The Apparent Incorruptability of Economists (Or, the Ethical Lightness of Being Larry Summers)

Relative to biologists anyway. There has been a lot of discussion about who the next Federal Reserve Chairman should be, Larry Summers or Janet Yellen (the two presumed front-runners). Leaving aside their policy views (I’m not sure that they’re all that different), I find it astonishing that there has been little discussion of how Summers made most of his money–and it wasn’t by being an academic or public intellectual:

What’s not mentioned: Summers’s current and previous work as a paid consultant to financial firms including Citigroup Inc. (C), Nasdaq OMX Group Inc. and hedge fund D.E. Shaw & Co.

Consulting work helped make Summers a wealthy man between the time he left government service in 2001 and when he returned in 2009. When President Bill Clinton nominated him to be Treasury Secretary, he listed assets of about $900,000 and debts, including a mortgage, of $500,000. When he returned to serve in the Obama administration, he reported a net worth between $17 million and $39 million….

Much of Summers’s gain in wealth can be attributed to his work for Wall Street after he left the Clinton administration in 2001 and served as Harvard president until resigning in 2006. As a managing director at D.E. Shaw, he reported earning $5.2 million in the 16 months before his 2009 filing….

Summers also collected more than $2.7 million in speaking fees, including from companies such as Citigroup and Goldman Sachs Group Inc. (GS) that later received taxpayer funds in the economic bailout, according to his disclosure forms.

The lack of concern seems to be incredibly blasé, at least to this biologist:

INTERVIEWER: A medical researcher writes an article saying, “To treat this disease, you should prescribe this drug.” Turns out the doctor makes eighty percent of personal income from manufacture of this drug. Does not bother you?
JC: I think it’s certainly important to disclose the, um… The, um… Well, I think that’s also a little different from cases that we’re talking about here because, um…)

I won’t even pretend to claim that professors in the biomedical sciences lack potential conflicts of interest–some are heavily involved in for-profit medical research. But a biologist who made most of his or her money from industry would be seen as conflicted–or at least would have some serious explaining to do upon entering the public arena. But economists, like retired generals, can’t be statesmen and salesmen–you have to choose one or the other. It doesn’t work when former generals do it, and it doesn’t work when economists do it. I call bullshit. Or ‘call Summers’, if you prefer.

‘Academic’ economists who want to partake in the public sphere–and especially advise the government–should have to disclose who really pays their salaries.

That, or else be forced to publicly swear that people are not “self-interested utility-maximizing agents.” Which would also be a good thing.

That $5.2 million from Shaw is over a half century of salary for a reasonably well-compensated biologist (give or take). If a drug company offered me a deal like that, I would be tempted to take it. But if I did, I would realize that I’m now a ‘company man.’ No one would or should think that I’m first and foremost a public intellectual; I’ve been compromised. If Summers wanted to make a ton of money, so be it. But he shouldn’t be thought of as a public intellectual, but as a hedge fund guy who does academia on the side–that’s who paid his salary. That’s how he made his money–what Wall Street would call “fuck you money.” Do we really want a hedge funder running the Fed?

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