Niall Ferguson Debates Himself
I’ve been known to remark on the conservative movement’s strong adherence to Keynesian arguments as a justification for tax cuts in the wake of the mild 2001 recession, adherence that seems puzzling in light of their contrary rhetoric in the wake of the cataclysmic 2008-2009 downturn. Brad DeLong observes that one particularly hilarious example of this is historian-turned-pundit Niall Ferguson who wrote a December 12, 2003 article on the Bush administration that’s in considerable conflict with his contemporary take on things. DeLong requests a Ferguson v Ferguson debate, and with assistance from Ryan McNeely I’m prepared to unveil one.
2003 Ferguson is in boldface, 2010 Ferguson is in italics:
Guns or butter: this is the choice historians conventionally say that governments face. The administration is currently engaged in an audacious — some would say reckless — experiment to disprove this theory. To judge by his actions, the President’s response to the question “Guns or butter?” is: “Thanks, I’ll take both.” This, in short, is the guns and butter presidency.
Are there precedents for such a combination? What’s to say this deficit-spending won’t work? Keynes would tell us that in the current environment we must boost aggregate demand.
Certainly. Long before Keynes was even born, weak governments in countries from Argentina to Venezuela used to experiment with large peace-time deficits to see if there were ways of avoiding hard choices. The experiments invariably ended in one of two ways. Either the foreign lenders got fleeced through default, or the domestic lenders got fleeced through inflation.
But the United States has broken the guns or butter rule before. Under President Ronald Reagan, substantial increases in military spending coincided with comparable increases, relative to gross domestic product, in personal consumption — that proportion of G.D.P. that the public, as opposed to the government, spends. The crucial point, of course, is that in the short term at least, fiscal policy is not a zero-sum game.
But this doesn’t respond to long run inflationary fears. When economies were growing sluggishly, that could be slow in coming. But there invariably came a point when money creation by the central bank triggered an upsurge in inflationary expectations.
But, as Keynes remarked, in the long run we are all dead! Aren’t these “inflationary expectations” priced into the markets?
New York Times columnist Paul Krugman, who likens confidence to an imaginary “fairy” have failed to learn from decades of economic research on expectations. All it takes is one piece of bad news – a credit rating downgrade, for example – to trigger a sell-off.
But this will not be the kind of inflation experienced in the 1970’s and 1980’s. So powerful are the deflationary forces today (notably in the second and third biggest economies, Japan and Germany) that Washington can splurge on its military and social services with only a modest impact on expectations of inflation.
But it is not just inflation that bond investors fear. Foreign holders of US debt – and they account for 47 per cent of the federal debt in public hands – worry about some kind of future default.
But the United States has a unique advantage over all other sovereign borrowers: central banks and other institutions around the world need to hold dollars as the currency most frequently used in international transactions. While this is true, America can count on selling large amounts of dollar assets, like 10-year Treasury bonds, to foreigners — very large amounts.
But for how long? The evidence is very clear from surveys on both sides of the Atlantic. People are nervous of world war-sized deficits when there isn’t a war to justify them. According to a recent poll published in the FT, 45 per cent of Americans “think it likely that their government will be unable to meet its financial commitments within 10 years”. Surveys of business and consumer confidence paint a similar picture of mounting anxiety.
The only imminent danger is that the dollar could slide sharply against Asian currencies, as it has against the euro. But the chief losers then would be the Asians. And those who panicked about the debt under President Reagan failed to see how manageable it was. It’s even more manageable today.
Hogwash. It was said of the Bourbons that they forgot nothing and learned nothing. The same could easily be said of some of today’s latter-day Keynesians!
Indeed!
36 Responses to “Niall Ferguson Debates Himself”
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July 26th, 2010 at 5:56 pm
I’m reminded of the old punchline: “We’ve already established what you are, now we’re just haggling over the price.”
July 26th, 2010 at 5:56 pm
Bravo! That was wonderful.
