Finance: Research, Policy and Anecdotes

I have meant to write this blog post for quite some time, but as the events over the past weeks have accelerated, there seemed to be more and more dimensions to this problem. I will therefore focus only on a few here.

First and foremost is the police brutality against (not only but especially) African-Americans in the US (a problem which exists to a lesser degree also in many European countries, though even less often with homicidal consequences).  Academic economists have been accused that – unlike in the COVID-19 crisis – we have been silent and do not really have anything to contribute to this societal challenge. I would strongly argue against that. There is an extensive literature on discrimination (of all types) and one major insight has been that technologically-enhanced monitoring (shown for example, here) can help as well as competition – as shown for example here - (one minor contribution by Patrick Behr, Andreas Madestam and I refers to own-gender preferences by loan officers, showing that experience with the other gender as well as intra- and inter-bank competition is a powerful tool against it). And a quick look at employment conditions for police officers in the US shows clear incentive problems, including qualified immunity and the power of unions. Both of these allow “bad apples” to continue to thrive in many police forces across the US. However, beyond the microeconomic incentives, there are important social elements, such as the glorification of police officers, including when they go beyond reasonable force, in Hollywood movies, and historic elements – the police force was used for decades to suppress African-Americans in the South.  There is also a historic literature on the long-term effects of slavery on socio-economic and political outcomes in the US, such as by Ken Sokoloff and Stan Engerman as well as work by Lisa Cook, showing the persistence of institutional arrangements created during pre- and post-Civil War periods for socio-economic outcomes today.  There is certainly more that I am not aware of, but it is important to stress that there are many different research approaches and different literatures that speak to the issue at hand. This also means that simple policy solutions as suggested by the incentive literature might not be easy to implement given socio-political constraints.

A second theme I want to touch on is the Causa Harald Uhlig whose blog and twitter rants have made quite an impact and not exactly a positive one, leading to calls for him to resign as lead editor of the Journal of Political Economy. I have meet Harald in several occasions while in Tilburg, as he was part-time research professor there. He is certainly one of the smartest macroeconomists I have met, but he is also academic through and through.  Reading his blog and recent twitter rants, I was not only disappointed but disgusted! He might not be a racist, but his comments and name calling are a sign of incredible lack of sensitivity and common sense. While I originally did not sign the letter calling for his resignation as JPE lead editor, the allegations of discriminatory remarks in the class room made me think again. And if someone like Harald is not able to adjust his ivory tower discussion style when leaving the seminar room it might be better if he did not participate in the public discussion at all. Of course, this does not address the allegations of discriminatory behaviour in the class room and is certainly something to be addressed by his department.

However, there is a broader lesson here for economists and social scientists. It is important for us academics to step outside the ivory tower and take part in the societal conversation (even more so during the time of populism); however, we have to learn how to participate in a sensible and sensitive way. While doing my PhD in the late 1990s, there was often reference to the rather aggressive Chicago seminar style, certainly something to be avoided in settings outside the seminar room (and maybe even inside, see below). As much as we have to learn the difference between academic writing style and translating our research for non-academics and even non-economists, we have to learn how to participate in the public discourse in a style that is respectful if not humble!

Which brings me to a third theme – the lack of diversity within the economics and finance academia. For many years, we have discussed the gender problem in economics – before I joined academia, I never faced this issue as the group at the World Bank where I spent my first nine post-PhD years was very balanced in gender terms. The fact that many international financial institutions and organisations (IMF, World Bank, OECD and EBRD) have female chief economists, is certainly an important signal. Yes, economics (and finance) academia still has a gender problem, as the discussion about www.econjobrumors.com clearly shows, but we have started to address it.  However, the problem of diversity is a broader one.  The lack of African (American) economists in the US (and similarly limited minority representation in other countries) is certainly alarming. However, it is important to understand that this is not a problem we can solve overnight. Unless I am mistaken, there seems to be a lack of African (-American) students in economics and finance in both undergraduate and (post) graduate courses. Addressing the diversity problem has to start at the undergraduate level and strong mentoring programmes and a change in culture and style will hopefully get us where we need to be, eventually.

Being a male middle-aged white economist, I realise that I have been in a very privileged position during my whole professional life. And I realise that I have a responsibility to do my small part of changing the culture in our profession.  I hope I can live up to it – it won’t be easy, as much of our behaviour is so ingrained that we might not even realise where and when we go wrong!

Overview