{"id":50145,"date":"2013-07-14T02:39:40","date_gmt":"2013-07-14T01:39:40","guid":{"rendered":"http:\/\/rinf.com\/alt-news\/breaking-news\/beyond-debt-and-growth-an-interview-with-robert-pollin\/50145\/"},"modified":"2013-07-14T02:39:40","modified_gmt":"2013-07-14T01:39:40","slug":"beyond-debt-and-growth-an-interview-with-robert-pollin","status":"publish","type":"post","link":"http:\/\/rinf.com\/alt-news\/breaking-news\/beyond-debt-and-growth-an-interview-with-robert-pollin\/","title":{"rendered":"Beyond Debt and Growth: An Interview With Robert Pollin"},"content":{"rendered":"

\"Austerity.\"(Photo: 401(K) 2012 \/ Flickr<\/a>)<\/span><\/span>Nothing warms the heart quite like a story of the high and mighty brought low. Harvard economists Carmen Reinhart and Kenneth Rogoff were the high and mighty\u2013prestigious academics whose influential paper on government debt and economic growth was widely cited by policymakers and commentators to justify painful austerity policies. The underdogs who brought them down were three members of the UMass-Amherst economics department: graduate student Thomas Herndon and professors Michael Ash and Robert Pollin. As Dean Baker of the Center for Economic and Policy Research (CEPR) argues, it is no accident that UMass economists were the ones to debunk Reinhart and Rogoff. The department, Baker notes, \u201cstands largely outside the mainstream\u201d of the economics profession and so is \u201cmore willing to challenge the received wisdom.\u201d<\/p>\n

Reinhart and Rogoff had claimed that countries with government-debt-to-GDP ratios of over 90% could expect dramatically lower future economic growth than other countries. But when Herndon attempted to replicate this result for a course in applied econometrics taught by Ash and Pollin, he found that he couldn\u2019t. In fact, as the Herndon-Ash-Pollin published paper would report, there was no dramatic growth dropoff above the supposedly critical 90% threshold. The reasons behind the faulty finding? Well, there was the world\u2019s most famous spreadsheet error\u2013which has received extraordinary media attention mainly because it is so embarrassing, so all the more delicious given the lofty position of the authors. More importantly, however, was Reinhart and Rogoff\u2019s questionable treatment of the data. Most of the difference between their results and Herndon-Ash-Pollin\u2019s was due to no mere error, careless or otherwise, but to deliberate (and, in Pollin\u2019s view, \u201cindefensible\u201d) decisions about how to average the data, how to divide it into different categories, and so on.<\/p>\n

Pollin is the co-director of the Political Economy Research Institute (PERI) at UMass-Amherst and is well-known for his work on minimum-wage and living-wage laws as well as the project of building a green economy.\u00a0Dollars & Sense\u00a0co-editor Alejandro Reuss sat down with him to talk not only about the Reinhart-Rogoff paper and the Herndon-Ash-Pollin takedown, but also larger issues about the economic crisis and austerity: the role economists have played in abetting austerity, the reasons behind policymakers\u2019 determination to impose austerity policies, and the diverging paths before us\u2013the profit-led recovery promised by neoliberal economists versus a wage-led recovery pointing toward a more egalitarian social-democratic system. \u2013Eds.<\/p>\n

Dollars & Sense:<\/strong>\u00a0While Reinhart and Rogoff\u2019s so-called \u201cExcel error\u201d got a lot of attention in the media, this was a relatively small factor in the findings they reported. What do you think are the key critiques of the view that high debt-to-GDP ratios doom growth, both in terms of the figures and inteRobert Pollin retation?<\/p>\n

