By Richard Vedder
My distinguished colleague and friend Lowell Gallaway, on reaching his 80th birthday, said his only regret about his career is that the profession that he worked in for over a half of century -- economics -- had become so ideological, non-scientific, wrong, pompous, irrelevant and, most fundamentally, corrupt. A strong indictment, but supported by the evidence. Another friend, Doug North (winner of the Nobel Prize in Economics) has successfully argued that a good university should NOT have a sociology department -- I ask, should they have an economics department? (I think the answer is still "yes" but the case for the opposing view is growing).
Almost no one in economics warned the President, Congress, the financial community, etc., of the forthcoming financial crisis of 2008, of the dangers of subprime lending, or of the separation of loan origination's from loan risk, or of the dangers of excessive Fed monetary creation, etc. Economists on average were pretty mediocre in their response to what happened. Their models don't deal with financial panics, for example. They were clueless what to do. Most of them had no historical perspective, a useful thing (since there were distinct parallels to the Great Depression). A year ago, the new incoming chair of the Council of Economic Advisers, Christina Romer, said passage of the Obama stimulus package would keep unemployment from rising above 8 percent --we have had 3 consecutive months of 10 percent joblessness. And so it goes.
But let's talk about the "corrupt" part of the Gallaway remark. Sen. Charles Grassley is upset, and rightly so in my judgement, about the behavior of Professor Jonathan Gruber of MIT. He has testified before the Senate Finance Committee about the great benefits of the Obama health care proposal --failing to point out he had been given at least $400,000 (one account says $700,000) to 'research" and "evaluate" the health care bill. And he told no one about his financial ties to the Obama Administration.
This is triply deplorable. First, Prof. Gruber is guilty of a huge ethical lapse, despite Paul Krugman's pleas to the contrary (Krugman is worth another blog, another day). Second, the government is engaging in the politicization of the academy, giving un-bid, presumably non-peer reviewed contracts in huge amounts to favored economists who will support political objectives. Third, all of this tarnishes higher education in general, and MIT in particular.
Prediction: Nothing negative whatsoever will happen to Prof. Gruber. He will get a salary increase for next year, and not even a reprimand from the MIT administration --the Law of No Consequences at work (not the first ethical lapse problem in Cambridge amongst economists in the past decade, I might add). No congressional hearings will be held on the prostituting of "science" (if one wants to call economics that) for political purposes. And the decline in the integrity, the nobility, the greatness, of American higher education will continue unabated.