Financial crises

Amon the sessions focusing directly on the crises are

-      the one on Finance, Distribution and the Financial Crisis organized by the Association for Evolutionary Economics/Association for Social Economics,  with Robert Shiller (Yale University) presiding. The papers are:

Households’ Knowledge of their Own Finances: Evidence from the SCF J-codes Martha A. Starr (American University)

Household Debt and Income Distribution Robert Scott (Monmouth University), Steven Pressman (Monmouth University)

The Asset Price Meltdown and the Wealth of the Middle Class Edward Nathan Wolff (New York University)

Taken for a Ride: How the Bubble Economy Destroyed America’s Economic Security Christian E. Weller (Centre for American Progress and University of Massachusetts-Boston)

A Template for a Public Credit Rating Agency Susan K. Schroeder (University of Sydney, Australia)

Discussants: Brian Bucks (Consumer Financial Protection Bureau), Christopher Brown (Arkansas State University)

-      a session on Bank Governance and Crisesof the International Banking, Economics & Finance Association, with David Mayes (University of Auckland) presiding, including the following contributions:

The Roles of Corporate Governance in Bank Failures during the Recent Financial Crisis Allen N. Berger (University of South Carolina), Bjorn Imbierowicz (Goethe University), Christian Rauch (Goethe University)

Does Financial Experience Help Banks during Credit Crises? Nuno Fernandes (IMD International), Eliezer Fich (Drexel University)

Political Influence and Incentive: The Lending Behavior of a State-Owned Bank in the Global Financial Crisis Chun-Yu Ho (Shanghai Jiaotong University), Dan Li (Fudan University), Suhua Tian (Fudan University)

Takeover Targets’ Decision to Market Themselves: The Role of Governance Elijah Brewer (DePaul University), William Jackson (University of Alabama), Larry Wall (Federal Reserve Bank of Atlanta)

Discussants: Isil Erel (Ohio State University), W. Scott Frame (University of North Carolina-Charlotte), Gerard Caprio (Williams College), Antonio Macias (Texas Christian University)

-      an AEA session on Financial Intermediation and Financial Crisis, with Jianjun Miao (Boston University) presiding. These are the contributions:

Capital Regulation and Credit Fluctuations Hans Gersbachy (Center of Economic Research at ETH), Jean-Charles Rochet (University of Zurich, SFI and Toulouse School of Economics)

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Banking Bubbles and Financial Crisis Jianjun Miao (Boston University), Pengfei Wang (Hong Kong University of Science and Technology)

Demand Creates its Own Supply Christophe Chamley (Boston University)

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The Lehman Shock and the Dynamics of the Crisis Gary Gorton (Yale University), Andrew Metrick (Yale University), Lei Xie (Yale University)

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Discussants: Anton Korinek (University of Maryland), Zhiguo He (University of Chicago), John Leahy (New York University), Simon Gilchrist (Boston University)

-      Also interesting seems a session organized by the Association for Comparative Economic Studies on Once Bitten Twice Shy? International Banking after the Crisis, with John Bonin (Wesleyan University) presiding, including the following contributions:

Systemic Risks in Global Banking: What Available Data Can Tell Us and What More Data Are Needed? Eugenio M. Cerutti (International Monetary Fund), Stijn Claessens (International Monetary Fund), Patrick McGuire (Bank for International Settlements)

Foreign Banks: Trends, Impact and Financial Stability Stijn Claessens (International Monetary Fund), Neeltje van Horen (Den Nederlandsche Bank)

Changing Forces of Gravity: How the Crisis Affected Cross-Border Banking, Claudia M. Buch (University of Tübingen and member of the German Council of Economic Experts), Katja Neugebauer (IAW), Christoph Schröder (ZEW)

Bank Lending Patterns in the Aftermath of the Global Financial Crisis: Exploring Differences between Latin America and Eastern Europe John P. Bonin (Wesleyan University), Robert Cull (World Bank), Maria Soledad Martinez Peria (World Bank)

Discussants: John P. Bonin (Wesleyan University), Claudia M. Buch (University of Tübingen and member of the German Council of Economic Experts), Katheryn N. Russ (University of California-Davis)

Related themes

-      One conference highlight is the AEA session on International Policy Coordination with Dominick Salvatore (Fordham University) presiding and this remarkable assembly of contributors and themes:

International Policy Coordination in the Eurozone Martin Feldstein (Harvard University)

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International Policy Coordination and Transmission Robert Mundell (Columbia University)

International Macroeconomic Policy Coordination with Debt Overhang Kenneth Rogoff (Harvard University)

International Monetary Rebalancing John B. Taylor (Stanford University)

International Policy Coordination in the Euro Area: Towards an Economic and Financial Federation Jean-Claude Trichet (Banque de France)

Discussants: Dominick Salvatore (Fordham University), Martin Feldstein (Harvard University), Robert Mundell (Columbia University), Kenneth Rogoff (Harvard University), John B. Taylor (Stanford University), Jean-Claude Trichet (Banque de France)

-      Another interesting AEA session is on Speculation, Insurance and Financial Regulation. Presiding: Andrei Kirileinko (Massachusetts Institute of Technology). Contributions:

Benefit-Cost Analysis for Financial Regulation Eric Posner (University of Chicago), Eric Glen Weyl (University of Chicago)

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Financial Innovation and Portfolio Risks Alp Simsek (Harvard University)

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Reflections on Finance and the Good Society Robert J. Shiller (Yale University)

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Can Financial Engineering Cure Cancer?: A New Approach to Funding Large-Scale Biomedical Innovation Jose-Maria Fernandez (Massachusetts Institute of Technology), Andrew W. Lo (Massachusetts Institute of Technology), Roger Stein (Moody’s)

Discussants: Hayne E. Leland (University of California-Berkeley), Darrell Duffie (Stanford University), Patrick Bolton (Columbia University), Markus K. Brunnermeier (Princeton University)

-      A currently widely noticed strand of research is the role banks’ networks play in a financial crisis. There is an AEA session with Ethan Cohen-Cole (University of Maryland) presiding on Financial Networks including

Financial Networks and Contagions Matthew Elliott (Microsoft Research and CalTech), Benjamin Golub (Harvard University), Matthew O. Jackson (Stanford University)

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Systemic Risk and Stability in Financial Networks Daron Acemoglu (Massachusetts Institute of Technology), Asuman Ozdaglar (Massachusetts Institute of Technology), Alireza Tahbaz-Salehi (Massachusetts Institute of Technology)

Endogenous Intermediation in Over-the-Counter Markets Ana Babus (Imperial College London)

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Systemic Risk and Network Formation in the Interbank Market Ethan Cohen-Cole (University of Maryland), Eleonora Patacchini (La Sapienza University of Rome), Yves Zenou (Stockholm University)

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Discussants: Matthew O. Jackson (Stanford University), Daron Acemoglu (Massachusetts Institute of Technology), Ethan Cohen-Cole (University of Maryland)

-      Foreign exchange markets are one aspect in an AEA session on International Finance with Hendrik Van Den Berg (University of Nebraska-Lincoln) presiding over the following contributions:

A global monetary tsunami? On the spillovers of US Quantitative Easing Roland Straub (European Central Bank), Marcel Fratzscher (European Central Bank)

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International Evidence on Government Support and Risk-Taking in the Banking Sector Luis Brandao Marques (International Monetary Fund), Ricardo Correa (Federal Reserve Board), Horacio Sapriza (Federal Reserve Board)

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Menu Costs, Trade Flows, and Exchange Rate Volatility Logan T. Lewis (Federal Reserve Board)

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Equilibrium Dynamics in Repressive Economies: Evidence from the Belarusian Black Market for Foreign Exchange Matthias Krapf (University of Vienna), Hannes Huett (University of Konstanz), Selver Derya Uysal (Institute for Advanced Studies (IHS) Vienna)

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Why Do Emerging Markets Liberalize Capital Outflow Controls? Fiscal versus Net Capital Flows Concerns Gurnain Kaur Pasricha (Bank of Canada), Joshua Aizenman (University of California-Santa Cruz)

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The Cross-Section of Currency Order Flow Portfolios Andreas Schrimpf (Bank for International Settlements), Lukas Menkhoff (Leibniz University Hannover), Lucio Sarno (Cass Business School, London), Maik Schmeling (Leibniz University Hannover)

-      Another interesting highlight will be the Bank for International Settlements Special Panel on Property Markets, Financial Stability, and Macroprudential Policies of the American Real Estate & Urban Economic Association. It will be moderated by Frank Packer (BIS) with Kiyohiko Nishimura (Bank of Japan), Yongheng Deng (National University of Singapore), Ken Kuttner (Williams College), Timothy M. Riddiough (University of Wisconsin-Madison) and Frank Warnock (University of Virginia).

Euro Area

Papers on the euro crisis are scattered over many sessions. These are some examples:

-      The Association for Evolutionary Economics will hold a special session on European Economic and Financial Crises and Capital Flows (Ayres Visiting Scholar Session): James Galbraith (University of Texas-Austin) will be presiding and there will be contributions on:

Financial Crises and Centre-Periphery Capital Flows Ali Tarhan (Central Bank of the Republic of Turkey)

Is the Euro Crisis Fuelling Europe’s Evolution into Closer Unity or Just a Case of Reverse Alchemy? Yanis Varoufakis (University of Athens, Greece, University of Texas-Austin, and Valve Corporation (Ayres Visiting Scholar 2013))

Dutch Bankers on the Financial Crisis: Views on Formal and Informal Institutions in 2012 Irene van Staveren (Institute of Social Studies, The Netherlands)

Sovereign Debt Crises in European Varieties of Capitalism Klaus Nielsen (University of London, UK)

Debt Crises: Is a Global Restructuring Implementable? David Cayla (Universite d’Angers, France)

Discussants: Wolfram Elsner (University of Bremen, Germany), John Marangos (University of Crete, Greece)

-      Another interesting paper by an interesting contributor is found in a session of the Association for Comparative Economic Studies. This is on

European Monetary Union: Convergence and Divergence by Helmut Wagner (University of Hagen)

-      There is a comparably strong presence of German participants in a session organized by the Association for Comparative Economic Studies on The Euro-Area Debt Crisis, Current Account Imbalances, and Economic Growth, with Christian Dreger (DIW Berlin) presiding. The contributions are:

Debt Leveraging and the Exchange Rate Pierpaolo Benigno (LUISS Guido Carli and NBER), Frederica Romei (LUISS Guido Carli)

Determinants of Euro Area Public Expenditure Policies Sebastian Hauptmeier (German Ministry of Finance), A. Jesus Sanchez-Fuentes (U. Complutense de Madrid), Ludger Schuknecht (German Ministry of Finance)

Current Account Imbalances in the Euro Area: Does Catching Up Explain the Development? Ansgar Belke (University of Duisburg-Essen), Christian Dreger (DIW Berlin)

Sovereign Debt Crises and Economic Growth in Emerging European Countries Balazs Egert (OECD), Ali M. Kutan (Southern Illinois University-Edwardsville), Hakan Yilmazkuday (Florida International University)

Discussants: David Papell (University of Houston), Nicolas Veron (Bruegel and The Peterson Institute), David Kemme (University of Memphis), Josef Brada (Arizona State University)

-      The Association for Evolutionary Economics will also be holding a session on The Euro Crisis. Presiding: Philip Arestis (University of Cambridge, UK and University of the Basque Country, Spain). Contributions:

The Euro Crisis: When Might it End? Philip Arestis (University of Cambridge, UK and University of the Basque Country, Spain), Malcolm Sawyer (University of Leeds, UK)

