Interview with Robert Pollin

Robert Pollin's book Contours of Descent: U.S. Economic Fractures and the Landscape of Global Austerity was published in paperback by Verso Books in 2005. The following interview was conducted by Kate Cell.

KC: Contours of Descent is a striking title. Could you explicate?

Robert Pollin: I went back and forth with my editors at Verso, George Galfalvi and Tariq Ali, about the title. I proposed something which they hated. Then they proposed things that I hated. Then one morning while stretching my back I was glancing at my bookshelf. My eyes somehow fixated on the classic William Appelman Williams book Contours of American History. From there I somehow flashed in my head to the highly provocative New Left Review article in the late 1980s by the then editor Perry Anderson titled "Figures of Descent." So I just mashed the two titles together and it seemed to work well. I especially liked the geologic metaphor. I also assumed that would end the fight between the Verso editors and me, since they would not likely object to a title that was a variation on something that sprang from the head of Perry Anderson (Verso is the book-publishing arm of New Left Review). Finally, the geologic metaphor was easy to extend to the book’s subtitle: "U.S. Economic Fractures and the Landscape of Global Austerity."

KC: What are the "Marx, Keynes, and Polanyi" problems with neoliberal economic philosophy and policies?

RP: My aim with this book was to write serious economics that was also accessible to anyone who could get through a long newspaper article on the economy. In substantive terms, I also wanted to be able to explain what I think is wrong with neoliberal economic theory and policy in a way that got to the core of the issue, as well as through empirical evidence and historical examples. So I challenged myself to think through the simplest logic of a free market capitalist economy, as, for example, explicated by Adam Smith so strikingly in The Wealth of Nations. We should be able to identify the root problem with neoliberalism within this simple Smith model, and not just through the specific policy failures of contemporary politicians such as Clinton and Bush. So I then thought about extracting the core insights from the most powerful critiques of free market capitalism. In my view, these are the critiques advanced by Marx, Keynes, and Polanyi.

So, what are Marx, Keynes and Polanyi problems? After many years of reflecting, my view of the core of Marx’s critique of capitalism is what he called the "reserve army of labor," the fact that capitalism needs mass unemployment in order to function efficiently on its own terms. Without mass unemployment, workers acquire too much power, enabling them to drive up wages, force down profits, and gain general assertiveness in the workplace and in politics.

The Keynes problem is fivefold: 1) that free-market capitalism is inherently unstable; 2) that the reason free-market capitalism is inherently unstable is because the driving force of the system is the decision by private capitalists to invest; 3) those decisions by capitalists are guided by their guesses as to how much profit they are likely to make from putting their money on the line; 4) the inherent instability of this guessing game becomes magnified through the operations of financial markets; and 5) the fluctuations in private investment in turn generate fluctuations in overall demand in the economy, including demand by businesses to hire workers. Financial markets are created to spread the risk inherent in the decisions by private capitalists to invest and to ride out fluctuations in aggregate demand. And while they succeed in doing this, they also add layers of overall social risk and instability to the operations of a capitalist system.

In some ways, I actually think the Polanyi problem is the most fundamental of all, since it pushes us so explicitly into the realm of considering community and ethical values within economic analysis. Polanyi effectively says, "Let's take the free market model of Smith. It works only because of two driving forces—greed and competition. So, the more greedy we are, and the more competition there is to constrain everyone's greed, the better the system operates." However, Polanyi then asserts, "Do we really want to have a society whose two driving engines—the main forces that make everything else happen—be greed and competition?" He obviously answers "no." And by the way, Adam Smith himself also answered "no" to this question, most explicitly in his Theory of Moral Sentiments as opposed to his more famous work, The Wealth of Nations. So I took these three overarching points—what I term the Marx, Keynes, and Polanyi problems, to provide us with a critique of free market capitalism at its very foundation.

Some people have said, "well, you left out 'the Lenin proble'—i.e. imperialism." Or "you left out the 'Mary Wollenstonecraft problem'—i.e. sexism." One could have also thought of other issues, such as racism and attacks on the environment. These are all obviously burning issues. But my point in this exercise was to identify problems that are intrinsic within the simplest model of a free market capitalist economy. I thought the Marx, Keynes, and Polanyi problems effectively got us to these foundational matters.

