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Wall Street Lackeys in the Academy

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As a historian, I don’t really have an opportunity to sell out by using my professional positions to provide expert testimony for Wall Street. But I wonder what that would be like. Evidently, it buys you a really nice home. And there are plenty of academics willing to become complete hacks.

And in a squat glass building on the University of Houston campus, a measure of the industry’s pre-eminence can also be found in the person of Craig Pirrong, a professor of finance, who sits at the nexus of commerce and academia.

As energy companies and traders have reaped fortunes by buying and selling oil and other commodities during the recent boom in the commodity markets, Mr. Pirrong has positioned himself as the hard-nosed defender of financial speculators — the combative, occasionally acerbic academic authority to call upon when difficult questions arise in Congress and elsewhere about the multitrillion-dollar global commodities trade.

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.

While his university’s financial ties to speculators have been the subject of scrutiny by the news media and others, it was not until last month, after repeated requests by The Times under the Freedom of Information Act, that the University of Houston, a public institution, insisted that Mr. Pirrong submit disclosure forms that shed some light on those financial ties.

There are lots of examples of academics becoming lackeys of industry. I recently discussed the Johns Hopkins black lung program almost completely controlled by one faculty member who denied nearly every single black lung claim, forcing thousands of people to spend their last days in miserable poverty.

Of course, one doesn’t have to support progressive positions. But taking corporate money in exchange for your expertise and not disclosing it is about as immoral as it gets.

Kudos to the Times for taking on this subject.

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  • Ken

    If the trading doesn’t affect the prices, just what economic purpose does it serve?

    • jim, some guy in iowa

      really. why would rational actors spend the $ for flacks if not receiving return on investment?

      • Ken

        Well, that’s not quite what I was getting at, but it’s a good point too.

        What I meant were the claims that various secondary and derivative markets are simultaneously (1) essential to the ability of the markets to price the underlying commodity and (2) themselves have no effect on the prices of the commodities.

        • GoDeep

          TBH I don’t see a problem w/ speculators. I’ve participated in markets where we didn’t have enough speculators to make a reliable market, so for me more speculation is a good thing. Its not as if these ppl don’t have any skin in the game. I don’t understand the argument. Is it that b/cs they don’t operate businesses in the industry they’re immune to losing money making stupid trades???

          • brewmn

            Every thought is this comment is completely wrong.

          • BarrY

            “It’s not as if these ppl don’t have any skin in the game…”

            Year 2007, I bear tidings of great sorrow from the future.

          • jim, some guy in iowa

            how do you figure people gambling/guessing their way through helps create a reliable market?

            • GoDeep

              Before you can have a reliable market you have to have a market. In the ’90s the dairy markets were thinly traded. We actually begged for speculators.

              Speculating isn’t like throwing darts at a dart board. It might be gambling but there is research involved. In fact the biggest speculators are on Wall Street & they spend heavy sums on research, so their guess abt where, say, corn futures are headed are every bit as informed as, say, General Mills’.

              The only *real* problem I’ve seen with speculators is that some of them have been known to try & manipulate the market, eg the Hunt Brothers in silver. But its not just limited to speculators. Enron also manipulated the market.

              • Jordan

                That can’t be the only problem. As you say, some dumb money speculators might be needed to make a market liquid. That doesn’t mean that tons of money doesn’t distort prices, or thatcon artists Wall Street types don’t manipulate prices.

                In fact, it looks like it does, and it looks like they do.

              • Ken

                Specifically, Enron realized they could make a lot more money not delivering electricity. This was a bit of a shock to the customers, whose expectations had been distorted by the evil days of regulated monopolies.

                Now of course we all understand that the only thing we can expect from any company is that they will act, at all times and everywhere, to maximize their own profit.

                • Now of course we all understand that the only thing we can expect from any company is that they will act, at all times and everywhere, to maximize their own profit.

                  … for the current quarter. Long-term profitability is for suckers without a golden parachute.

        • BarrY

          There was a recent letter by the President of Harvard, about divestment from fossil fuel companies. In direst succession, she claimed that (a) Harvard didn’t own enough to matter, and (b) if Harvard divested, it would lose a voice in how those companies behaved.

          And she didn’t even put another bullet point in between those, to make it a bit less obvious.

          If that logic is good enough for Harvard……

        • jim, some guy in iowa

          on re reading your comment and mine I have no idea why I posted mine as a reply

  • As a historian, I don’t really have an opportunity to sell out by using my professional positions to provide expert testimony for Wall Street

    I think this guy would say you’re just not being sufficiently creative and entrepreneurial:

    He graduated with a first-class honours degree in history in 1985.[13] He received his D.Phil from Magdalen College in 1989, and his dissertation was entitled “Business and Politics in the German Inflation: Hamburg 1914–1924”.[15]

    • Very true.

      • Robert Proctor has pointed out that he was the first of many historians who had provided expert testimony at tobacco lawsuits to testify against the tobacco companies. I’m sure it wouldn’t be that difficult to sell out. The AEI would probably love to have a labor historian on staff to talk about the social dangers of unionism.

        • Apparently I can’t be trusted with tags.