July 26th, 2010 at 5:59 pm
Ah yes, The Daily Show method of deconstructing conservative shills. It gets right to the point of demonstrating how full of crap Mr. Ferguson is.
July 26th, 2010 at 6:02 pm
Wow. Nice work, fellows — this reminds me of one of those classic routines with William Shatner performing both roles in a comedic dialogue.
July 26th, 2010 at 6:04 pm
You are all thinking about this too hard. Republican deficits good, Democratic deficits bad. Ya think G Dubya would have been reelected if the economy hadn’t gotten a boost from all the wartime spending?
July 26th, 2010 at 6:07 pm
another post eaten. The Daily Show method of deconstructing conservative shills is excellent. It quickly demonstrates that Mr. Ferguson is full of crap.
July 26th, 2010 at 6:39 pm
Niall Ferguson is possibly the quintessential right-wing wanker. Back in the good old days, he was all over the media babbling about recreating the Raj between the Tigris and Euphrates without fussing over any of the complexities of actual imperialism. A trillion dollars or so was a small price to pay for privilege of shouldering the White Man’s Burden. As the song goes, we asked him how much should we give, and the only answer was “more, more, more”.
Now the cash-for-lickspittles program is paying for gloom and doom about entitlement spending and deficits, so here he is again. Is he admitting error? Of course not! Was he wrong about all that stuff back then? Must not have been, it paid well at the time. What’s our new priority? Well, clearly, we must run a small, limited government and live within our means and only a fool who hasn’t learned anything from history would say otherwise.
The other side is in power now, you know.
July 26th, 2010 at 6:54 pm
Or maybe its 2% deficit good, 15% with 30% of gdp foreign debt maybe just a little bit to much…..
July 26th, 2010 at 7:07 pm
You’ve messed up. The first quote, about guns and butter, is from 2003. But you edit it from saying the Bush administration, to just saying administration and President Bush becomes just President.
I’m no fan of Ferguson but it would be nice if someone – your or DeLong – had included a link to his full 2003 editorial.
July 26th, 2010 at 7:22 pm
This is hilarious!
July 26th, 2010 at 7:30 pm
Why are so many publications citing Niall Ferguson’s economic opinions in opposition to– and of equal standing — to Paul Krugman’s?
What the fuck does Ferguson know about economics?
He’s a Historian — i.e, someone just one inch removed from being a storyteller/fiction writer.
He’s not even a particularly GOOD historian — the good ones are more humble because they know that their musty archives are incomplete and were probably rigged by powerholders to leave a false and misleading impression. Good historians, like good detectives, assume every witness is probably a lying sonabitch.
By the way, did Obama ever find Dick Cheney’s emails? heh heh
July 26th, 2010 at 7:40 pm
Oh my, brilliant, just…brilliant! Ferguson just doesn’t learn. Luckily, he’s restricting himself to print, and not spouting his troglodyte, revisionist crap in public fora anymore. It almost got him lynched at that New York Review panel.
July 26th, 2010 at 7:55 pm
2003 budget deficit 3.39% of GDP. 2010 budget deficit 10.64% of GDP.
Keynes
July 26th, 2010 at 7:58 pm
Let’s ignore the fact that 45% for implies 55% against, ie the majority of people don’t think that.
Go to the entry on evolution on Conservapedia.com and you’ll see that they cite public opinion polls on creationism as proof against evolution. Any reasonable person realizes that you can’t conflate opinion with fact. At one point the majority of the public believed that the sun revolved around the Earth and that the Earth was flat. Never did such opinion actually dictate the movements of celestial bodies or the shape of our planet.
One could argue that opinion does do a decent job of measuring the probability of a specific outcome base on current information (eg. who will win the Super Bowl), but in the case of a US default, I would say that a better measure of the risk of default is found in the going market rate for bonds. Based on those who put their money where their mouth is the risk of default is very low.
In general, whenever anyone opts for the argument that public opinion polls reflect objective truths, they automatically lose the debate in my mind.
