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Niall Ferguson v Paul Krugman


Niall Ferguson has rarely been reluctant to express his opinions, but even by his standards, it took some nerve to confront five of the most distinguished economists in America single-handed. As he accused policy-makers of pursuing a course that will ultimately deepen the global recession, a symposium at the Metropolitan Museum Of Art in New York degenerated into a shouting match.

The New York Review Of Books had assembled an extraordinary panel of experts: Nobel Prize-winner Paul Krugman, billionaire investor and philanthropist George Soros, former presidential candidate Bill Bradley, seer-of-the-moment Nouriel Roubini and Princeton University economist Robin Wells. Ferguson disagreed vehemently with all of them, not to mention the liberal, Upper East Side crowd. Calling the Obama administration’s budget “ridiculous” did not win over many Democrats.

The seats had been assigned in alphabetical order, meaning that Bradley was the first to deliver an introductory spiel and Wells the last. Ferguson and Krugman sat side by side – ideological poles of the debate at centre stage. Their contrasting demeanours made for great theatre, as Ferguson the eternal Head Boy, legs insouciantly crossed and chin high, looked down on the gnomic, hunched figure to his right.

The Scot landed the first blow. In the exaggerated cadence of a TV presenter, he chastised Krugman’s entire profession. “Psychological terms are very helpful when economics fails as a discipline, as it clearly has,” he said, noting that a period of shock followed the initial collapse because economists were in denial about the financial system’s structural weaknesses.

Pivoting from diagnosis to therapy, he commended Milton Friedman’s monetarist solution of “massive injections of liquidity to avert the banking crisis,” before disparaging deficit spending, the cure prescribed by John Maynard Keynes. “There’s some medicine in your drugs cabinet at home that has passed its sell-by date,” he said. “And I rather fear that it says 1936 on the bottle of Dr Keynes’ medicine.”

Flooding the market with newly minted treasury bonds would force interest rates upwards, Ferguson claimed, in direct contradiction of monetary policy’s aim, thereby causing long term stagflation. “We’re going to get the 1970s for fear of the 1930s. That is exactly where the majority of people on this panel are steering this country,” he concluded.

Krugman devotes most of his columns in the New York Times to arguing that the administration is not spending enough. “The only thing that might drive up interest rates is that people might grow dubious about the solvency of governments,” he responded. “Ireland is being forced to raise taxes and cut spending because of fears about its solvency. The UK is fairly close to the edge because people are worried about the cost of financial bail-out. The United States is not there yet.”

Roubini, living up to the title of ‘Dr. Doom’ that he has earned with accurately pessimistic economic predictions, said the recession would be U-shaped and three years long at best, an L-shaped lost decade at worst. But he believed the right lessons had been learned from previous catastrophes and backed the Treasury plan.

He said: “The policy-makers finally got religion, looked into the abyss, now they decided to use almost all the weapons in their arsenal – guns bazookas, missiles, artillery, you name it. Because of that I think the risk of a near depression has been somewhat reduced.” The audience laughed nervously.

Soros lamented that “we have only nationalised the liabilities of the banks, but not their assets.” Wells called for higher taxes and said that global trade imbalances would need to be addressed, “which is easy for me to say, sitting here in my Chinese-made silk blouse.” But the focus never shifted from the odd couple in the middle. When introductions were over and the conversation got underway, Ferguson jumped in with both feet.

Calling the government’s growth forecasts “crazily optimistic” he predicted federal debt would soon reach 140% of GDP and that private savings could not possibly absorb it all. “I hate to teach arithmetic to a Nobel laureate but it doesn’t quite add up,” he said. “At what point do people stop believing in the United States dollar as a reserve currency?

“There’s a fundamental problem here, which would be addressed if there were any commitment on the part of this administration to root and branch long run fiscal reform, an attempt to put the United States on a sound fiscal footing, but I see no sign of it at all. The idea that we make $100 million worth of savings, or whatever ridiculous number the President came up with the other day, testifies to the fundamental unseriousness that is the problem in Washington today.”

Krugman was lost for words. “Boy,” he shook his head, “Oh dear.” He took issue with Ferguson’s sums and with neoconservative economics as a whole, calling for stricter regulation of banks and a stronger welfare state. Europe’s recession would be more severe than the USA’s, he said, but “the human suffering is going to be much worse on this side of the Atlantic, because Europeans don’t lose their healthcare when they lose their jobs.”

On the core subject of deficit spending, Ferguson could not find a single ally. “I feel depressed after what I’ve heard tonight,” he said. “We are now contemplating a massive expansion of the state to substitute for the private sector. We’re gonna re-regulate the markets. We’re gonna print money, almost limitlessly. And then when we’re done with that, we’re going to raise taxes.”

He repeated that only human enterprise, not government intervention, can create sustainable growth, and in one last defiant gesture, revelling in his role as pantomime villain, reached for the ultimate conservative put-down: “If you wanna try the Soviet model, fine…”

Krugman and Soros groaned loudly. The audience booed. Moderator Jeff Madrick interrupted once, then twice, talking over Ferguson’s objections. “We’re doing you a good turn by not extending this ten minutes,” he suggested. The Glasgow One reluctantly put down his microphone and agreed to disagree.