Economy / Opinion / Politics

Austerity Is Bogus

By Jerry Ortiz y Pino

— A single issue has pulled Congress into a protracted tug of war over sequestration, the Paul Ryan budget and even cuts in social security. That same issue paralyzes our own state government’s leaders, preventing them from breathing life back into New Mexico’s moribund economic situation.

On April 17, the head of the Rio Grande Foundation conservative think tank, Paul Gessing, and Nick Estes, former deputy policy director for N.M. Voices for Children, engaged in a spirited public debate at the Albuquerque Museum. Their topic was that same critical issue that has stymied all level of our government: What should the U.S. government’s economic policy be in an age of large deficits—stimulus or austerity?

Two points about the debate deserve mention. First, I’m told that before it started, the audience was asked which of the positions it supported, and that it was a fairly even split between the “pro-” and “anti-” austerity adherents. Following the debate, the audience was asked if anyone had been influenced to change positions. No one raised their hand. The evening left everyone reinforced in whatever viewpoint they brought to the auditorium.

In microcosm, that is what the state of civic discourse has become in the U.S. today: It is practically impossible to change someone’s mind once it has been made up.  The longer the debate lasts, the louder the exchanges, the more extreme the examples, the smaller the likelihood of genuine compromise or even the possibility of a middle ground position emerging. It’s like some tortured talk-radio conversation between implacable foes who have no interest in sharing information or learning something from the other; they just want to have the last (or loudest) word.

Which brings me to the second point about the Gessing/Estes debate: It took place two weeks too early. If only the revelations about the cornerstone study upon which the entire “austerity-is-the-only-responsible-approach” position rests had been available the night of the debate, there might have been some hard evidence worth exploring. It might even have resulted in some modifying of positions among members of the audience.

Or not. After all, we’ve known for a week that the study “Growth in a Time of Debt” by Harvard economics professors Carmen Reinhart and Kenneth Rogoff, has been proven to be fundamentally wrong. Yet that hasn’t eased the pressure from those who continue to use it to justify cutting budgets.

The Reinhart-Rogoff study claimed that economic growth slows significantly when a nation’s debt exceeds 90 percent of its gross domestic product. The study’s influence spread like wildfire in conservative and Republican Party circles, since it seemed to offer precise rationale for policies Mitt Romney and Paul Ryan were espousing. It even was used in Europe to beat Greece, Spain and other debt-ridden countries over the head for resisting the get-tough approach the European Union insisted on.

But when a grad student in Massachusetts took on the project of replicating the data used in that study, he found it was full of holes. There were columns of data that had (one hopes inadvertently) been left out of the computations. There were countries (Canada, New Zealand and Australia, for example) which hadn’t been included, and when they were, the overall results switched dramatically. There were formulas used to compute columns in an Excel spreadsheet which critics say included basic errors. In short, the Reinhart-Rogoff study is a mess.

It should be relegated to the trash heap of economic myth. The fact that countries can experience periods of economic growth even when their debt exceeds 90 percent of GDP shouldn’t be shocking, since there are lots of historic examples of exactly that. But the conservative talking-point machine is so effective that I expect losing the basis for its argument won’t quiet down raucous calls to “balance the budget now!”

The austerity hawks seem to be saying, “Who cares that the numbers were fudged, the data can’t be replicated and the conclusions are 180 degrees from the truth? We still think austerity is a good idea, and we still want to keep starving our country financially.”

It would have been fascinating to listen to Gessing (or Paul Ryan, Governor Martinez, state Senator John Arthur Smith or any other proponent of austerity measures) try to explain why the study should continue to be used to justify starving our way to fiscal health. And it would have been fascinating to hear Gessing rebut overwhelming evidence that economies which rely on government spending stimulus get out of recessions faster, grow more and avoid the demoralizing impact of high unemployment than those which rely on cutting spending and tightening belts.

After all, the facts have never been particularly relevant in this debate. What is paramount, it seems, is to appear tough, determined and disciplined, no matter how much damage is caused. How else can one explain the insanity of the federal budget sequestration being allowed to take effect? Just because it hurts doesn’t mean it’s good for us.

Who will be the grown-up willing to call off the charade? If the president doesn’t step forward, who will ask him the pointed question: If Reinhart-Rogoff actually shows stimulating the economy works better than austerity, why don’t we change course—and fast?

*****

Jerry Ortiz y Pino is serving as state senator for District 12 in the New Mexico Legislature—essentially Downtown Albuquerque, the historic neighborhoods that surround it, the UNM campus area and a portion of the South Valley. A retired social worker, he spent his entire 42-year professional career in New Mexico, working in private and public agencies in seven different cities in the state.

One thought on “Austerity Is Bogus

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s