Academic Choice Theory Hits the NY Times

I’ve stolen the phrase “Academic Choice Theory” from Yves Smith who, in wonderful satire, describes it as (boldface mine):

Soon after receiving tenure, it occurred to me that we were being profoundly inconsistent. While we had correctly criticized the previous mainstream view that politics involved benevolent efforts to serve the common good, we had failed to apply the same rigor to the community of academic economists. As a result, we were modeling both economic and political actors as self-interested utility-maximizing agents, while continuing to see economics professors as idealistic pursuers of truth. I decided to correct this oversight by developing my theory of Academic Choice, in which economists are theorized as rational agents who continually seek to maximize their future earnings potential.

The theory begins by identifying three principal ways in which economists try to maximize their utility. First, they receive salaries from universities, which can be increased if their course enrollment increases. Course enrollment is primarily driven by students with future careers in business and the financial sector, so an economist has an incentive to propound theories that CEOs and financial institutions find attractive. Even if adoption of these theories leads to substantial public costs, these costs will not be shouldered by the economist personally. Second, by developing such theories an economist can open the door to future wealth as a lobbyist or consultant. Third, the support of economists is critical to creating and maintaining special privileges for the financial services industry and for top corporate officers. By threatening to withdraw this support, economists can engage in rent-seeking. I call this last practice academic entrepreneurship.

I noted:

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.”

However, economists on the corporate teat don’t agree with Academic Choice Theory (boldface mine):

Do financial speculators and commodity index funds drive up prices of oil and other essentials, ultimately costing consumers? Since 2006, Mr. Pirrong has written a flurry of influential letters to federal agencies arguing that the answer to that question is an emphatic no. He has testified before Congress to that effect, hosted seminars with traders and government regulators, and given countless interviews for financial publications absolving Wall Street speculation of any appreciable role in the price spikes.

What Mr. Pirrong has routinely left out of most of his public pronouncements in favor of speculation is that he has reaped financial benefits from speculators and some of the largest players in the commodities business, The New York Times has found….

But interviews with dozens of academics and traders, and a review of hundreds of emails and other documents involving two highly visible professors in the commodities field — Mr. Pirrong and Professor Scott H. Irwin at the University of Illinois — show how major players on Wall Street and elsewhere have been aggressive in underwriting and promoting academic work.

The efforts by the financial players, the interviews show, are part of a sweeping campaign to beat back regulation and shape policies that affect the prices that people around the world pay for essentials like food, fuel and cotton.

Professors Pirrong and Irwin say that industry backing did not color their opinions.

Whoops! Sounds like a death blow for Academic Choice Theory! Let’s go on:

Mr. Pirrong’s research was cited extensively by the plaintiffs in a lawsuit filed by Wall Street interests in 2011 that for two years has blocked the limits on speculation that had been approved by Congress as part of the Dodd-Frank financial reform law. During that same time period, Mr. Pirrong has worked as a paid research consultant for one of the lead plaintiffs in the case, the International Swaps and Derivatives Association, according to his disclosure form.

While he customarily identifies himself solely as an academic, Mr. Pirrong has been compensated in the last several years by the Chicago Mercantile Exchange, the commodities trading house Trafigura, the Royal Bank of Scotland, and a handful of companies that speculate in energy, according to the disclosure forms.

The disclosure forms do not require Mr. Pirrong to reveal how much money he made from his consulting work, and a university spokesman said that the university believed it was strengthened by the financial support it received from the business community. When asked about the financial benefits of his outside activities, Mr. Pirrong replied, “That’s between me and the I.R.S.”

At least we now know who’s more powerful, God or the I.R.S.

Seriously, every biologist who speaks anywhere always reveals his or her potential conflicts of interest. Apparently, economists are just less corruptible than biologists, I suppose. Regarding Lawrence Summers, I noted:

That $5.2 million from Shaw [a hedge fund] 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.

There are quite a few economists who should be thought of as well-paid adjuncts who are primarily business consultants. Of course, the universities won’t do a damn thing about this prostitution of intellectual integrity and freedom because as the University of Illinois spokesvermin noted, they want the money.

Maybe Academic Choice Theory still lives?

And the congregation responds: This is yet another reason why we can’t have nice things.

This entry was posted in Uncategorized. Bookmark the permalink.