Imagine this. You have a brilliant idea for how to reverse the effects of aging in female infertility, a wonderful combination of drugs that you have been developing in your lab with your graduate students, and that will open the possibility of motherhood to hundreds of thousands of women who waited just too long to conceive. You have done your Math, your Chemistry, you have developed the model explaining why your idea works. You have tested it in mice. You have tested it in pigs. You got 90% success. You have very little doubt that it works in humans too. If only you could test it… Now imagine that this is 1925, there are no Institutional Review Boards, no Ethics committees to go through, no clinical protocols. In order to test your ideas, you simply need to recruit women who routinely come to your medical office lamenting that they would like to have children but they are too old to conceive. You wholeheartedly believe in your cure and dream with the Nobel prize. Those women desperation is a powerful context for testing your ideas; they want it, they will gladly try anything!
As you deploy your experiment among those women, you observe that not only it fails to produce the results you expected, but it also accelerates the process of aging: within 9 months, those 40-something women suddenly look like they are 60 years old. You scratch your head, and go back to the drawing board trying to understand where your beautiful model went wrong. You don’t feel bad for those women, after all they were willful volunteers; but your ego is bruised because your wonderful idea didn’t work, and the possibility of a Nobel prize is farther than ever.
What I just described to you is a typical scenario in routine Ethics courses that all of us academics in the US need to go through every few years.
Now imagine this. You have a brilliant idea for how to generate value in economic markets, a clever combination of bets on future values that you have been developing in your lab with your graduate students, and that will open the possibility of riches to a whole breed of entrepreneurial financiers, as well as to entire economies by trickle-down effects. You have done your Math, you have developed a model that explains why your idea works. You have simulated it using powerful computers. You got 90% success. You have very little doubt that it works in real economies too. If only you could test it. Well, it’s 1995, there are no Institutional Review Boards for Economics, no Ethics committees to go through — the issue of Ethics doesn’t even register in your mind as something to worry about. There are only some political barriers to your ideas, some old laws from post-Great-Depression years that vaguely prevent those ideas from being put to practice. With help from powerful friends who believe that your ideas will make them even richer, those laws are quickly and quietly deactivated, one by one. In order to test your ideas, you simply need to recruit governments, organizations and individuals who are cash-strapped. Your confidence in your Mathematical model plus those countries’, organizations’ and individuals’ desperation are a powerful combination for testing your ideas, they will try anything! — especially a financial ‘cure’ that is undersigned by such world-renowned economics professor such as yourself. You dream of a Nobel prize or maybe you already won one.
As you deploy your experiment, you observe a bubble that first gives the impression of economic growth but that then comes crashing down, leaving behind it millions of people, organizations and governments with debts they can’t pay. Entire countries’ economies are in ruins, social unrest is everywhere. You scratch your head and go back to the drawing board trying to understand where your beautiful model went wrong. You don’t feel bad for the economic disaster; you feel proud for trying such a clever, innovative model, and for observing that your ideas had a strong effect in real life. You don’t empathize with the millions of people who got screwed out of their hopes and desires; after all, they were willful participants in your experiment, just like the women who were too old to conceive. It’s really fun to see your mathematical model come to life at the macro-economic scale! Perhaps you need to tweak a few parameters for next time. You back up your pride with the assurance that the crisis was not predicted, because economic theory predicts that such events cannot be predicted. Trivial mathematical truth that applies to just about everything that is complex and stochastic but that, said by you with your awards and recognitions to back you up, sound like something complex that lay people are unable to understand.
I don’t know about you, reader, but this state of affairs in Economics research, what is going on in world-famous Business Schools and their involvement with high-finance companies, bothers me a lot. Some of my esteemed academic colleagues seem to be completely out of control and out of touch with reality — not unlike the state of affairs in Medical research until that community felt the need to establish Institutional Review Boards in the second half of the 20th century. I have no doubt they have good intentions — most people don’t do evil on purpose, not even those physicians in the past who committed atrocities in the name of advancing knowledge. Economists happen to live and work in the sciences of the artificial, a place of mind that has very little contact with people and empirical data (how I understand the appeal!). They dwell in their stochastic, abstract models of how markets work, and, in the absence of the need for empirical validation, it’s easy to get enamored by such models. Economists would be as harmless as theoretical computer scientists… if it wasn’t for the real damage that comes from their collaboration with greedy financiers, who see in those models additional chances to make a buck.
Perhaps it’s time for the Economics research community to start having an internal conversation about their trade, and for the rest of us academics to put some pressure on them. Here is a start — an eye-opening essay by one of them. This essay may be hard to digest, so here’s a documentary that deconstructs the financial meltdown in simple bottom-line punches and puts some of the spotlight on some of those academics — watch it on Netflix.