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Home Publications Blogs Beat the Press The Ravings of Niall Ferguson, the Real World, and the Needless Suffering of Tens of Millions

The Ravings of Niall Ferguson, the Real World, and the Needless Suffering of Tens of Millions

Thursday, 10 October 2013 20:37

For reasons I cannot imagine, Niall Ferguson has achieved some standing as an intellectual with interesting things to say about the economy. Whenever I have read one of his pieces I almost always find it so confused that it would take a blog post at least as long as the original to set it straight. This is why I generally ignore Ferguson, except when prodded by friends and readers.

For this reason I was struck to see that my occasional Niall Ferguson corrections got me on the list of Paul Krugman’s

“like-minded bloggers who play a sinister game of tag with him, endorsing his attacks and adding vitriol of their own. I would like to name and shame in this context Dean Baker, Josh Barro, Brad DeLong, Matthew O'Brien, Noah Smith, Matthew Yglesias and Justin Wolfers.”

This was in the concluding segment of a three part tirade from Ferguson directed at Krugman. Krugman is of course highly visible, and has been especially effective in calling attention to some of Ferguson’s more absurd claims.

I have great respect for Paul Krugman and consider him a friend, but Ferguson’s list of “like-minded” bloggers seems more than a bit bizarre. There is certainly overlap in the views of this group of bloggers, but not all that much. For example, I believe that Josh Barro considers himself a libertarian. The only attribute that we really have in common is that we took offense at some of the ridiculous pronouncements from Ferguson and used our blogs to correct them.

But it is hardly worth wasting time and killing electrons in a tit for tat with Ferguson. What matters is the underlying issues of economic policy. These affect the lives of billions of people. The absurdities pushed by Ferguson and like-minded people in positions of power, in direct defiance of massive evidence to the contrary, have ruined millions of lives and cost the world more than $10 trillion in lost output since the crisis began.

First, contrary to what Ferguson claims, the downturn is not primarily a “financial crisis.” The story of the downturn is a simple story of a collapsed housing bubble. The $8 trillion housing bubble was driving demand in the U.S. economy in the last decade until it collapsed in 2007. When the bubble burst we lost more than 4 percentage points of GDP worth of demand due to a plunge in residential construction. We lost roughly the same amount of demand due to a falloff in consumption associated with the disappearance of $8 trillion in housing wealth. (FWIW, none of this was a surprise to folks who follow the economy with their eyes open. I warned of this disaster beginning in 2002, see also here and here.)

The collapse of the bubble created a hole in annual demand equal to 8 percent of GDP, which would be $1.3 trillion in today’s economy. The central problem facing the U.S., the euro zone, and the U.K. was finding ways to fill this hole. Government stimulus is the most obvious answer. This is where the Ferguson types first began to obstruct efforts to boost the economy. They warned that stimulus would not be an effective way to boost growth and create jobs. We also heard dire tale of exploding interest rates and runaway inflation.

In fact, the stimulus in the United States went pretty much according to the textbook. It was far too small and too short to get the economy back to full employment (again, this was predictable at the time, see here and here), but it did create around 2-3 million jobs. The problem was that that the economy needed 10-12 million jobs.

This is all about as simple as it gets. At least in the U.S. case there is very little room for any financial crisis type explanations. Investment as a share of GDP is almost at its pre-crisis level. This is quite impressive given the huge amounts of excess capacity that persist in many sectors. Is there some story where we would expect to see much more investment if our financial system had not gone through a crisis?

The same holds with consumption. Contrary to conventional wisdom, consumption is quite high relative to disposable income. People are spending a smaller share of their income than at the peak of the bubble, but that should not be surprising since they lost $8 trillion in housing wealth. It is not the financial system or pessimism about the economy that is holding back consumption, it is loss of wealth.

If we can’t reasonably expect much more out of investment or consumption than what we are now seeing, then that just leaves the government and net exports. This is not really a debatable point; it is a matter of accounting identities. That means we have to rely on the government sector to boost the economy. (I am a big proponent of a lower-valued dollar to boost net exports, but this is more of a longer term strategy since our trading partners will take time to adjust.)

In the years since the original stimulus the Ferguson types have repeatedly raised absurd fears about the U.S. and other countries hitting debt limits and risking soaring interest rates and hyper-inflation. The result of people pushing this line is that efforts to boost the economy have been stunted. This is why the United States remains close to 9 million jobs below its trend path. Peripheral countries in the euro zone, such as Spain and Greece, have been even harder hit with unemployment rates hovering near 25 percent.

In addition to all the people who are unemployed or underemployed, the weakness of the labor market has made it impossible for most workers to be able to achieve real wage gains. As a result the benefits of the growth we have seen in the United States and other wealthy countries have gone overwhelmingly to the richest 1 percent of the population.

