JUDY WOODRUFF: Finally tonight, the aftermath of the financial crisis and how a documentary is influencing some leading economic thinkers.
NewsHour Economics Correspondent Paul Solman reports as part of his ongoing coverage on Making Sense of financial news.
PAUL SOLMAN: The documentary “Inside Job,” which won an Oscar this year for alleging conflicts of interest in economics, we sat down in New York recently with its director, Charles Ferguson.
A major focus of the film, economists not disclosing their funding sources, right?
CHARLES FERGUSON, “Inside Job”: True, but even more seriously economists being corrupted by their funding sources, which they also don’t disclose.
PAUL SOLMAN: Academic conflict of interest, as it happens, is now much in the news.
CHARLES FERGUSON: It was revealed a few days ago that Monitor Group, a consulting firm founded by a Harvard Business School professor, had been paid by the Libyan government millions of dollars a year to support the public image of Libya and had used very prominent professors to do this, who didn’t disclose their payments by the Libyan government.
PAUL SOLMAN: “Inside Job” focuses on the financial crisis of 2008 and the role of academic economists, writing rosy forecasts like this one about Iceland.
MAN: “The economy has already adjusted to financial liberalization, while prudential regulation and supervision is generally quite strong.”
PAUL SOLMAN: Not long after, of course, Iceland’s banking system blew up.
The paper was written by Columbia University economist and former Fed Gov. Frederic Mishkin.
MAN: How much were you paid to write it?
FREDERIC MISHKIN, former Federal Reserve governor: I was paid — I think the number was — it’s public information.
PAUL SOLMAN: Professor Mishkin emailed us, and he said, look, everybody knew that this was a paper done for a private organization, the Iceland Chamber of Commerce. Had it been an academic paper, the funding source would have been his opening footnote.
CHARLES FERGUSON: First of all, that paper was extremely widely circulated after it was written. And many people with whom I have spoken about this question think that it actually had a significant role in worsening Iceland’s bubble, which was already very bad when he wrote the paper.
Secondly, not only was he paid to write it, but he was wrong about just about everything in it.
PAUL SOLMAN: But all of us are wrong sometimes.
CHARLES FERGUSON: Yes, everybody can be wrong. But, in this case, everybody was paid to be wrong and they were all paid to be wrong in the same direction.
And you can’t find very many examples — in fact, I haven’t found a single one — of people making statements contrary to the financial interests of the people who are paying them.
PAUL SOLMAN: Former head of President Bush’s Council of Economic Advisers Glenn Hubbard is also aggressively confronted in the film.
MAN: Do you think that a significant fraction of the economics discipline, a number of economists, have financial conflicts of interest that in some way might call into question or color…
GLENN HUBBARD, Council of Economic Advisers: Oh, I see what you’re saying. I doubt it. You know, most academic economists aren’t wealthy businesspeople.
MAN: Hubbard makes $250,000 a year as a board member of MetLife and was formerly on the board of Capmark, a major commercial mortgage lender during the bubble, which went bankrupt in 2009.
PAUL SOLMAN: Hubbard declined to speak to us on camera but he points out that his clients are a matter of public record.
He says that his ties to the financial industry are right there on his website, and, in fact, that’s where you got them.
CHARLES FERGUSON: Some of them are disclosed on his website. They are not, however, usually disclosed in his publications or his public statements.
And his website doesn’t disclose the very large quantity of additional consulting that he does for financial services firms and industry associations.
MAN: Who are your consulting clients?
GLENN HUBBARD: I don’t believe I have to discuss that with you.
GLENN HUBBARD: In fact, you have a few more minutes and the interview is over.
PAUL SOLMAN: I know people who think you were unfair to Laura Tyson and Ruth Simmons for apparently just not having given you an interview.
CHARLES FERGUSON: There were dozens of other people who turned down interviews. We mentioned it in the film when we thought that it was relevant.
PAUL SOLMAN: But Ruth Simmons, the president of Brown University?
CHARLES FERGUSON: She’s on the board of Goldman Sachs. Laura Tyson makes $350,000 a year in cash, plus some stock, as a member of the board of Morgan Stanley. And one will look in vain for statements by Laura Tyson about how investment banking behaved unethically during the crisis.
PAUL SOLMAN: Tyson, a Berkeley professor who chaired President Clinton’s Council of Economic Advisers, and Simmons both declined to talk to us as well.
But, in fact, the economics profession has responded to “Inside Job.” At its annual convention in January, its official body decided to work on a code of ethics that might well include full disclosure. The film has had a demonstrable impact.
So, does Ferguson think everything is OK?
CHARLES FERGUSON: No, everything is not OK. It is still possible to publish things, and even more importantly, unfortunately, it is still possible to do things like testify in Congress without stating, you know, “I’m being paid to testify in Congress.”
This issue is now pervasive in American academia. And in my view it’s a grave threat to the independence of academic research in the university system.
PAUL SOLMAN: Charles Ferguson, thank you very much.
CHARLES FERGUSON: Thank you for having me.