How “Greek” is the Euro Crisis? Georgios Chortareas (University of Athens, Greece)

Modeling Moments of Crisis: The Case of Ireland Stephen Kinsella (University of Limerick, Ireland)

Wrong Institutional Design and Unsatisfactory Economic Performance: An Explanation of the Huge Spanish Unemployment Rate Jesus Ferreiro (University of the Basque Country, Spain), Felipe Serrano (University of the Basque Country, Spain)

The Euro Debt Crisis and Germany’s Euro Trilemma Joerg Bibow (Skidmore College and Levy Economics Institute)

Focus on Asia

There are two interesting sessions focusing on Asian monetary and financial themes:

-      One session organized by the American Committee on Asian Economic Studies/American Economic Association on Empirical Assessments of International Shock Transmission for Asia, with Michael Plummer (Johns Hopkins University) presiding, and including the following contributions:

Do Foreign Banks Cut Their Bank Lending More during a Crisis? Robert Dekle (University of Southern California), Mihye Lee (Bank of Korea)

How Close is ASEAN to a Common Global-Currency Basket? Reid W. Click (George Washington University)

International Transmission of Emerging Economy Supply Shocks: Analysis of a Three-Country DSGE Model Naohisa Hirakata (Bank of Japan), Yuto Iwasaki (Bank of Japan), Masahiro Kawai (ADB Institute)

Do Policy-Related Shocks Affect Real Exchange Rates of Asian Developing Countries? Taya Dumrongrittikul (Monash University)

Discussants: Pierre L. Siklos (Wilfrid Laurier University), Mordechai E. Kreinin (Michigan State University), Richard Pomfret (University of Adelaide, Australia), Steven Husted (University of Pittsburgh)

-      The  Chinese Economists Society has a session on Some Issues of RMB Exchange Rates on Price Convergence, Investment, Inflation and Stock Market Responses with Yangru Wu (Rutgers University and Central University of Finance and Economics) presiding. The contributions are:

On the Role of Variable Input in the Relationship between Investment and Exchange Rate Volatility: An Empirical Analysis Guangzhong Li (Central University of Finance and Economics), Jie Li (Zhejiang University)

Does the RMB Exchange Rate Reform Make a Difference? Evidence from Cross-Listed Chinese Companies Jimmy Ran (Lingnan University and Central University of Finance and Economics), Laurel Rong (EPRO Systems, Hong Kong)

Currency Devaluation and Stock Market Response: An Empirical Analysis Dilip K. Patro (Office of the Comptroller of the Currency), John K. Wald (University of Texas-San Antonio), Yangru Wu (Rutgers University and Central University of Finance and Economics)

RMB Foreign Exchange Market Intervention and Export Competitiveness Jie Li (Central University of Finance and Economics), Wu-kuang Cun (Rutgers University)

Modeling the Transition Towards Renminbi’s Full Convertibility: Implications for China’s Growth and the Global Economy Luigi Bonatti (Universita di Trento), Andrea Fracasso (Universita di Trento)

Discussants: Dayong Huang (University of North Carolina-Greensboro), Xi Chen (Yale University), Mary E. Lovely (Syracuse University), Hong Ma (Tsinghua University), Daniel Santabárbara (European Central Bank)

Other topics

There is so much more. Here are some examples of the diversity, and I want to refer you to the program site for details:

-      Blinded by Incentives: Do Rank and File Stock Options Deter Employee Whistle-Blowing? Andrew Call (University of Georgia), Simi Kedia (Rutgers University), Shivaram Rajgopal (Emory University) (There is a related earlier paper and it might be interesting to follow the progress made.)

-      Trader Twitter Chatter and Corn Futures Price Volatility Mindy Mallory (University of Illinois-Urbana-Champaign), Sung Won Kim (University of Oklahoma)

-      Keynes the Stock Market Investor David Chambers (Cambridge Judge Business School), Elroy Dimson (London Business School)

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-      Financial Innovation in Late-Eighteenth Century Netherlands: The Case of American Land Securities Rik Frehen (Tilburg University), William N. Goetzmann (Yale University), Geert Rouwenhorst (Yale University)

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-      Currency Safe Havens during Global Financial Stress: India vs. Other Emerging Markets Valerie Cerra (International Monetary Fund), Sweta Saxena (International Monetary Fund)

-      de Soto vs. Yunus: Microfinance, Property Rights, and Development Policy M. Shahe Emran (Columbia University), Forhad Shilpi (World Bank), Joseph E. Stiglitz (Columbia University)

-      Happiness Puzzles Angus S. Deaton (Princeton University), Arthur Stone (SUNY-Stony Brook)

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-      Gender and Connections Among Wall Street Analysts Lily Fang (INSEAD), Sterling Huang (INSEAD)

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-      Employment and Competitive Issues Involving Japanese Financial Conglomerates: A Case Study of Shinsei Bank Masaharu Kuhara (Kyushu University)

-      The Home Economics of E-Money: Velocity, Cash Management, and Discount Rates of M-Pesa Users Isaac Mbiti (Southern Methodist University), David N. Weil (Brown University)

-      Access to Finance and Entrepreneurship: New Evidence from 4 African Countries Ousman Gajigo (African Development Bank), Thouraya Triki (African Development Bank), Issa Faye (African Development Bank)

-      Financial Services Liberalization in a Natural Resource Rich Economy, Sheikh Shahnawaz (California State University), Hatem Samman (Booz & Co.)

-      What’s So Funny About Making Monetary Policy? Kevin W. Capehart (American University)

I give up. This has become far too long. You have to see for yourself. Enjoy it!

Speakout for the 99%

Chicago—Dozens of activists from Occupy Chicago, Jobs with Justice, the Jane Addams Senior Caucus, Iraq Veterans Against the War, News and Letters Committees and other groups rallied outside the American Economic Association (AEA) conference here on Jan. 6.

The establishment economists were invited to share a sidewalk meal of Rahm-en noodles (named in honor of anti-labor Mayor Rahm Emanuel). A banner was hung across from the Hyatt Hotel showing “Trickle Down Economics” as Mr. Moneybags pissing on the poor.

Spokespeople of the 99% delivered stories of how their lives have been harmed by the economic policies promoted by the AEA as apologists for the 1%:

Ruth Long: “I’ll be 86 years of age in March. I am a leader of the Jane Addams Senior Caucus here in Chicago. I depend upon SSI, Medicaid and public housing to meet my basic needs. Last week I got an increase of $24 in my monthly SSI allotment—but that is more than offset by the cost of living, which is going up higher and faster than funds are being allocated.

SHAME ON THE ONE PERCENTERS

“I know lots of vulnerable and defenseless Americans who depend on these safety net programs, and who are suffering because of the greed and selfishness of the 1%. There are 34 million children dependent on Medicaid. There are seniors—indeed whole families—living in abandoned vehicles and under viaducts, with no insurance if they fall ill.

“Shame on the one percenters for standing atop and perpetuating this economic gulag. Shame on the one percenters whose hearts are so closed that they don’t recognize the needs of ordinary people struggling to survive. And shame on those economists whose work renders such people and their suffering invisible.”

Fred M., News and Letters Committees: “Having been homeless, you learn that too many people are willing to step right past your body on the street. To the extent that the Occupy movement has given the homeless a place to be heard, it is a revolutionary development.

WHAT KIND OF WORLD TO LIVE IN?

“Homelessness is a world condition, and includes Mohamed Bouazizi with his vendor cart being brutalized by police, the landless movement of Brazil, the shackdwellers’ movement in South Africa, and the prison strikes in Georgia and Pelican Bay—the movement of those most dispossessed by the capitalist economy in its deep and bottomless crisis. We are rising up to demand our rights and dignity, not charity, which is a joke.”

Vince Emanuele: “I am a member of Iraq Veterans Against War. We support improved benefits for vets, and we also see the need for reparations being paid to the people of Iraq and Afghanistan for the damage we have done to those countries.

“There’s a very real human consequence to our government’s actions. This is not simply a financial issue. It’s a question of what kind of world do we want to live in.”

—Marxist-Humanist Participant

Readers’ Views (part 2)

FROM FUKUSHIMA TO NEW YORK

Shut Down Indian Point Now! is calling a press conference immediately prior to a New York State Assembly hearing to determine energy alternatives to the Indian Point plant in January. As the Fukushima, Japan, meltdown shows, nuclear power can never be made safe.

People are becoming increasingly aware of the madness of maintaining Indian Point, a potential Fukushima-on-the-Hudson, located just 24 miles north of New York City. More than 20 million people live within 50 miles of the plant, and a meltdown would create an unimaginably horrific health, environmental, social and economic catastrophe for the region, the country and the planet.

A new Synapse Energy Economics report states, “Even if Indian Point is retired, there is no need for new capacity until 2020 for meeting reliability needs, either in New York State or the City.” We don’t need Indian Point!

The New York State Assembly is holding a public hearing to determine if the energy generated by Indian Point can be provided through other sources.

We must not allow this hearing to degenerate into a forum for those who wish to maintain the status quo. We must be allowed to make our case:  replace Indian Point with safe, renewable energy sources.

Tom S. for Shut Down Indian Point Now!

New York

***

The myth of a “safe nuclear power plant” was broken completely by the Great Disaster of March 11 last year.

Narihiko Ito

Japan

•

LABOR ISSUES 2012

In a recent article you printed on the auto contract negotiations, there was a reference to local union contracts that might result in strikes.

I noticed in a recent newspaper article that a GM local union near Lansing, representing 3,430 workers, had authorized a strike if the local’s unresolved grievances were not settled. This doesn’t mean there will be a strike, but it also means that there could very well be one.

Auto labor observer

Detroit, Mich.

***

On Dec. 15, over 1,000 of us activists gathered at La Placita (the historical center of Mexican history in Los Angeles) to protest ICE’s (Immigration and Customs Enforcement) raids, detentions and deportations of Mexican and Latina/o immigrant workers. Union workers and leaders joined Immigrant Rights and Occupy L.A. protesters against ICE’s criminalizing and separating families of immigrants.

Workers were from CLEAN Carwash, Justice for Janitors, the grocery and healthcare industries, Airport Workers Unidos, United Service Workers West, the U.S. Postal Service, Good Jobs L.A. and others.

In high spirits Occupy LA youths chanted, “We are the 99%,” as immigrant workers answered with, “El Pueblo Unido, Jamás Será Vencido.” The spirited noontime rally ended with a walk back to La Placita.

Basho

Los Angeles

***

The solidarity statement sent to the unions in Iraq by “U.S. Labor Against the War” recognized that the end to formal U.S. military occupation of Iraq does not automatically end “continuing U.S. interference in the internal affairs of Iraq.”

It would be important to hear from workers here what thoughts they might have on such a solidarity statement. I hope that kind of dialogue can appear in Readers’ Views in future issues.

Long-time reader

Philadelphia

***

I always enjoy reading  N&L as it refrains from the usual crude-vanguard style of telling everyone how mean and nasty capitalism is and how we should now all join them for “revolution.”

The fact that it’s open to the workers themselves reflects its continuity to the positive  Iskra tradition, something which I pay a lot of attention to.

Dan

England

•

LIVING FANON

A new special issue of Pambazuka, dated Dec. 6, 2011, has as its theme “50 years on: Frantz Fanon lives.” The 18 articles include activist and scholar Nigel Gibson’s reflection on Frantz Fanon’s interpretations of postcolonial politics within the context of current revolutions in North Africa. Gibson’s article begins:

“What better way to celebrate, commemorate and critically reflect on the fiftieth year of Fanon’s The Wretched of the Earth than with a new North African syndrome: revolution—or at least a series of revolts and resistance across the region.”

