Krugman: Stop Being Mean To Jonathan

Paul Krugman decided today would be a good day to explain his profession's ethics to Glenn Greenwald:

Today Glenn Greenwald accused me of being a hypocrite for defending Jonathan Gruber, the health care economist who has become a target of some progressive opponents of the health care plan. He writes:

Paul Krugman, for instance, in 2005 angrily lambasted right-wing pundits and policy analysts who received secret, undisclosed payments, and said they lack “intellectual integrity”; he specifically cited the Armstrong Williams case. Yet the very same Paul Krugman last week attacked Marcy Wheeler for helping to uncover the Gruber payments by accusing her of being “just like the right-wingers with their endless supply of fake scandals.” What is one key difference? Unlike Williams and Gallagher, Jonathan Gruber is a Good, Well-Intentioned Person with Good Views — he favors health care — and so massive, undisclosed payments from the same administration he’s defending are dismissed as a “fake scandal.”

What’s wrong with this accusation? Everything. Armstrong Williams received a contract specifically to promote Bush administration policies; his duties under the contract were to “regularly comment” on these policies on his program, and to interview Bush administration officials. In short, he was being paid to serve as a propagandist.

What was Gruber contracted to do? He emails:

More On Jon Gruber

Ya know, Professor, there's this thing called the Internet now. You can find out just by going to a government website what the government thought it was hiring Gruber to do.

That's what Marcy Wheeler did several days ago, after which Krugman slagged her work:

I sort of missed the controversy over Jon Gruber and his contract with [the U.S. Department of Health and Human Services (HHS)]. For those who haven’t been following this, Gruber — who is one of the three or four top health care economists in the nation — turns out to have a large research grant from the Department of Health and Human Services, for modeling the consequences of various reform plans. This has led some people, mainly Marcy Wheeler at Firedoglake, to question Gruber’s objectivity.

The truth is that this is no big deal. Gruber’s grant is from HHS, not the West Wing; it’s basically the same kind of thing as, say, an epidemiologist receiving a grant from the National Institutes of Health. You wouldn’t ordinarily say that this tarnishes the epidemiologist’s credentials as an independent analyst on infectious diseases, unless you want to say that nobody receiving a research grant can be considered independent.
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What the folks at Firedoglake should ask themselves is this: do you really want to become just like the right-wingers with their endless supply of fake scandals?

Jonathan Gruber

Here's what Marcy Wheeler actually wrote on the subject:

MIT health economist Jonathan Gruber has been the go-to source that all the health care bill apologists point to to defend otherwise dubious arguments. But he has consistently failed to disclose that he has had a sole-source contract with the Department of Health and Human Services since June 19, 2009 to consult on the “President’s health reform proposal.”

He is one source for the claim that the excise tax will result in raises for workers (though his underlying study is in-apt to the excise tax question). He is the basis for the argument that the Senate bill reduces families’ risk–even if it remains totally unaffordable. Even Politico stenographer Mike Allen points to Gruber’s research.

But none of the references to Gruber I’ve seen have revealed that Gruber has a $297,600 contract with HHS
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Even assuming that Gruber is the only one in the world who can run these simulations, don’t you think it’s rather, um, dubious that the guy evaluating the heath care reform–for $300,000–is also the package’s single biggest champion?

And no one has been transparent about this contract?

Jonathan Gruber Failed to Disclose His $392,600 Contracts with HHS (Updated)

Gruber is the only economist who seems to claim that there is evidence that wages will go up when an excise tax is levied against the workers' health care benefits. This seemingly bizarre claim, based on the notion that wages will go up when health care costs go down for employers, is at the heart of the Obama Administration's justification for the excise tax on so called "Cadillac" health care plans that is in the Senate's health care bill.

If an epidemiologist under contract to HHS were to advance the notion that all that germ stuff was just hooey and we should all start making burnt offerings, and if this fit in with his President's notion that we need a national religion based on voodoo, I'd be a little suspicious when that epidemiologist repeatedly failed to mention that he worked for the government on a contract basis. Gruber's assertions, while not as bizarre, are certainly not widely supported by other economists' analysis.

So, yes, there's something to question about this. As it happens, Gruber has had similar contracts with HHS going back at least to 2000. He wasn't just hired this year to perform his data magic. Still, the Obama Administration can ultimately decide the fate of future contracts between Gruber and the government, barring Congressional intervention or a successful lawsuit. Gruber has a potential profit motive here, however unlikely it is that he might need to worry about it.