July 26th, 2010 at 8:15 pm
Myron: http://www.nytimes.com/2003/12/07/weekinreview/07FERG.html
July 26th, 2010 at 8:16 pm
Below is Ferguson being willfully stupid – because he knows that credit reports are supposed to report accurately – The failure to do so led to BUBBLE that caused the hell is complaining about.
“New York Times columnist Paul Krugman, who likens confidence to an imaginary “fairy” have failed to learn from decades of economic research on expectations. All it takes is one piece of bad news – a credit rating downgrade, for example – to trigger a sell-off.”
July 26th, 2010 at 8:18 pm
You’d almost think that Niall Ferguson was an academic hack who’ll says whatever is required in order to get paid, and for the moment, that means the rubber-chicken circuit in the USA, which has a larger budget than its British equivalent.
July 26th, 2010 at 8:19 pm
In other words – Ferguson acts like a credit report is equal to a gossip-informed opinion – Not something that reports actual credit worthiness.
Surely a small selloff following a downgraded opinion would be better than a bubble being punctured and causing a crash.
July 26th, 2010 at 10:53 pm
2003 budget deficit 3.39% of GDP. 2010 budget deficit 10.64% of GDP.
Why, it’s almost as if that’s an argument for retaining the surplus when the business cycle is on an upswing, which George W. Bush signally failed to do. And I’m sure there wasn’t a peep out of you.
When the facts change, I change my mind. What do you do, sir?
I look at the facts, which say that there’s absolutely no threat of inflation — in fact a threat of deflation — that employment is far below what it should be, and that interest rates have been up against the zero bound for a while. And I conclude that it would be a good time for fiscal stimulus, followed by cutting the deficit when the economy returns to its peak, which it hasn’t yet. In fact, in this case stimulus would probably reduce the long-term deficit, because when the economy limps along under capacity for a decade it’s going to cut into revenues. Which is why a short-run fiscal stimulus is a good idea now, and Bush’s stupid tax giveaways to the rich were never a good idea.
July 26th, 2010 at 11:51 pm
Very nicely done! I needed a good laugh today.
July 27th, 2010 at 1:37 am
>I look at the facts, which say that there’s absolutely no threat of inflation
This is not really a disagreement with your point, as inflation is going to happen regardless of economic policy. China’s industry will put a squeeze on raw material prices, which will increase inflation pressure. The jump in oil prices in 2007-2008 was a warning signal. Nevertheless the right will try to use it to discredit Keynesian economics. About the only thing that could temper higher inflation is an economic crash either in the West or in China.
July 27th, 2010 at 3:45 am
Very good, Matthew. It does remind me of one I wrote earlier:
In the Los Angeles Times in October 2005, Ferguson stated:
‘Parties out of power usually tell themselves that sooner or later the incumbent will be tripped up by the economy. That was indeed the pattern throughout the 20th century. Yet this is to overlook four things.
First, economic volatility has declined markedly since the 1970s. In all the G7 industrialized countries, annual growth rates vary much less than they used to. So do inflation rates. Recessions are happening less often, and when they do, they are not too steep and not too protracted’).
But here is what Ferguson said in Vanity Fair in January 2009 (yes, Vanity Fair), in an interview to publicise his new book, and in which he refer to a period VERY SHORTLY AFTER the appearance of Los Angeles Times article:
‘Well, I can say with a degree of self-satisfaction that it wasn’t luck. Two and a half years ago I decided to write this book, because I was sure that this financial crisis was going to happen, and the reason I was sure was because people kept coming up to me—whether it was investment bankers or hedge fund managers—telling me that volatility was dead that there would never be another recession. I just thought, ‘These people have completely disconnected from reality, and financial history is going to come back and bite them in the ass’ (my emphasis).
Like bollox he thought the financial crisis was going to happen!