Robert Pollin:<\/strong>\u00a0I recall one commentator said that the Excel coding error was the equivalent of a figure skater who was not doing well, but it wasn\u2019t entirely clear until he or she fell. Even though the fall itself wasn\u2019t the most significant thing, it dramatized the broader set of problems. I think that\u2019s true of the Reinhart-Rogoff paper. The main things that were driving their results were, first, that they excluded data on some countries, which they have continued to defend. Second, and most importantly, was the way that they weighted data. They took each country as a separate observation, no matter how many years the country had a high public debt-to-GDP ratio. For example, New Zealand had one year, 1951, in which they had a public debt-to-GDP ratio over 90%. And in that year New Zealand had a depression. GDP growth was negative 7.6%. The UK, by contrast, had 19 years in which the debt-to-GDP ratio was over 90%, and over those 19 years GDP growth averaged 2.5% per year, which is not spectacular, but not terrible. Now, according to the way Reinhart and Rogoff weighted the data, one year in New Zealand was equally weighted with 19 years in the UK, which I find completely indefensible.<\/p>\n

Dollars & Sense:<\/strong>\u00a0So when you correct for these problems, you end up with a modest\u2013maybe not even statistically significant\u2013negative relationship between the debt-to-GDP ratio and future growth. What are the main arguments about how to inteRobert Pollin ret this relationship?<\/p>\n

Robert Pollin:<\/strong>\u00a0Reinhart and Rogoff have been making the defense that even the Herndon-Ash-Pollin results still showed public debt-to-GDP over 90% being associated with a GDP growth rate of 2.2%. Meanwhile, at less than 90% debt-to-GDP, growth is between 3 and 4%. So they\u2019re saying, \u201cWell, we made some mistakes but it\u2019s still a 1% difference in growth over time, which matters a lot.\u201d And I wouldn\u2019t disagree with that observation.<\/p>\n

But there are other things in here. First, is it statistically significant? One of the other things we [Herndon-Ash-Pollin] did was to create another public debt-to-GDP category, 90% to 120%, and then above 120% debt-to-GDP. For the 90\u2014120% category there\u2019s no difference in future growth rates [compared to the lower debt-to-GDP category]. So it\u2019s only when you go way out, in terms of the debt ratio, that you will observe a drop-off in growth. Second, what happens when you look over time? In their data, for 2000 to 2009, the growth rate for the highest public debt-to-GDP category was actually a little bit higher than in the lower categories. So what\u2019s clear is that there really is no strong association.<\/p>\n

In addition, some people have then taken their findings and asked which way causality is running. Is it that when you have a recession, and you\u2019re at lower growth, you borrow more? Well, that\u2019s certainly part of the story. And Reinhart and Rogoff have now backpedaled on that. But to me even that is not nearly getting at the heart of the matter. The heart of the matter is that when you\u2019re borrowing money you can use it for good things or bad things. You can be doing it in the midst of a recession. If we\u2019re going to invest in green technologies to reduce carbon emissions, that\u2019s good.<\/p>\n

We also need to ask: what is the interest rate at which the government is borrowing? The U.S. government\u2019s debt servicing today\u2013how much we have to pay in interest as a share of government expenditures\u2013is actually at a historic low, even though the borrowing has been at a historic high. The answer obviously is because the interest rate is so low. When you\u2019re in an economic crisis and you want to stimulate the economy by spending more, does the central bank have the capacity to maintain a low interest rate? In the United States, the answer is yes. In the UK, the answer is yes. Germany, yes. In the rest of Europe, no. If you can borrow at 0%, go for it. If you have to borrow at 9%, that\u2019s a completely different world. And the Reinhart-Rogoff framework doesn\u2019t answer the question. It doesn\u2019t even ask that question.<\/p>\n

Dollars & Sense:<\/strong>\u00a0Looking at research touted by policymakers to justify austerity policies, which has now been debunked, do you see the researchers putting a \u201cthumb on the scale\u201d to get the results that they wanted? Is that something you want to address, as opposed to simply getting the data, seeing what\u2019s driving the results, and debunking the inteRobert Pollin retation when it is not justified?<\/p>\n

Robert Pollin:<\/strong>\u00a0It\u2019s clear that politicians seized on these findings without questioning whether the research was good. That\u2019s what you\u2019d expect them to do. Politicians are not researchers. The only research Paul Ryan cited in the 2013 Republican budget was the Reinhart-Rogoff paper. George Osborne, the Chancellor of the Exchequer in the UK\u2013same thing. People at the European Commission\u2013same thing. Now, speaking about Reinhardt and Rogoff themselves, I don\u2019t know. In general, it is certainly a tendency that if someone gets a result that they like they may just not push any further. I think that may have happened in their case, without imputing any motives. All I can tell you is that they wrote a paper which does not stand up to scrutiny.<\/p>\n

