Robert Pollin opens his book with an introduction that acknowledges how the book came about. He states that in examining the economic policies of the 1990’s under President Clinton, and Clinton’s “third way” approach to fiscal rectitude, that he became unconvinced by the rhetoric emerging from the Clinton administration in relation to US “Economic growth, living standards, and the fragility of the financial system.” His paper on the subject appeared in the June 2000 issue of New Left Review, and later in a volume edited by Professor Arestis and Sawyer, entitled: The Economics of the Third Way: Experiences from Around the World.
Pollin working with Arestis of the Jerome Levy Economics Institute and Sawyer of the University of Leeds concluded that the “first way” referred to Clinton’s approach to “free markets and big business,” whilst the “second way” referred to the legacies of “big government”, alluding to “Roosevelt’s New Deal and Johnson’s Great Society” as methods of study in comparison.
Pollin’s view prior to the “stock market bubble”, and using Standard and Poor’s 500 listings as a reference point, was that “Clinton will hand over to his successor the most precarious financial pyramid of the post-war epoch.” Convinced by Verso, by Noam Chomsky and by his wife Sigrid, Pollin settled down to work with Verso at a time when the US Supreme Court had ruled in favour of George W. Bush after the 2000 presidential election. In deciding to write the book, Pollin also had to consider the effects of the September 11th, 2001 atrocities not just on America, but on less developed counties highly dependent on foreign aid, and in his acknowledgements he notes such luminaries as the Ford and Rockefeller Foundations, as well as a number of personal contacts. (Pollin 2003 Preface & Acknowledgements)
WHAT THE CRITICS THINK BY WAY OF REVIEW.
A number of reviewers put forward their views on Pollin’s work on the jacket. Ralph Nader describes “Contours of Descent” as “lucid economics,” and refers to “a laser-beam exposure of globalization as defined by the World Bank, the IMF, Alan Greenspan and the corporate supremacists.”
Professor Ajit Singh of Cambridge University states that “Professor Pollin is one of the leading heterodox economists in the US,” and puts forward the notion that Clinton, Bush and the International Monetary Fund (IMF) have followed the same “neoliberal economic policies to the detriment of people in the US and the developing world.”
Jane D’Arista, Director of Programs, of the Financial Markets Centre speaks about Pollin’s “hollow boom” of the 1990’s, and states that it is “a superb work of political economy”. Professor Lourdes Beneria, Cornell University and President of the International Association for Feminist Economics (IAFFE) states that Pollin examines the economic policies in light of the “Marx problem, the Keynes problem and the Polanyi problem”, and speaks of an alternative strategy in US economic policy: “a workable egalitarian policy agenda”. (Pollin 2003, Jacket).
Adam Smith: Known as the father of economic thinking he spoke about “the invisible hand of the market.”
Karl Marx: His theories centred on the fact that workers had less power when negotiating employment contracts during the “bargaining process”, and that “capitalists” could achieve higher profit margins when they used this strength. Marx also spoke about the “reserve army” of workers, and states that employers having a huge pool of workers to draw talent from can result in a “credible threat” to worker’s jobs and salaries. The effect on agricultural ‘home-grown’ produce is also noted, in that poor farmers cannot compete with major agricultural entities that benefit from “tariff cuts and subsidies”.
John Maynard Keynes: He argued that when “investment spending” declines, everything else suffers. Business losses can result in unemployment, with its knock-on effect on household spending, and can fuel a downward spiral leading to “recessions”. Keynes also warned about “speculation” in the free market economy, and warned that businesses were susceptible to “rumours” with its knock-on effect on share price.
Karl Polanyi: Like Smith, Polanyi argued that a culture of profits and yet more profits could “corrupt” society with knock-on social effects. He noted that “market economies needed to operate with fairness, and be embedded in social norms and institutions that contributed to the common good”, and his theories were taken up post-WW 11 by countries seeking to rebuild their shattered economies. The setting up of the International Monetary Fund (IMF) and the World Bank, the initiation of the Marshall plan, saw US GDP rise from a low of 8% in 1913 to 21% by 1950. These figures were driven by the huge consumer spend following the war – the demand for ‘white goods’, televisions and cars.