More can be found about this important publication and event at http://

http://www.pambazuka.org/en/issue/561.

Comments are requested online.

Fanon fan

Chicago

•

HAVE-NOTS FIGHT BACK

Somebody asked what I think of the American Economic Association. Well, I don’t think very much of them. That’s why we’re here protesting. These are people, who themselves are privileged, who want to crush the have-nots. Protesting this economic injustice is continuing what we began in the Civil Rights Movement.

Black Senior

Chicago

***

It is disgusting that some on the Left are willing to ally with Ron Paul’s supporters, especially now that his racist and anti-Gay history is better known. It shows what they will be willing to settle for when they give up on the idea of revolution.

Bolshevik Youth

Chicago

***

I think that Mayor Emanuel is stepping far across the line in trying to curb the Constitutional rights to assemble and protest at the NATO/G-8 Summits. To me, he seems to be inviting confrontation in a way that will distract attention from his own cuts of funding for schools, libraries and mental health clinics, which would certainly be a notable part of the protest. These are the same type of cutbacks that others from around the world will be here opposing. But I think the Mayor might prefer a simpler, law-and-order narrative even if he has to provoke it into existence.

Fred M.

Chicago

•

PRISONERS SPEAK

I enjoy the articles from all the towns and cities. I don’t have a TV so you are the only news I get. Please keep up the good work!

Prisoner

Bridgeton, N.J.

***

Fortunately, the prison administration allows this most important publication, which allows me to stay in tune with the free world’s resistance—which is just as much a concern of the prisoner as the prisoner should be a concern of the free world.

Prisoner

Huntingdon, Penn.

***

The “Arab Spring” really helped me begin to understand the principles of perpetual revolution, with the revolutionaries creating the theory as they proceed. Thanks for all your lucid articles and to the donor who paid for my sub.

Prisoner

Huntsville, Texas

***

TO OUR READERS: Can you donate the price of a subscription ($5) for a prisoner who cannot pay for one? It will be shared with many others.

(1) Every submitted article should state the sources of financial support for the particular research it describes. If none, that fact should be stated.

(2) Each author of a submitted article should identify each interested party from whom he or she has received significant financial support, summing to at least $10,000 in the past three years, in the form of consultant fees, retainers, grants and the like. The disclosure requirement also includes in-kind support, such as providing access to data. If the support in question comes with a non-disclosure obligation, that fact should be stated, along with as much information as the obligation permits. If there are no such sources of funds, that fact should be stated explicitly.  An “interested” party is any individual, group, or organization that has a financial, ideological, or political stake related to the article.

(3) Each author should disclose any paid or unpaid positions as officer, director, or board member of relevant non-profit advocacy organizations or profit-making entities. A “relevant” organization is one whose policy positions, goals, or financial interests relate to the article.

(4) The disclosures required above apply to any close relative or partner of any author.

(5) Each author must disclose if another party had the right to review the paper prior to its circulation.

(6) For published articles, information on relevant potential conflicts of interest will be made available to the public.

(7) The AEA urges its members and other economists to apply the above principles in other publications: scholarly journals, op-ed pieces, newspaper and magazine columns, radio and television commentaries, as well as in testimony before federal and state legislative committees and other agencies.

The new guidelines are just that:  guidelines rather than mandatory rules.  While the AEA tells authors that they “should” make the disclosures described in Guidelines 1-3, authors are not required to do so (although, confusingly, Guideline 4 refers to the disclosures “required” in the first three guidelines, and Guideline 2 contains a similar internal inconsistency).  The only mandatory disclosure appears in Guideline 5, which requires authors to disclose if another party was entitled to review a paper prior to its circulation.

Nonetheless, some prominent economists view the guidelines as a significant step forward.  In particular, Guideline 7, which encourages economists to apply the guidelines in other contexts, could eventually embed the guidelines’ disclosure principles into broadly observed  professional standards.  Moreover, there is no reason that non-AEA journals, the print and broadcast news media, and government entities that make use of economic  testimony or analysis cannot require (versus suggest) the disclosures suggested in the new AEA guidelines.  As economist Gerald Epstein observed in an interview on the guidelines:

These guidelines should be widely promoted and reported on in the press and it would be important for journalists, students and others to try to see if such guidelines can be broadly implemented for other publications, TV and radio appearances, etc. The point would be to make such guidelines a broad norm that are widely implemented.

Related Content:

• Economists Set Rules on Ethics, Wall Street Journal, Jan. 9, 2012
• “Stronger than I expected” – Gerald Epstein On AEA Disclosure Guidelines, Economics Intelligence, Jan. 8, 2012
• The Inside Job, no more, Economics Intelligence, Jan. 6, 2012
• The Economist’s Oath:  On the Need for and Content of Professional Economic Ethics, George F. DeMartino (2011)

“adopt a code of ethics that requires disclosure of potential conflicts of interest that can arise between economists’ roles as economic experts and as paid consultants, principals or agents for private firms”.

More than 300 economists signed the letter, among them Nobel laureate George Akerlof and Christina Romer, a former advisor to US president Barack Obama.

Almost exactly one year later, the American Economic Association in fact agreed on a new disclosure codex. (Luigi Zingales also presented an interesting paper on the “Capture of Economists”.)

What do the authors of the open letter make of the new guidelines? I did an interview with Gerald Epstein, who wasn’t involved in the discussions about the new rules.

Olaf Storbeck: Gerald, what do you think about the new AEA disclosure guidelines? Are you satisfied?

Gerald Epstein:  I think the AEA guidelines are a very big step forward. They make very clear the importance of disclosure of potential conflicts of interest by economists and set out in detail the types of conflicts that should be disclosed. In some ways these guidelines are stronger than i had expected.

For example?

They require disclosure with respect to publication in AEA journals, rather than just recommend it. And they require such disclosure with respect to a broad range of possible conflicts including those connected to groups that might have an ideological interest in the outcome of the article and not just material or financial. While this cuts a broad area, I think it is healthy.

The guidelines also suggest that these same criteria for disclosure apply to all other publications, including non academic publications, media appearances and testimonies. By suggesting their application to these areas, as well as by requiring such disclosures for AEA publications, these guidelines will help to set norms of behavior that colleagues, the press, students and citizens can help hold economists accountable to.

Is there anything missing?

One could quibble about the $10,000 limit. For an economist who makes a low salary, smaller amounts would have a significant impact. Still, I think that as a bench mark, the $10,000 figure is fine since it will catch most of the economists for whom such kinds of activities are an important part of their work.

What should happen next?

These guidelines should be widely promoted and reported on in the press and it would be important for journalists, students and others to try to see if such guidelines can be broadly implemented for other publications, TV and radio appearances, etc. The point would be to make such guidelines a broad norm that are widely implemented .

Will these guidelines have any impact?

I do think they will have an impact in terms of providing information to the public. it is very difficult to predict whether it will have an impact on the professional activities of economists. It will take five  years or so to see that.

Would you recommend economic associations abroad to adapt similar guidelines?

Yes. Absolutely. I think this would be a good starting point for other associations. If they do not have publications, then they could still recommend the broad guidelines as indicated in point 7 of the guidelines. In fact it would be good to start with point 7 and then if they have publications, then require that they apply to the organizations’ publications.

Economist Bruno Frey (Image by Hannes Röst, via Wikipedia)

For several month, Bruno Frey (University of Zurich) has had to defend himself against accusations of self-plagiarism. Now, several other dodgy cases have been revealed by a website named “FreyPlag Wiki”. I took a close look at the cases and think most of them are justified.

It was a caustic rant against the scientific publication process written by Bruno Frey, an economist with the University of Zurich. According to Frey, the editors and referees of academic journals force researchers to act like prostitutes.

No editor would dare to print this vitriolic criticism, Frey wrote. “This paper will never be published in a (refereed) economics journal”, was the first sentence of the introduction.

In reality, however, Frey managed to get his rant published twice.

In 2003, the article appeared in “Public Choice” entitled “Publishing as Prostitution”. Two years later, the same piece was printed in the “European Journal of Law and Economics” (EJLE). The title (“Problems with Publishing”) and the introduction was slightly different but the biggest part of the text was word-for-word identical.

(A detailed comparision of the complete content of both papers is available here.)

However, there was no reference to the “Public Choice” article in the EJLE.

The background

Publishing a similar academic article two times without cross-references is an academic no go. This conduct is labeled self plagiarism and violates ethical standards that are generally accepted within the scientific community.

Bruno Frey is one of the most internationally renowned German speaking economists. He tops the Handelsblatt ranking of academic economists with regard to the lifetime achievement.

However, for several months Frey’s scientific conducts has been heavily criticised. Several scholars accused him of self-plagiarism. (Here’s a summary.)

The debate was triggered by a series of articles about the sinking of the Titanic published by Frey as well as his co-authors Benno Torgler and David Savage (both: Queensland University of Technology). In 2010 and 2011, Frey, Torgler and Savage published a series of very similar articles in four different academic journals without cross referencing their work. This was a clear violation of the submission guidelines of the affected journals.

After this case was picked up in economic blogs by Andrew Gelman and an anonymous blogger calling himself “Economic Logician”, several affected journals severely criticised Frey. The “Journal of Economic Behavior and Organisation” told Frey that it won’t publish any of his articles anymore.

The “Journal of Economic Perspectives” even took the unusual step and published its communication with Frey in its latest edition.

Among other things, the JEP editor David Autor (MIT) wrote to Frey:

“We view your publication of this substantive material in multiple journals simultaneously as a violation of the spirit of the editorial agreement with American Economic Association that you signed in the winter 2010. (….)

[We] find your conduct in this matter ethically dubious and disrespectful to the American Economic Association, the Journal of Economic Perspectives and the and the JEP ’s readers.”

New evidence collected by internet users on a website called “FreyPlag Wiki” now suggests that the Titanic case by far wasn’t an isolated incident. Apparently, Bruno Frey has repeatedly published very similar articles in different academic journals without citing his other works. Freyplag Wiki lists five suspicious cases. (There is also a link to a backup version of an old Wikipedia entry listing 16 alleged cases. However, I did not have the time to look at them all.)

Over the last days, I took a close look at those papers mentioned on Freyplag Wiki and compared their content meticulously.

From my point of view, three examples lists as “suspicious articles” indeed are very similar to the Titanic case.

One major case (two papers published by Frey and Stephan Meier in 2004 in the American Economic Review and JEBO) probably does not hold the water with regard to self-plagiarism.

However, I had a look at another clear example (papers on World War II)  that has not been added to the list of suspicious publications on the original FreyPlag Wiki. (I wasn’t aware that these papers were already  mentioned in an old Wikipedia entry that is backed up on FreyPlag, though)

Some cases affect Top 5 journals and co-authors that are currently affiliated to leading US faculties. (I discuss every case in detail below.)

For two reasons, the new evidence is potentially explosive.

Firstly, the University of Zurich has started an investigation of Frey’s conduct after my reports here and in Handelsblatt. External experts are having a look at the Titanic case. The names of those experts are secret and I have no clue who was asked. However, I was assured that those researchers were truly independent and not linked to Frey whatsoever.

Secondly, the new examples contradict Bruno Frey’s previous arguments. In an interview with the Zurich daily “20 Minutes” in July, Frey argued that the omission of the cross-references in the Titanic-papers were accidental misfortune. Asked why he did not cite himself, he answered:

“Because I just overlooked it. My two coauthors and I wanted to reach the broadest possible audience. Hence, we published our research on the Titanic in four different journals. While doing this, I lost track. (…) We went through a long production process, and in life, you sometimes just make mistakes.”