KC: How was the Clintonian “miracle” of low unemployment and low inflation accomplished? What was its real meaning for working people in the U.S. and around the world?

RP: In the book, I expand on an insight articulated clearly by no less than Alan Greenspan himself, and then developed in more detail by technical econometric work by Fed economists. It was that the principal factor generating the concurrent fall in unemployment and inflation in the 1990s was the fact that, as of the 1990s if not sooner, working people had experienced eroding bargaining power and a loss of self-confidence as to their ability to raise wages, even when unemployment is low. For example, Greenspan referred to a "traumatized worker" syndrome in public testimony before Congress. Janet Yellen, who was also a member of the Board of Governors of the Fed in the 1990s, made similar observations in closed meetings of the Fed Open Market Committee. If workers do indeed feel an erosion of their bargaining power, this means that, even at low unemployment, they are less willing to attempt to push for wage increases. Weaker demand for wage increases then means lower costs for businesses at low unemployment. With lower cost increases, businesses will be less inclined to raise the prices they charge to consumers, and this, finally, means less inflation at low unemployment. More generally then, the upward cost pressure that businesses will face will be diminished when unemployment is lower when workers feel "traumatized." This is the crux of what Greenspan himself has said, and I agree with him.

KC: Joseph Stiglitz, in his book The Roaring Nineties, makes some of the same criticisms of Clinton's economic policy (which as member and then Chairman of the Council of Economic Advisors he helped to craft). What are the most significant differences between your analysis in Contours of Descent and his?

RB: The Roaring Nineties is a very good book overall that does indeed cover lots of the same material as my book, and offers broadly similar conclusions on many questions. I gave the book a very favorable review in Challenge magazine in August 2004. The two books came out at almost the same time. But I wasn't aware of what Stiglitz was doing until his book was published.

There are also several major differences between the two books. For one, Stiglitz's book is grounded in his insiders' perspective as to how policies and priorities were formed under Clinton, which was fascinating. I obviously had no insiders’ perspective, so I therefore had to rely on a systematic presentation of publicly available evidence. We also differ on a range of specific questions, most notably on how the Clinton administration was able to eliminate the fiscal deficit without causing a sharp contraction in overall demand in the economy.

There is also a more fundamental difference that is reflected in the subtitles of the two books. Stiglitz's subtitle is "A New History of the World’s Most Prosperous Decade," while mine, again, is "US Economic Fractures and the Landscape of Global Austerity." In fact, unless we are examining this period from the perspective of the U.S. stock market’s biggest winners, it is simply not the case—indeed nowhere near to being true—that the 1990s was the world's most prosperous decade. Rather, considering the U.S. economy only, average GDP growth during the Clinton presidency (3.7 percent) was roughly comparable to that of the Carter administration (3.4 percent), even though the Carter term in office has been widely disparaged as a period of economic malaise. Meanwhile, even by the end of Clinton's term of office, wages for the average worker remained 10 percent below where they were when Nixon stepped down in 1973, while the long-term trend of widening inequality grew more severe. The deterioration of economic conditions throughout most of the developing world was more serious still. Average GDP growth shifted downward dramatically relative to the 1960s and 1970s, and inequality deepened. Indeed, the fact that Stiglitz is so critical of most of what happened in this period, while simultaneously describing the decade of one of unparalleled prosperity, gives the book a bit of a schizophrenic edge.

KC: You characterize the stock market boom of the late 90s as giving a false sense of prosperity to U.S. citizens. But I held a blue-collar, unionized job throughout the 90s and my pension and employer-contribution annuity did very well indeed, giving me a much greater sense of security. Even after the bust of 2001-2002 I'm still much better off than I would have been without the boom. Or aren't I?

RP: Most of what most people live on in the U.S. and elsewhere is their income from their labor or the labor of other family members. Average wages stagnated for the first half of the 1990s, then did rise during the second half of the decade, though still at a rate well below the rise in productivity growth. Moreover, by the end of the 1990s, as I mentioned above, the average wage remained about 10 percent below where it was in the early 1970s, even though productivity had risen over this same period by roughly 80 percent. So, hour by hour of every workweek, most workers in the U.S. were getting a diminishing absolute amount of money out of a consistently growing pie of national product. In Marxian terms, the aggregate rate of exploitation was clearly rising.

