Years ago, one of my exceptionally high-profile law school professors amended his routinely-court-cited “hornbook” (a tome dedicated to summarizing the state of the existing law on a particular subject, occasionally adding suggestions for reform) to influence the outcome of a case being appealed by the law firm to which he was “of counsel.” When I noted that apparent “conflict” in class, he just laughed. The effort was not technically a legal conflict of interest and did not require any particular disclosure. The prof made a lot of money from his law firm affiliation.
Professors write and publish all the time; it is an expected part of higher education, particularly among those who teach and mentor at the graduate level. And big corporations and trade associations also make sizeable donations to universities, dedicate and finance prestigious “chairs” and even departments with their largesse, and even engage such universities and appropriate professors to conduct research or provide consulting services on their behalf. Think that these big donors, endowment-generators and often-retained-academic-researchers/consultants remain completely unbiased in their work, even if it means writing some nasty truths about their benefactors? Yeah, right!
Is this academic corruption, merely free speech or simply an accepted practice that has gone on for a very, very long time? You be the judge, but note that legislative, administrative and judicial bodies often rely heavily on published academic research to determine policies, laws and even the outcome of major litigation. You can read the specific cites of such academic work in the published history of resulting legislation or rule-making and see specific mention in published cases. You can see testimony from such academics in court, at rule-making administrative hearings and before various legislative committees. In fact, more often than you might surmise, these academics are often appointed to be judges or administrative regulators in their chosen fields. They bring their gravitas to the matter at hand. No conflict there, right?!
Writing for the December 27th New York Times, David Kocieniewski dug into this practice with some pretty harsh reviews and insights. Among his observations: “[I]n a squat glass building on the University of Houston campus, a measure of the [petroleum] industry’s pre-eminence can … 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.”
Congress and various federal administrative agencies have been probing the regulatory climate surrounding Wall Street, regional commodities traders, price-setting, and the new complex derivatives market, in an effort to determine the balance between an open marketplace and a strong need to protect consumers, and even the entire American economy, from the kind of collapse the created the Great Recesssion. Mr. Pirrong has testified, as a neutral expert in such public presentations and testimony, against regulations that would reign in Wall Street and commodities traders.
Although the University of Houston is a public institution and thus requires some disclosure by its academics who work outside the university, the revelations in such disclosures are not particularly detailed. “The disclosure forms do not require Mr. Pirrong to reveal how much money he made from his consulting work, and a university spokesman said that the university believed it was strengthened by the financial support it received from the business community. When asked about the financial benefits of his outside activities, Mr. Pirrong replied, ‘That’s between me and the I.R.S.’” NY Times. But Pirrong and those in his field have a profound influence on the legal and regulatory systems in their fields of expertise.
Pirrong is hardly alone in these practices. “One of the most widely quoted defenders of speculation in agricultural markets, Mr. [Scott H.] Irwin of the University of Illinois, Champaign-Urbana, consults for a business that serves hedge funds, investment banks and other commodities speculators… The efforts by the financial players, the interviews show, are part of a sweeping campaign to beat back regulation and shape policies that affect the prices that people around the world pay for essentials like food, fuel and cotton… Professors Pirrong and Irwin say that industry backing did not color their opinions.
“Mr. Pirrong’s research was cited extensively by the plaintiffs in a lawsuit filed by Wall Street interests in 2011 that for two years has blocked the limits on speculation that had been approved by Congress as part of the Dodd-Frank financial reform law. During that same time period, Mr. Pirrong has worked as a paid research consultant for one of the lead plaintiffs in the case, the International Swaps and Derivatives Association, according to his disclosure form.” NY Times.
Sure there have been some token adjustments in academia, but nothing that has altered the current seeming conflicts. “Concerns about academic conflicts of interest have become a major issue among business professors and economists since the financial crisis. In 2010, the documentary ‘Inside Job’ blasted a handful of prominent academic economists who did not reveal Wall Street’s financial backing of studies which, in some cases, extolled the virtues of financially unsound assets. Two years later, the American Economic Association adopted tougher disclosure rules… Even with the guidelines, however, financial firms have been able to use the resources and credibility of academia to shape the political debate.” NY Times. It does seem that all that money that the one percenters made in recent years is being deployed to make sure they continue to keep that 42% of the nation’s wealth (a number that seems to be growing), while the rest of us sit and gaze and their growing power and our declining buying power.
I’m Peter Dekom, and we know that power corrupts, and expanding power corrupts even more.
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