UMass Amherst Department of Economics PhD student Theresa Owusu-Danso is the recipient of two fellowships, a dissertation fellowship awarded by the African Economic Research Consortium (AERC) and an international fellowship awarded by the American Association of University Women (AAUW). Owusu-Danso’s dissertation is titled, “Microfinance, Household Indebtedness and Gender Inequality” and the awards from the AERC and AAUW will support her field work which involves a survey of households and microfinance institutions (MFIs) in Ghana during April-June, 2013.
Owusu-Danso’s key research objectives include examining the impact of access to credit from MFIs on poor households’ balance sheet; investigating whether MFI credit (its conditions and use) may contribute to households’ financial distress; assessing the impact of access to microcredit on intra-household inequality, specifically how men and women are affected differently by their access to credit from MFIs; and ascertaining factors influencing the high repayments of loans contracted from MFIs and how these relate to household productivity.
Owusu-Danso’s research is highly relevant for economic development policy in Ghana (and in other African countries as well) where a critical challenge to poverty reduction and gender equity is lack of access to finance. Her study makes a unique contribution to the literature in this area by investigating whether access to credit from MFIs may actually cause a financial burden on the poor households and therefore worsen, rather than improve, their well-being. Most of the research in this area has primarily focused on access to credit by the poor and by women. Her study is pertinent given the fact that MFI loans are generally much more expensive (higher interest rates) than loans from banks. Thus, MFI credit may not necessarily be an unmitigated blessing for the poor and for women. Owusu-Danso’s research will shed light on this important question.
Robert Pollin, UMass Amherst professor of economics and co-founder of the Political Economy Research Institute (PERI), was interviewed by The Real News Network regarding the U.S. minimum wage and youth without jobs.
The minimum wage in the country right now, at $7.25 an hour, is about $3 an hour–more than $3 an hour below what it actually was in 1968 in this country. In 1968 in this country, the minimum wage, after we properly adjust for inflation, was $10.65 an hour. That means in 1968–let’s take a young girl in Texas walking into her job at McDonald’s on the first day. Legally she would have to have been paid $10.65 an hour. That’s in 1968. So the proposal by Congressman Alan Grayson is basically just to bring the United States minimum wage today back to where it was in 1968.
In the wake of the Herndon paper, The Washington Post profiled the UMass Amherst Department of Economics, providing a detailed history of the department’s growth and development over the last 40-plus years. Interviewed for the piece were Professors Richard Wolff, Gerald Epstein, Nancy Folbre, Arindrajit Dube and Robert Pollin.
It was surprising to learn last week that Harvard professors Kenneth Rogoff and Carmen Reinhart’s argument for austerity is based in part on an Excel blooper. What’s not surprising is who found it out.
The rebuttal came in the form of a paper released by the Political Economy Research Institute, a group at the University of Massachusetts – Amherst with close ties to its economics department. Two of its authors, Michael Ash and Robert Pollin, are UMass professors, and the other, Thomas Herndon, is a grad student in the department. No one who knows the UMass department was surprised they’d trained their considerable analytical firepower on Reinhart and Rogoff. Amherst has, over the past 40 years, developed a reputation as perhaps the single most important heterodox economics department in the country.
It wasn’t always that way. In the 1960s, it was a fairly mainstream department, with a moderately conservative inclination, according to emeritus professor and influential Marxist economist Richard D. Wolff. It employed Vernon Smith, a noted libertarian who shared the 2002 Nobel, from 1968 to 1972, and Hugo Sonnenschein, who would go on to be president of the University of Chicago, from 1970 to 1973.
That was when things started to change. The tipping point, Wolff says, was the denial of tenure for Michael Best, a popular, left-leaning junior professor. “He had a lot of student support, and because it was the 1960s students were given to protest,” Wolff recalls. That, and unrelated personality tensions with the administration, inspired the mainstreamers to start leaving. Read more…
A new study by UMass Amherst Department of Economics Graduate Student Thomas Herndon and Professors Michael Ash and Robert Pollin refutes the Reinhart and Rogoff analysis that underpins austerity policy around the world; shows no relation between debt and lack of growth. Watch The Real News Network interview with Ash and Herndon.