Now, what about the stock market gains of pension funds to which workers contribute? These increases reflect a market bubble that was historically unprecedented in terms of the ratio of stock price to the earnings of firms. It had to come down, and is likely to continue coming down over the longer term. The only way the ratio might stay at anything close to the historically unprecedented boom levels would be due to political factors: if the distribution of income becomes still more increasingly skewed in terms of favoring business profits and the rich relative to wage income and government support for the middle class and poor. If this kind of massive upward redistribution of income were to happen, it should only diminish the sense of security and well-being for workers, not increase it. It would do so even while being very supportive of a rising stock market. Overall, I think working people are likely to gain a greater sense of security from the expansion of opportunities for decent jobs, offering good pay, benefits and workplace conditions, rather than relying on higher stock prices coming either from an upward redistribution of income or from another stock market bubble.

KC: One of the most moving stories in the book is about the mass suicides of poor farmers in India. Can you tell us this story?

RP: I hadn't heard anything about this until my good friend, the brilliant Indian economist Utsa Patnaik of Jawaharlal Nehru University wrote to me about it in a different connection. Once Utsa told me about it, I responded to her by saying I would try to get this story better know in the U.S. as soon as I could. I thought including it in the book as the first example of the devastating effect of neoliberal economic policies in developing countries was an appropriate place to tell this story briefly. It was only after I made this decision that I then learned that an outstanding grad student here at U Mass, Vamsicharan Vakulabharanam, was working on precisely this question for his doctoral dissertation. Vamsci's dissertation covers this topic with great scope and rigor.

The very simple version is this: when neoliberal policies were implemented in India, small farmers in India were made substantially worse off on average. They lost trade protection, access to cheap credit and fertilizer, and technical support from agrarian extension services. They correspondingly felt increasing pressure to produce cash crops for exports rather than stable crops that would, at all costs, keep themselves and their families afloat. They were set up to fail, especially when the global prices of their cash crops, such as cotton, declined. When they did fail, lots of them felt desperate enough to commit suicide. It's a terrible tragedy.

KC: Your subtitle includes the phrase "global austerity." But some countries, notably India and China, are doing much better than previously, at least in certain regions. The UN Development Programme's 2005 Human Development Report points out that infant mortality rates are lower in the Indian state of Kerala than they are in the U.S. How does this rapid growth and increasing prosperity for a significant percentage of the global population square with your subtitle?

RP: India , and especially China, have indeed grown rapidly over the 1980s-1990s, what I termed the neoliberal era. But this cannot be seen as an endorsement of neoliberalism. This is true in the most obvious sense since, as I emphasize in the book, that China has not followed neoliberalism at all. They may do so in the future, but, to date, they remain a highly state-controlled economy, while at the same time allowing private investment to flourish alongside the strong state. This economic policy framework is made clear in another outstanding recent U Mass economics Ph.D., by Minqi Li. Obviously there are some useful lessons there for developing countries that want to grow, even while recognizing the brutality of the Chinese regime on many fronts, including conditions for workers.

The story in India is somewhat more ambiguous, but one thing that is clear is that the growth in India began in the 1980s, before the neoliberal policy interventions were implemented. As for Kerala, this is a case not of neoliberal interventions but quite the opposite. They have low infant mortality rates because they have an extensive and effective welfare state that provides for people's basic needs. The region of Bengal has also been controlled by the Communists for a generation now.

Taking the developing world as a whole, the story about the effects of neoliberalism are inescapable. It is led to declining average growth, increased poverty and inequality, unambiguously so if you leave China out of the calculation. Lots of honest researchers at the World Bank do not dispute these trends.

KC: In the book's last chapter you make some specific policy recommendations. Could you describe these recommendations?

RP: These recommendations are meant to move economic policy in the direction of egalitarianism, starting from exactly where the world is today, not where I, or anyone else, might prefer that it be. Today, the world basically remains within the grip of the neoliberal ascendancy that became solidified roughly at the time of Margaret Thatcher and Ronald Reagan came to office, i.e. around 1980. So that is now a full quarter century ago. The overall approach of my recommendations is very simple—to provide decent work for the absolute maximum number of people through what I call "employment targeted" policies.

