Ten years ago I received a call from the U.S. Department of Justice's Civil Rights Division. They were in the midst of pretrial proceedings involving a prominent landlord in the Los Angeles area, who stood accused of ethnic discrimination in his apartment buildings. I had published a few studies on racial and ethnic segregation in American cities; discrimination is a prominent theme in this work. I agreed to assist the DOJ in their investigation. My assistance consisted almost entirely of writing a rebuttal to an expert witness report the landlord had commissioned, which attempted to make the argument that the under-representation of certain ethnic groups in the landlord's buildings reflected segmentation of the housing market. That is, the landlord argued that he rented fancy apartments and certain ethnic groups weren't interested in those.
After I submitted my rebuttal, the landlord settled. It was the largest settlement DOJ had ever received in a rental market discrimination case.
I was compensated for my work. To the tune of about $30,000, as I recall.
Not just anyone could have performed the work that I did in this case, and had it gone to trial the "Daubert" standard on who may qualify as an expert witness would have excluded quite a few people (e.g., graduate students) who might otherwise be completely competent to carry out the statistical analysis. The U.S. government earned quite a bit more in the settlement than what they paid me to conduct the work. And at the end of the day, I could take some satisfaction in having intervened on the side of tenants facing (alleged -- as part of the settlement the landlord admitted no wrongdoing) discriminatory treatment.
Outside consulting is quite common for academic economists. At the outset of the Obama administration, five prominent economists filed voluntary disclosures detailing the sources of their income: Alan Krueger from Princeton, Lawrence Summers from Harvard, Austan Goolsbee from Chicago, Cecilia Rouse from Princeton, Rebecca Blank of Michigan (now chancellor of the University of Wisconsin-Madison), and Raphael Bostic of USC (now president of the Atlanta Fed). Each of them reported at least $45,000 in compensation from sources other than their University employer. Summers, in particular, reported over $8 million in compensation from sources other than Harvard, including the hedge fund D.E. Shaw, Citigroup, Goldman Sachs, JP Morgan, Lehman Brothers, and many others. Krueger reported nearly $200,000 in income from sources other than Princeton, plus $166,000 in advance payments on a textbook contract. Krueger's income from these sources nearly equaled his University salary. In some years, my own outside income has similarly come close to equalling my University salary.
It's true that the median academic economist, perhaps even the academic economist at the 90th percentile, earns less than what they might had they opted for a job in the private sector. But the returns to expertise can be high: Krueger's reported compensation reached $735,000; Goolsbee's $558,000; Rouse's $398,000; Summers' $9.1 million. And this is 10 years ago. We are not talking assistant professor salaries here.
In some respects, we can think of all these activities as "the market at work." The DOJ, Citigroup, and others have a demand for expertise, and qualified economists provide the supply. We're making the world a better place by delivering something of value. Someone down the line, whether a tenant facing discrimination or an investor seeking a better return, benefits from our willingness to be compensated for our expertise.
In the case of academic expertise, however, there's a potential problem. The value of our expertise depends critically on its scarcity: the more common the knowledge or perspective, the less any client will be willing to pay for it. More exact, the value of expertise depends on its perceived scarcity, the extent to which a client can be convinced that no other provider can substitute for us.
At the same time, our fundamental task as academics is to disseminate knowledge, to make it ubiquitous rather than scarce. The academic norm, as well, is to acknowledge the wisdom of those who have preceded us, to note the shoulders of the giants upon which we stand. Therein lies a fundamental conflict. How can we balance the reality that we profit from our expertise with our pledge to endow our students and colleagues with equivalent expertise, and to acknowledge that ours is but one of many minds at work on a problem? Those of us who have attained a reputation as experts will better monetize our expertise if we can restrict the supply of competitors, or more effectively make the case that we are the perfect consultant to suit the client's needs. And our own actions can effectively restrict the supply, shift those perceptions.
Do economists really exercise that kind of power? Consider the publication process, which has evolved to commonly require multiple rounds of revision prior to publication in the most prestigious outlets, a process that can easily take years even in the unlikely event that a paper is published at the journal of first submission. These prestigious outlets themselves base their publication decisions on the constraints imposed by an arcane, irrelevant medium -- print. The net effect is to slow down the productivity of economists, which restricts the supply of new experts entering any field. Consider as well the governance of the economics profession, which has continuously bestowed the top honors and signals of expertise within a limited range of prestigious departments.
I don't mean to theorize that some back-room deal resulted in the publication and governance structures we have today. The expertise conundrum is a form of prisoner's dilemma. Collectively, we are all best off if the widest range of minds are at work on the most vexing and important problems. Individually, given the potential to monetize expertise, we are best off if nobody else comes to be seen as quite as expert as we are in our domain. Thus in the absence of altruistic action we individually face incentives to retard the acquisition of expertise, and support structures that enhance perceptions that expertise is limited to a very few scholars at the top of the profession. It doesn't help that the most senior scholars in any field, with the greatest potential to monetize their portfolio of past work, play a strong role in anointing the next generation of experts through editorial decisions and tenure letters.
It would be reasonable to argue that there is a sufficiently strong altruistic norm among academic economists that these concerns are misplaced. People don't go into academia for the money. It is one thing, though, to say that scholars don't choose a career for the money, and quite another to say they are incapable of being corrupted by it.
Whether we believe academic economists are altruistic or corrupted, we should acknowledge that we have made the road to a successful career narrow and difficult in a way that benefits established scholars at the expense of new ones. The hardship involved in traversing this road may most dissuade those who are now under-represented in our profession. How do we solve this problem? Possibly by reforming the institutions that have exacerbated barriers to entry into the realm of experts. Or possibly by devising credible new ways to circumvent them.
If this is indeed a problem of corruption, is it unique to economics? I have no reason to think it is. Conflict-of-interest problems are rampant in the medical sciences. But given the particular subject matter in some fields of economics -- making money -- our discipline has no shortage of prospective clients.