Additionally, he and Benno Torger replied to David Autor:

“we well understand your very serious complaint and we both agree that you are right. It was a grave mistake on our part for which we deeply apologize. It should never have happened. This is deplorable.”

However, the new evidence which shows that Frey apparently frequently published the same research findings several times makes his way of reasoning very hard to believe. Additionally, his profuse apologies to the journals affected in the Titanic case appear very shallow, from my point of view.

The most blatant cases of self-plagiarism both affect the “European Journal of Law and Economics” (EJLE). Twice, Frey published papers containing a number of paragraphs that were word-by-word identical to previously published work but lacks any reference to them.

Ironically, Bruno Frey himself is a member of the editorial board of this journal, and the editor-in-chief is one of this former students, the German economics professor Jürgen Backhaus (University of Erfurt) (Here’s his German Wikipedia entry.)

What follows is a detailed discussion of the individual cases.

“Publishing as Prostitution” (Public Choice, 2003) / “Problems with Publishing” (EJLE, 2005)

This is a single authored paper by Bruno Frey. The abstracts in both journals are completely identical.

The first two sentences of the Public Choice paper are slightly different, but starting with the second paragraphs both articles are almost completely identical:

Public Choice:

“The author knows that, normally, he would be lucky if, after something like a year or so, he gets an invitation to resubmit the paper according to the demands exactly spelled out by the two to three referees and the editor(s).”

EJLE:

“The author knows that if he submitted it, he would be lucky if, after something like a year or so, he got an invitation to resubmit the paper according to the demands exactly spelled out by the two to three referees and the editor(s).”

All chapter headlines are identical, as are most of the subsequent paragraphs. The only additional piece of information the EJLE version offers is a graphical description of an argument that Frey only makes verbally in the Public Choice edition. On the other hand, the EJLE version lacks the lengthy conclusion given in Public Choice.

(A detailed comparison of both papers is available here.)

There is no reference to the Public Choice paper in the EJLE version.

“Are Political Economists Selfish and Indoctrinated?” (Economic Inquiry, 2003) / “Selfish and Indoctrinated Economists?” (EJLE, 2005)

This is a joint paper by Bruno Frey and Stephan Meier, who joined Columbia Business School in 2008.

(Full table is available here.) 

There are slight semantic differences between the abstracts of both articles. For example, the first sentence of the abstract Economic Inquiry says:

“Many people believe that economists in general are more selfish than other people and that this greater selfishness is due to economics education. “

The first sentence of the EJLE version states:

“Most professional economists believe that economists in general are more selfish than other people and that this increased selfishness is due to economics education.”

Apart from one additional sentence in the EJLE, the rest of the abstracts are completely identical. One noteworthy difference between both articles is that the EI version is written in American English (“behavior”), while the EJLE versions was transformed into British English (“behaviour”). There are a number of sections that are almost identical in the main text.

However, again, there is no reference to the EI article in the EJLE. Two related articles using similar data and addressing a different but related research question, that were published by Frey and Meier in 2004 in the “American Economic Review” and the “Journal of Economic Behavior” aren’t cited as well.

The submission guidelines of the EJLE clearly prohibit the submission of articles that were previously published elsewhere. They state:

“Submission of a manuscript implies: that the work described has not been published before; that it is not under consideration for publication anywhere else; that its publication has been approved by all co-authors (…) “

The publisher, Germany’s Springer Verlag, told me that they will investigate the incident

“according to our normal processes, which follow COPE guidelines”.

“COPE” stands for the “Committee of Publication Ethics” and is an interdisciplinary forum “for editors and publishers of peer-reviewed journals to discuss all aspects of publication ethics”.

Their procedures regarding “redundant publications” are rather straightforward: redundant articles should be retracted. The COPE “Retraction Guidelines” state (among other things):

“If redundant publication has occurred (i.e. authors have published the same data or article in more than one journal without appropriate justification, permission or crossreferencing) the journal that first published the article may issue a notice of redundant publication but should not retract the article unless the findings are unreliable.

Any journals that subsequently publish a redundant article should retract it and state the reason for the retraction.”

However, when I talked to Jürgen Backhaus on Sunday, the editor-in-chief was strongly backing Bruno Frey. Backhaus argued that Frey is known for his new and unconventional ideas. According to Backhaus, it was necessary to repeat them again and again to get them through to a reluctant audience. Backhaus told me:

“It is well known in the profession that Bruno Frey works like this.”

He said that it was an honour to be able to publish an article by Frey:

“He is an internationally renown academic who is a candidate for the Nobel prize.”

According to Backhaus, publishing an article by Frey enhances the attention for other articles in the journal. I asked him how he would explain to a PhD student that the official submission guidelines of the journals apparently are not applicable to Frey. His answer was:

“Bruno Frey is a trademark. The PhD student still has to build one.”

I was really stunned by these remarks. I emailed those quotes (in German) to Backhaus prior to publication. He confirmed that I quote him correctly. (Translations from German into English were done by me, however.)

(There is a particular irony in the statement by Backhaus, by the way. Frey accused me in his “20 Minutes” interview of exaggerating his academic achievements because I described him as an economic bigshot. Frey: “This exaggeration was necessary for making the article relevant.” Now, Backhaus defends Frey with the argument that he is such a great economist…)

From my personal point of view, this stance is completely unacceptable.

If the EJLE wants to retain any credibility and if Springer takes the COPE guidelines seriously, they won’t have any choice but to officially retract both articles. Additionally, I don’t see how Frey can stay on the editorial board of a journal which submission guidelines he repeatedly has clearly violated.

 “History as Reflected in Capital Markets: The Case of World War II” (The Journal of Economic History, 2000) / “World War II as reflected on capital markets” (Economics Letters, 2000)

These are joint papers by Bruno Frey and Marcel Kucher, who apparently has left academia. This example has not yet been entered to FreyPlag Wiki. I found it accidentally when I had a look at Frey’s publication record.

Both papers discuss exactly the same research question, use the same data and methodology and come to the same conclusion. However, there are no cross-references. The Economics Letters version seems to be a briefer and more concise version of the article published in the “Journal of Economic History”.

Plenty of paragraphs are very similar, as you can see in this table.  Here’s one example:

Journal of Economic History:

“As can be seen in Figure 1, there is a strong downturn in the index of all government bonds traded in Switzerland from late 1933 up to the outbreak of World War II. During the war, the index remained relatively stable at around 40 percent of par. One interesting feature is the peak in mid-1944, just about when Allied forces invaded Normandy.”

Economics Letters:

“Fig. 1 shows a strong downturn in the market index before the outbreak of WWII. During the war, the index remained stable at around 40 percent of par. One interesting feature is the peak in 1944, just about the time when the allied forces invaded Normandy.”

“Economics Letters” is published by Elsevier, which asserts in its ethical guidelines:

 “An author should not in general publish manuscripts describing essentially the same research in more than one journal or primary publication. Submitting the same manuscript to more than one journal concurrently constitutes unethical publishing behavior and is unacceptable. “

The submission guidelines of the “Journal of Economic History” state:

“Articles on economic history and related aspects of history or economics will be considered for publication by the Editors on the understanding that the articles have not previously been published and are not under consideration elsewhere.”

Update: According to an old Wikipedia entry on alleged cases of self-plagiarism by Frey, similar papers were also published 1999 in Empirica (“Asset Prices and History: The Case of Austria”) and in Economics in 2001 (“Wars and Markets: How Bond Values Reflect the Second World War“). The entry states that the cross references are also missing.  Please be aware that I did not double-check this claim. I wasn’t aware of this old Wikipeda entry when I compared the papers and wrote the first version of this  post.

“The Old Lady Visits Your Backyard: A Tale of Morals and Markets” (Journal of Political Economy, 1996) / “The Cost of Price Incentives: An Empirical Analysis of Motivation Crowding- Out” (American Ecnomic Review, 1997)

From an American perspective, this is potentially the most interesting case, because it affects two Top 5 journals as well as a co-author who is affiliated with Harvard Business School – Felix Oberholzer-Gee. (Coincidentally, Oberholzer-Gee was involved in another quarrel about a very controversial paper made public by my colleague Norbert Häring a few years ago that also involved Steven Levitt.)

However, this case is more complicated than the previous three examples. Without any question, both articles address a similar research question, apparently use the same data and do not cite each other.

Both papers deal with a problem called “Not In My Backyard” (NIMBY): Facilities that are deemed socially necessary or useful but meet strong local resistance in the regions where they are supposed to be build. Examples are high security prisons, power plants or airports. Frey and his co-authors investigate empirically if this resistance can be overcome by monetary compensation.

(The full table is available here.)

At the core of both papers is data collected in 305 in-person interviews in rural Switerland in an area taken into consideration for a nuclear waste facility.

 Freyplag Wiki lists eight sections that are more or less identical in both papers. I double-checked  and can confirm them all.

However, several things are pretty strange. First of all, the JPE paper (published in December 1996 ) lists three authos (Bruno Frey, Felix Oberholzer-Gee and Reiner Eichenberger) while the AER paper only lists Frey and Oberholzer-Gee.

The results of the interviews are exactly similar in both papers. For example, both papers state that 50.8 percent of the of the citizens living in the host community indicated that they would support this siting decision.

(Interestingly, this result is framed differently in both articles. In the JPE it is described as “a bare majority”, while in the AER it is describes more positively as “more than half of the respondents”.)

Additionally, several survey questions are identical in both papers.

For example, the JPE states:

“To test our hypotheses, we repeated the exact same question, asking our respondents whether they were willing to accept the construction of a nuclear waste repository if the Swiss parliament decided to compensate all residents of the host community. The amount offered for the lifetime of the facility was varied from $2,175 per individual and year (N = 117) to $4,350 (N = 102) and $6,525 (N = 86).”

In the AER it reads:

“To test the effect of external compensation, we repeated the exact same question asking our respondents whether they were willing to accept the construction of a nuclear waste repository when the Swiss parliament had decided to compensate all residents of the host community (Question 2, Appendix). The amount offered varied from $2,175 per individual and year (N = 117) to $4,350 (N = 102) and $6,525 (N= 86).”

Strangely enough, however, the survey is described differently in both articles. In the JPE the authors write that the interviews were conducted in June 1993 a in Wolfenschiessen, one of four communities that were under consideration as possible sites. In the AER they claim that the interviews were done in two adjacent communities located in central Switzerland in the Spring of 1993.

Another peculiarity is that the the results of boths papers appear to be contradictory, from my point of view. In the JPE paper (published 10 months earlier) the authors compare the results of their survey (monetary compensation does not resolve the NIMBY problem) with an actual poll in the area that was conducted in 1994.

The region was offered monetary compensation and the project was given a go-ahead by the citizens. The authors develop a theory that tries to explain this observation (that I, frankly, do not fully understand their argument). In the AER paper, however, there is neither a reference to the poll conducted in 1994 nor, as mentioned above, to the JPE paper. Hence, based solely on the survey, this  paper (which was published later) concludes:

“ where public spirit prevails, using price incentives to muster support for the construction of a socially desirable, but locally unwanted, facility comes at a higher price than suggested by standard economic theory because these incentives tend to crowd out civic duty”.