However problems remained, not least “inflation”. (Pollin 2003 pp.18). By the 1970’s the price of oil was also a significant factor, and the election of two leaders – Margaret Thatcher in the UK, and Ronald Reagan in the US – were to drive “neoliberalism” policies to the forefront of political thinking. The aim of Pollen is to reverse the “contours of descent” brought about as a result of Marxism, Keynesian and Polanyi thinking and the “neoliberalism” thinking behind Thatcher and Reagan’s policies. The author argues that is not simply a matter of “regulating” and “deregulating” sectors of the market, but that the problems run deeper. The problems of the environment receive only a footnote, and yet it is clear that protocols like ‘Kyoto’ have a bearing too.
“Clintonomics: The Hollow Boom.”
“It’s the economy, stupid,” was one of the catchphrases behind Clinton’s rise to power. He came in on a ‘ticket’ of “Putting People First”, but as Bob Woodward of the Washington Post noted, even this policy changed before the inauguration ceremony. Three major changes altered the Clinton administration thinking: “A fall in inflation and unemployment, a transition from fiscal deficits to surpluses (which put more money into the economy), and the stock market bubble.” (the dot.com revolution). (Pollin 2003, pp 21-22).1
Trade Policy: The position was set out in the “Economic Report of the President”, but even under the “Hecksher-Ohlin” model, deficiencies were identified between the earning capacities of those working within the US, and those in poorer countries like Mexico. Trade agreements like “NAFTA” didn’t work to compensate “losers” by the “winners” of International trade. (Pollin 2003, pp22-24).
Clinton did introduce a “minimum wage” but it remained low in terms of productivity, and critics have argued that he made up for this through his tax concessions – the “Earned Income Tax Credit”. (EITC). He also tinkered with various benefits, and reduced taxes in certain areas of his budgets. With regard to expenditures he cut the military budget by 36.7%, the education budget by 23.9%, science by 19.1%, income security by 17.6% and transportation by 10%. Like previous administrations, Ford, Carter, Reagan, Bush 1, Clinton expanded the EITC scheme, but what he gave with the one hand he took with the other by cutting “welfare assistance” programmes. (Pollin 2003 pp.29).2 The number of people receiving “food stamps” dropped dramatically. Critics argue that the EITC system is better than the ‘welfare’ state in that it encourages workers.
Clinton also adopted strict “fiscal policies” designed to eliminate “federal debt.” In this he hoped to produce a lower “interest” rate environment and “stimulate private investment.” He hoped for a “reduction in demand for scarce credit by the public sector, and freeing the Federal Reserve to pursue a looser monetary policy.” (Pollin 2003, pp31). Greenspan still maintained huge prestige in financial markets, and was involved in advising the Clinton administration during the 1997-98 East Asian financial crisis (a period of time when the yen was in serious trouble). Clinton’s “1999 Financial Services Modernization Act (Gramm-Leach-Bliley)” was also instrumental in pushing for “financial deregulation.” (Pollin, 2003, pp.32). The clout of Wall Street persisted even when Greenspan recognised a “dangerous bubble.” (Pollin 2003 pp.33). The macroeconomic policies of the Clinton era stand up well to scrutiny when compared with previous administrations – the measure of Gross Domestic Product (GDP), Productivity Growth, Unemployment, and Inflation rates. The rise of GDP and Productivity growth in the years 1995-2000 led to claims of a “New Economy” under Clinton. The growth in Internet use might have contributed to productivity growth. With regard to GDP, consumer spending remained high, as did “private investment.” (Pollin 2003, pp.38).
