The New York Times, in an article written by David Kocieniewski, has singled out me and the University of Illinois’ Scott Irwin for an extended ad hominem treatment alleging that our statements and research on commodity speculation are tainted due to financial connections with “Wall Street.” As one individual put it to me, the article is “nasty, biased and thinly researched.” All true (if incomplete-the list of sins is even longer). But at the risk of providing credence to the incredible, I believe some sort of response is warranted. So here it goes.
Let me start by saying I have been very fortunate. I have been able to pursue my academic passions, publish papers and books on them, and consult and testify as an expert witness on many matters related to these passions. Through each and all parts of this, I have been true to my Chicago School roots and to what I thought the data and good economics showed. My opinions on speculation are the product of my training and my research, period.
Moreover, completely contrary to the impression in the NYT piece, the vast bulk of my consulting and testifying work has been adverse to Wall Street and commodity trading firms. Virtually none of this work relates to the alleged subject of the NYT story: the impact of speculation on commodity prices. In fact, much of this work relates to market manipulation (which is distinct from speculation) by commodity traders. I have been, and continue to be, on the side of plaintiffs in attempting to hold traders who abuse markets accountable for their conduct.
The failure of David Kocieniewski to point out this salient fact alone betrays his utter unprofessionalism and bias, and is particularly emblematic of the shockingly shoddy excuse for journalism that his piece represents.
Moreover, none of the research or writing I have done on the speculation issue received financial support from any firm or entity with even a remote stake in this issue. I started writing about this on my blog in 2006, and have been arguing this issue on my own time with no financial support from anyone. Unlike, say, Ken Singleton (whom I admire immensely and am not accusing of anything remiss) I have not written any commissioned research on the subject of commodity speculation. My work that has been done with firms that are connected, in some way, to commodities trading has been on subjects unrelated to financial speculation, and/or with firms that are not financial speculators, and/or took place well after my opinions on the subject were a matter of public record, including in national publications like the Wall Street Journal. Therefore, to suggest some connection between my paid outside work and my opinions on speculation is misleading, deceptive, and plainly libelous.
True to my Chicago School roots, I believe this is a data issue informed by a strong understanding of the theory and empirics of commodity pricing-a literature to which I have made many peer reviewed contributions. And I have been open and remain open to reviewing any data on any market. I further note that the vast bulk of other research on this subject, undertaken by world-class scholars including James Hamilton and Lutz Killian supports my conclusions (and those of Scott Irwin). Ironically, considering the where this piece appears, even Paul Krugman is in agreement.
The simple explanation for my views is that I am avowedly a “super-freshwater economist” by training and conviction. Because I know that drinking saltwater makes you go crazy. Kidding aside, my work on speculation is a piece with all of my academic work, my background, and my training. Randall Kroszner, former Fed governor, told me once that I was one of the last true Chicago School economists. That’s a compliment, that’s pretty accurate, and that’s aspirational. That is a much better predictor of where I come down on any issue than anything else: including money.
What’s more, I do not solicit, have never solicited and would not solicit money for any institution or purpose based upon my views of speculation or the policy issues relating to speculation. Or any other issue.
A couple of other points before getting into specifics.
First, there are no coincidences, comrades. The NY Times has been Tiger Beat effusive in its praise for Gary Gensler of the CFTC. This piece attacking two of the most prominent academic critics of Gensler’s efforts to impose a speculative position limits rule comes out days after the Commission approved a new version of the rule, and is in the midst of the comment period leading up to the formulation of a final rule. Gensler fought for this rule for 5 years, and he views it as an important part of his legacy. That is, there is a clear political agenda at work here: to kneecap those who have the audacity to oppose the regulatory agenda of Gensler and his media acolytes.
Second, this kind of ad hominem attack will have the effect (which is likely intended) of serving as a warning to other academics who cross powerful political interests with their academic research, and who have the temerity to speak out on controversial matters. How can this be seen as anything other than having a chilling effect on other academic researchers in the the financial and commodity markets? But maybe that’s exactly the point.
Now some specifics.
- There are many egregious distortions in the article, but the most egregious is Kocieniewski’s lying by omission. Lying. By. Omission. Specifically, he omits the salient fact that the bulk of my consulting engagements (in the form of expert testimony) have been adverse to commodity traders and banks. I have testified numerous times about manipulations by these types of firms, and have testified against them on other matters unrelated to manipulation.
- Let’s examine some of the firms I have been adverse to in my work over the past 20 years, shall we? Off the top of my head: BP (twice); AEP; Ferruzzi (a commodity trading firm); Duke Energy; Nasdaq market makers; JP Morgan; MetLife; Morgan Stanley; Goldman Sachs; Cargill; Amaranth (a hedge fund that was one of the largest speculative-industry players in the country); Moore Capital (one of the world’s largest hedge funds, and another huge speculative industry player); Optiver (a major trading firm); Pimco (the world’s largest fixed income fund); Merrill Lynch (twice); Sumitomo (major copper trader); Microsoft; Cantor Fitzgerald (twice); and on and on. A veritable murderers’ row of banksters and traders and energy firms.
- I say again: by omitting any mention of this work the Times is lying by omission, and presenting a biased and extremely distorted picture of me and my work. This biased selectivity makes a joke of the Times’ motto “all the news that is fit to print”. Leaving out this salient fact makes it plain that Kocieniewski and the Times have an agenda, and no interest in presenting a complete picture of me and my work. The Times article (inaccurately-see below) lists some of my work on the side of commodity traders and exchanges to create the impression that I am their creature, but leaves out the work in which I have been their fierce antagonist-and in the performance of which I have contributed to their payment of damages running into the many hundreds of millions of dollars. This failure to mention evidence that contradicts his pre-conceived conclusion is shoddy, dishonest journalism.