Dollars & Sense:<\/strong>\u00a0All this raises the question of why elites in Europe and in the United States have been so determined to follow this austerity course. How much do you see this as being ideologically driven\u2013based on a view of government debt or perhaps government in general being intrinsically bad? And how much should we see this as being in the service of the interests of the dominant class in society? Or should we think of those two things as meshing together?<\/p>\n

Robert Pollin:<\/strong>\u00a0I think they mesh together. I think part of it comes from our profession, from the world of economics. It\u2019s been basically 30 years of pushing neoliberalism. It has become the dominant economic agenda and certainly hegemonic within the profession. When the crisis hit, countries did introduce stimulus policies and one of the criticisms [from economists] was that this is really crude and we don\u2019t really know much about multiplier effects and so forth. That\u2019s true, and the reason that we have only this crude understanding of how to undertake countercyclical policies is because the mainstream of the profession didn\u2019t research this. It was not a question. They spent a generation proving that we didn\u2019t need to do these policies\u2013that a market solution is the best. So that\u2019s the economics profession and it does filter into the political debates.<\/p>\n

But then, beyond that, is the agenda of getting rid of the welfare state and I think a lot of politicians want that to happen. They don\u2019t want to have a big public sector. Either they believe that a big public sector is inefficient and that the private sector does things more efficiently, or, whether they believe that or not, they want lower taxes on wealthy people (and wealthy people want lower taxes because that lets them get wealthier). They don\u2019t want constraints on their ability to enrich themselves, and they certainly don\u2019t want a strong and self-confident working class. They don\u2019t want people to have the security of health insurance or pension insurance (i.e., Medicare and Social Security in this country). That\u2019s the model of welfare-state capitalism that emerged during the Great Depression and was solidified during the next generation, and these people want to roll it back. The austerity agenda has given them a launching pad to achieve this. I have no idea whether Reinhardt and Rogoff believe this or not, but their research enabled people like Paul Ryan to have the legitimacy of eminent Harvard economists saying we\u2019re killing ourselves and we\u2019re killing economic growth by borrowing so much money.<\/p>\n

Dollars & Sense:<\/strong>\u00a0Policymakers in the United States, Europe, and elsewhere, to a great extent, have just tried to \u201cdouble down\u201d on neoliberal policies. But with the structural problems of neoliberalism, keeping the same structure looks in effect like a way of keeping the same crisis. What do you see as the possible ways out of the impasse, both desirable and undesirable?<\/p>\n

Robert Pollin:<\/strong>\u00a0I think there are fundamentally only two approaches\u2013basically profit-led models versus wage-led models. In the\u00a0Financial Timestoday [June 10], the well-known columnist Gavyn Davies is saying that the reason the stock market is going up\u2013and it\u2019s going up very handsomely\u2013is fundamentally because the current model of capitalism is able to proceed by squeezing workers even harder. The wage share, which had been relatively stable for generations, is going down and the profit share is going up.<\/p>\n

Now is that sustainable? Presumably you\u2019re going to have a problem of demand at a certain point because if workers don\u2019t have enough in their pockets, how are they going to buy the product? One answer is we can export to rising Asian markets and so forth. But the Asian countries themselves are depending on the exact same model. The alternative, which I think makes more sense logically and is also more humane, is to have a more equal distribution of income\u2013a social democratic model of capitalism in which you do have a strong welfare state that acts as a stabilizer to aggregate demand and also enables workers to buy the products that they make. And that\u2019s true for China and for the United States.<\/p>\n

We have to add into that the issue of environmental sustainability. At the same time that we\u2019re building a new growth model it has to be a model in which carbon emissions go down per unit of GDP. I don\u2019t think it\u2019s that hard to do technically. Whether it happens is another matter.<\/p>\n