Austerity after Reinhart and Rogoff
Robert Pollin and Michael Ash
In 2010, two Harvard economists published an academic paper that spoke to the world’s biggest policy question: should we cut public spending to control the deficit or use the state to rekindle economic growth? Growth in a Time of Debt by Carmen Reinhart and Kenneth Rogoff has served as an important intellectual bulwark in support of austerity policies in the US and Europe. It has been cited by politicians ranging from Paul Ryan, the US congressman, to George Osborne, the UK chancellor. But we have shown that several critical findings advanced in this paper are wrong. So do we need to rethink austerity economics more broadly?
Their research is best known for its result that, across a broad range of countries and periods, economic growth declines dramatically when a country’s level of public debt exceeds 90 per cent of gross domestic product. In their work with a sample of 20 advanced economies in the postwar period, they report that average annual GDP growth ranges between about 3 per cent and 4 per cent when the ratio of public debt to GDP is below 90 per cent. But it collapses to -0.1 per cent when the ratio rises above a 90 per cent threshold.
In a new working paper, co-authored with Thomas Herndon, we found that these results were based on data errors and unsupportable statistical techniques. For example, because of miscalculation and unconventional methods of averaging data, a one-year experience in New Zealand in 1951, during which economic growth was -7.6 per cent and the public debt level was high, ends up exerting a big influence on their overall findings.
When we performed accurate recalculations, we found that, when countries’ debt-to-GDP ratio exceeds 90 per cent, average growth is 2.2 per cent, not -0.1 per cent. We also found that the relationship between growth and public debt varies widely over time and between countries.
So what does this mean? Consider a situation in which a country is approaching the threshold of a 90 per cent public debt-to-GDP ratio. It is not accurate to assume that these countries are reaching a danger point where growth is likely to decline precipitously.
Rather, our evidence shows that a country’s growth may be somewhat slower once it moves past the 90 per cent public level. But we cannot count on this being true under all, or even most, circumstances. Are we considering the US demobilisation after the second world war or New Zealand during a severe one-year recession? One needs to ask these and similar questions, including whether slow growth was the cause or consequence of higher public debt.
What of our present circumstances? Using the Reinhart/Rogoff data, we found that the average GDP growth rate for countries carrying public debt levels greater than 90 per cent of GDP was either comparable to or higher than those for countries whose debt ratios ranged between 30 per cent and 90 per cent.
Of course, one could say that these were special circumstances due to the 2007-2009 financial collapse and Great Recession. Yet that is exactly the point. When the US and Europe were hit by the financial crisis, and subsequent collapse of private wealth and spending, deficit-financed government spending was the most effective tool for injecting demand back into the economy. The increases in deficits and debt were indeed large in these years. But this was a consequence of the crisis and a policy tool for moving economies out of the recession. The debt was not the cause of the growth collapse.
The case for austerity has never relied entirely on Prof Reinhart and Prof Rogoff. But the other major claims made recently by austerity hawks have also not held up well. Austerity supporters circa 2009-2010 consistently argued, frequently in this newspaper, that the large US deficits would lead to dangerously high inflation and interest rates. Neither prediction came true. In fact, both inflation and interest rates on treasuries were at historic lows in the four years, 2009-2012, during which deficits were at their peak.
It is also untrue to say that the large deficits have created an unsustainable burden on the US public finances. In fact, since 2009, the US government’s interest payments on debt have been at historically low levels, not historic highs, despite the government’s rising level of indebtedness. This is precisely because the US Treasury has been able to borrow at low rates throughout these high deficit years.
We are not suggesting that governments should borrow and spend profligately. But judicious deficit spending remains the single most effective tool we have to fight against mass unemployment caused by
severe recessions. Recent research by Prof Reinhart and Prof Rogoff, along with all related arguments by austerity proponents, does nothing to contradict this fundamental point.
The writers are professors of economics at the University of Massachusetts Amherst.
