Columnists

Ellen Russell
Economists, conflicts of interest and a plea to journalists

| February 15, 2013
Photo: tjdewey/Flickr

When your doctor prescribes medication, you need to trust that you are getting the best, unbiased medical advice possible. If those pills just happened to be sold by the pharmaceutical company that gives your doc lucrative freebies, you might be skeptical about that choice of medication. You'd also want to know if the research recommending those pills was paid for by the pill's manufacturer.

This is not rocket science, folks. Medical professionals should 'fess up to any conflicts of interest so that the public can assess whether their advice or research is compromised. Transparency about conflicts of interest in medicine is far from perfect, but we all realize that this ethical principle is the cornerstone of the public's faith in medical advice and research.

What happens when medical professionals are a little dodgy on their disclosure? Fortunately, good journalistic digging keeps health-care professionals and big pharma on their toes. Enterprising journalists smell a big story if they can expose the taint of conflicts of interest in medicine. If a tobacco company happens to be paying for high-profile research minimizing the health consequences of smoking, any journalist with a pulse would be all over it.

In contrast to the relative vigilance about conflicts of interest in the medical profession, awareness of conflicts of interest in the economics profession is microscopic.

Like medical doctors, economists provide opinions and research on decisions that have important consequences. Economists from universities and the private sector routinely appear to advise governments, and the media constantly relies on them to explain economic issues to the public.

The 2008 financial crisis: A wake-up call for conflicts of interest

Conflicts of interest in the economics profession hit the limelight in the aftermath of the 2008 financial crisis. It's an open secret that the leading lights in the American economics punditocracy have all sorts of financial relationships with Wall Street. Many of these same experts played a critical role in advocating for the financial deregulation that contributed to the financial meltdown.

The Oscar-winning documentary, Inside Job, publicly exposed the prevailing norm in economics: experts routinely refrain from disclosing conflicts of interest when appearing before government bodies and the media.

If you like to see economists squirm, check out the video clip from the Inside Job. It shows one superstar economist baffled by the suggestion that he should have mentioned that he was paid US$124,000 by Iceland's Chamber of Commerce to write a glowing report about Iceland's financial stability -- just before that country's spectacular financial meltdown.

There has been a small amount of journalistic exploration of conflicts of interest among economists since 2008. Reuters reported on the testimony of Hal Scott, who identified himself only as a Harvard Law School professor and director of an independent research group at Senate hearings on financial reform. He failed to mention his earnings of about US$260,000 in the previous year for his involvement with Lazard, a Wall Street firm.

A recent study published in the Cambridge Journal of Economics reviewed the media appearances, academic papers and testimonials of 19 prominent economists who played an important role in promoting financial deregulation before the 2008 financial crisis. Fifteen of these economists worked in some capacity with private financial institutions. Yet they infrequently disclosed these relationships.

A leading advocate in establishing higher ethical standards for economists is George DeMartino, an economist and university professor who shook up the profession with the publication of The Economist's Oath: On the Need For and Content of Professional Economic Ethics.

I asked professor DeMartino why it is that such obvious conflicts of interest are overlooked when government and media are seeking out economic expertise. He replied:

"I think the problem is that both economists and journalists tend to think of academic economics as an objective science. Even when academic economists earn large fees from outside interests, there has been a presumption that their work is unbiased. And so the norm in economics has been not to disclose any potential conflicts of interest. I think that view is dangerously naïve."

Is economics really viewed as having such unassailable purity? You'd think the business press would be more critical. Business journalists have taken their lumps for being too dazzled by Wall Street to see the financial crisis coming. Presumably they would want to be extra careful about being misled again.

Demartino's new research interviewing business and economics journalists is not encouraging. He interviewed 20 business and economics journalists from prominent publications. Yet despite some indications that these journalists were aware of the perils of conflicts of interest, this awareness does not seem to have produced dramatic changes in their coverage of economic issues. As one journalist ominously commented, at a presentation of George DeMartino at the annual meeting of the Association for Social Economics and the Society of Government Economists, January 2013:

"The only kind of economic expertise sanctioned is financial sector economists… It is now accepted that you can call on only banking institution economists…what the media wants to be said will be more easily said by this kind of economist; the media routinely turns most to economists who will say just what the media wants to hear."

Certainly there are time constraints and other pressures on journalists that make it hard to do the digging required to hold economists accountable for their conflicts of interest. But there may also be more nefarious factors. What if business journalists have their own conflicts of interest? Some prominent business journalists get paid handsome speaking fees by Wall Street firms. Business journalists who enjoy their own lucrative relationships to the businesses they cover are a lot less likely to bite the hand that feeds them.

Meanwhile Canada hits the snooze button

The handful of Canadian economists who dominate public policy discourse are employed either at the big financial institutions or in academia, with an even smaller smattering of economists from think-tanks. With very few exceptions, the bank and academic economists are the go-to people who advise public policymakers and provide their viewpoints in the media.

When a small group of people are exercising such disproportionate public influence, it's a good time to consider conflict of interest issues. Yet Canadians are rarely informed about how these conflicts of interest may be shaping public policy debate.

I repeat, it's not rocket science. Policymakers and journalists should be asking whether economists have financial relationships with business, government, think-tanks, unions or nonprofit organizations. If you want to see how such a disclosure might look, consult the admirable job done by Marc Lee (a buddy of mine) from the Canadian Centre for Policy Alternatives.

In the case of economists from private sector corporations, the conflict of interest issue is trickier. In addition to their potential personal conflicts of interest, the corporation that they represent may have its own conflicts of interest.

Consider the typical economist who works at a major Canadian bank. The bank may stand to profit by influencing public debate in a certain direction.

For example, the federal government has policies to help Canadians afford retirement. Bank economists produce research, advise government and do media appearances on these policies. One of those government policies is the tax break that favours registered retirement savings plans (RRSPs).

Dear journalists: could it be that banks' policy advice on retirement issues is influenced by the profits banks make thanks to the government policy that drives RRSP money through their doors?

Admittedly, conflicts of interest related to banks and the economists who speak for them may be difficult to spot. Canadian banks are interconnected with all manner of business activity at home and abroad. And there are all kinds of government policies that might help or hinder those business interests.

Take the oil sands. Canadians are engaged in a public debate about the development and transportation of this oil. This debate will have monumental effects for generations to come. Business interests from the oil patch and beyond are lining up to influence all kinds of public policy that will determine who wins and who loses.

Let's say that a bank economist offers an opinion on the oil sands, or on environment, trade, aboriginal issues, regional development, taxation or a host of other policies that are more indirectly connected with the oil sands. How are Canadians supposed to know how that policy advice might be influenced by the bank's strategies to enhance its future profits?

Canadians rely on our journalists to dig into these issues. Journalistic due diligence must go much deeper than accepting the reports of these economists at face value.

The oil sands is just one of the pivotal issues that will have enormous consequences on our lives. We need to know our journalists are asking economists to come clean on conflicts of interest. And we need to be alerted about the financial interests of the organizations that send economists out as their spokespeople.

No one wants to see a sequel to the Inside Job, this time filmed in Canada.

Ellen Russell is an economist and professor of journalism at Wilfrid Laurier University. Her column comes out every two months in rabble.ca.

Photo: tjdewey/Flickr