Niall Ferguson as ‘poseur’: the case for the prosecution
It would be easy to write off the ongoing spat between so-called ’super-Keynesian’ economist Paul Krugman and liberal economic historian Niall Ferguson, in which Ferguson calls Krugman ‘patronising’ and Krugman calls Ferguson a ‘poseur’, as the stuff of early 1990s TV comedy.
But I think it could be more important than that, because of the different economic policies they support, even embody.
The origins of the dispute, long since overtaken by the personal vitriol, need not detain us to too long.
Briefly, Krugman accused Ferguson of not understanding economics very well at all, and that his fear of pressures on interest rates as a result of fiscal stimulus were unfounded, because, according to Krugman, ‘We have a global savings glut, which is why there is, in fact, no upward pressure on interest rates.’
Ferguson then went on to claim victory in the argument when US Treasury yields rose sharply, providing solid proof – so he claimed – that ‘the running of massive fiscal deficits….and the issuance therefore of vast quantities of freshly-minted bonds’ was indeed ’likely to push long-term interest rates up, at a time when the Federal Reserve aims at keeping them down.’
The ins and outs of the arguments are well summarised by Daniel Gross, but really boil down to the fact that:
‘the notion that the market is telling us something—anything—ultimately rests on the erroneous assumption that financial markets represent the collective wisdom of rational actors processing information efficiently…… The markets resemble the Star Wars bar scene more than they do the economics faculty lounge at Princeton.’
More important than all of this detail about interest rate rises and the precise (or chaos-based) reasons for it, is the battle for position on fiscal policy between Ferguson and Krugman, and their two policy camps; while Krugman pushes for continued fiscal stimulus to prevent a douple dip, Ferguson uses the interest rate rise argument to push for fiscal restraint, right here, right now.
As Duncan Weldon has said repeatedly, Krugman is right on this one, and Ferguson is wrong. If the Ferguson camp can make him into the leading public figure economist on both sides of the Atlantic, conservative fiscal policy will win the battle of economic policy, and the future will be grim for millions. It’s that serious.
It’s worth making the point in that context, therefore, that while Krugman has been consistent in his approach to economic policy, Ferguson is indeed a ‘poseur’, acting up to the crowd in his own interests, and making pretence of expertise he does not have. And here’s my proof:
In the Los Angeles Times/Daily Telegraph 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’ (my emphasis).
But here is what you 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! And that’s exactly why the book he refers to, ‘The Ascent of Money’, reads like one book praising to the heights the growth of financial innovation that led us to the mess we’re in, sandwiched between two hurriedly scribbled chapters telling us the story of what we already know, not least from Krugman himself (see also this damning review from November 2008).
For years Krugman has stood up against neo-liberal orthodoxy, and only founds himself in some favour now that he’s been proven largely right about the dot.com and then housing bubbles.
Meanwhile, Ferguson writes and says what he thinks will please his readers and listeners, and what he knows will please most of his readers and listeners is the simplistic but dangerous certainties of fiscal conservatism.
That’s sort of a definition of ‘poseur’, and I rest my case.