On April 15, UMass Amherst Economics Department Graduate Student Thomas Herndon and Professors Michael Ash and Robert Pollin published a working paper titled, Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff. In the paper the authors examine Reinhart and Rogoff’s research on the relationship between public debt and GDP growth for advanced economies in the post-World War II period. Reinhart and Rogoff argue that the rate of economic growth for these countries has consistently declined precipitously once the level of government debt exceeds 90 percent of the country’s GDP. In recent years, Reinhart and Rogoff’s results have been highly influential as support for austerity policies in both Europe and the United States.
Herndon, Ash and Pollin find that a series of data errors and unsupportable statistical techniques led to an inaccurate representation of the actual relationship between public debt levels and GDP growth. They find that when properly calculated, average GDP growth for advanced economies at public debt-to-GDP ratios over 90 percent is not dramatically different than when debt-to-GDP ratios are lower.
Almost immediately the Herndon, Ash, Pollin findings went viral with lots of social media buzz on Twitter and Facebook. The story has garnered extensive national and international coverage. Below is a list of media coverage to date.
UMass Amherst Senior Lecturer and marathon runner John Stifler talks to New England Public Radio’s Henry Epp about what it is like to run the Boston Marathon and gives a runner’s perspective on yesterday’s tragedy.
Monday’s Boston Marathon explosions have devastated the city and its residents. Lost in the tragedy’s aftermath was the typically joyful post-marathon celebration – a payoff for the participants’ months of training. UMass Amherst economics lecturer John Stifler was at the race. He also writes about running for New England Runner Magazine and the Daily Hampshire Gazette. Stifler spoke to New England Public Radio’s Henry Epp about the future of the race’s security and what it was like for runners who were stopped short of the finish line.
The UMass Amherst Department of Economics is proud to offer an undergraduate certificate in Applied Economic Research on Co-operative Enterprises. This credit-based certificate program involves 15 credits of coursework and an approved six credit field-based research internship with, or related to, a co-operative enterprise. Students gain experience in doing applied economic research in the context of collaboration with faculty, other students, and owner/managers of cooperative firms.
Each year the department, college, and university award scholarships to deserving students. Scholarship funding comes almost entirely from the generous gifts of our alumni and friends and are intended to recognize the hard work and academic success of our students, as a well as assist them with the expense of their education. This year 21 economics undergraduates were recognized with 26 departmental awards. We congratulate our students on their achievements and thank our alumni and friends for their support.
Timur Abduljalil ’14– Sherry Barber Memorial Undergraduate Scholarship
Jonathan Berke ’14– Economics Writing Award
Elysia Eastty ’15– E.W. Eldridge Jr. Memorial Scholarship
Cameron Kackley ’14– Highest Academic Achievement Award
Ryan King ’13– Sherry Barber Memorial Undergraduate Scholarship
Keith Kittelson ’13– Sherry Barber Memorial Undergraduate Scholarship
Alexander Kniazev ’14– E.W. Eldridge Jr. Memorial Scholarship
Shawn LeLievre ’14– Sherry Barber Memorial Undergraduate Scholarship
Alexander Major ’14– Sherry Barber Memorial Undergraduate Scholarship, Economics Alumni Award for Distinguished Service, & Ward McCarthy Scholarship for Interns
Katelynn Mann ’15– Sherry Barber Memorial Undergraduate Scholarship
Timothy Martin ’13– Sherry Barber Memorial Undergraduate Scholarship
Vickash Mohanka ’13– Sherry Barber Memorial Undergraduate Scholarship
Ken Naeh ’13– Sherry Barber Memorial Undergraduate Scholarship & Highest Academic Achievement Award
Victoria Pfenninger ’13– Sherry Barber Memorial Undergraduate Scholarship
Eric Popp ’15– Ward McCarthy Scholarship for Interns
Ariel Richman ’13– Sherry Barber Memorial Undergraduate Scholarship
James Santucci ’13– Sherry Barber Memorial Undergraduate Scholarship
Luke Seaberg ’14– Sherry Barber Memorial Undergraduate Scholarship & Economics Alumni Award for Outstanding Achievement
Sanjay Singh ’13– Economics Alumni Award for Distinguished Service & James Kindahl Award
Collin Whittier ’15– Sherry Barber Memorial Undergraduate Scholarship