10/24/10 1:48 PMCritique of Niall Ferguson - Grasping Reality with Both Hands

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Grasping Reality with Both HandsThe Semi-Daily Journal of Economist J. Bradford DeLong: Fair, Balanced, Reality-Based, and Even-HandedDepartment of Economics, U.C. Berkeley #3880, Berkeley, CA 94720-3880; 925 7080467; delong@econ.berkeley.edu.

Economics 210aWeblog ArchivesDeLong Hot on GoogleDeLong Hot on Google BlogsearchJuly 19, 2010

Critique of Niall Ferguson

We are live at the FT:

FT.com / Comment / Opinion -Deficit data and the fog of war: Onfirst reading I found myself greatlypuzzled by Niall Ferguson’s claimthat:

It was [the second world war]that saw the US (and all theother combatants) embark onfiscal expansions of the sort we have seen since 2007. So what we are witnessingtoday has less to do with the 1930s than with the 1940s: it is world war financewithout the war...

In 1942 the US ran a federal budget deficit of 14.8 per cent of GDP; in 1943 30.8 percent; in 1944 23.3 per cent; and in 1945 22.0 per cent – a four-year average deficit of22.7 per cent of GDP.

Today, in 2010, the US is running a federal budget deficit that the CBO estimates at10.3 per cent of GDP. Its score of Obama’s budget proposals has that deficit fallingnext year to 8.9 per cent of GDP, then over the next two years to 4.5 per cent of GDP,and remaining in the 4-5 per cent of GDP range for the rest of this decade – for anaverage CBO-scored Obama policy deficit of 5.3 per cent over the next eight years.

Compare that to the Great Depression: in Roosevelt’s disastrous 1937-38 fiscalausterity and monetary tightness experiment, the US federal government deficit shrankto 2.8 per cent and then to 0.5 per cent of GDP; otherwise the deficit bounced aroundbetween 3.8 per cent and 5.5 per cent of GDP between Roosevelt’s inauguration and

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10/24/10 1:48 PMCritique of Niall Ferguson - Grasping Reality with Both Hands

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the end of the 1930s – for an average deficit in the years outside the disastrousausterity experiment of 4.6 per cent of GDP between Roosevelt’s inauguration and thesecond world war.

So 22.7 per cent, 4.6 per cent, 5.3 per cent: the New Deal’s 4.6 per cent looks a hell of alot more like our forecast 5.3 per cent than the second world war’s 22.7 per cent does.On first reading, I simply did not understand how Ferguson could with a straight faceclaim that “what we are witnessing today has less to do with the 1930s than the 1940s:it is world war finance without the war.”

On looking again, I found in Ferguson’s piece the sentence: ”The federal debt burdenrose only slightly – from 40 to 45 per cent of GDP – prior to the outbreak of thesecond world war...”

On June 30, 1933 the US federal debt was $22.5bn – 40 per cent of 1933 GDP. ByJune 30, 1941 the US federal debt had more than doubled to $49bn – 87 per cent of1933 GDP. That’s a big increase. How can that mesh with Ferguson’s observation that“the federal debt burden rose only slightly... prior to the outbreak of the second worldwar”? Look at nominal GDP: it grew from $56.4bn in 1933 to $126.7bn in 1941. Even amore-than-doubling of debt will not raise the debt buden if economy-wide spendingmore than doubles as well.

But that does not mean that deficits in the 1930s were an order of magnitude smallerthan the deficits we are looking forward to today, or that today’s fiscal picture looksmore like that of the second world war than like the picture of the New Deal.

Brad DeLong on July 19, 2010 at 05:04 PM in Economics, Economics: Fiscal Policy,Economics: History | Permalink

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purple said...Since the US as sovereign nation controls its monetary policy, the deficit question ismostly absurd. The US can print money. If the US is not a sovereign nation, but onecontrolled by financial interests, then it's less absurd. Regardless whether one 'believes'MMT or Quantity , even a worst case scenario of moderate inflation is good news forthe debt ridden US household. So it seems the entire deficit question is based on thesacrosanct and mystical qualities of financial interests.

As for Fergie, someone might tell him the obvious differences between Greece and the

10/24/10 1:48 PMCritique of Niall Ferguson - Grasping Reality with Both Hands

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US, or even the UK and US. We know all the UK has is The City, so it makes someweird sense to rescue the drunken captain before he grounds the entire ship. The USstill has a more varied and deeper economy, and still clings to #1 in manufacturing.