It is recognised that under Clinton “debt levels” rose for both ordinary households and corporations. “Wage inequality” was also a factor. Poverty rates declined slightly under Clinton. (Pollin 2003, pp.38-47)
Pollen next looks at the “National Unemployment/Non-Accelerating Inflation Rate of Unemployment” (NAIRU), and notes that leading economists were baffled by the fall in unemployment from 7.5% in 1993 to 4.0% seven years later. Some economists contend that the rate “is subject to change over time.” (Pollen 2003, pp50).3 In Appendix 2, Pollen attempts to show why the NAIRU fluctuated so much in the period 1993-2000. Using Robert Gordon’s triangle NAIRU model, three “determinants” (points of the “triangle”) are identified as contributing to a fall in unemployment rates: “aggregate demand pressures, supply shocks such as oil price increases (or the Californian blackout) and inertial inflation.”4 By including “unit labor costs” as espoused by “Lown and Rich of the New York Federal Reserve Bank”, the NAIRU “triangle” could be extended to take account of the “lack of inflationary pressures at low rates of unemployment”. Pollen also utilises the “findings of Rich and Rismiller”6 to gauge the effect of “import prices” on a quarter-by-quarter basis during two timeframes “1960.2-2000.4”. He also states that he has measured the unemployment rates against “aggregate demand pressure”, as opposed to Lown and Rich’s “capacity utilization”, and explains it as “the ratio of actual to potential GDP.”5 He further notes that the “GDP gap” does not alter the rates significantly. Using mathematical formulae and variables, Pollen concludes that by “incorporating labor costs as an additional factor adds explanatory power to the NAIRU model” over the relevant time periods, and that by adding “unit labor costs” as a variable, more accurate forecasting results. With no “oil shocks during the 1990’s”, Pollen also added this as a variable. (Pollen 2003, Appendix 2, pp.199-206).
Greenspan’s theory about the “traumatized worker” added weight to the argument that this helped to “dampen inflationary pressures.” (Pollen 2003, pp.53). Referring to the economy of 1997, he spoke about the “heightened sense of job insecurity” which helped to “subdue” wage demands, whilst praising the system. Globalisation and workers in foreign economies were contributing to what Marx would have called the “reserve army.” (Pollen 2003, pp53-54). Clinton’s policies thus helped strengthen the business hand and at the same time weakened the power of the unions.
Pollen next turns to “Corporate Fraud” and the dubious accounting practices that led to major scandals. Throughout the 1990’s the Price-earnings ratio (P/E ratio) of shares climbed steadily. Beyond the corporate scandals and the “Internet Revolution”, Pollen identifies three major factors in contributing to the bubble:
· “Policy influences – financial deregulation and Federal Reserve actions.
· The rise in inequality and corporate profitability – the ‘fundamentals’
· Supply and demand.”
The thread that seems to link these ideas is greed. Using research conducted by Maki and Palumbo, Pollen concludes that growth in spending was driven by the “country’s richest households.” (Pollen 2003, pp56-67).7 Pollen notes the danger for the economy in running with a surplus, stating that deficits as defined by Keynesian thoughts back in the 1930’s are useful in “counteracting recessions”. This can be a positive for the economy as is the ability to “finance, long-term capital investments.” (Pollen 2003, pp.69).
“Surpluses make sense when building a Social Security trust fund”, and can also help to cut interest rates leading to “economic expansion and better jobs.” Under Clinton’s ‘stewardship’ of the economy those at the top did extremely well, and those in lower brackets saw moderate living standard increases. (Pollen 2003, pp.70).
Amid the self-congratulations being bandied about, Vice Presidential candidate Dick Chaney warned of a “recession.” The Supreme Court confirmed George Bush president over Al Gore after the Florida debacle with its claims of vote rigging. Even before the events of 9/11, a recession was on the cards with “the growth of GDP having fallen, falls in the stock market, and unemployment figures creeping up.” (Pollen 2003, pp79).
“Two consecutive quarters of negative GDP growth” meant the onset of a recession. The National Bureau of Economic Research (NBER), the agency responsible for measuring recessions, concluded that a recession began in March 2001. Over 2002, with productivity growth rates down, “real wages stagnated.”(Pollen 2003, pp.82).
The Stock Market collapses
The markets went from a “bull to bear mode” because investors wanted to see returns for money invested, especially in the Dot.com businesses. A lack of enthusiasms by foreign investors and a weakening of the dollar on the money markets all contributed to the gloom. The control by Greenspan of the Federal Funds rate (the ‘Fed’) can help to counter-balance recessions, but because interest rate cuts in the ‘Fed’ are volatile in relation to the rest of the economy, the strategy didn’t work. Though he initiated “aggressive cuts” in the ‘Fed’, Greenspan and the rest of America didn’t see the “ripple effect” spreading to mortgage rates or the “Baa bond rates.” (Pollen 2003, pp.91).