This story is not only devastating for the current generation of workers; it is also having a devastating impact on their children. There are millions of children having impaired childhoods because their unemployed parent(s) cannot properly care for them. (Bizarrely, Ferguson and his ilk are obsessed with deficit projections for 20 and 30 years out, which are entirely due to our broken health care system, as the worst threat facing our children.)

The horrible plight facing so many people in the United States and Europe is especially infuriating because it is so preventable. We know how to get people back to work – Keynes taught us the answer almost 80 years ago. We just need to spend money. Keynes was shown right in the Great Depression and all the evidence that we have seen to date in the current downturn show that these lessons still hold. (Btw, we can also go the route of reducing work hours, while making up for most of the shortfall in wages. Reductions in work hours is the secret to Germany’s 5.4 percent unemployment.)

Krugman and my fellow like-minded bloggers can speak for themselves, but I am not going apologize if I am occasionally rude to an ill-informed overpaid Harvard professor making absurd pronouncements on economics that have the effect of obstructing policy aimed at ending unnecessary suffering.

Comments (32)Add Comment
Lack of civility?
written by Matt, October 10, 2013 9:35
I thought it was funny that Ferguson constantly bemoaned a lack of civility from Krugman in his three hit pieces (as if he deserves any civility or respect for his constant dangerous, ill-thought-out views and dishonest arguments!), yet he was in the news not too long ago for smearing J M Keynes - saying Keynes didn't care about future members of society because he didn't have any children, with jokes about him being feminine thrown in.

I am constantly amazed how some people can be so staggeringly wrong on issue after issue (how's that 10% inflation coming along Niall?) and still get respect from the mainstream. The only conclusion I can draw is that nothing like truth or honesty matters nearly as much as the patronage of the old boys club.
"Killing electrons"?
written by Doug O'Keefe, October 10, 2013 9:44
Poor little guys.
Spot On!
written by Michael W., October 10, 2013 10:48
Spot on! And, to follow up, Ferguson's earlier comments about Keynes's supposed feelings about future generations were tasteless and vile; and now that he has been rebuked for factual errors, he has the audacity to complain that he has been "bullied," even though his errors are considerable and unmistakeable. In my opinion, he has begun to experience only a portion of the revile he so richly deserves for his bigotry and his carelessness with facts.
..., Low-rated comment [Show]
Mr, Low-rated comment [Show]
Niall Ferguson shames himself, and consequently policy makers
written by JaaaaayCeeeee, October 11, 2013 1:40

It's tragic for most citizens, that the best that Ferguson (and other shills ruining economies and millions of peoples' lives while bloviating in news media) can manage, is specious misreadings and name calling of people like Paul Krugman, Dean Baker, Josh Barro, Brad DeLong, Matthew O'Brien, Noah Smith, Matthew Yglesias and Justin Wolfers.

It makes no sense for Ferguson to restrict his list of people who have specifically pointed out his destructive nonsense, and leave out Joe Stiglitz, Mike Konczal, Black, Thoma, DeLong, and all the other economists and bloggers, who've made the same points as those Ferguson wants to marginalize as evil bloggers.

Shilling leads to the simultaneously pathetic and vicious, like those Republicans defining extortion as good faith negotiating.
Oh for pity's sake
written by watermelonpunch, October 11, 2013 2:47
With friends like those... who are these readers?
I thought we all knew you could find better things to do with your time.
Can't your wife come up with a list?

Hey, Niall Ferguson apparently would like us to consider his wife to vouch for his character. But maybe she's the one who's been signing the permission slips for the field trips he takes into Bizarro World.

This guy is lucky that lots of ordinary people don't pay too much attention to him. He could be dealing with more than "incivility" - he could be running from flaming torches.

His grossly inappropriate, never mind inaccurate, remarks, over time, are certainly some excuse for incivility if indeed anyone has been uncivil.
$10 trillion in lost output says it all
written by Kenneth Thomas, October 11, 2013 3:56
Keep telling it like it is!
written by Chris E., October 11, 2013 4:09
I'd like to point out the elephant in the room:

Niall Ferguson is a pathetic opportunist who called out numerous prominent thinkers as a cheap shortcut to get some promotion for his (excessive) number of books published in the past year.

I understand Dean and others need to respond when they're called out by a Harvard historian with public recognition, but this really is classic bait designed to generate attention for whatever crap book he's releasing.

That being said, this guy needs to get TKO'd and stay out, especially after everyone is putting him in his place yet again. But unfortunately we know from the past that he has no shame and will continue to flaunt his ignorance on topics outside of his expertise.
What Competition With MSM Looks Like
written by Last Mover, October 11, 2013 6:42

Watch the talk shows. The kinds of hosts and guests who entertain Niall Ferguson and smugly cackle and jeer at the likes of Paul Krugman and Dean Baker by converting remote unrelated trivia into ad hominem attacks, could not read a graph with an X and Y axis on it, much less interpret it.