I wrote an email to the current AER editor-in-chief, Pinelopi Koujianou Goldberg with Yale University. This is what she replied:

“As you pointed out, the AER papers were published much before I took over. I am not comfortable commenting on cases I did not handle. This is a very serious matter, and there are people’s professional reputations at stake; I wouldn’t want to pass judgment without carefully reading the papers involved first and without having more context regarding the submissions and decisions. (…)

Regarding your question about our submission guidelines, of course publishing an identical paper in a different journal would violate our guidelines.

But the reason I want to be cautious is that there are many cases that may not be black and white. For example, there may by overlap in the phrasing of particular paragraphs and methods used, but it is possible that two papers address different questions or that their analyses differ in other substantive ways.

Or, sometimes, people submit the first version of a model or the first version of an empirical paper that uses incomplete data to a field journal, and the referees write “This paper would be great if you could extend the analysis in this direction, or if you could provide this additional piece of evidence based on additional data…. With this additional information, the paper would be a good match for a top-five journal, but without it, it is ok for a field journal…”

The authors then go ahead, publish this first version in the field journal, and later on they do the additional analysis suggested by the referees and submit to top journals.  In such cases, there may be great overlap between the two submission, but the authors would not be in violation of our submission guidelines; it is up to the editor to determine whether the new submission makes a significant enough contribution relative to the authors’ earlier work for it to be published.

Still, in these cases I would expect authors to cite their own earlier work – if anything, people tend to self-promote and cite themselves excessively  – it is unusual not to have references to one’s own earlier papers that are related.

Update: I just got a response by Orley Ashenfelter, the current president of the American Economic Association who was the editor-in-chief of the AER when the paper by Frey and Oberholzer-Gee was published. This is what he wrote me:

“When I edited the AER the editorial decision making was decentralized (as I’m sure is the case today). That is, papers were assigned by me as the Editor to a Co-editor for handling and a decision.

I do not recall who handled the paper you note, and I have no access to that information now. (It most likely was not me, based on what the subject matter appears to be. ) The archives of the Review become public after some point in time, but I believe this paper does not yet fall in that window. No doubt the current editor could reveal the co-editor’s name should that be within current editorial guidelines.

On the more general issue, this episode raises a very difficult set of questions about the publication process. Needless to say, as an editorial matter I would have found it inappropriate to publish material that was not original.(Highlighted by me)

Indeed, the Review had then (and no doubt has now) a requirement that copyright for the material in the journal was held by the AEA, so dual publication could, in principle, lead to legal action.

As to the specific case you mention, I have not looked closely enough at the papers in question to form a judgment about the extent of overlap, nor do I have the relevant information to respond to your other questions.”

I also tried to get in touch with all three authors of the JPE paper.

The only one who replied was Reiner Eichenberger, a Professor of Economics at the University of Fribourg in Switzerland. (I also wrote an email to Stephan Meier, who did not reply as well.)

Eichenberger did neither explain why his name was missing on the AER paper nor pointed out if the survey data used in both articles actually was identical and why the survey was described differently in both papers.

However, he stated that both papers were “not identical at all” but in fact were were addressing very different aspects. He argued:

“Another evidence that the articles are very different is that both of them are cited quite often. However, in the 15 years since their publication nobody ever made the slightest suggestion that they were too similar.”

Additionally, he tried to defend the lack of cross references. According to Eichenberger, I have a wrong understanding of the academic publication process. He argues that both articles were part of a broader research agenda and were written at a rather similar point of time.

“When we submitted the papers at the different journals, some of the other articles were not written at all, some were written but not submitted and some were submitted but not accepted. It is well known that the publication process usually takes two to four years. Hence we did not have any opportunity to cite the other papers. At the point of submission, it was just not known where they were going to be published.”

In my personal point of view, for a number of reasons this is a weak argument.

First of all, prior to the final publication the authors usually get a proof of their article and are able to add final changes. Hence, I find it rather unconvincing that the JPE paper was not cited in the AER paper that came out ten months later.

Additionally, if you want you can also cite working papers in Top 5 publications, as the next expample shows.

 “Social Comparisons and Pro-Social Behavior: Testing “Conditional Cooperation” in a Field Experiment” (AER 2004) / “Pro-social behavior in a natural setting” (JEBO 2004)

These are again joint papers by Frey and Stephan Meier (Columbia Business School), and they are also listed on FreyPlag Wiki in the section “suspicious publication”.

However, I don’t think this example constitutes another example of self-plagiarism. Hence, these papers should be moved to the section “unfounded suspicions”.

As it is already noted in the Wiki, both paper refer to each other. They don’t cite the final publication (probably due to the restrictions pointed out to my by Reiner Eichenberg earlier) but each list a working paper version of the other article.

Additionally, they are not identical. On the one hand side, both papers do address a similar research question and employ similar data. On the other hand, the AER article adds another very important observation gained in a field experiment. As somebody wrote on the FreyPlag:

“This is of course an interesting extension of the JEBO paper.”

Update: In an earlier version of this post, I erroneously wrote that Reiner Eichenberger is at the University of Lausanne. In fact, however, he is at the University of Fribourg in Switzerland. Apologies!

Update II: In an earlier version I also wrote that I stumbled upon the WW II papers which were not mentioned on FreyPlag Wiki. In fact, I found  them acidentally when I was scrolling through Frey’s literature list. However, I wasn’t aware that this example was already known as well – the WW II incident was mentioned in the old Wikipedia entry that is backed up on FreyPlag Wiki. (I did not have a close look at that list.)  However,  I dont’t want to give the impression that I adron myself with borrowed plumes. Apologies to the guys who compiled the original list on Wikipedia!

Bruno Frey (Foto: Hannes Röst, Image via Wikipedia)

As I’ve written here before, the Swiss economist Bruno Frey (University of Zurich) and this coauthors Benno Torgler and David Savage (both: Queensland University of Technology) are under pressure because they are facing allegations of self-plagiarism.

They published nearly identical papers at the same time in four different academic journals.  (A comparison of the papers is available here)

The authors did not cite their other work on the same issue, and they did not include references to older articles on the same topic, as well. (A summary of the Bruno Frey affair is available here.)

One of the affected journals was the Journal of Economic Perspectives (JEP), which is being published by the American Economic Association.

Last night the Summer 2011 edition of the journal has been published. As the editor, David Autor, told me  earlier, the correspondence with Bruno Frey is made public in that edition. Autor’s letter to Frey, Torgler and Savage as well as Frey’s answer are available on pages 239 and 240.

They make a pretty remarkable read. Autor did not mince his word whatsoever.

- on the similarity of the four papers:

“There is very substantial overlap between these  articles and your articles and your JEP publication. Indeed, to my eye, they are substantively identical.”

- on the missing cross-references:

” Further obscuring the links among these articles is the fact that none of your four articles cites any of the other three. Had you chosen to inform us of the inform us of the JEBO and and R&S articles prior to the publication of your publication of your JEP article, we would of course have no grounds for complaint. In that case, however, we would not have published your article. (highlighted by me)

- on his opinion about the conduct:

“We view your publication of this substantive material in multiple journals simultaneously as a violation of the spirit of the editorial agreement with American Economic Association that you signed in the winter 2010. (….)

[W] find your conduct in this matter ethically dubious and disrespectful to the American Economic Association, the Journal of Economic Perspectives and the and the JEP ’s readers.”

Bruno Frey’s response, which is also published, was slightly more subdued than his public defense:

“I have forwarded the letter to Benno Torgler and we well understand your very serious complaint and we both agree that you are right. It was a grave mistake on our part for which we deeply apologize.

It should never have happened. This is deplorable.

We both wish to emphasize that as senior researchers we take full responsibility. David Savage is not responsible for our mistake. Please be assured that we take all precautions and measures that this unfortunate event does not happen again, with any journal.”

Gosh, these are the kind of letters you never want to have to write, to say the least.

.

Economists from all over the world want to reshape their discipline. They have founded the World Economics Association – and are almost overwhelmed by people wanting to join

The revolution was running late. For months, 141 economists from all over the world had prepared the foundation of the “World Economics Association” (WEA). Their goal is to turn the profession  inside out. However, a technical glitch at the online payment service Paypal delayed the project. Eventually, on Monday 16, the first “truly international and pluralist” association for economists was in operational mode.

From the day it went public, the association was flooded with membership requests from all over the world. More than 3,600 economists from 110 countries joined in the first 10 days. “This is more than we had expected”, says the father of the WEA, the British economist Edward Fullbrook.

The new association already has roughly as many members as the German Verein für Socialpolitik or the Royal Economic Society (RES) in Britain.

The WEA is pushing for a renewal of economics in content and methodology. Mainstream economics has been widely criticised after the outbreak of the financial crisis for being blind to what is going on in the real world and not being helpful for practical policy. For instance, noble laureate Paul Krugman argued in the New York Times Magazine:

“The economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth.”

In their manifesto, the WEA makes a similar point:

“The Association accepts the public perception that competence levels in segments of the economics profession were found wanting by recent events.”

In the future, the profession should  ”better serve society”, they urge. This is not the first initiative that wants to modernize economics, though. The Institute for New Economic Thinking (INET), which was founded last year with a million-dollar-donation by Hedge-fund manager George Soros, has similar goals. Says Robert Johnson, executive director of Inet:

“I believe that the same kind of energy that inspired the formation of Inet is embodied in the drive to create the WEA. In that sense we are natural partners. I can see lots of complementary potential.”

Johnson personally has already joined WEA and adds:

“I admire many of the people who started it.”

So far, however, WEA is keeping its distance from INET and is stressing its independence. Says Fulbrook:

“We want the organizational structure and the direction of the association to remain as open as possible, to allow members to co-determine this direction. This is also why we stress independence and have not sought large-scale funding from institutions or foundations, including INET. This does not preclude the possibility that WEA will at some point cooperate with national or regional economic associations or accept funding from certain foundations or organizations. There exist no concrete plans in this direction, though.”

Joining the WEA is  free, but the organisation asks its members to donate money. So far, around $14.000 have been donated.  Fullbrook:

“For the tasks that await in the foreseeable future, notably establishing the infrastructure for journals and conferences, the donations that we have received from new members in the first week are already sufficient.”

Among the founding members are Harvard-Professor Dani Rodrik and James Galbraith from the University of Austin, Texas, Nomura Chief-Economist Richard Koo and Norbert Häring, a journalist working for Germany’s business daily Handelsblatt. Many of the organizers around Fullbrook come from the “post-autistic-economics” camp. This movement has been criticising mainstream economics for years as out of touch with reality and single-minded.

The establishment of the WEA is an attack on the dominance of the American Economic Association (AEA), founded in 1885. AEA has a global membership of 18,000, publishes influential professional journals and its annual meetings are the most important economic conferences worldwide. INET CEO Robert Johnson puts it this way:

“The  AEA reflects the historic leadership in economics of the USA. Many economists from other regions have been educated in the USA. So I would say that this is not pluralist in the sense that the many alternative disciplines within economics are drastically underrepresented, for example the history of economic thought, economic history and schools that explore non equilibrium or institutional economics”.

Richard Baldwin, Professor of International Economics at the Graduate Institute and Policy Director of CEPR,  shares this judgement.

”US-domination is  taking the profession in an unhelpful direction”.

To ameliorate this situation, the WEA wants to publish two new professional journals, the World Economics Journal and Economic Thought. These journals are supposed to be open for all fields of research and all approaches.As is customary with established journals, WEA promises strict quality control of papers before they are published. In contrast to what is currently the norm, WEA propagates an open and transparent selection of papers.

All members of the organization are invited to discuss the papers together with experts of the respective fields.Established journals let referees work anonymously and stay in the background. Critics argue that this form of “peer-review” stands in the way of scientific progress.