From: http://thoughcowardsflinch.com/2009/08/24/niall-ferguson-as-poseur-the-case-for-the-prosecution/
July 27th, 2010 at 3:45 am
Very good, Matthew. It does remind me of one I wrote earlier:
In the Los Angeles Times in October 2005, Ferguson stated:
‘Parties out of power usually tell themselves that sooner or later the incumbent will be tripped up by the economy. That was indeed the pattern throughout the 20th century. Yet this is to overlook four things.
First, economic volatility has declined markedly since the 1970s. In all the G7 industrialized countries, annual growth rates vary much less than they used to. So do inflation rates. Recessions are happening less often, and when they do, they are not too steep and not too protracted)’.
But here is what Ferguson said in Vanity Fair in January 2009 (yes, Vanity Fair), in an interview to publicise his new book, and in which he refer to a period VERY SHORTLY AFTER the appearance of Los Angeles Times article:
‘Well, I can say with a degree of self-satisfaction that it wasn’t luck. Two and a half years ago I decided to write this book, because I was sure that this financial crisis was going to happen, and the reason I was sure was because people kept coming up to me—whether it was investment bankers or hedge fund managers—telling me that volatility was dead that there would never be another recession. I just thought, ‘These people have completely disconnected from reality, and financial history is going to come back and bite them in the ass’ (my emphasis).
Like bollox he thought the financial crisis was going to happen!
From: http://thoughcowardsflinch.com/2009/08/24/niall-ferguson-as-poseur-the-case-for-the-prosecution/
July 27th, 2010 at 4:33 am
Can you just please remind us what was debt-to-GDP ratio in 2003 and what it is today? You don’t think that has any relevance, do you?
July 27th, 2010 at 7:17 am
I’m not sure what Matt thinks he demonstrates here.
That nothing about our fiscal situation has changed in seven years? That can’t be true, Matt isn’t quite that foolish.
That one can make anyone seem hypocritical by pretending that things they said seven years ago should always be congruent with what they say today? But Matt is always invoking the contrary to help explain away his pro war stupidities, so that can’t be it either.
That it is OK to lift quotes from their context and juxtapose them with unrelated quotes? Given his recent jihad over the JournoList tea cup tempest that can’t be it either.
No Matt would NEVER be so hypocritical and foolish as to invoke for himself a rationale and require a standard of consideration that he denies others.
Would he?
July 27th, 2010 at 8:04 am
All it takes is one piece of bad news – a credit rating downgrade, for example – to trigger a sell-off
IOW, Krugman, in saying fairies don’t exist, is forgetting the awesome power held by people, who do exist, who believe in fairies and have a vested economic interest in so believing: all it takes is one false move and the markets get it.
BTW — is holding the markets hostage, pointing a gun to their faces and saying “one false move and the markets get it” — is selling off at the first hint of trouble — rational behavior?
And once you go down the path of admitting people don’t behave rationally, you either have to go through mental gymnastics to remain a neo-liberal, somehow believe in “gold! GOLD!” (/ stereotypical 49er striking a bonanza) or be, guess what, a Keynesian!
July 27th, 2010 at 10:45 am
That nothing about our fiscal situation has changed in seven years? That can’t be true, Matt isn’t quite that foolish.
Again, this is a good point if you ignore the actual facts about inflation and inflation expectations as reflected in long-term interest rates. Ferguson was trying to say that long-term inflationary expectations weren’t a problem for Bush and are for Obama, and he’s got no facts to back that up.
July 27th, 2010 at 11:51 am
First, we deport all the Tories who are only here because they can’t get good jobs in the U.K. Then it’s on to revoking the citizenship of racism merchant Murdoch.
July 27th, 2010 at 1:36 pm
those who are citing the deficit to gdp statistics fail to realize that it was the very same guns and butter (and tax cut) policy that led to 10% deficit to gdp.
July 27th, 2010 at 1:38 pm
matt w,
“Why, it’s almost as if that’s an argument for retaining the surplus when the business cycle is on an upswing, which George W. Bush signally failed to do. And I’m sure there wasn’t a peep out of you.”