Real 'Mericuns do understand what competition looks like, don't they. If you can't stand the heat then get out of the kitchen.
written by sherparick, October 11, 2013 8:16
Professor Ferguson, as I wrote on Brad DeLong's blog, wrote a particularly dishonest and unfact checked column for the last week in the WSJ. It was so bad that the Journal had to post major corrections and updates (for instance changing the initial write that interest on the debt was taking "8% of GDP" to "8% of Federal tax revenues" (which is actually far less than it was under last 4 years of the Reagan Administration). He was of course engaging in hackery in support of the Republicans in Congress and the "deficit scolds," who of course really care very little about the deficit, but do want to dismantle even America's very weak social welfare programs and the environmental protection laws of the last 40 years. As long as job growth and economic growth remains sluggish, they can spin memes and word salads to justify their goals. And it is always good to remember that from a political economy rationale, if you are sociopath, a large pool of unemployed labor depresses real wages and shifts the share of wealth and income to the elite who control finance and capital. And Professor Ferguson serves that elite very much, especially when he provides that elite arguments to discredit Krugman and other sensible economists.

P.S. I note that NF attacks Noah Smith in his latest Huffington Post entry, he apparently failed to notice hat Noah has been on a bit of sabbatical. Noah took a break from his sabbatical and responds with a witty riposte, along the lines that as an economist, Professor Ferguson might make a good political historian. http://noahpinionblog.blogspot...tacks.html

Finally, I wonder at Huffington Post giving NF a 3-day platform. Trolling for right-wing hits?
written by skeptonomist, October 11, 2013 8:48
This actually ties in with Dean's previous post, "The Inconvenienced Economist". Economists have exaggerated notions about the influence of their work on public policy. Politicians and their backers generally decide what they want and then see if they can get some economists to agree with them. Apparently if they can't find an economist a lunatic historian like Ferguson will do.

As another example, what were (are) the academic underpinnings of the Reaganomics contentions that the interest rates which existed in the 70's were harmful and that government revenue could be increased by cutting tax rates? Reaganites did find Art Laffer, who is a sort of academic economist. The critical event seems to have been Laffer drawing his curve on a napkin.
Professor Shirmishes
written by dpack, October 11, 2013 9:16
Having taught at a university this looks so much like the silliness that would pass for a faculty spitball fight.

Ferguson is laughing all the way to the bank b/c conservatism is all about faith over facts and his writings are usually a fact free zone.
written by Ryan, October 11, 2013 9:26
FWIW, you hardly come across as personal in attack. Instead, you carefully and surgically dissect an argument. Whether this is received as personal speaks to the target of criticism, not to you.
Ferguson's embarrassing himself
written by joe, October 11, 2013 10:09
And bravo Dean, accounting identities and one person's income is another's spending. Ferguson clearly doesn't understand this. I would bet dollars to donuts that Ferguson thinks every agent in the economy should be 'fiscally responsible' and earn more than they spend, the fact this is mathematically impossible be damned!.
written by JDM, October 11, 2013 10:18
Discuss, DG? I'd be pretty happy going back to the tax rates, including corporate taxes paid, from the Eisenhower years that people like Ferguson often say were better.
written by Kat, October 11, 2013 10:58
How much of the stimulus consisted of tax cuts?
written by Kevin W, October 11, 2013 11:15
"Finally, I wonder at Huffington Post giving NF a 3-day platform. Trolling for right-wing hits?" sherparick...I wondered the same thing--but its of such poor quality and is soooo lengthy the only explanation I could up with is sex. Someone's doing or done someone?
You're in Good Company
written by widgetmaker, October 11, 2013 11:34
You are honored to be listed among such prominent (and noteworthy) names in economics. These guys have accomplished a hell of a lot to achieve such recognition in the field. Kudos, even if it's coming from NF.
written by PeonInChief, October 11, 2013 12:00
Dean, don't waste time on this guy. I ignore him completely, since I'm not an economist and don't have to pay any attention to him at all. He's part of that school of economists who look only at the "big picture" aka "the effect on really rich people" and then ignore what happens to the rest of us.
written by bill n, October 11, 2013 1:37
Baker for President!
written by kharris, October 11, 2013 3:58
For goodness sake, John Lott has been rehabilitated! I can't say that Ferguson has more scruples than Lott, but Lott falsified data, created a false identity in order to praise himself and takes money directly from the industry he defends in his badly crafted "research". If Lott can still get into the "he said/she said" game in major newspapers, why would Ferguson be off limits? His bribes at least take the form of speaking fees.

