Academic Research and Wall Street: What Do You Expect?
The New York Times explores the link between academic research and Wall Street in a lengthy story about a couple of professors who received financial support for work on the role of speculators in the commodities market. Professors Craig Pirrong at the University of Houston and Scott Irwin at the University of Illinois have written and testified extensively on the general benefits of financial speculation in the commodities markets. In this context, speculation means investing in a commodities contract with no intention of actually taking delivery of the underlying commodity. The Times article principally focuses on the lack of transparency concerning Professors Pirrong’s and Irwin’s industry affiliations.
Unfortunately, The Times investigation is wholly unsatisfactory. The article fails to show that any of Pirrong’s or Irwin’s research is incorrect. It only illustrates that their findings are generally supportive of their industry benefactors. This shouldn’t come as a surprise. Academics who receive financial backing from industry tend to produce research that backs the industry’s position. Industry paid for the work, and they’re not going to want it disseminated if it doesn’t serve their interests.
Mr. Pirrong’s reaction to The Times inquiry is disappointing and predictable. He asserts that his research is unbiased and that there’s no conflict of interest between his work and the source of his funding. Of course, if the Professor had admitted that bias might slip into his work, or that there was the possibility of conflict, he would have been the first researcher ever to make such an admission. It’s just like politicians who tell us that campaign contributions don’t influence their policy positions.
The Times ignores another major issue in industry-sponsored research: access to data. Whether its research on hedge funds, private equity, or commodities, much of the data needed to conduct studies is not publicly available. I suspect that many academics have to affiliate with industry in order to get the data on trades or deals necessary to produce a paper. Those professors who remain independent are at a distinct data disadvantage.
Rather than picking on two professors, The New York Times would better serve the public if they took a broader look at the extent to which Wall Street and money managers are underwriting business and economic research. From my experience, Wall Street is a major underwriter of business schools and economic departments. Wall Street never underwrites anyone without getting something back.