 Richard Baldwin also complains about an “over emphasis on publication in the best journals”. According to him, the profession gives too much weight to referees “that have a stake in preventing old papers from being challenged”.

Despite all the arguments that can be raised in favor, established economists are sceptical of the WEA. “I am not sure we need something like that”, says Lars Hendrik Röller, President of the German economists’ association Verein für Socialpolitik. “The established association are no closed shops. They are open for all economists. Many German economists are members of the AEA, for example.”

Richard Baldwin is also rather critical:

“These guys are probably exactly the wrong ones to make the change stick.”.

He advocates two ways for achieving that. Firstly, economists should “produce policy relevant research that wins the attention of policy makers” , secondly they should “win the backing of the old guard.” Baldwin: “Setting up an alternative journal run by alternative types will attract a very low quality of work which will very soon start a downward spiral of quality of submissions and reputation.”

At the moment, the  AEA is trying to ignore the new competitor. Says AEA-President Orley Ashenfelter from Princeton:

“I am afraid I do not know enough about the organization or issues related to it to comment,”

Related articles

• Does the American Economic Association finally get a competitor? (olafstorbeck.com)
• Formation of the World Economics Association (WEA) a positive outcome from the Global Financial Crisis (GFC) (wileyeconomicsfocus.wordpress.com)
• Consider Joining the WEA(coordinationproblem.org)
  
  

In its manifesto, the WEA commits itself to eight principles.

The first and foremost one is plurality:

The Association will encourage the free exploration of economic reality from any perspective that adds to the sum of our understanding. To this end it advocates plurality of thought, method and philosophy.

They also do something that is frowned upon by many mainstream economists. The make (can you believe it?) an explicit reference to the real life:

The Association will promote economics’ engagement with the real world so as to confront, explain, and make tractable economic phenomena. In this context it will also encourage economics to give active consideration to its history, its methodology, its philosophy and its ethics.

The most important founding father is Edward Fullbrook, an economists affiliated with the University of the West of England and the editor of the “Real World Economics Review“. This is an online journal promoting non-mainstream economics.

However, there are only a few famous names among the founding members.  Robert Skidelsky, the famous biographer of Keynes, backs the WEA as well as James Galbraith, Dani Rodrik and Deirdre McCloskey. (Another initiator is my colleague Norbert Häring, monetary correspondent with Germany’s business daily Handelsblatt and my “Economics 2.0″-co-author.)

The WEA intends to hold two online conferences a year and plans publish two new quarterly journals named “The World Economics Journal” and “Economic Thought”. Both will use a different kind of peer review system (“open peer review“)  which is supposed to be more transparent than the current system which has been criticised for its lack of accountability. Every new paper will be published in a discussion forum with the name of the author. Any member of the WEA is able to post a comment. Additionally, experts in the field will be asked for their view. What follows is an open discussion between the authors and the commentators.

The establishment of the WEA is an attempt to break up the monopoly of the “American Economic Association” which was founded 126 years ago and currently has 18.000 members. Despite its name, the AEA currently is the most important professional organisation in the discipline. It publishes seven influential academic journals. Their flagship publication, the “American Economic Review” recently celebrated its 100. anniversary and one of the most renowned and influential publications in economics. On top of that, the annual meeting of the AEA is globally the biggest conference of academic economists.

However, the AEA is a deeply American organisation. Its presidents and all important officers teach at American universities. Economists from abroad often complain that it is very difficult to publish empirical papers using non-american data in the AER (although in recent years, the number of those kind of papers may has increased).  The AER also is strongly in favour of a special kind of mathematical economics, as their list of the 20 most important papers of the last century reveals. As I’ve written in February:

The vast majority of the Top 20 papers are dealing with theoretical models in which rational agents are maximizing their utility and which have a stable equilibrium. This kind of economics has recently been subject to growing criticism from within the discipline. Apart form one exception (Robert Shiller’s  paper on financial markets) no behavioural paper has made it to the list, and experimental economics officially does not exist at all.

Without an explicit reference to the AEA, the WEA manifesto addresses the issue of American dominance in economics. The founders claim:

The Association will be democratically structured so as not to allow its domination by one country or one continent.

So what is my personal opinion with regard to the WEA?

In general, I see their aims with a lot of sympathy. I’m convinced that mainstream economics urgently needs a renewal. Major parts of the discipline, especially in macro economics, have become detached from reality. The current system of peer review has major weaknesses and needs an overhaul. The open peer review the WEA is going to promote is leading the way.

However, the WEA has a very long way to go until it will become a serious challenge for the AEA. The foundation of the “European Economic Association” in the 1980s has shown how extremely difficult it is to establish a new professional organisation  in economics. Even today, compared to the AEA the EEA is a dwarf although the most renowned and influential economists in Europe are supporting the EEA.

Another obstacle is that annual meetings of the AEA are the most important labour market for young economists. Even good european universities try to recruit their assistant professors there. In contrast to that, the WEA currently only intends to organise online conferences.

I’m not sure if this is really the best way to challenge the AEA.

A better idea might be to team up with the Institute for New Economic Thinking (INET), which is generously funded by George Soros and organises a physical conference once a year and attracts an amazing number of economic nobel laureates and famous economists. However, one might argue against this idea that the INET is not a truly independent organisation because it gets its money from one of the most famous hedge fund managers who might have a hidden agenda.

Another difficulty the WEA has to overcome is that at least currently a lot of its supporters are hailing from a small community of economists that labels itself as “heterodox” or even “post-autistic”.  The “Real-World Economics Review” used to be named the “Post-Autistic Economics Review”. In their first issue in September 2000, the journal boldly said it intends to “link people wishing to bring sanity, humanity and science back to economics”.

This  implied that the rest of the discipline was autistic, insane, inhumane and unscientific. Small wonder that this view offended a lot of other economists. In 2010, on the annual meeting of the AEA in Atlanta, I attended a session which was organised by heterodox economists and was truly shocked about the “us versus them” attitude.

If the WEA really wants to live up to its manifesto, it has to overcome this mindset.

Update: In an ealier version of this post I wrote that the WEA was founded today, as they’ve claimed on their website. After publishing the post I learned that due to some technical issues with Paypal,  the official launch of the new association has been slightly delayed.

Update II: Now, the official email regarding the WEA has been sent. The number of economists supporting the organisation actually is 141, and they hail from 40 different countries.

Update III: According to the “Real World Economics Review Blog” the launch committee for the WEA “had been hoping to recruit 1000 members during the first 24 hours after launch.  Instead, after 24 hours 1396 people had registered. “

Update IV: I’ve written a second article with quotes  from some mainstream economists on the WEA:  “Economists of the World, Unite! You have nothing to lose but your models”.

 

A woman sits at the doorstep of her shack in a slum area of Bangkok, Thailand.

French economist Esther Duflo thinks poverty can be alleviated or even eradicated with the right policies. All it takes is for politicians to “translate research into action”, implementing programmes that have been shown to work.

But that is easier said than done. Duflo, who last year won the American Economic Association‘s prestigious John Bates Clark Medal, acknowledges that it is sometimes frustrating to get policy-makers to apply the results of research that could improve people’s lives. Sometimes they do not know the evidence and so cannot take the right approach, she says.

This month Duflo’s new book, Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty, will once more turn the spotlight on actions to tackle poverty. The book, co-authored with Abhijit Banerjee, aims to make 2011 the year that the “economics of poverty” become a key part of international political discussions.

“Fundamentally, I think it is a subject that people are interested in,” Duflo told IPS. “The differences in income between the poor world and the rich world are so great that people have to be interested.”

Duflo, 38, who is a professor at the Massachusetts Institute of Technology (MIT) and who often lectures in France as well, is credited with making development economics “chic”, according to some French reviewers.

Doing her PhD at MIT, she was one of the first doctoral students to apply economics to development, linking the two, at a time when there were few university faculties devoted to the subject.

“It was not considered a fancy area of study,” she says. “There was a generation of people who had started looking at development from other fields. They had their own theories and only a few were economists. What I contributed to doing was to start going into detail. But I did have some advisers and mentors.”

Duflo’s role in the field has been to use research to show which programmes are the most effective in combating poverty. According to MIT, her work “uses randomised field experiments to identify highly specific programmes that can alleviate poverty, ranging from low-cost medical treatments to innovative education programmes”.

Duflo is also a director of MIT’s Abdul Latif Jameel Poverty Action Lab (J-PAL), an organisation she co-founded in 2003 with Banerjee, MIT’s Ford International professor of economics, and Sendhil Mullainathan, an economist who now teaches at Harvard University.

In a landmark study, Duflo, with Banerjee and Rachel Glennerster, executive director of J-PAL, discovered that the rate at which families in northern India will immunise their children jumps from about 5% to nearly 40% when parents are offered a small bag of lentils as an incentive.

J-PAL’s researchers do scientific studies in various countries, working with national governments as well as NGOs to implement programmes to eliminate poverty, says Helene Giacobino, the general director of J-PAL Europe. “Much of our work is to evaluate the different policies or programmes against poverty and to see the impact and effectiveness,” Giacobino told IPS.

Since 2003, more than 235 evaluations have been carried out in 38 different countries, examining unemployment, absenteeism in education, social programmes and other issues. Many of the evaluations are long-term studies, lasting up to three years or more. In Kenya, for instance, J-PAL’s researchers found that school absenteeism was linked to intestinal worms. When de-worming pills were administered to children, researchers found that absenteeism was reduced by 25%.

Since then, the Bill Gates Foundation has supported a programme to provide de-worming medicine to those who need it, and J-PAL helped to start Deworm the World, a non-profit group that helped the Kenyan government treat 3.6 million children in 2009, according to MIT.

In another investigation on the use of mosquito nets in Africa, the J-PAL affiliated researcher Pascaline Dupas showed that people who were given free nets used them just as much as those who bought them. The findings debunked the myth that people who get things for free do not appreciate or utilise them.

“This showed that it was better to hand out nets freely to people so as to prevent malaria,” said Duflo. “It’s a way of helping those who couldn’t afford to buy them anyway.”

According to many of her colleagues, Duflo brings “something new” to the field of development. “She’s totally involved, and she contributes to making a change in the world,” Giacobino said.

Duflo herself says that she is motivated by the example of her mother, a doctor who used to travel to developing countries to help victims of war. “I was always interested in these questions of ‘is there something that can be done to help the lives of the poor’,” Duflo said. “I realised that economics was a good angle even if it seems a little remote.”

She said that with the new book and J-PAL, she and her colleagues “hope to try to improve policies that affect the lives of the poor, leading to better health, education, and access to finance”.

Fighting poverty with economics | Global development | guardian.co.uk.

Related Articles

• Behavioural Economics & Data Driven Ways to Solve Poverty (compassioninpolitics.wordpress.com)

• The Federal Reserve, through its extensive network of consultants, visiting scholars, alumni and staff economists, so thoroughly dominates the field of economics that real criticism of the central bank has become a career liability for members of the profession, an investigation by the Huffington Post has found.

• This dominance helps explain how, even after the Fed failed to foresee the greatest economic collapse since the Great Depression, the central bank has largely escaped criticism from academic economists. In the Fed’s thrall, the economists missed it, too.

One critical way the Fed exerts control on academic economists is through its relationships with the field’s gatekeepers. For instance, at the Journal of Monetary Economics, a must-publish venue for rising economists, more than half of the editorial board members are currently on the Fed payroll — and the rest have been in the past.