Due to high borrowings, corporations couldn’t raise money on the credit markets, and “corporate investment expenditures” also fell. Householders re-mortgaged to keep other debts at bay, and the “housing market remained buoyant.” However houses rose in price, and a “bubble” was feared. (Pollen 2003, pp92-94).8
A pyramid effect can be seen with Bush’s tax cuts, creating more wealth for those citizens at the top. Corporations benefited at the expense of ordinary citizens. In his initiative of 2003, Bush planned to exempt from income tax the income received by shareholders on dividends. Pollin concludes this policy would “widen inequalities” and “produce a drop in government income.” He also concludes that such policies are anti-Keynesian and unlikely to work. He further notes that when the US catches a cold, the rest of the world sneezes. (Pollen 2003, pp.103).
Post September 11th
Government spending increased, in particular military spending. State and local tax receipts also aided the government. The corollary to this was severe “cutbacks” at both state and local levels. Education suffered. Bush concentrated more resources on “Medicaid and Homeland Security.”(Pollen 2003, pp.107).
The federal government’s aim of clearing its $5.8 trillion in debt had to be dismissed, as deficits again became the norm. In some respects, Pollin notes that this new government policy “injected a direct, certain, and significant increase of spending into the economy”, rather than cutting back on vitals like “public services.” (Pollen 2003, pp.111). Bush’s forecasts for future years have been complicated due to new factors like his ‘War on Terrorism’ and his invasion of Iraq. (War is an expensive business, as the Americans discovered back in the 1970’s during Vietnam). And though not mentioned in Pollin’s work, the figures may be skewered even more when the reconstruction costs from Hurricane Katrina are factored in. With health and education spending set to increase, the money has to be found somewhere to fund all this.
The Effect of War
Pollin cites the case of WW11 as a factor in helping drive growth during a time of war, and notes that war helped push nations back towards growth after the Great Depression of 1929. (Pollen 2003, pp.116). Pollin writing just after the fall of Baghdad concludes that the Iraqi war didn’t help push growth in the economy in the same way as WW11 and Vietnam, but that on the contrary it could prove to be very expensive. Key “business uncertainty about the future” and “oil price” uncertainty, and the cost of keeping troops on the ground in Iraq prevent inward investment in America itself, and jobs won’t be created. The situation will create a “drain” on the economy. (Pollen 2003, pp.117).9
One change that has taken place in the wake of the accounting scandals such as Enron has been the introduction of the “Sarbanes-Oxley” Act, which will tighten dubious accounting practices. Pollin next looks at Bush’s “anti-labor agenda, pro-business” approach. (Pollen 2003, pp.120).10 Bush became the first president to enact the “Taft-Hartley Act” forcing striking dockworkers back to work. Bush tends to use “trade measures” like “tariffs” if they suit his personal “agenda.” (Pollen 2003, pp.121).11
Pollin next looks at the “Washington Consensus”, the IMF and the role of the World Bank in the development of neoliberalism policies in other countries. (Pollen 2003, pp.126). The Cold War brought the world “socialism” which ultimately failed; Africa pursued a policy of “ujamma” or “collective self sufficiency” as defined by Julius Nyerere of Tanzania; Latin America used an “import-substituting industrialization” process; and the “tigers” of East Asia used a “state-directed development” programme closely modelled on the Free Market theory of the west. The success of the Asians mirrored the fact that they promoted heavily their “export” trade, such as cars.
The Latin American economies were prone to “corruption” due to the “pervasive” nature of the “elite” which maintained tight control of their domains. The influence of Margaret Thatcher and her “neoliberalist” approach to trade affected all regions of the world. Foreign governments were easily “coerced” into this thinking because they were heavily dependent on the IMF and World Bank for finance. (Pollen 2003, pp.129). Pollin singles out the case of China and its adoption of “free market” forces, whilst opposing “neoliberalism” as an exception to the general rule. (Pollen 2003, pp.130). In evaluating “income distribution” between sets of nations, it becomes clear that “inequalities” are widening between cash-rich countries and poorer nations. In examining these issues Pollin tries to identify a link between peasant suicides in India and the money they owed to debtors, the neo-liberal policies of Argentina to its currency collapse and subsequent “food riots” and “deaths”, and the “sweat shop” conditions prevailing in the garment industry worldwide. The IMF and World Bank do not emerge from these fiascos with much credit. (Pollen 2003, pp.132-163).