[The 20th-century Polish macroeconomist Michal] Kalecki, of course, recognized this a long time ago, saying you can have a model of capitalism based on repressing workers. (He noted that it\u2019s helpful, if you\u2019re going to do that, to have a repressive fascist government\u2013not that he was advocating doing that, of course.) After a while, and this was in the\u00a0Financial Times\u00a0today, workers are going to see that they\u2019re not getting any benefit from a recovery, and it\u2019s going to create all kinds of political results, and we don\u2019t know what they\u2019re going to be. But people are going to be pissed off.<\/p>\n

Dollars & Sense:<\/strong>\u00a0That brings us to a central question, which Kalecki raised, that a social problem may be solved technically and intellectually, but still face barriers of economic and political power. That applies not only to full employment, the issue he was addressing, but also to environmental sustainability and other issues. Can our most serious problems be resolved within the context of capitalism, or do they require a new kind of economy and society, whatever we may call it?<\/p>\n

Robert Pollin:<\/strong>\u00a0The challenge that Kalecki introduced points to some version of shared egalitarian capitalism, such as a Nordic model. Whether that model works and how long it works is an open question, and it varies for different countries.<\/p>\n

Certainly, when we think about environmental infrastructure investments, collective solutions are workable. We know from Europe that initiatives, which are collectively owned and collectively decided, for building renewable energy systems really do work. In large part, this is because it is the community saying, \u201cWe don\u2019t mind having wind turbines if it\u2019s done right within our community and we have a stake in it.\u201d If some big coRobert Pollin oration were to come and say, \u201cWe\u2019re wiping out 18 blocks here to put up some turbines and we have a right to do it because we own the property\u201d\u2013it doesn\u2019t work. We have public utilities and that works just fine in this country.<\/p>\n

Expanding the role of the public sector in my view is totally consistent with what\u2019s going to happen in the future. So that starts transcending the primacy of coRobert Pollin orate capitalism. But we can\u2019t get there in ten years. No matter how much anybody wants it, that\u2019s not going to happen. We have a problem of mass unemployment and we have an environmental crisis with climate change, and if we\u2019re not going to transcend capitalism in ten years we have to also figure out ways to address the concerns now within the existing political framework. That\u2019s not fun. When I deal with mainstream politics in Washington, it\u2019s very frustrating, but that\u2019s the world we live in.<\/p>\n

I think that if we press the limits of the existing system, that helps me to understand how to move forward into something different than the existing structure. My professor Robert Heilbroner, a great professor who had a beautiful way of expressing things, talked about what he called \u201cslightly imaginary Sweden.\u201d So it\u2019s not the real Sweden but this notion of some kind of egalitarian capitalism. As you press the limits of that model, you can intelligently ask what\u2019s wrong with it. If we\u2019re pushing the limits and something is holding us back, let\u2019s solve that problem. I think that\u2019s a good way forward.<\/p>\n

Republished with permission from: Truth Out<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

(Photo: 401(K) 2012 \/ Flickr)Nothing warms the heart quite like a story of the high and mighty brought low. Harvard economists Carmen Reinhart and Kenneth Rogoff were the high and mighty\u2013prestigious academics whose influential paper on government debt and economic growth was widely cited by policymakers and commentators to justify painful austerity policies. The underdogs […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[487],"tags":[],"class_list":{"0":"post-50145","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-breaking-news"},"_links":{"self":[{"href":"http:\/\/rinf.com\/alt-news\/wp-json\/wp\/v2\/posts\/50145","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/rinf.com\/alt-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/rinf.com\/alt-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/rinf.com\/alt-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/rinf.com\/alt-news\/wp-json\/wp\/v2\/comments?post=50145"}],"version-history":[{"count":0,"href":"http:\/\/rinf.com\/alt-news\/wp-json\/wp\/v2\/posts\/50145\/revisions"}],"wp:attachment":[{"href":"http:\/\/rinf.com\/alt-news\/wp-json\/wp\/v2\/media?parent=50145"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/rinf.com\/alt-news\/wp-json\/wp\/v2\/categories?post=50145"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/rinf.com\/alt-news\/wp-json\/wp\/v2\/tags?post=50145"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}