Just to repeat, because this seems to escape people like Prof. Krugman - Gruber didn't disclose his contract with HHS while acting as a proponent for the policies of the Administration that was his customer. This is a conflict of interest, whether it had any bearing on Gruber's findings or not. When he failed to tell the news agencies that specifically asked about any conflicts of interest, he deceived them and their readers or viewers. Marcy Wheeler takes up that case:

One of the biggest puzzles in Jonathan Gruber’s explanation for why he hasn’t been disclosing his $400,000 HHS contract as he has led the campaign to support the bill is timing. By his own admission, he revealed the contract for a disclosure form associated with a December New England Journal of Medicine article. That form was dated November 30.

But the WaPo did not disclose the relationship for an op-ed published almost a month after he filled out that disclosure form.

Now, Gruber says he has disclosed the contract whenever he has been asked.

Gruber told POLITICO that he has told reporters of the contract “whenever they asked.”

But in a follow-up with the WaPo, Ben Smith reports that Gruber was asked by the WaPo, and he said he didn’t have any financial conflicts.

Gruber Did Not Disclose Conflict to the WaPo

Asked directly for the same conflict of interest information Gruber gave the NEJM, he failed to provide that information to the Washington Post. Krugman, apparently, did not find this particularly troubling, either. Yet Gruber behaved one way for a professional publication and another way for one that would be read by the general public. Once again, anyone not intimately familiar with the situation, which is probably anyone who is not Jonathan Gruber, ought to be suspicious at this point.

By the way, if you want to know the justification for Wheeler's claims, go to the links I've provided and follow her links.

What does Krugman think of Gruber's theory about the relationship between excise taxes on health insurance and wages? Not too much, if what he wrote two days before is any indication:

Second, there’s the argument that any reductions in premiums won’t be passed through into wages. I just don’t buy that. It’s true that the importance of changing premiums in past wage changes has been exaggerated by many people. But I’m enough of a card-carrying economist to believe that there’s a real tradeoff between benefits and wages.

Maybe it will help the plausibility of this case to notice that we’re not actually asking whether a fall in premiums would be passed on to workers. Even with the excise tax, premiums are likely to rise over time — just more slowly than they would have otherwise. So what we’re really asking is whether slowing the growth of premiums would reduce the squeeze rising health costs would otherwise have placed on wages. Surely the answer is yes.

The Health Insurance Excise Tax

The link is from Krugman's article. If you follow it, and read as far as page two, the author of that paper, the Economic Policy Institute's Lawrence Mishel, makes this statement:

Others, including prominent and well-respected journalists, have also made the argument recently for a “health care theory of wage determination.” Proponents of this theory point for evidence to the latter half of the 1990s, a five-year period when wages were growing rapidly while growth in employer health care spending was relatively constrained. They contrast the period from 1995 to 2000 with the periods from 1989 to 1995 and 2000 to 2006, when wages stagnated while health care costs grew much more rapidly.

There is logic to their argument, but it is only skin-deep and deeper examination will show it to be simply not true. The logic can be seen looking at trends in health care premiums and wages—wage growth fared better in the late 1990s when health care premiums grew more slowly than in the early 1990s and wages performed poorly in the 2000s, a period when health premiums grew strongly again.

However, digging just a bit beneath the surface reveals the following:

1. Health care costs are not large enough to substantially move wages as these proponents claim;


2. Examination of actual wage and benefit trends confirms that changes in the trajectory of health care costs did not materially affect wage trends over the last 20 years; and


3. The wage behavior described—accelerating in the late 1990s and more slowly thereafter—actually best characterizes wage growth for low-wage workers who have minimal access to employer-based health care. Conversely, this pattern of wage-growth over time is least pronounced for higher paid workers with the most health coverage.

Clearly, this “health care theory of wage determination” is wrong, and other factors explain these overall wage trends

Employer Health Costs Do Not Drive Wage Trends

What this means, for those who aren't sure what they're reading, is that the relationship isn't exaggerated. Rather it doesn't exist. Krugman misstates this basic idea to make a dubious case. It's possible that in some instances wages will change or stagnate at least partly due to health care - after all, it's possible to be struck by lightning with a winning lottery ticket in one's hand. The times it will happen, though, will probably be isolated instances of some employers or some markets.