The Millennium Development Goals are attempting to eradicate world poverty and establish an equal footing between nations, but progress is slow. (Pollen 2003, pp.164). One of the key requirements is for affluent nations to contribute 0.7% of their GDP towards “development aid.” Pollen next looks at a case example, Brazil, in determining how effective aid would be? (Pollen 2003, pp.167-168). All things being equal, everyone would benefit.
In examining terrorism, Pollen states that many concluded that “severe global poverty” helped to contribute to the Al-Queda violence on September 11th. (Pollen 2003, pp.169). Pollen looks at the work of Pillar (Pollen 2003, pp.170-2) to determine the socio-economic background of terrorists and notes that Pillar found many members of the “Palestine Islamic Jihad” as having “low social origins” and poor backgrounds; but that this was not exclusively so as indicated by the research of Alan Krueger and Jitka Maleckova who focussed on the university education of Osama Bin Laden and his rich Saudi background, and that of Mohammad Atta.
ALTERNATIVES TO “NEOLIBERALISM”
Pollen examines the role of the IMF as an instrument of the Americans in pushing forward “neoliberal” agendas. (Pollen 2003, pp.175). He notes with horror the remarks of one economist who bluntly stated: “that South Africa could make Rwanda look like a picnic.” (Pollen 2003, pp.176). The essence of the conversation seemed to allude that the economist couldn’t see beyond his balance sheets to the misery that would be inflicted by adopting a “neoliberal” agenda. Pollen speaks of the need to adopt an “egalitarian” approach that will tackle “unemployment” head-on, creating “decent wages and stable financial markets.” (Pollen 2003, pp.177).
He reverts to the “New Deal” which emerged from the “depression.” Pollen feels there should be a shift from “inflation targeting” to “low unemployment”, which in turn will lead to increased wages and a resultant fall in poverty levels. “Spending cuts should be reversed,” with the focus moving to employment creation. Pollen also recognises the importance of “minimum wages”, but sees an equal need to allow workers more “rights”, and the right to campaign for better pay and conditions. He also recognises the merits in the so-called “Tobin Tax” which places a sales tax on every financial transaction, including shares. He also identifies merit in maintaining a “reserve fund”. Finally Pollen states that “trade protectionist measures are a poor substitute for direct forms of social protection.” (Pollen 2003, pp.177-182). In helping to control “inflation” Pollen (Pollen 2003, pp.187) sees merit in the work of Rudolph Meidner and Gosta Rehn – two Swedish economists. The thrust of their work seemed to support the view that there should be some “slack in the economy.” Pollen argues that the US should take in the lessons of Sweden.
In looking at adopting an “egalitarian” approach outside of the US, in poorer countries, he casts his eye on the “informal” sector – the Black Market. He recognises that poorer countries need to protect their home market and cites the case of the “Asian Tigers”. In closing the book, Pollen again looks to Adam Smith and notes “that a market economy will not be sustainable without a commitment to social solidarity as its undergirding.” (Pollen 2003, pp.187-193).
If Pollen’s “Contours of Descent” show us one thing, it is that the policies of the IMF and World Bank are not working. The inability of economists to see beyond their ‘figures’ is leading down a destructive path, and often to war. As discussed in class, this appears to have definitely being the case in Rwanda where the “perception” on the ground was that of “factories closing.” (Class-notes). It is also clear that few, if any, countries in Africa have escaped conflict.
Even today writing this (14/10/05) the pervasive nature of the IMF was seen on the Six One News on RTE1 when they called for “wage restraint” in the Irish economy, and for money to be taken out of circulation by widening Irish tax bands and adopting other measures.
My personal view of Pollen’s book is that it contained interesting facets related to economies that I could relate to. As an older student than most I have been privileged to live through some tumultuous times and remember hearing horror stories about Vietnam when I was a young child. Likewise I have seen the fall of the Berlin Wall, the outbreak of the Falklands War, the never-ending (or so it seems) Northern Ireland troubles, the hardships of the eighties in Ireland and the emergence of the ‘Celtic Tiger’ in the 1990’s. As a keen follower of current affairs, I can relate to the reports that frequently appear by the Irish economist and news reporter George Lee.
