Inside the offbeat economics department that debunked Reinhart-Rogoff

April 24, 2013

Thomas Herndon (left), the UMass Amherst economist who debunked Reinhart (right) and Rogoff.

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.

(Via At the Edge of Camelot by Donald Katzner)
(Via At the Edge of Camelot by Donald Katzner)

That created openings, which, in 1973, the administration started to fill in an extremely unorthodox way. They decided to hire a "radical package" of five professors: Wolff (then at the City College of New York), his frequent co-author and City College colleague Stephen Resnick, Harvard professor Samuel Bowles (who'd just been denied tenure at Harvard), Bowles's Harvard colleague and frequent co-author Herbert Gintis, and Richard Edwards, a collaborator of Bowles and Gintis's at Harvard and a newly minted PhD. All but Edwards got tenure on the spot.

"One dean did mention, and whether this was a joke I'll never know, that the goal was to become the Berkeley of the east," Wolff says. "They said, 'They became famous with the free speech movement, and you five will make us famous.'"

It's rare to hire five new faculty at a time. It's rarer to hire them after bargaining with them as a group. "We actually bargained as a group of five," Wolff recalls. "On one side of the table, three deans, and on the other side of the table, five faculty hires. I had never experienced it before, and I have never experienced it since."

Under those five's guidance, the department came to specialize in both Marxist economics and post-Keynesian economics, the latter of which presents itself as a truer successor to Keynes's actual writings than mainstream Keynesians like Paul Samuelson. "When I got there, the department basically had three poles," said Gerald Epstein, who arrived as a professor in 1987. "There was the postmodern Marxian group, which was Steve Resnick and Richard Wolff, and then there was a general radical economics group of Sam Bowles and Herb Gintis, and then a Keynesian/Marxian group. Jim Crotty was the leader of that group." Suffice it to say, most mainstream departments have zero Marxists, period, let alone Keynesian/Marxist hybrids or postmodern Marxists.

With the end of the Cold War, however, the Marxian element started to subside. The radicals started to get less radical, and the newcomers weren't very radical at all. "I think a number of my colleagues on the left end of the department were taken with the idea that the great twentieth century battle between capitalism and socialism had ended. Capitalism had won and socialism had lost." Wolff remembers. "So that project struck them as suddenly out of date or even anachronistic. It wasn't relevant anymore."

"The younger economists were much more empirically oriented, a bit more policy oriented," Epstein says. "We're a much more diverse group now."


Robert Pollin. (Cambridge Forum)

A big influence on that was the arrival of Pollin in 1998 from University of California - Riverside. Pollin, who had briefly been in the spotlight as an adviser to Jerry Brown's 1992 presidential campaign, shared the empirical, policy-oriented bent of the department's younger economists. And he brought money. When he arrived, he and Epstein founded PERI as a vehicle for the kind of policy research they specialized in. The money, Wolff recalls, came in large part from Pollin's father Abe, who at various points owned the Washington Wizards and Washington Capitols.

(Update - Robert Pollin emails to note that among the other donors to PERI is Ben Cohen of Ben & Jerry's Ice Cream fame. Cohen gave more after Ash, Pollin, and Herndon's paper on Reinhart-Rogoff came out, in addition to "sending cases of ice cream for all our hard-working grad students.")

"There was now, in a sense, two economics departments. There's the regular one and PERI," Wolff says. "You might want to call them left Keynesians, but the Keynesianism is the theoretical frame. Marxism, for sure, is not." Pollin insists he'd be more than happy to hire Marxists; it's just that economics departments don't churn them out anymore.

To be sure, some of the economists in the department today wouldn't be out of place working as applied macroeconomists anywhere else. But they still tend to focus on issues that other departments neglect. Lee Badgett, for example, is arguably the most important economist in the country on sexual orientation issues, and in particular on the economic and social benefits to LGBT couples of having their marriages legally recognized. Nancy Folbre, a professor in the department and frequent New York Times contributor, is one of the leading feminist economists currently working.

"I had long been interested in demography, fertility decisions, and household work, never central themes in Marxian theory," Folbre tells me. "Still, I found a very supportive environment for the development of new ideas, including explorations of feminist theory."

The demographics certainly bear that out. Only 10 out of the department's 27 active faculty members are white men. At Harvard, by contrast, 39 out of 45 are.

Still, the gaps between UMass and its mainstream peers are shrinking. Arindrajit Dube, an assistant professor in the department, was trained at the notoriously conservative University of Chicago department and will be visiting MIT next year. "I've always had a really hard time with labels," he tells me. "In grad school, a lot of my professors would talk about what makes a good Chicago economist, and I wasn't sure I wanted to be a good Chicago economist."


Dube, testifying before the Senate HELP committee. (C-SPAN)

Whether or not he's a good "Chicago economist," Dube has certainly made a splash as an Amherst one. His research suggesting that raising the minimum wage does not reduce employment landed him a spot testifying before the Senate HELP committee. He claims his outlook, and that of the department, is more empirical than anything else. "One of the lessons I have drawn from controversies as well as my own work is that the theory will only take you so far, and empirical work is hard and fraught with dangers, but that's really where things get hashed out," he says.

Those skills were also on display in Dube's own analysis of the Reinhart-Rogoff argument, which, while less splashy and certainly less funny than Ash, Pollin and Herndon's analysis, was arguably more devastating. Dube used relative simple data analysis techniques to show that it's far likelier that slow growth would cause high debt than the reverse.

That's how more macro should go, Pollin emphasizes. "Use simple techniques," he says. "Try to keep your modeling simple. Try to tell the story as simply and as clearly as possible." Not all of Amherst is necessarily opposed to complex modeling. "Saying that current theory is a blind alley doesn't mean we shouldn't do theory," Peter Skott, a post-Keynesian at Amherst, says.

But the key insight behind the UMass approach is that there are a whole lot of tenets of modern macroeconomics (and microeconomics, for that matter) that have gone empirically under examined. Take the idea that there's a "natural" rate of unemployment, and that having unemployment below that would trigger troublesome inflation. Pollin understands the theory but argues it just doesn't fit reality. "I think that core idea is just, is very weak empirically, the evidence is very weak," he says.

It's easy to overestimate the differences between UMass and more mainstream departments. The empirical microeconomics Dube does is not too different from what David Card, David Autor, Raj Chetty, and other microeconomists in more mainstream departments do. Pollin helped the Department of Energy implement the green portions of the stimulus, which was designed initially by mainstreamers like Larry Summers. And even the "left Keynesians" of Amherst don't go as far as some of their peers at, say, the University of Missouri - Kansas City in dismissing the possibility of high deficits leading to inflation later on.

"It's almost a talmudic claim that since no country with its own currency can go bankrupt, no deficit can be bad," Epstein says. "They've made important contributions, and a lot of them are my friends, but we try to look at things more critically and not assume there are absolutes."

But the department's radical openness to alternate perspectives still sets it apart. "Learn from Marx, learn from Keynes, learn from Hayek," Pollin says. "One of the biggest influences on me personally was Milton Friedman. He was very engaged with real world questions, and he made no bones about his ideological predilections."

Sounds familiar.

Read more:

- At the Edge of Camelot by Donald Katzner, a former UMass professor. This is an excellent, expansive history of the UMass department.

- "Hip Heterodoxy" by Chris Hayes (before he got all famous), a classic The Nation piece on Amherst and other heterodox departments.

Update: I'm informed students and faculty call it "UMass" not "Amherst." So I swapped that in where appropriate. Apologies for the lingo mixup.

Update II - the original version of this post said Abe Pollin owned the Washington Nationals. He never did; he only owned the Capitals and the Wizards.

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