When economists advise the government, who else are they working for?

http://www.boston.com/bostonglobe/ideas/articles/2010/11/21/silent_partners/

By Robert Gavin
November 21, 2010

Two years after the economy careened to the brink of Armageddon, a key question remains: How did so many smart economists miss the financial crisis?

Was it too much math, and not enough focus on real-world problems, as New York Times columnist Paul Krugman has argued? Or did economists simply put too much faith in the power and wisdom of markets, and ignore the flaws that ultimately led to them to crash?

Two University of Massachusetts researchers suggest another possibility: The vision of economists may have been clouded by their own financial interests.

The nation’s top academic economists — who advise policy makers, testify before Congress, and publish influential papers and articles — are also much sought after by the financial industry as speakers, consultants, and corporate board members. Though typically portrayed as independent experts, they can reap huge fees from financial firms, including those that profited during the housing and the credit bubbles.

In a new paper, Gerald Epstein, chairman of the UMass Amherst economics department, and Jessica Carrick-Hagenbarth, a graduate student, examined a group of influential economists, scoured publicly available resumes, biographies, articles, and interviews, and found that the majority had made money from financial institutions — but very few had disclosed these connections when writing, speaking, or giving interviews on public policy.

In doing so, the authors shed light on practices that have long existed in the ranks of academic economists, but are now beginning to gain widespread attention. A recently released documentary on the financial crisis, “Inside Job,” also raises the question of economists doing business with Wall Street while acting as independent experts on regulatory and other policies.

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