I recognize that my proposals do not even address the issue of private ownership versus public ownership versus cooperative ownership, or many other important questions that are central to an overall egalitarian economic program. I didn’t mean for this chapter to present a comprehensive strategy. It is aimed to rather be something realistic that can begin to shift the historical trajectory in the opposite direction that it has been going for the past quarter century. Moreover, I don’t think we on the left—or for that matter anybody else—can know what a desirable and workable egalitarian program does look like that is too far removed from the reality before us. This is a theme I explore a bit in an article I wrote for the Monthly Review Webzine called "Be Utopian: Demand the Realistic."

I’ll also just mention one more outstanding recent U Mass Ph.D. dissertation, by Andong Zhu. Andong studied the relationship between public ownership of the means of production, economic growth, and income inequality across the world over the past 40 years. Andong shows convincingly that, contrary to neoliberal assertions, some significant degree of public ownership—say, in the range of 30 percent of all productive assets—is generally supportive of both GDP growth and greater income equality. So we know that some public ownership is positive to well-being. But we still can't pin down whether the appropriate amount of public ownership should be 30 percent, 50 percent, or 70 percent of the economy, and how to most effectively manage those public assets. These are challenging questions, most especially for advocates of public investment and ownership versus a predominantly privately-owned economy. My own view is that we can learn these things through practice, and that the answers will vary across countries and historical circumstances.

KC: What political changes would have to occur for your recommendations to be translated into real policy? Have you given up on meaningful economic and social change through the Democratic Party?

RP: This is the theme I am reaching for in the discussion above. The things I recommend could be implemented today, given the existing set of political forces. Indeed, some of the things are already happening. One of the policies I strongly advocate is a "living wage" standard as a minimum wage. The living wage movement has been going strong in the U.S. for a decade now. It is also getting active elsewhere. I have, for example, lectured on living wages in Israel and Canada. I have spoken to union officials about it in South Africa and Kenya. So it is a real movement that is defining a concrete goal for egalitarian economic policies.

But it is also raising questions that the left rightfully needs to confront. To take one important example: having a "living wage" standard doesn’t do anything for people who can’t get jobs at all. So we therefore have to think about combining full employment and living wages as policy goals. This was an effort that was being strongly advanced by my late friend Prof. Sumner Rosen, who just died a few weeks ago. He wanted to bring together the goals of living wages and full employment. These are both realistic demands within the current political environment.

Now, it is another question as to whether the Democratic Party in the U.S. or the mainstream left-of-center parties elsewhere will take these goals seriously. They always speak about these things in their public rhetoric. This has certainly been true in South Africa and Kenya, where I am currently actively involved in working on employment policy issues under the auspices of the United Nations Development Program. Getting mainstream politicians to really fight for this is mainly a question of political, not economic realities.

KC: In the Afterword, written in the first half of 2005 for the paperback edition, you talk about the impact of the declining dollar, and certainly other economists including Robert Rubin and Paul Krugman have warned about this. But the dollar seems to be holding now. How could you be so wrong so quickly?

RP: In the Afterword, I wrote that "Between January 2002 and December 2004, the dollar fell by 34 percent relative to the euro, and 22 percent relative to the Japanese yen. The prospect is for the dollar to keep declining at least through 2005." I was accurate then in describing what the prospect had been at that moment. But in fact, between April and August, events have rendered that prospect increasingly uncertain. Between May 1 and July 1 of this year, the dollar rose by 7.7 percent against the euro and by 6.3 percent against the yen. Then, between July 4 and August 15, the dollar fell back by 3.7 percent against the euro and 2.1 percent against the yen. Overall, the long-term trajectory of the dollar remains downward. This is because the U.S. continues to run persistent and large trade and fiscal deficits.