Reply July 19, 2010 at 07:18 PMWilliam Hurley said...In addition to the math mistakes, Mr. Fergusson seems to have forgotten that the US isinvolved in not one but two wars - and is not alone as a nation in that involvement - letalone the undeclared "actions" against Pakistan, Yemen and who knows where else.Picking from the various cost estimates of these declared and undeclared wars, the"low-water" cost is north of $1 trillion and as much as $3 trillion and counting (Stiglitzet al.).

Reply July 19, 2010 at 07:46 PMEugene Debs said..."Mr. Fergusson seems to have forgotten that the US is involved in not one but twowars - and is not alone as a nation in that involvement - let alone the undeclared"actions" against Pakistan, Yemen and who knows where else"

Yes, indeed, and more curious, too, these are wars for which Ferguson was acheerleader.

Reply July 19, 2010 at 10:16 PMrickstersherpa said...And Mr. Ferguson wants us to get involve in a 3rd war, with Iran, which when youthink about the consequences on the price of oil having a war against a majorproducing nation in the Persian Gulf and all the marvelous consequences that will haveon the economy and the defict, is just astoudning if you are also pushing the memethat "Government deficits are the worse thing in the world.")

But Feruguson, who is a rather bad historian (I am reading his history of the early 20thcentury wars right now and mistakes in logic, as well as data, are astounding, butconsistent with his ideological high Toryism and hatred that the somewhere, somehow,someone is getting a social benefit), has suddenly been given equal standing onEconomic issue as Martin Wolf, Paul Krugman, and Joseph Stiglitz. In part I guess thisis because Mr. Ferguson can write well and apparently none of the economists whobelieve this stuff can articulate in a credible manner without creating instant howlerssee Casey Mulligan and "unemployment as chosen leisure)." Mr. Ferguson's rise toprominience shows his usefulness in articulating the memes of the day that serve thepowers that be, not for his insights in history or economics.

It is now a kind of Gresham's law that hacks like Ferguson, willing to spew nonsense,have driven out true conservatives like Bruce Bartlett, Andrew Samwick, and (as anhistorian) Andrew Bacevich from the mainstream discourse.

Reply July 20, 2010 at 05:11 AMDavid Lentini said...What do you expect from the man who built his career on writing fictional---er, Imean alternate---history? Remember his latest "history" arguing the Japan wonWWII? Clearly facts don't mean much to him, and he has no respect for rationalarguments based on sound evidence.; he just cares about hoodwinking people. Hereally should be have the Ponzi chair at the HBS department of bullshit.

Reply July 20, 2010 at 05:15 AMComradeAnon said...

10/24/10 1:48 PMCritique of Niall Ferguson - Grasping Reality with Both Hands

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Mr Ferguson appears to take his economics from Sen. McConnell.

Reply July 20, 2010 at 06:52 AMJim O'Reilly said...Brad,

You state in the FT article that we should spend until the financial markets (i.e. greatwealth) tell us we can't. Such vision! Keynes would be turning over in his grave.

See my post: commentsongpe.wordpress.com

Reply July 20, 2010 at 10:45 AMBob Athay said...How is it that this NF dude has any credibility at all? I really don't get it! I knowsomething about mathematical modeling of complicated systems, but I dodged historyand economics. So I should have no idealogical biases here. Brad's article makes sense:I can follow his reasoning and he includes enough information that I can figure outwhat the counter-arguments would have to address. But NF has errors of fact and logicthat are obvious even to me.

Reply July 20, 2010 at 11:31 AMDrDick said in reply to Eugene Debs...Yes, but the costs of stupid and futile illegal wars of aggression, like tax cuts for thewealthy, do not count.

Reply July 20, 2010 at 02:35 PMTom Levenson said...Re Ferguson -- I was at a dinner party a few years ago with one of his Harvard historydept. colleagues -- someone who actually did history, rather historically colored fiction.I delicately asked what he and his fellow scholars thought of NF's ambitions as acelebrity. His answer? As a public intellectual, he makes a competent investigator ofnineteenth century banking practices in London. Maybe it's a Harvard thing, but thescorn was rich enough to pass as dessert.

Reply July 20, 2010 at 02:37 PMhoward said...regardless of his actual skill and knowledge as an historian, ferguson believes he hasdiscovered an historical certainty here: that debt must croak us.

and therefore, he is unable to process any further arguments....

Reply July 20, 2010 at 03:49 PMBlue said...It is pretty easy to critique Ferguson, he is a very sloppy historian and writer. In"Empire" the introduction for one of the later chapters was copied verbatim from theintroduction.

Reply July 21, 2010 at 02:22 PMComments on this post are closed.

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