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UpClose with Elliott Pollack

Economists aren’t known for being the life of the party, but Elliott Pollack defies the stereotype. The chief economist for Valley National Bank in the 1970s and ’80s, and a longtime member of the Legislature’s Finance Advisory Committee, Pollack is known for slideshow presentations that feature outlandish photos to drive home the point he is trying to make.

Pollack, whose office is based in Scottsdale, spoke with Arizona Capitol Times on Dec. 23 about the life of an economist during the worst financial crisis since the Great Depression.

What is it like for an economist in these times?
It’s very interesting, because you see a lot of things working just as you would expect. On the other hand, for this point in the cycle, it is unusual not to be able to forecast with a great degree of certainty what’s likely to happen over the next year or two.

People are going to be studying what happened in this recession and how we handled it for the next 50 years. Looking back on it at this point, have things acted the way you would have expected?
I think historians will say that we got here through over-speculation, through very bad government policy – going back to Harry Reid and Bill Clinton, and their desire to have people who couldn’t afford homes buy them – an overly loose monetary policy and new instruments, the consequences of which were not completely thought through.

Then, when things collapsed, the issue is what types of actions were necessary. That’s where the debate will be. The Fed did exactly out-of- the-textbook in terms of what they were supposed to do. They supplied probably a lot more money than was necessary and became the lender of last resort to a lot of institutions. Whether that was necessary, only time will tell. But they bailed us out.

What clearly wasn’t necessary were the fiscal policy moves, the TARP (Troubled Asset Relief Program) and those other programs that essentially were nothing more than social engineering and pork.

So, you’re not a fan of the bank bailouts?
Only history will tell, but it appears to me that a bad situation was turned into a potential disaster by the way the government handled it.

Big financial institutions have gone bankrupt before and the economy made it through, and the Fed would have done what it is supposed to do.

The difference this time around is the federal government told people, “We’re in a disaster.” I don’t think people knew it until the federal government made a big deal of it. They created the psychological problems that they then had to correct.

You can claim the bailouts were necessary. But if they were that necessary, how come less than a year later every financial institution has paid them back and they wanted to pay them back earlier? All that says to me is it was unnecessary.

I certainly think that the other government stimulus programs are nonsense, because they didn’t create a lot of jobs. They were simply pork and social engineering, enhancing the entitlement mentality that this administration so richly embraces for the American public. It was a waste of money.

I remember speaking to you in fall 2008, and you told me that the concept of increasing government spending to help prop up the economy was a good thing.
There is still a debate as to whether the New Deal actually did any good. There’s a lot of theory that says it actually lengthened the Great Depression by a significant length of time. But at least the New Deal created jobs and left some infrastructure. You ended up with roads and dams and bridges, and things that people actually needed.

This time around, we’re ending up with nothing.

There were nearly no private-sector jobs created. Most of it was government jobs, and government jobs just take taxpayer money. And the cost per job was well over $200,000. You might as well give somebody the money – it will be a lot cheaper.

I’m dismayed in terms of what has happened with fiscal policy. The monetary policy was probably overkill. Clearly, if you take a picture of the monetary base, it has more than doubled in less than a year.

That type of thing happens in Weimar Germany in the ’20s and in banana republics in South America – it doesn’t happen in industrialized countries. That base will only turn into money supply when banks start to lend and people start to borrow again.

That’s when the Fed basically has to start withdrawing money from the system. Can it effectively do that, with an administration that’s jumping up and down because it’s concerned about endangering the recovery? The Fed will be walking a very fine line, probably starting in 2011.
The administration has dug a hole that I don’t know how we will get out of.

You’re a big fan of Ben Bernanke, right?
His academic expertise was the Great Depression. Everything that went wrong from 1929 to 1937, he did right. It might be overkill, you could say he did things he didn’t have to do, but he erred on the side of preventing us from falling into the abyss. A year ago, we were close.

