Slow Growth, High Debt, Forced Austerity Study Fatally Flawed

New Orleans  I’m a fan of Robert Pollin, who we know best as the University of Massachusetts economist who authored the ground breaking studies on the negligible to non-existent job loss coming from marginal increases in living wages for workers.  Pollin’s work was a critical, dispassionate argument against the “sky is falling” conservatives who argue that anything less than abject wage slavery retards business growth when fair wages are paid to workers.  In a recent issue of Social Policy magazine, we excerpted Pollin’s recent book about what we really need to do to get out of the recession and move forward with economic growth in the United States.  More folks need to read his stuff.

Knowing his work, my eye went right to an article in the Wall Street Journal debunking much of the conservative austerity argument currently all the rage in the European Union programs in Greece, Italy, Cyprus and elsewhere, that debunked the much cited study by economists Carmen Reinhart and Kenneth Rogoff that has been the bulwark on which many of these programs are based.  Rogoff and Reinhart have tried to establish that “high government debt levels – specifically, debt that is over 90% of annual economic output – hurt economic growth.”  On that basis and others, there is a lot of waffling by the EU Economics and Monetary Affairs Commissioner Olli Rehn about the “90% rule” because Bob Pollin and two colleagues have eviscerated the original study finding that it contained fundamental mistakes including omitting five countries from the final spreadsheet calculations, which once added, change the results completely and largely in the Journal’s words, “causes the Reinhart-Rogoff finding to disappear….” The U-Mass findings by Thomas Herndon, Michael Ash, and Pollin “deal another blow to claims that cutting deficits while the economy is depressed can boost the economy by increasing confidence.  European Central Bank officials jumped on the study as the bank looked for scientific basis for its endorsement of fast front-loaded deficit cuts.”

But, hey, you’re saying to yourselves, what do I care about the dying countries of Europe as long as they keep the AC and lights on at the museums?  The reason this academic, economics dispute matters a lot is that this is no different than a lot of the Republican argument in Congress and way too many of the states to cut the budget deficits while we are still suffering job losses and are in full fledged recession hangover ourselves.  Whether it is some of the Republican lowlights arguing slash and burn and no healthcare for the poor or the whack Ryan budget and the lockstep anti-bailout, anti-infrastructure spending, all of these arguments are still apples rolling not too far from this same discredited and crooked tree that says debt stifles growth, rather than the Keynesian program that expenditures accelerate the economy and some levels of significant government debt are essential.

Thanks again to Bob and the Amherst boys!

Audio Blog of Forced Austerity

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