Alas, you shouldn’t be so confident. Back in 1980 (yes 1980), I worked on the G.H.W. Bush campaign. I supported Bush (41) over Reagan because I thought that “supply-side” economic was crazy and amounted to “voodoo”. That should give you some clue as to my take on Bush’s (43) tax policies.
“I look at the facts, which say that there’s absolutely no threat of inflation”
Not now. However, Niall Ferguson was pointing out several dangers in Obama’s policies. Inflation is only one. Eventual default is another. Loss of foreign confidence in the dollar could very well trigger inflation (although modest inflation would be better than deflation).
Niall Ferguson is an economic historian, and a decent one at that. His key comment is probably.
That fits with everything I have read spanning hundreds of years, the Gold standard, fiat currencies, many countries, regions, etc.
How are we actually doing. Public debt was 35.1% of GDP in 2003. Now it is 67.1% of GDP.
I like your line about
It would appear that the Republicans don’t have a voodoo monopoly. Note that the economy was running below capacity back in 2001 and 2003 when Bush passed his tax cuts.
July 27th, 2010 at 9:37 pm
Note that the economy was running below capacity back in 2001 and 2003 when Bush passed his tax cuts.
Zero interest rate policy. Look it up. Also look up what Keynesians have to say about the stimulative effect of long-term tax cuts for the rich (short version: there isn’t one).
July 28th, 2010 at 12:12 pm
Funny. Ferguson is a cute counterweight to Krugman, who changed his tune in the opposite way in the same time period. While Krugman was alarmist about deficits in 2003, he tells us they do not matter in 2010.
Although the war is a big mess, Ferguson circa 2003 was nominally right in the sense that government has smoothly rolled over its debt for the past 7 years.
Who will be right in 2010, Ferguson or Krugman? Will the US have experienced a funding crisis by 2017?
I am going with Bill Gross at Pimco who tells us what we already have suspected: if America does not get its long-term liabilities under control soon, we are in big trouble. Too bad the healthcare overhaul bill was a giant step in the opposite direction. Pimco and Bill Gross, who we are asking to roll over our debt, were thoroughly disappointed with that bill.
July 29th, 2010 at 12:21 am
Haha! Ferguson is right, morons. Trouble is, he works
for the CFR crowd. He does not have the left or the rights
interest at heart. Lenin used the “useful idiots” to destroy
both in Russia to rule the sheep. America see your future.
July 29th, 2010 at 1:13 pm
“That fits with everything I have read spanning hundreds of years, the Gold standard, fiat currencies, many countries, regions, etc.”
You’ve been alive for hundreds of years?! Oh, no wait that’s just terrible grammar.
But it doesn’t count if what you’ve been reading are BLOGS written by gold nuts and paultards, paid for by astroturfing gold com’s luring another idiot to buy gold while the market is at the highest its ever been – in the history of the world. Even after tungsten has rendered gold totally usless as a store of value.
Ferguson holds the rare honor of being a man who totally discredited himself with his first book. A totaly diseased attempt to rewrite history to prove that germany never did anything wrong in the two world wars, and that they where not caused by german war-mongering but rather by God’s hatred of democracy. His rise to fame (actually infamy) was based entirely on people saying ‘you’ve got to see this book, it’s the most shameful pack of lies ever written’.
Now he clings on, only in america, i presume because americans believe everything said in a british accent ‘must’ be true.
July 29th, 2010 at 6:13 pm
Mock Ferguson all you want, it’s very simple – big government and “progressive” policies have failed whenever, wherever it is implemented. Willful blindness cannot defy math, history and the basic laws of economics. A couple articles worth reading:
http://mises.org/daily/4578
http://www.americanthinker.com/blog/2010/07/america_an_empire_on_the_edge.html
August 2nd, 2010 at 12:36 am
Where not mocking ferguson, where proving that he’s a liar.
But thankyou for confirming my entirely correct hypothesis that people who have faith in that garbage you propound, know absolutely nothing about economics, and have never read a real book in their lives but that your thinking comes entirely from…
“BLOGS written by gold nuts and paultards”