Sorry for the long explanation, but this has become a somewhat complicated tale. In looking around the Internet to find out what professional ethics might apply to economists, I was not terribly surprised to find out that they don't have any. There are proposed guides here and there, but as a professional psychologist notes, no accepted code exists:

And finally, this leads directly to the third problem with economics as a discipline, which is in my area of specialty: the motivations of the economists themselves. While I find the assumption of rational pursuit of self-interest to be not usually true for people in general, let us imagine for a minute that it is at least true of economists themselves. Unfortunately, if economists are constantly pursuing their own economic self-interest, then that means we can't trust what they say. Policy is constantly influenced by interest groups that are shopping in the marketplace for arguments to justify their agendas. Economists, meanwhile, are sellers of such arguments. According to economic theory, economists, if rationally pursuing their self-interest, will then sell their opinions to the highest bidders. Therefore, an unfortunate corollary of economic theory is that you shouldn't believe economists.
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Very much related to all of the above is an amazing fact: economics has no code of ethics. Well of course not. A code of ethics would make rational pursuit of economic self-interest much more difficult.

Psychologist Concludes Economists Need A Code Of Ethics

Like this psychologist, I find this fact rather bizarre: economists are people who are often asked to analyze the most important questions about how we should run our society. How should banks be regulated? How much savings or unemployment is good or bad? What level of taxation is sustainable? These are important questions, yet the profession we ask them of has no code of ethics.

My profession, curiously, does have such a code, which I'll quote from here on the subject of conflicts of interest:

[IEEE members pledge to:]

2. to avoid real or perceived conflicts of interest whenever possible, and to disclose them to affected parties when they do exist;

IEEE Code of Ethics

Which strikes me as pretty cut and dried. What is a conflict of interest? If your monetary status can be affected by your answers to a reporters' questions, that's a conflict of interest. Here's how Wikipedia defines it:

A conflict of interest (COI) occurs when an individual or organization is involved in multiple interests, one of which could possibly corrupt the motivation for an act in the other.

Wikipedia: Conflict Of Interest

That's the meaning I learned from working in the defense industry for more than two decades. And that brings me to the thing about Krugman's attitude here that really pisses me off.

COI rules don't just apply to professional organizations. They are a part of contracting with the federal government. This National Defense Magazine article explains what is required now of defense contractors, and others with contracts with the federal government:

Treasury’s rules broadly define [Personal Conflict of Interest (PCI)] as “a personal, business, or financial interest of an individual, his or her spouse, minor child, or other family member with whom the individual has a close personal relationship, that could adversely affect the individual’s ability to perform under the arrangement, his or her objectivity or judgment in such performance, or his or her ability to represent the interests of the Treasury.”

Contractors must verify extensive financial information about their management employees and key individuals who work on covered contracts. This information sometimes mirrors data federal employees must disclose on financial disclosure Form SF-278, which solicits information about filers’ property interests and other assets, transactions of property and investments, gifts, reimbursements and travel expenses, liabilities, arrangements with employers and outside positions and pay exceeding $5,000.

Merely reporting this information to the government to determine whether an improper PCI exists is not enough. Contractors must analyze the information, identify improper conflicts and disqualify such employees from performing contract work absent mitigation measures that effectively neutralize the conflict.

Tighter Rules For Conflicts Of Interest

These rules exist so that contractor employees won't end up buying goods or services on behalf of the government in such a way that they will benefit personally. I had to follow the predecessors of these rules, as do all other contractor employees. Civil service and military personnel have similar rules they must follow.

This isn't difficult to understand - if it's possible that you will profit by your actions in a way that isn't obvious, then you should disclose that potential for profit. Gruber failed to do this when he discussed health care policy with several outlets of the popular press.

So, if Paul Krugman is to be believed, economists don't need to worry about this sort of thing, because they're not going to be worried about where their next contract is coming from. Economists are above it all.

That's why my assistant will now deal with Prof. Krugman's paper:


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Afterword: Yeah, yeah, I know - Why am I picking on Krugman? I really didn't want to write about this anymore, to tell you the truth. But after having had to live with the notion of conflict of interest for an entire career, and to have someone so blithely ignore what it means in a national newspaper blog for a story as important as this one, is just really bloody annoying.

It's especially annoying because there are probably dozens of bloggers and pundits who will be quoting this article of Krugman's as yet another brilliant response to the irrational FireDogLake. People really ought to know what they're talking about before they talk shit about other people's work, but so often they don't. They'll just assume the guy with the Nobel knows what he's talking about. If this article serves as a counterweight in any small way, I'll be happy.

And I just love that line about how "an unfortunate corollary of economic theory is that you shouldn't believe economists."

I'm starting to take that one to heart.

UPDATE (Jan. 16): Glenn Greenwald wrote a response to Krugman today. It's well worth a read, because it explains why such conflicts of interest are such a problem, and why the inevitable protestations that they mean nothing, while they might be true, are irrelevant.