current consulting clients.
In 2004, Hubbard co-wrote a paper with William C. Dudley, then the chief economist of Goldman Sachs, entitled “How Capital Markets Enhance Economic Performance and Facilitate Job Creation.” The paper praises securitization and the rise of credit derivatives (particularly credit default swaps), saying that they have increased economic growth, reduced systemic risks, and reduced both the size and duration of recessions. Hubbard refused to answer when we asked him by letter whether he was paid to write the paper, and also refused to disclose whether he had ever received any payments from Goldman Sachs.
Laura Tyson was chair of the Council of Economic Advisors, and then director of the National Economic Council, in the Clinton Administration. Shortly after leaving government and returning to U.C., Berkeley, she joined the board of directors of Morgan Stanley, which pays her $350,000 per year. She also joined the board of AT&T and became a principal of the Law and Economics Consulting Group. She agreed to be interviewed for my film, but then stopped responding to email and phone calls, so we were unable to interview her. In general, she has confined her remarks on the financial crisis to extremely vague statements about “greed,” “human nature,” etc.
Other prominent economists heavily dependent upon financial services income over the past decade, and whose behavior is examined in my film, have included Larry Summers (hedge funds, investment banks), Martin Feldstein (AIG), Richard Portes (Icelandic banks), and Frederic Mishkin (Icelandic banks, unnamed U.S. financial services firms), all of whom have played prominent roles in public debate and policy. So, unfortunately, Hubbard and Tyson are in prominent company.