At the same time, there are countervailing forces at play, and I did describe some, though not all, of them in the Afterword. The first, and most important countervailing force, as I do discuss in the Afterword, is the fact that there's a world full of wealthy people, as well as countries, that are holding a substantial share of their wealth in dollars. They don't want the dollar to collapse. There are several very intelligent policymakers, most notably Alan Greenspan, who fully realize this, and who have tools to prevent a dollar collapse. The most significant such tool is to raise U.S. interest rates. So Greenspan and the Fed have indeed been raising interest rates all year, in part, to help prop up the dollar. A second countervailing factor is for factors independent of those affecting the dollar slide to concurrently weaken the euro in the eyes of the world’s currency traders. I did not discuss this in the Afterword, and that was a flat-out error.

However, to partially compensate for my error, I have discussed this issue in two subsequent articles in April and August, in the excellent political newsmagazine Counterpunch. The point I make in these articles is that when France and the Netherlands both voted last spring to reject the EU constitution, the currency traders correctly interpreted this as signs that voters in Europe were disgusted with neoliberal economic policies, and indeed, were groping toward an economic policy agenda not too different than the one I sketch in Contours of Descent. Such an alternative policy agenda would certainly be good news for working people in France and the Netherlands, but it would likely mean a bit more inflation—and that, in turn would mean a weaker euro. And so, in anticipation of a possible shift in Europe toward an employment-targeted economic program as opposed to an inflation-targeted program, the currency speculators started selling euros. Thus, the dollar rose relative to the euro. The other factor that briefly nudged the dollar up relative to the euro was the decision by the Chinese to allow an increase in the Chinese currency, the yuan, relative to the dollar. This adjustment could possibly lead to a reduction in the U.S. trade deficit, which in turn would strengthen the dollar.

Overall, then, we have had three main factors that pushed the dollar up relative to the euro and yen for a few months—the rise in U.S. interest rates, the "no" votes in France and the Netherlands, and the rise of the yuan. However, it isn't clear how long these factors will matter in currency markets, especially relative to the continued underlying reality of persistent trade and fiscal deficits in the U.S. And I stress the "isn't clear" issue. In fact, the currency markets operate according to the logic of gambling casinos, as described so brilliantly by JM Keynes way back in the 1930s. There are certainly forces that continue to push the value of the dollar downward. But those forces have to be mentally processed into trading decisions by currency market traders before the dollar actually falls, and currency traders are prone to operate according to very short-term, and often irrational calculations.

KC: You wrote the book two years into the first George W. Bush administration. Nine months into the second, what can you add?

RP: In the new Afterword, I try to bring the book up through the end of the first Bush term. Has anything new happened in the second term? Not really anything that is unexpected. The Bush government remains committed to its fundamental principles, of cutting taxes for the rich, dismantling what remains of the U.S. welfare state, weakening or eliminating regulations in crucial areas such as financial markets, labor markets and the environment, and, at the same time continuing its imperialist activities in Iraq and elsewhere.

In fact, the only real new thing that has happened around these issues over the past nine months has been largely good news, in particular, around the issue of privatizing/dismantling Social Security. Bush barely mentioned this topic during the 2004 campaign. But the day after he was elected, in his victory press conference, all of the sudden Social Security privatization moved to the very top of the Bush second term agenda. However, progressives mobilized effectively to oppose this, and it looks like the Bush juggernaut isn't quite so overwhelming as Karl Rove has assumed it to be. People in this country rightfully support Social Security, as the largest single welfare state program we have. Social Security has mainly succeeded in keeping older people out of poverty, which has always been its fundamental purpose.

It's true that the program could be significantly stronger. But the Bush plan would have gutted it, as well as blowing a massive structural hole in the federal budget to finance the Bush privatization scheme, which was really mainly a gigantic gift to Wall Street. People realized this. One of the main things that convinced people to oppose Bush on this was the excellent economic research done on this subject by my friends Dean Baker, of the Center for Economic Policy Research, and Max Sawicky at the Economic Policy Institute, as well as several other people.

KC: Hurricane Katrina and its aftermath constitute an entirely predictable, and predicted, calamity on a scale that has desperately poor countries like Sri Lanka sending aid to the U.S. How has neoliberal economic policy contributed to this astonishing state of affairs?

RP: It's very straightforward here. Everyone in Louisiana knew that the levees protecting the City of New Orleans needed to be substantially reinforced. But to do that would involve lots of money from the federal government. Neither the Clinton nor Bush administrations were willing to commit funds for this obviously needed public infrastructure project. The failure here is even more glaring in the case of Clinton, since Clinton was elected to office in 1992 precisely on a program of supporting major improvements in our public infrastructure.