By the way, anybody notice that Mankiw recently quoted Lott making a point about jobs data that Mankiw could simply have made himself. It was gratuitous, but allowed Mankiw to signal that he approves the writings of Mary Rosh. You know why Hillary was ridiculed for saying there's a vast right-wing conspiracy? Because the vast right-wing conspiracy didn't want the vast right-wing conspiracy to get into the Overton Window. Ferguson is inside the window because Mankiw and Lott and the people who scare the crap out of TV producers all want Ferguson inside the window.
written by Duncan Galbraith, October 12, 2013 1:52
I am not partisan or defending Ferguson's numerous outbursts.I would prefer if you would address my substantive point and make your case based on reason and logic.One of the reasons the science of Economics is becoming more corrupt is the lack of agreement in the way the various arguments are framed.After all, I imagine you are seekers of Economics truths which will lead to a better human condition for all.How many have you read Keynes "The General Theory " and understood it?
Countries with tax rates higher than 25 percent have no growth problems
written by Dean, October 12, 2013 7:40
Mr Galbraith,

I don't recall that specific comment in The General Theory, but if Keynes gave such a warning, he was wrong. The rate of productivity growth of countries in Europe with tax rates considerably higher than in the U.S. has not been very different than ours. Here's a paper on the topic http://www.cepr.net/index.php?...le&id=1212
Follow up to Duncan Galbraith Keynes prediction of serious problems at > 25% Debt to GDP
written by John Wright, October 12, 2013 8:18
Duncan Galbraith:

"Keynes mentioned that increasing the total tax take above 25% would cause serious problems to an economy"

Per http://hurryupharry.org/2012/0...mr-keynes/

"In correspondence with economist Colin Clark after the war, Keynes wrote that a 25 percent tax/GDP ratio “is about the limit of what is easily borne.”

So Keynes believed 25% or less tax/GDP is easily borne, but didn't say here that after that magic threshold "above 25% would cause serious problems to an economy".

Is there another statement from Keynes to that effect?

Anyway a latter day Keynes might borrow from Paul Samuelson and say "Well when events change, I change my mind. What do you do?"

Outstanding, concise, well-written post, Dean!
written by John Davenport, October 12, 2013 9:18
Perfect to save for coffee break conversation with right-wing co-workers ...
written by JSeydl, October 12, 2013 3:57
Wow, just watch the linked HuffPo video with Alyona and Ferguson, and boy is he an impressive speaker; which inevitably means that he is going to capture the opinions of many viewers, and that in the process Dean is going to take a lot of unwarranted heat from this whole fiasco. I know Dean could care less, but it really is unfortunate on a meta level that things work this way in public discourse.
housing prices
written by bill, October 12, 2013 7:10
with all due respect, I believe that housing prices are now about 15% higher on average than they were in August 2002 when you started warning about a bubble.
written by Duncan Galbraith, October 13, 2013 2:07
Thank you for your responses Dean and John most appreciated.Isn't google a great tool for research and borrowing ideas from previous generations.Back to the substantive point:Is there an upper limit to taxation in an economy? which I personally think if not addressed, will motivate destructive forces and cause huge loss of productive capacity and lead to individual misery and worse.
Limits on taxation
written by Dean, October 14, 2013 11:09

taxes definitely have a disincentive effect and the higher the tax rate, the more the disincentive. As a practical matter, I don't think the U.S. faces any serious problems from moderate increases in taxes, even if the costs would not be zero. When you start to get a tax take of around 50 percent of GDP, I would be far more cautious.
written by Duncan Galbraith, October 16, 2013 7:00
Dean,you seem to be fairly open minded sort of guy.You might be interested to go in this direction of the argument.Put far more lucid and elegant than I am capable of doing.You should never judge the master/professor by their students.The late Ron Burgess wrote "Public Revenue Without Taxation" ISBN 0 856 83135 2.Read it carefully.I would be intrigued to find out your considered critique on the subject.It would be a good investment in your understanding and time.The book hasn't had a wide audience but you can pick it up relatively cheap price on Amazon.You can e-mail me at: duncan.galbraith363@gmail.com with your findings.
Ferguson is getting away way to lightly...
written by TheCrazyDutchman, October 17, 2013 6:24
A man who suggests that Keynes' supposed homosexuality disqualifies the man's body of work in economic discourse makes himself subject to ridicule.

A man who uses Keynes' unwanted childlessness as an indirect attack on his opponent makes himself subject to anger.

A man who subsequently whines as if he's being manhandled by big meanies makes himself subject to derision.

The real question on civility is - did mr Ferguson leave anyone any option to remain civil?

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.