The Fed failed to see the housing bubble as it happened, insisting that the rise in housing prices was normal. In 2004, after “flipping” had become a term cops and janitors were using to describe the way to get rich in real estate, then-Federal Reserve Chairman Alan Greenspan said that “a national severe price distortion [is] most unlikely.” A year later, current Chairman Ben Bernanke said that the boom “largely reflect strong economic fundamentals.”

The Fed also failed to sufficiently regulate major financial institutions, with Greenspan — and the dominant economists — believing that the banks would regulate themselves in their own self-interest.

Despite all this, Bernanke has been nominated for a second term by President Obama.

In the field of economics, the chairman remains a much-heralded figure, lauded for reaction to a crisis generated, in the first place, by the Fed itself. Congress is even considering legislation to greatly expand the powers of the Fed to systemically regulate the financial industry.

Paul Krugman, in Sunday’s New York Times magazine, did his own autopsy of economics, asking “How Did Economists Get It So Wrong?” Krugman concludes that “[e]conomics, as a field, got in trouble because economists were seduced by the vision of a perfect, frictionless market system.”

So who seduced them?

The Fed did it.

Three Decades of Domination

The Fed has been dominating the profession for about three decades. “For the economics profession that came out of the [second world] war, the Federal Reserve was not a very important place as far as they were concerned, and their views on monetary policy were not framed by a working relationship with the Federal Reserve. So I would date it to maybe the mid-1970s,” says University of Texas economics professor – and Fed critic – James Galbraith. “The generation that I grew up under, which included both Milton Friedman on the right and Jim Tobin on the left, were independent of the Fed. They sent students to the Fed and they influenced the Fed, but there wasn’t a culture of consulting, and it wasn’t the same vast network of professional economists working there.”

But by 1993, when former Fed Chairman Greenspan provided the House banking committee with a breakdown of the number of economists on contract or employed by the Fed, he reported that 189 worked for the board itself and another 171 for the various regional banks. Adding in statisticians, support staff and “officers” — who are generally also economists — the total number came to 730. And then there were the contracts. Over a three-year period ending in October 1994, the Fed awarded 305 contracts to 209 professors worth a total of $3 million.

Just how dominant is the Fed today?

The Federal Reserve’s Board of Governors employs 220 PhD economists and a host of researchers and support staff, according to a Fed spokeswoman. The 12 regional banks employ scores more. (HuffPost placed calls to them but was unable to get exact numbers.) The Fed also doles out millions of dollars in contracts to economists for consulting assignments, papers, presentations, workshops, and that plum gig known as a “visiting scholarship.” A Fed spokeswoman says that exact figures for the number of economists contracted with weren’t available. But, she says, the Federal Reserve spent $389.2 million in 2008 on “monetary and economic policy,” money spent on analysis, research, data gathering, and studies on market structure; $433 million is budgeted for 2009.

That’s a lot of money for a relatively small number of economists. According to the American Economic Association, a total of only 487 economists list “monetary policy, central banking, and the supply of money and credit,” as either their primary or secondary specialty; 310 list “money and interest rates”; and 244 list “macroeconomic policy formation [and] aspects of public finance and general policy.” The National Association of Business Economists tells HuffPost that 611 of its roughly 2,400 members are part of their “Financial Roundtable,” the closest way they can approximate a focus on monetary policy and central banking.

Robert Auerbach, a former investigator with the House banking committee, spent years looking into the workings of the Fed and published much of what he found in the 2008 book, “Deception
and Abuse at the Fed“. A chapter in that book, excerpted here, provided the impetus for this investigation.

Auerbach found that in 1992, roughly 968 members of the AEA designated “domestic monetary and financial theory and institutions” as their primary field, and 717 designated it as their secondary field. Combining his numbers with the current ones from the AEA and NABE, it’s fair to conclude that there are something like 1,000 to 1,500 monetary economists working across the country. Add up the 220 economist jobs at the Board of Governors along with regional bank hires and contracted economists, and the Fed employs or contracts with easily 500 economists at any given time. Add in those who have previously worked for the Fed — or who hope to one day soon — and you’ve accounted for a very significant majority of the field.

Auerbach concludes that the “problems associated with the Fed’s employing or contracting with large numbers of economists” arise “when these economists testify as witnesses at legislative hearings or as experts at judicial proceedings, and when they publish their research and views on Fed policies, including in Fed publications.”

Gatekeepers On The Payroll

The Fed keeps many of the influential editors of prominent academic journals on its payroll. It is common for a journal editor to review submissions dealing with Fed policy while also taking the bank’s money. A HuffPost review of seven top journals found that 84 of the 190 editorial board members were affiliated with the Federal Reserve in one way or another.

“Try to publish an article critical of the Fed with an editor who works for the Fed,” says Galbraith. And the journals, in turn, determine which economists get tenure and what ideas are considered respectable.

The pharmaceutical industry has similarly worked to control key medical journals, but that involves several companies. In the field of economics, it’s just the Fed.

Being on the Fed payroll isn’t just about the money, either. A relationship with the Fed carries prestige; invitations to Fed conferences and offers of visiting scholarships with the bank signal a rising star or an economist who has arrived.

Affiliations with the Fed have become the oxygen of academic life for monetary economists. “It’s very important, if you are tenure track and don’t have tenure, to show that you are valued by the Federal Reserve,” says Jane D’Arista, a Fed critic and an economist with the Political Economy Research Institute at the University of Massachusetts, Amherst.

Robert King, editor in chief of the Journal of Monetary Economics and a visiting scholar at the Richmond Federal Reserve Bank, dismisses the notion that his journal was influenced by its Fed connections. “I think that the suggestion is a silly one, based on my own experience at least,” he wrote in an e-mail. (His full response is at the bottom.)

Galbraith, a Fed critic, has seen the Fed’s influence on academia first hand. He and co-authors Olivier Giovannoni and Ann Russo found that in the year before a presidential election, there is a significantly tighter monetary policy coming from the Fed if a Democrat is in office and a significantly looser policy if a Republican is in office. The effects are both statistically significant, allowing for controls, and economically important.

They submitted a paper with their findings to the Review of Economics and Statistics in 2008, but the paper was rejected. “The editor assigned to it turned out to be a fellow at the Fed and that was after I requested that it not be assigned to someone affiliated with the Fed,” Galbraith says.

Publishing in top journals is, like in any discipline, the key to getting tenure. Indeed, pursuing tenure ironically requires a kind of fealty to the dominant economic ideology that is the precise opposite of the purpose of tenure, which is to protect academics who present oppositional perspectives.

And while most academic disciplines and top-tier journals are controlled by some defining paradigm, in an academic field like poetry, that situation can do no harm other than to, perhaps, a forest of trees. Economics, unfortunately, collides with reality — as it did with the Fed’s incorrect reading of the housing bubble and failure to regulate financial institutions. Neither was a matter of incompetence, but both resulted from the Fed’s unchallenged assumptions about the way the market worked.

Even the late Milton Friedman, whose monetary economic theories heavily influenced Greenspan, was concerned about the stifled nature of the debate. Friedman, in a 1993 letter to Auerbach that the author quotes in his book, argued that the Fed practice was harming objectivity: “I cannot disagree with you that having something like 500 economists is extremely unhealthy. As you say, it is not conducive to independent, objective research. You and I know there has been censorship of the material published. Equally important, the location of the economists in the Federal Reserve has had a significant influence on the kind of research they do, biasing that research toward noncontroversial technical papers on method as opposed to substantive papers on policy and results,” Friedman wrote.

Greenspan told Congress in October 2008 that he was in a state of “shocked disbelief” and that the “whole intellectual edifice” had “collapsed.” House Committee on Oversight and Government Reform Chairman Henry Waxman (D-Calif.) followed up: “In other words, you found that your view of the world, your ideology, was not right, it was not working.”

“Absolutely, precisely,” Greenspan replied. “You know, that’s precisely the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well.”

But, if the intellectual edifice has collapsed, the intellectual infrastructure remains in place. The same economists who provided Greenspan his “very considerable evidence” are still running the journals and still analyzing the world using the same models that were incapable of seeing the credit boom and the coming collapse.

Rosner, the Wall Street analyst who foresaw the crash, says that the Fed’s ideological dominance of the journals hampered his attempt to warn his colleagues about what was to come. Rosner wrote a strikingly prescient paper in 2001 arguing that relaxed lending standards and other factors would lead to a boom in housing prices over the next several years, but that the growth would be highly susceptible to an economic disruption because it was fundamentally unsound.

He expanded on those ideas over the next few years, connecting the dots and concluding that the coming housing collapse would wreak havoc on the collateralized debt obligation (CDO) and mortgage backed securities (MBS) markets, which would have a ripple effect on the rest of the economy. That, of course, is exactly what happened and it took the Fed and the economics field completely by surprise.

“What you’re doing is, actually, in order to get published, having to whittle down or narrow what might otherwise be oppositional or expansionary views,” says Rosner. “The only way you can actually get in a journal is by subscribing to the views of one of the journals.”

When Rosner was casting his paper on CDOs and MBSs about, he knew he needed an academic economist to co-author the paper for a journal to consider it. Seven economists turned him down.

“You don’t believe that markets are efficient?” he says they asked, telling him the paper was “outside the bounds” of what could be published. “I would say ‘Markets are efficient when there’s equal access to information, but that doesn’t exist,’” he recalls.

The CDO and MBS markets froze because, as the housing market crashed, buyers didn’t trust that they had reliable information about them — precisely the case Rosner had been making.

He eventually found a co-author, Joseph Mason, an associate Professor of Finance at Drexel University LeBow College of Business, a senior fellow at the Wharton School, and a visiting scholar at the Federal Deposit Insurance Corporation. But the pair could only land their papers with the conservative Hudson Institute. In February 2007, they published a paper called “How Resilient Are Mortgage Backed Securities to Collateralized Debt Obligation Market Disruptions?” and in May posted another, “How Misapplied Bond Ratings Cause Mortgage Backed Securities and Collateralized Debt Obligation Market Disruptions.”

Together, the two papers offer a better analysis of what led to the crash than the economic journals have managed to put together – and they were published by a non-PhD before the crisis.

Not As Simple As A Pay-Off

Economist Rob Johnson serves on the UN Commission of Experts on Finance and International Monetary Reform and was a top economist on the Senate banking committee under both a Democratic and Republican chairman. He says that the consulting gigs shouldn’t be looked at “like it’s a payoff, like money. I think it’s more being one of, part of, a club — being respected, invited to the conferences, have a hearing with the chairman, having all the prestige dimensions, as much as a paycheck.”

The Fed’s hiring of so many economists can be looked at in several ways, Johnson says, because the institution does, of course, need talented analysts. “You can look at it from a telescope, either direction. One, you can say well they’re reaching out, they’ve got a big budget and what they’re doing, I’d say, is canvassing as broad a range of talent,” he says. “You might call that the ‘healthy hypothesis.’”

The other hypothesis, he says, “is that they’re essentially using taxpayer money to wrap their arms around everybody that’s a critic and therefore muffle or silence the debate. And I would say that probably both dimensions are operative, in reality.”

To get a mainstream take, HuffPost called monetary economists at random from the list as members of the AEA. “I think there is a pretty good number of professors of economics who want a very limited use of monetary policy and I don’t think that that necessarily has a negative impact on their careers,” said Ahmed Ehsan, reached at the economics department at James Madison University. “It’s quite possible that if they have some new ideas, that might be attractive to the Federal Reserve.”