Beyond this is the equally obvious point of mass poverty in New Orleans. New Orleans passed a living wage ordinance overwhelmingly in 2001. The law was challenged by business in the courts, but the local court upheld the people's will. However, the state Supreme Court subsequently ruled that the city did not have the authority to pass such a measure, that only the state legislature had the authority to establish a living wage law, for New Orleans or anyplace else in Louisiana. So the law was never implemented.

After Katrina hit, Arin Dube of the UC Berkeley Industrial Relations Institute put out a brief note on the internet showing that, if low-wage workers in New Orleans had been receiving a higher minimum wage over the past four years, as the voters in the city had supported, they could have at least had more money to afford bus tickets out of town and to pay for someplace else to stay during the worst days of the storm.

KC: The neoliberal economic agenda pushed by the U.S., the IMF, and others is often called "The Washington Consensus." 16 years after the phrase was coined, do you sense the emergence of a post-Washington Consensus?

RP: Even John Williamson of the Institute for International Economics, who coined the term "Washington Consensus," now says that we have moved past this. Williamson even says he himself never endorsed a hard-line neoliberal policy package that had come to be associated with the term "Washington Consensus."

But is there some clear, egalitarian alternative to neoliberalism emerging? I don’t see this, at least not yet. It very true that in developing countries, people know that neoliberalism is bad for the well-being of the overwhelming majority of people. We can see this from election outcomes, most especially in Latin America.The same is becoming more evident in Europe, as I discussed above with the French and Netherlands votes against the EU constitution. The next big historical step will involve not only having politicians talking an egalitarian program to get elected, such as with Clinton or Lula in Brazil. The next step will be to really implement these programs and to get them to work well.

There are lots of challenges here strictly in terms of the economics, even before we think about the politics. An obvious case in point is how to control inflation at reasonable levels if you are going to push toward anything like a full-employment economy. Another is the issue of how to most effectively regulate global capital flows and speculative financial markets. We in PERI are working on lots of questions like these, along with many other people at other institutions.

KC: Your epigraph is from Adam Smith’s Theory of Moral Sentiments:

The disposition to admire, and almost to worship, the rich and the powerful, and to despise, or, at least, to neglect persons of poor and mean condition, though necessary both to establish and to maintain the distinction of ranks and the order of society, is, at the same time, the great and most universal cause of the corruption of our moral sentiments.

You chose this quotation and also chose not to edit it. Does this choice imply that you agree it is "necessary to establish and maintain the distinction of ranks" to have an orderly society? How could we construct a more egalitarian economy and society?

RP: I love that passage in Smith, especially because it comes from such a surprising source for so many people—i.e. Adam Smith, the greatest exponent of free market economics. People in the Reagan Administration used to brag about wearing their Adam Smith ties while attacking government social programs.

I think Smith is right that, in order to maintain public support for such huge disparities in life opportunities among people, those who experience low and diminishing life opportunities somehow need to be convinced that those on the top—the overprivileged—deserve what they have; and that equally, those who are stuck in really bad economic circumstances are there because of their own failings. If nobody at all believed this, then it would be impossible for such a shallow, inept, non-achiever and near buffoon—though still obscenely overprivileged person—as George Bush to be elected President of the United States.

Now, I don't think for a minute that Smith's observation covers all the reasons why a George Bush could be elected President. When people do pay attention, they mostly really do know the score about the George Bushes of the world. Tha'’s why, for example, Bush couldn't pull off his dismantling of Social Security even when he was riding most high immediately after his second-term election.

The more fundamental problem is that the overprivileged, by definition, have vast resources, and they can buy lots of people like Karl Rove to do their bidding very effectively by any means necessary. We on the left are stuck arguing on the basis of truth and social justice—what Smith called the moral sentiments. That's a lot harder to do.

Among other things, it does involve lots of questions of economics that are very difficult both analytically and in terms of policy implementation, such as knowing the right extent of public versus private ownership of society's productive assets. However, despite all the difficulties and historical setbacks, in the long run, I still like our chances.