- Nowhere in the article does the article point out any mistakes or inaccuracies in my research or Scott’s, only making it plain that the problem is that our research does not fit his and the NYT’s preconceived notions about speculators. I spoke to the reporter for quite a while. Mostly about the substance of my arguments. None of that made it into the article, and the reporter wasn’t even able to find another academic to criticize my arguments (or Scott’s): there’s no evidence he even tried, suggesting that the substance was irrelevant to him. The failure to address the substance of my arguments is very telling. If I am merely advancing some illegitimate commercial interest, my arguments would be easy to refute, no? Moreover, Kocieniewski fails to mention my numerous peer-reviewed publications on commodities. This provides independent validation (though imperfect, because I have serious criticisms of peer review) of my work on the behavior of commodity prices.
- There are several factual errors. Most notably, Kocieniewski claims I wrote a “flurry” of comment letters on speculation/position limits. I guess in the NYT Thesaurus, “flurry” is a synonym for “one.” For I wrote a single comment on the issue: as I noted in an earlier post, the comment must have had something of an effect because the CFTC’s new speculative limit proposal eliminates language I had criticized in my letter. (I also wrote a comment on the CFTC rule proposal relating to clearinghouse governance. Thus my “flurry” of comments to the CFTC on Frankendodd totals two snowflakes.) Also, the article ominously suggests that I simultaneously had undisclosed “financial ties” to banks and trading firms when I wrote the study on the systemic risk of commodity trading firms for the Global Financial Markets Association (GFMA). This is not correct. I agreed to write a white paper on commodity trading firms for Trafigura more than a year after writing the GFMA report. Indeed, the GFMA report led to the Trafigura engagement. Which again indicates that public revelations of my views typically precede any paid retention.
- Obviously, the story of the GFMA study, which I have discussed earlier on the blog, demonstrates clearly that my opinions are not for sale, and that I have stood up to and do stand up to “Wall Street.” I would specifically note that one thing that I adamantly refused to remove from that study, despite the insistence of the attorney for JP Morgan’s commodity trading division, was my statements that commodity trading firms have been known to manipulate markets.
- Kocieniewski’s’ claim that I somehow conceal my consulting work by referring to myself “solely as an academic” is refuted by the biography linked to in his story. That bio includes the following language, which I include in the bio for every speaking engagement I undertake: “Professor Pirrong has consulted widely. His clients have included electric utilities, major commodity processors and consumers, and commodity exchanges around the world.” Therefore, Kocieniewski’s characterization of how I represent myself is deceptive and fundamentally dishonest. I gladly reveal that I consult because it suggests I might actually know something about the real world that real people might learn from.
- Kocieniewski’s representations about disclosures are invalidated by his dishonest handling of chronology. He insinuates that I did not disclose my work for the CME or commodity trading firms when I testified before Congress in 2008. But the work for CME Group, GFMA, Trafigura, etc., that Kocieniewski mentions occurred in 2011 and later. My disclosures in my testimony were accurate at the time I made them. But I guess I should have invented a time machine, or become Karnac the Magnificent and disclosed things that I would do in the future.
- The Times insinuates that my work for CME, Trafigura, TruMarx and others is related to the speculation issue, and hence taints my opinions about this matter. My work for CME has consisted of evaluating the performance of the WTI contract as a hedging mechanism and an expert witness engagement regarding a patent on electronic trading systems: neither has anything to do with commodity speculation. Trafigura is a physical commodity trader that uses derivatives almost exclusively to hedge, not speculate. TruMarx launched a platform to trade physical energy, primarily between end users: again, nothing to do with financial speculation. These matters and these companies are not related to the financial speculation issue, and Trafigura and TruMarx in particular have no real stake in the speculation debate. Moreover, my work for them has nothing to do with the speculation issue. Either Kocieniewski is ignorant of the fact that many commodity traders are not speculators, in which case he is not competent to be writing this story, or he is counting on the inability of his readers to understand the great diversity of firms involved in commodity markets, most notably the fact that many (most?) are not speculators, in which case he is attempting to mislead. I know where I am laying my bets.
- The Times also mis-states facts about Scott Irwin, but that is mainly for Scott to correct. One particularly egregious thing stands out which I cannot let pass though. Kocieniewski talks about the $1.5 million that CME Group donated to the University of Illinois. But not one cent-one cent-of that went to Irwin’s Department of Agricultural and Consumer Economics, let alone to Irwin personally. To say that Kocieniewski’s connection of the CME’s financial support for the University of Illinois (a $4.4 billion dollar operation) and Scott Irwin is scurrilous is an extreme understatement.
I could go on, and may expand on this in a subsequent post. But this should suffice to show that the New York Times published a hit piece to achieve a political purpose. That piece is is a farrago of dishonesty, insinuations, innuendo, and ad hominem. It is dishonest to its very core because of its egregiously biased omission of some essential material facts and deceptive presentation of others.
And pace John Paul Jones, I have not yet begun to write-and fight-on policy issues that matter to me. I will continue to bring my style of economics, data, and facts to issues upon which I can make a constructive contribution. The fact that the New York Times feels compelled to answer with fundamentally dishonest ad hominem means that it knows it cannot win on the substance, and that it views me (and Scott) as a threat to its agenda. That’s all the encouragement I need to keep it going.