Whilst engaged on Griff FM earlier this year, I interviewed Judith Melby of Christian Aid who stressed the importance of implementing the MDG’s, and I also interviewed John McGhie of the same organisation on the issue of establishing ‘trade justice.” Leslie Laskow, a Dutch expert, was kind enough to give me her views on the plight of the Sudanese people, especially in Darfur. Prior to the recent New York summit, I also interviewed Paddy Maguinness, the Deputy Director of Concern; about the fact that the Bush administration didn’t want to discuss the MDG’s and he stated that he saw the rhetoric emerging from the Bush camp as “quite frightening.” It was his contention that the talks offered Europe, and particularly Ireland, a “get out of jail card”, and that it was up to Ireland to show “leadership” in the face of crisis.
Kate Norgrove, of the Global Call to Action against Poverty (GCAP) was similarly scathing and warned that by “cutting away the agreed wording designed to end poverty, governments are trying to edit away the future of the world’s poorest people.”
Emer Mullins, the Communications Co-ordinator of Trócaire, held similar views and stated “Trócaire feels that any deliberate omission of a review of progress on the MDG’s would cast serious doubt over the credibility of world leaders’ commitment to achieving those goals. She also states that “the prospect of the Summit relegating the MDG’s and wider poverty eradication measures to a footnote defies world opinion in a year when unprecedented numbers of the public have spoken out to demand action on trade justice, dropping debt and delivering more and better aid. The lives of the poor seems as distant as ever from the power politics of the international institutions. It would be extremely cynical were any member to change an agenda set so long ago and agreed by all members. This is a chance for the UN member states to show their commitment to Goal 8: Building a global partnership for development.”
Whether or not Pollen’s alternative “egalitarian” policy will work remains to be seen. It appears obvious that in order to eradicate debt and poverty, the agencies dealing with these problems will have to be listened to. Perhaps what is needed is what Nader refers to as a “laser-beam exposure” into the inner workings of the IMF, the WTO, and the World Bank for real change to occur.
Baker, Dean, Pollin, Robert & Zahrt, Elizabeth, “The Vietnam War and the Political Economy of Full Employment,” Challenge May-June 1966, pp.35-45.
Cummings, Jeanne & Tejada, Carlos, 2002. “Taft-Hartley Could Bloody Labor and Bush,” Wall Street Journal, 10/11/02, p.A4.
Gordon, Robert J. 1997. “The Time-Varying NAIRU and its Implications for Economic Policy,” Journal of Economic Perspectives (11:1), 11-32 and Gordon, Robert J. 1998. “Foundations of the Goldilocks Economy: Supply Shocks and the Time-Varying NAIRU,” Brookings Papers on Economic Activity, Number 2, pp.297-346.
Lown, Cara S. & Rich, Robert W. 1997. “Is there an Inflation Puzzle?” Reserve Bank of New York Economic Policy Review, December, 51-69.
Maki, Dean M & Palumbo, Michael G, “Disentangling the Wealth Effect: A Cohort Analysis of Household Savings in the 1990’s,” Board of Governors of the Federal Reserve System. http://www.federalreserve.gov/pubs/feds/2001/200121/200121pap.pdf.
Meeropol, Michael, 2000. Surrender: How the Clinton Administration Completed the Reagan Revolution, Ann Arbor: University of Michigan Press, 2000 (paperback edition).
Pollin, Robert, 2003. Contours of Descent. London: Verso
Rich, Robert W. and Rismiller, Donald. 2000. “Understanding the Recent Behaviour of U.S. Inflation,” Federal Reserve Bank of New York Current Issues in Economics and Finance, July, http://www.newyorkfed.org/rmaghome/curr_iss/ci6-8.pdf.
Simon, Ruth & Higgins, Michelle. 2002. “Stretched Buyers Push Mortgages to the Limit,” Wall Street Journal Online, 17th Jun ‘02; and Cullen, Terri, “The dangers of buying a home at the top of a market bubble,” Wall Street Journal Online, 18th Jun ’02.
Tumulty, Karen, 2001. “From W. With Love,” Time, 26/03/01, pp.46-48.
Steiger, Douglas, Stock, James, Watson, Mark, 2001. “The NAIRU, Unemployment and Monetary Policy,” Journal of Economic Perspectives, 1997, 11:1, pp33-50, and “Prices, Wages, and the U.S NAIRU,” in Alan Krueger and Robert Solow eds., The Roaring Nineties, New York: The Russell Sage Foundation and Century Foundation, 2001.