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Code of Conduct
Faculty Foster Financial Reform for a SAFER Economy

SAFER helped non-profit groups analyze legislation that ultimately led to the Dodd-Frank Financial Reform, or "Wall Street" act.

The international financial crisis has wiped out trillions of dollars of wealth, raised unemployment by many millions, and reached its five-year mark with no clear end in sight. Andrew Haldane of the Bank of England estimates that before it is over the crisis could cost the world economy as much as $200 trillion—that being above and beyond the pain and suffering from all the lives and careers it has devastated.

Early responders to the economic collapse included members of UMass Amherst’s Department of Economics, among them Professor Gerald Epstein, co-director of the Political Economy Research Institute (PERI). He notes that soon after the collapse of 2008, England’s Queen Elizabeth II asked a group of economists why they had failed to predict the crisis. “Of course,” says Epstein, “some economists more or less did, including my departmental colleague James Crotty. But as a whole the mainstream of the economics profession utterly failed.”

The complex reasons for that are complex but notably include the fact that a number of prominent economists passionately resisted financial regulation during the buildup to the crisis—even, Epstein adds, as they were earning hefty fees consulting for firms that opposed regulation. To make matters worse, when invoking their expert status and making pronouncements on the costs and benefits of regulation, many economists concealed their financial connections. The story of this economic collapse is ultimately one of a failure of economic ethics.

Early responders to the economic collapse include Economics Professor Gerald Epstein
Two years ago Epstein and a colleague, PERI Research Fellow Jane D’Arista, founded a group of economists and analysts called “Stable Accountable Fair and Efficient Financial Reform,” or SAFER. Epstein concedes that the acronym is a bit tortured but says it neatly summarizes the group’s mission: “We believed that we needed strong involvement by public-spirited analysts to help policy-makers assess what types of legislation would actually work to make the financial sector better.”

SAFER worked closely with Americans for Financial Reform, a nonprofit group comprised of more than 250 organizations—consumer-protection groups, labor unions, and the like. Epstein says that SAFER “helped them analyze legislation that was being developed on Capital Hill and by the Obama administration that ultimately led to the Dodd-Frank Financial Reform legislation.”

In 2010, as scandals began surfacing, Epstein and grad student Jessica Carrick-Hagenbarth completed an investigation of the ethical decisions of 19 prominent financial academics, 15 of whom had consulted or served on the boards of financial firms without disclosing those ties.

Epstein, Carrick-Hagenbarth, George De Martino (a former UMass Amherst graduate student whose Economists’ Oath, an important book on economic ethics, was recently published), and other nationally prominent economists wrote a petition decrying such misconduct. It called for the American Economics Association (AEA) to issue a code of conduct that would at a minimum call on association members to disclose such potential conflicts of interest.

More than 300 economists signed the petition, and in January 2012 the AEA executive board passed such a code. Itcalls for all authors submitting articles to AEA journals to disclose significant financial connections, and further urges such disclosure from authors submitting articles to other publications, academic or popular. Epstein sees the code’s passing as a big step forward but acknowledges that further progress needs to be made.

Next on Epstein’s agenda is a joint research project with Crotty, “How Big Is Too Big? What Should Finance Do and How Much Should It Be Cut Down to Size?” Funded by the Institute for New Economic Thinking, it was inspired by the enormous growth of the financial industry in the U.S. and other wealthy countries during the last several decades and the financial crisis it engendered. Epstein and Crotty will publish their finding in a book asking how socially productive the financial sector is and how big it should be to best serve the needs of the economy and society.

Epstein is quick to note that at UMass Amherst he benefits from “the many wonderful colleagues and graduate students we have in our department. They are a constant source of intellectual stimulation and support.”

David Bartone '12G