  • I was hoping someone here would bring this up. I’m not sure what it says about me or the state of reporting at the big papers, but I was surprised to see this on the front page and above the fold.

    And yes, it is nice to see the NYT dabble in journalism.

  • Joseph Slater

    My wife saw that item in the NYT this morning, looked at me sternly, and said, “you’re on the wrong goddamn side.”

    I’m pretty sure she was joking.

  • DrDick

    You can add Greg Mankiw and most of the freshwater economists to the list. It is unfortunately often difficult to tell whether some academics are merely mercenary or sincerely delusional. Ferguson comes to mind.

  • thefax

    If my paper ‘Shakespeare and the Laffer Curve: Why Prospero Went Galt’ doesn’t get me on the right-wing gravy train I may have to actually earn tenure.

  • Pingback: Universities, money, and intellectual freedom - Lawyers, Guns & Money : Lawyers, Guns & Money()

  • Just another self-made man who earned his pieces of silver by selling-out, looking down at everyone else, and saying, “I got mine, for me an mine! You go and get yours, for you and yours! Fuck you, leave me the hell alone!!!’

    Lower than amoeba poop, in the Marianas Trench!

  • Amanda in the South Bay

    I’m surprised Loomis hasn’t covered the fracas over Oregon State changing their head of the EE/CS department. All of the usual Silicon Forest companies were upset by it-almost as if that department was merely an internal department of Tektronix or something.

  • Manta

    Shouldn’t the guy lose his tenure?

    • DrDick

      Because it helps bring in donations to the university?

  • James E Powell

    This kind of thing is fairly widespread. Have you checked on the academics who are in the education reform business?

    • Stick

      +1

      As in the University of WalMart’s Department of Disruptive Rent-Seeking in Public Education. Frederick Hess, among others, is making serious bank.

  • GoDeep

    I don’t see an issue here, per se. As long as he comes by his academic opinions authentically rather than by simply selling out testimony to the highest bidder, what’s the big deal? If you think that free market capitalism is the way to go, what’s wrong with being paid to testify to Congress that free market capitalism is the way to go?

    A few weeks ago I read a paper on Wal-Mart authored by the UC Berkeley Labor Center. It occurred to me reading the members of their Advisory Board that they might be overly tied to unions, but I didn’t draw the conclusion that they were unscrupulous as a result. As long as they say what they honestly believe I don’t have a problem with where they get their money or who sits on their board. Its like Campos’ post on endowed chairs. Every academic has a Point of View, so long as we’re transparent abt funding, affiliation, etc its all good.

    • #slatepitch

      • Ryan

        No it really isn’t that counter-intuitive or surprising that these economists would defend free-market economics. I love the NYT and am generally skeptical of Wall St. but this piece of journalism was pretty shoddy IMO.

    • Manta

      Are you joking?
      He gave “his” opinions without revealing that he was paid: a major breach of ethics.

    • brewmn

      Academic Ethics Board:

      So, Mr. Pirrong, did you come to the conclusions reference in your testimony in Goldman Sachs vs. Texas Teacher’s Pension Fund authentically rather than by simply selling out testimony to the highest bidder?

      Professor Pirrong:

      Authentically, of course.

      Academics Ethics Board:

      Works for us. Carry on.

  • RJB

    It is rarely possible to get a view that is both independent and informed, inside or outside academia. Those who are informed tend to develop connections and financial interests, as both an effect of their expertise and as a cause of further insight. I would hate to see policy-makers (or bloggers!) dismiss the interests of such people out of hand. Of course disclosure of interests is a must, and I don’t see many good excuses for Prof. Pirrong’s choice to conceal them.

    • Manta

      Of course disclosure of interests is a must, and I don’t see many good excuses for Prof. Pirrong’s choice to conceal them.

      There are quite a few good reasons for the concealment: for instance, his opinions loose much of their weight if people know that he’s being paid.

  • Tybalt

    For the sake of posterity, I should note Pirrong’s response here. He is not the only one appalled by Kocieniewski. (I’m in the same camp; I f***ing despise influence peddling in all its forms, but this ain’t it.)

    Worst of all, incidentally, is Kocieniewski trying to gin up some sort of “conflict of interest” (ZOMG I AM NOT KIDDING HE USED THOSE EXACT FUCKING WORDS) in the fact that Kocieniewski’s employer (the University of Houston) “trains future oil industry executives”. I mean what the whatting what. As if every university doesn’t train future oil industry execs, and future environmental warriors too.

    Careful what you wish for, folks.

  • Tybalt

    For the sake of posterity, I should note Pirrong’s response here. He is not the only one appalled by Kocieniewski. (I’m in the same camp; I f***ing despise influence peddling in all its forms, but this ain’t it.)

    Worst of all, incidentally, is Kocieniewski trying to gin up some sort of “conflict of interest” (ZOMG I AM NOT KIDDING HE USED THOSE EXACT BLEEPING WORDS) in the fact that Kocieniewski’s employer (the University of Houston) “trains future oil industry executives”. I mean what the whatting what. As if every university doesn’t train future oil industry execs, and future environmental warriors too.

    Careful what you wish for, folks.

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