Ehsan, reflecting on his own career and those of his students, allowed that there is, in fact, something to what the Fed critics are saying. “I don’t think [the Fed has too much influence], but then my area is monetary economics and I know my own professors, who were really well known when I was at Michigan State, my adviser, he ended up at the St. Louis Fed,” he recalls. “He did lots of work. He was a product of the time…so there is some evidence, but it’s not an overwhelming thing.”

There’s definitely prestige in spending a few years at the Fed that can give a boost to an academic career, he added. “It’s one of the better career moves for lots of undergraduate students. It’s very competitive.”

Press officers for the Federal Reserve’s board of governors provided some background information for this article, but declined to make anyone available to comment on its substance.

The Fed’s Intolerance For Dissent

When dissent has arisen, the Fed has dealt with it like any other institution that cherishes homogeneity.

Take the case of Alan Blinder. Though he’s squarely within the mainstream and considered one of the great economic minds of his generation, he lasted a mere year and a half as vice chairman of the Fed, leaving in January 1996.

Rob Johnson, who watched the Blinder ordeal, says Blinder made the mistake of behaving as if the Fed was a place where competing ideas and assumptions were debated. “Sociologically, what was happening was the Fed staff was really afraid of Blinder. At some level, as an applied empirical economist, Alan Blinder is really brilliant,” says Johnson.

In closed-door meetings, Blinder did what so few do: challenged assumptions. “The Fed staff would come out and their ritual is: Greenspan has kind of told them what to conclude and they produce studies in which they conclude this. And Blinder treated it more like an open academic debate when he first got there and he’d come out and say, ‘Well, that’s not true. If you change this assumption and change this assumption and use this kind of assumption you get a completely different result.’ And it just created a stir inside–it was sort of like the whole pipeline of Greenspan-arriving-at-decisions was
disrupted.”

It didn’t sit well with Greenspan or his staff. “A lot of senior staff…were pissed off about Blinder — how should we say? — not playing by the customs that they were accustomed to,” Johnson says.

And celebrity is no shield against Fed excommunication. Paul Krugman, in fact, has gotten rough treatment. “I’ve been blackballed from the Fed summer conference at Jackson Hole, which I used to be a regular at, ever since I criticized him,” Krugman said of Greenspan in a 2007 interview withPacifica Radio’s Democracy Now! “Nobody really wants to cross him.”

An invitation to the annual conference, or some other blessing from the Fed, is a signal to the economic profession that you’re a certified member of the club. Even Krugman seems a bit burned by the slight. “And two years ago,” he said in 2007, “the conference was devoted to a field, new economic geography, that I invented, and I wasn’t invited.”

Three years after the conference, Krugman won a Nobel Prize in 2008 for his work in economic geography.

One Journal, In Detail

The Huffington Post reviewed the mastheads of the American Journal of Economics, the Journal of Economic Perspectives, Journal of Economic Literature, the American Economic Journal: Applied Economics, American Economic Journal: Economic Policy, the Journal of Political Economy and the Journal of Monetary Economics.

HuffPost interns Googled around looking for resumes and otherwise searched for Fed connections for the 190 people on those mastheads. Of the 84 that were affiliated with the Federal Reserve at one point in their careers, 21 were on the Fed payroll even as they served as gatekeepers at prominent journals.

At the Journal of Monetary Economics, every single member of the editorial board is or has been affiliated with the Fed and 14 of the 26 board members are presently on the Fed payroll.

After the top editor, King, comes senior associate editor Marianne Baxter, who has written papers for the Chicago and Minneapolis banks and was a visiting scholar at the Minneapolis bank in ’84, ’85, at the Richmond bank in ’97, and at the board itself in ’87. She was an advisor to the president of the New York bank from ’02-’05. Tim Geithner, now the Treasury Secretary, became president of the New York bank in ’03.

The senior associate editors: Janice C Eberly was a Fed visiting-scholar at Philadelphia (’94), Minneapolis (’97) and the board (’97). Martin Eichenbaum has written several papers for the Fed and is a consultant to the Chicago and Atlanta banks. Sergio Rebelo has written for and was previously a consultant to the board. Stephen Williamson has written for the Cleveland, Minneapolis and Richmond banks, he worked in the Minneapolis bank’s research department from ’85-’87, he’s on the editorial board of the Federal Reserve Bank of St. Louis Review, is the co-organizer of the ’09 St. Louis Federal Reserve Bank annual economic policy conference and the co-organizer of the same bank’s ’08 conference on Money, Credit, and Policy, and has been a visiting scholar at the Richmond bank ever since ’98.

And then there are the associate editors. Klaus Adam is a visiting scholar at the San Francisco bank. Yongsung Chang is a research associate at the Cleveland bank and has been working with the Fed in one position or another since ’01. Mario Crucini was a visiting scholar at the Federal Reserve Bank of New York in ’08 and has been a senior fellow at the Dallas bank since that year. Huberto Ennis is a senior economist at the Federal Reserve Bank of Richmond, a position he’s held since ’00. Jonathan Heathcote is a senior economist at the Minneapolis bank and has been a visiting scholar three times dating back to ’01.

Ricardo Lagos is a visiting scholar at the New York bank, a former senior economist for the Minneapolis bank and a visiting scholar at that bank and Cleveland’s. In fact, he was a visiting scholar at both the Cleveland and New York banks in ’07 and ’08. Edward Nelson was the assistant vice president of the St Louis bank from ’03-’09.

Esteban Rossi-Hansberg was a visiting scholar at the Philadelphia bank from ’05-’09 and similarly served at the Richmond, Minneapolis and New York banks.

Pierre-Daniel Sarte is a senior economist at the Richmond bank, a position he’s held since ’96. Frank Schorfheide has been a visiting scholar at the Philadelphia bank since ’03 and at the New York bank since ’07. He’s done four such stints at the Atlanta bank and scholared for the board in ’03. Alexander Wolman has been a senior economist at the Richmond bank since 1989.

Here is the complete response from King, the journal’s editor in chief: “I think that the suggestion is a silly one, based on my own experience at least. In a 1988 article for AEI later republished in the Federal Reserve Bank of Richmond Review, Marvin Goodfriend (then at FRB Richmond and now at Carnegie Mellon) and I argued that it was very important for the Fed to separate monetary policy decisions (setting of interest rates) and banking policy decisions (loans to banks, via the discount window and otherwise). We argued further that there was little positive case for the Fed to be involved in the latter: broadbased liquidity could always be provided by the former. We also argued that moral hazard was a cost of banking intervention.

“Ben Bernanke understands this distinction well: he and other members of the FOMC have read my perspective and sometimes use exactly this distinction between monetary and banking policies. In difficult times, Bernanke and his fellow FOMC members have chosen to involve the Fed in major financial market interventions, well beyond the traditional banking area, a position that attracts plenty of criticism and support. JME and other economics major journals would certainly publish exciting articles that fell between these two distinct perspectives: no intervention and extensive intervention. An upcoming Carnegie-Rochester conference, with its proceeding published in JME, will host a debate on ‘The Future of Central Banking’.

“You may use only the entire quotation above or no quotation at all.”

Auerbach, shown King’s e-mail, says it’s just this simple: “If you’re on the Fed payroll there’s a conflict of interest.”

UPDATE: Economists have written in weighing in on both sides of the debate. Here are two of them.

Stephen Williamson, the Robert S. Brookings Distinguished Professor in Arts and Sciences at Washington University in St. Louis:

Since you mentioned me in your piece on the Federal Reserve System, I thought I would drop you a note, as you clearly don’t understand the relationship between the Fed and some of the economists on its payroll. I have had a long relationship with the Fed, and with other central banks in the world, including the Bank of Canada. Currently I have an academic position at Washington University in St. Louis, but I am also paid as a consultant to the Federal Reserve Banks of Richmond and St. Louis. In the past, I was a full-time economist at the Bank of Canada and at the Federal Reserve Bank of Minneapolis.

As has perhaps become clearer in the last year, economics and the science of monetary policy is a complicated business, and the Fed needs all the help it can get. The Fed is perhaps surprisingly open to new ideas, and ideas that are sometimes in conflict with the views of its top people. One of the strengths of the Federal Reserve System is that the regional Federal Reserve Banks have a good deal of independence from the Board of Governors in Washington, and this creates a healthy competition in economic ideas within the system. Indeed, some very revolutionary ideas in macroeconomics came out of the intellectual environment at the Federal Reserve Bank of Minneapolis in the 1970s and 1980s. That intellectual environment included economists who worked full-time for the Fed, and others who were paid consultants to the Fed, but with full-time academic positions. Those economists were often sharply critical of accepted Fed policy, and they certainly never seemed to suffer for it; indeed they were rewarded.

I have never felt constrained in my interactions with Fed economists (including some Presidents of Federal Reserve Banks). They are curious, and willing to think about new ideas. I am quite willing to bite the hand that feeds me, and have often chewed away quite happily. They keep paying me, so they must be happy about the interaction too.

A former Fed economist disagreed. “I was an economist at the Fed for more than ten years and kept getting in trouble for things I’m proud of. I hear you, loud and clear,” he said, asking not to be quoted by name for, well, the reasons laid out above.

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Elyse Siegel, Julian Hattem, Jeff Muskus and Jenna Staul contributed to this report

http://dailybail.com/home/how-the-federal-reserve-bought-the-economics-profession.html

Over the past few days, economists here highlighted the many ways in which the lessons of the crisis have yet to sink in. Few think the U.S. and other governments have made needed repairs to the financial regulatory system. And some suggest governments’ response has increased the chances of a repeat, making the banking system more crisis-prone, putting new strains on institutions such as the Federal Reserve and stretching government finances closer to the breaking point (see charts below). “Our response has made us more vulnerable to a bigger crisis,” said Tom Sargent, a New York University economist. “It’s distressing.”

The U.S. and world economies are walking a tight rope of recovery vs. reform.  While short-term recovery is desirable, it cannot be made at the expense of long-term economic growth and reform.

The information below shows his findings:

• 87.5 percent agree that “the U.S. should eliminate remaining tariffs and other barriers to trade.”
• 85.2 percent agree that “the U.S. should eliminate agricultural subsidies.”
• 85.3 percent agree that “the gap between Social Security funds and expenditures will become unsustainably large within the next fifty years if current policies remain unchanged.”
• 77.2 percent agree that “the best way to deal with Social Security’s long-term funding gap is to increase the normal retirement age.”
• 67.1 percent agree that “parents should be given educational vouchers which can be used at government-run or privately-run schools.”
• 65.0 percent agree that “the U.S. should increase energy taxes.”

And, finally, the topic that generates the most consensus:

• 90.1 percent disagree with the position that “the U.S. should restrict employers from outsourcing work to foreign countries.

Click here to view the original article.

Click here to view the data.

It’s hard to believe now, but not long ago economists were congratulating themselves over the success of their field. Those successes — or so they believed — were both theoretical and practical, leading to a golden era for the profession. On the theoretical side, they thought that they had resolved their internal disputes. Thus, in a 2008 paper titled “The State of Macro” (that is, macroeconomics, the study of big-picture issues like recessions), Olivier Blanchard of M.I.T., now the chief economist at the International Monetary Fund, declared that “the state of macro is good.” The battles of yesteryear, he said, were over, and there had been a “broad convergence of vision.” And in the real world, economists believed they had things under control: the “central problem of depression-prevention has been solved,” declared Robert Lucas of the University of Chicago in his 2003 presidential address to the American Economic Association. In 2004, Ben Bernanke, a former Princeton professor who is now the chairman of the Federal Reserve Board, celebrated the Great Moderation in economic performance over the previous two decades, which he attributed in part to improved economic policy making…(contine reading)