I have no complaints, but that might change a few years down the road, depending on if the Fed gets politicized and he has difficulty controlling inflation.

Does he deserve being named Time magazine’s Person of the Year?
Give me an alternative. No offense, but Obama didn’t deserve the Nobel Prize any more than he deserved the Heisman Trophy.

The national recovery will be slow. Arizona will be lagging behind that, right?
Arizona is in much worse shape than we’ve ever been. The most we’ve ever lost before now was in 1975, when we lost 18,000 jobs. By the time the dust settles this time, it will be roughly 275,000 jobs.

This particular recession exposed our weaknesses and hit us everywhere we are weak. The one thing people should get out of this is the risks of having a population-growth-based economy. We essentially imploded because population flows slowed so much. It was just a nightmare.

Arizona has rested on its laurels for decades. Our economic base essentially has not changed since the ’50s. Almost every company here is a grandchild of companies that were here in the ’50s and ’60s. We have not done a good job of remaining competitive. We have not had a good economic development policy. I don’t think there’s been a governor who’s cared about economic development since Fife Symington – certainly Napolitano never did. She managed to spend us into oblivion.

Think about the ghost towns of the Old West. Why did they become ghost towns? The mine petered out, the railhead moved – the reasons for their existence were stuff that left the community. Phoenix is here because of Intel, because of Boeing, because of American Express’ regional office. Everything else – the Dillard’s, the Circle Ks – is just chasing income that’s already here. An economic development policy has to focus on those companies that can be elsewhere, because they’re the ones that bring the money to the system. You never have to attract a retailer to the state – they’ll be here chasing the income.

What does the state need to do to attract those types of companies?
The first thing is understanding there’s a difference between Intel and Dillard’s. Two, you set up the tax structure so that those companies only pay taxes, if at all, on the percentage of their sales in Arizona. Three, you create a new category of business property taxes for export-related industries, to make us more competitive.

So, instead of lowering the business personal property tax across the board, you would carve out a new tax code, just for these businesses?
Yes. You don’t want to necessarily cut it across the base, because then you have something called a “deadweight revenue loss,” which is where you give up revenue and aren’t getting any economic benefit for it. Only cut that tax for those companies that can move elsewhere and take with them the jobs that they create.

One of the things I love about seeing your presentations is that they’re half comedy, half information overload. Don’t you know economists are supposed to be dull?
This is a relatively dry business. The only way you’re going to get anybody’s attention is if they don’t know what’s showing up next. I keep people’s attention by these slides, which really can be pretty funny.

I do it because people know I do it, and they pay attention because they don’t want to miss something. The reason I throw in so many slides is because I want to paint a general picture. By going through them very rapidly, yes, it’s information overload, but it keeps people awake.

I started doing these presentations probably 25 years ago. Part of it was me, part of it was seeing how (ASU economist) Lee McPheters does it – he does it more with jokes because he’s got better delivery than me, so I do it with slides.

The toughest thing I have to do is keep the slides and the jokes fresh.

How much time does it take to scour the Web for the pictures you use?
We have two people in the office who, whenever I have a speech coming up, will spend a couple days just looking. And whenever we see something during the year, we’ll just throw it in a file, because you never know what you’re going to need later.

It’s also the most fun part. We’ll see some things and just be rolling on the floor. Some things we just can’t use, because they’re too over the top or risqué.


Were you the class clown growing up?
I didn’t take things too seriously.

Who are your favorite writers?
Vince Flynn, Clive Cussler, Nelson DeMille. My favorite economic writers are Thomas Sowell, Malcolm Gladwell. What I do is read a “junk” book, then read either a serious one or an economic textbook.

Have you ever thought about writing your own economic textbook?
No, but I actually have thought about writing about the economic history of Phoenix. I have all the copies of the Arizona Progress (a Valley National Bank economic newsletter) published from 1929 forward, so I have this unique database of history that was written while it was going on.

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