Saturday, December 05, 2009

Niall Ferguson 'irons' Paul Krugman

Paul Krugman
Dec 7, 2008
(Image from Wikipedia)

In a recent Newsweek article, "An Empire at Risk" (December 7, 2009), Niall Ferguson offers a very bleak, even alarming analysis of America's economic future. I usually cast a cold eye toward alarmist prognostications on life, on death, especially those that casually refer to the US as an 'Empire', but Ferguson is not to be so readily scoffed at in his concerns over the American deficits. Besides, he admits that he didn't have to call America an 'empire':
Call the United States what you like -- superpower, hegemon, or empire.
I'd choose one of the first two, but perhaps Ferguson wanted to annoy some readers. Among readers that he apparently did want to annoy is Paul Krugman, as becomes clear in this passage:
Now, who said the following? "My prediction is that politicians will eventually be tempted to resolve the [fiscal] crisis the way irresponsible governments usually do: by printing money, both to pay current bills and to inflate away debt. And as that temptation becomes obvious, interest rates will soar."

Seems pretty reasonable to me. The surprising thing is that this was none other than Paul Krugman, the high priest of Keynesianism, writing back in March 2003. A year and a half later he was comparing the U.S. deficit with Argentina's (at a time when it was 4.5 percent of GDP). Has the economic situation really changed so drastically that now the same Krugman believes it was "deficits that saved us," and wants to see an even larger deficit next year? Perhaps. But it might just be that the party in power has changed.
In other words, Krugman was against deficits when they were Bush's fault but in favor of deficits now that they are Obama's achievement.

Just a little 'ironing' to straighten Krugman out . . .

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At 10:02 AM, Blogger Hathor said...

Krugman's pronouncements on financial theory was as a pundit and columnist, his Nobel Prize was from his theories on trade patterns and location of economic activity developed from 1979.

At 10:27 AM, Blogger Horace Jeffery Hodges said...

Sounds like Krugman was pronouncing on an area a bit out of his expertise, maybe like some bloggers who claim to be itinerant academics and spend their pajama-clad mornings posting blog entries on various topics.

Not that I know of anybody who does that . . .

Jeffery Hodges

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At 10:48 AM, Blogger Hathor said...

You could join Pajama's Media as well. If its still called that.

At 11:00 AM, Blogger Horace Jeffery Hodges said...

The PM ain't for me. I'm too ornery.

Jeffery Hodges

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At 3:39 AM, Anonymous Anonymous said...

Too doggone easily inserted, thanks for the opportunity anyway. Paraphrasing of course:

"I was ag'in 'em before I voted for 'em."


At 5:25 AM, Blogger Horace Jeffery Hodges said...

Didn't John Kerry say something like that?

Jeffery Hodges

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At 7:44 AM, Anonymous Anonymous said...

As stated - too doggone easy.

(Not so easy - killing this damn fly that somehow survived the recent cold and has taken up residence with me - he (she?) seems to be particularly fond of ears).


At 7:51 AM, Blogger Horace Jeffery Hodges said...

Flies make excellent pets, JK. Adopt that stray!

Jeffery Hodges

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At 9:35 PM, Blogger Troeltsch said...

I am the last one to defend anything related to Paul Krugman, but I do not think these two comments are necessarily contradictory.

To be more specific, Krugman was writing in 2003 when the US faced relative prosperity and should have been retiring deficits rather than running them up. While one can argue over the wisdom of fighting two wars at once, the Bush tax cuts did severely impair the US government's ability to raise future revenue. This is one of Krugman's points.

Fast forward to 2009: Ferguson is trying to impugn Krugman for a stance he formerly eschewed. But as Keynes famously retorted on a similar charge: "my opinion changes with the facts." Krugman is not for governments lavishly spending and printing money, rather, he is trying to prevent the counter factual: a depression. That is to say, Krugman is for a high level of government expenditure now leading to deficits because the loss of aggregate demand would be so great if extended out for a period of time, it is actually cheaper to run deficits now rather than suffer below trend GDP for the next 5-10 years.

It is important to note that Kruguman is not out of this element here; he is a trenchant scholar of the Japanese asset bubble in the 1990s and knows the Japanese government reacted too late, with too few resources that led to the "lost decade." Thus, Krguman's opinions are consistent, but the facts underlying the policy prescription have changed.

While Krugman's political commentary is often times vitriolic and polemic in nature, he is one of the only economists who understands both micro and macro as a specialist. This is a subtle point that Ferguson misses, and frankly, I wish Ferguson would stick to his knitting regarding historical analysis instead of trying to parse the (alleged) inconsistency of macroeeconomic arguments.

At 11:21 PM, Blogger Horace Jeffery Hodges said...

You have a point. I'll have to reconsider Ferguson's critique.

I don't usually comment on economics since I know so little about the field -- discretion in this case being the better part of valor.

Jeffery Hodges

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At 11:45 PM, Blogger Troeltsch said...

I think your comments are fair; it's also good to branch out and learn more about other fields. OI believe the intersection between economic and religious discourse is increasing. I just wanted to give you more texture on the underlying debate.

A lot of Krugman's writings on Japan can be found here: A trenchant critique of where Krugman has gone wrong (regarding theory) can
be found here:

At 3:38 AM, Blogger Horace Jeffery Hodges said...

Thanks again.

Jeffery Hodges

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