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Economics Professors Will Consider Code of Ethics

A professional association of U.S. economists is considering establishment of an ethics code, a move that could require members to disclose their ties to financial firms and potential conflicts of interest.

The American Economic Association, the world’s largest organization for economists, is set to take up a proposal Jan. 6 that would attempt to codify ethics guidelines for economists. The Nashville, Tennessee-based group, which is holding its annual meeting Jan. 6-9 in Denver, says about half of its 18,000 members are academic economists.

“The topic is on the agenda for the executive committee meeting next Thursday,” Robert Hall, AEA president and an economics professor at Stanford University, said in an e-mail today. “More info may be available after the meeting.”

Criticism of the dual role of economists came to the fore after the October release of “Inside Job,” a documentary that features economists being interviewed by Charles Ferguson, the film’s director, about their ties to financial firms.

Economists featured in the film include Glenn Hubbard, dean of the Columbia Business School and a member of the board of directors at MetLife Inc., the largest U.S. life insurer. Martin Feldstein, a Harvard University economics professor who was a board member at American International Group Inc., the insurer that is divesting assets to repay billions of dollars in U.S. government aid, was also interviewed in the documentary.

‘Positive’ Reaction

Hubbard, in an e-mailed response to a query about his views, said he had “positive” reactions to the proposal to be considered by the AEA.

“I have always acted in what I believed to be the public interest, whether as a government official, a member of a nonprofit organization, or a corporate director,” Feldstein wrote in an e-mail when asked if he thought the film’s criticisms of economists like him were justified.

The recent financial crisis “has raised questions concerning some academic financial economists’ potentially conflicting roles that may have created perverse incentives for them to miss the run-up to the crisis, and to develop regulatory proposals inadequate to the task of preventing a re-run,” Gerald Epstein, a professor of economics at the University of Massachusetts, Amherst, wrote in a blog post.

“While passing this proposal might not spread a lot of holiday cheer to the economists as they gather in Denver, it might help them get out of the dog house with the American people,” Epstein wrote.

Such a code would attempt to bring academic economists in line with some government agencies that have well-defined ethics policies.

New York Fed

The Federal Reserve Bank of New York, which has supervisory responsibility for the largest Wall Street banks, advises its officers to stay out of partisan politics and limits contact of former employees with reserve bank staff.

“An employee who ceases to be employed by the bank should not contact the bank concerning a particular matter in which he or she participated while employed at the Bank,” the New York Fed’s Code of Conduct says. “If a current employee is contacted by a former employee concerning such a matter, the current employee must not discuss the matter or provide any information to that individual that is not available to the general public, unless authorized to do so by bank management.”

While they are working at the bank, New York Fed staff can’t accept “compensation, a gift, or honorarium from any source” other than the reserve bank for teaching or writing on a subject that relates to their duties, according to the New York Fed. Senior bank examiners can’t work for banks they supervised for at least a year after they leave.

“Codes of conduct are impossible to create and impossible to enforce,” said David Colander, a professor of economics at Middlebury College in Middlebury, Vermont, who will be speaking Jan. 9 on an ethics panel at the annual AEA conference. “This has arisen before, it’s been discussed, it’s been put down summarily.”

‘Inside Job’

Colander is a board member at Central Securities Corp., a New York-based investment firm. He said he doesn’t support the creation of a written ethical code for academic economists.

“People get more focused on it now because certain things come up,” Colander said, referring to the popularity of “Inside Job.” He also said the documentary “is itself a reflection of a concern that has been out there.”

“Everyone believes, yes, you should have good conduct; actually defining something and sort of putting it down creates, in many ways, more problems,” the Middlebury professor said. He said difficulties would arise, with members disagreeing over the wording of the policy, and there would be no effective means of enforcement if guidelines were implemented.

There are about 20 economics groups in the U.S. and the National Association of Forensic Economics is the only one with a code of ethics, said George DeMartino, author of a book titled “The Economist’s Oath: On the Need for and Content of Professional Economic Ethics.”

“The profession now has tremendous influence, yet the profession hasn’t taken the time to think through what that implies ethically,” said DeMartino, who is also a professor of international studies at the University of Denver.

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