Since the defrocking of Rogoff and Reinhart, the anti-deficit / pro austerity brigade have been getting desperate.
Ferguson has devoted huge efforts to opposing deficits and national debts, and his latest and brilliantly persuasive argument is that Keynes (arguably the originator of the idea that running deficits in a recession is desirable) was homosexual, and thus didn’t have children, and thus didn’t care about the future of the country.
However, Ferguson has now apologised for making that argument. So there’s no need for me to contradict it.
However, let’s have a quick run thru other arguments put by him.
Now there is a very surprising problem here, namely the sheer paucity of decent medium to long articles written by Ferguson.
I Googled “Niall Ferguson deficit debt” and found practically nothing. There are plenty of videos. But videos are not for people who want to take a SERIOUS look at the sort of moderately complicated or very complicated points that arise in this sort of debate. To have a SERIOUS look at such arguments, you need to be able to re-read paragraphs.
But that, of course, is just evidence that Ferguson is into propaganda, rather than serious argument.
Ferguson has of course written a book or two about the allegedly disastrous deficit, one of which I have on my bookshelves, and which I’ve dipped into. But frankly I’ve no intention of reading anyone’s book untill I’ve read a couple of medium to long articles by them which make it clear they are authorities on the subject. Life is just too short.
Anyway, here’s a sample of Ferguson’s arguments – all of which demonstrate that he is far from an authority on economics. In fact his arguments are ones I’ve seen dozens of times before, and demolished before. The relevant arguments all come from an article of his published by the BBC.
Robbing future generations.
First he trotts out that old canard about debt robbing future generations. He says, “The heart of the matter is the way public debt allows the current generation of voters to live at the expense of those as yet too young to vote or as yet unborn.”
Well the truth is that in a closed economy, or one where the large majority of debt is held by natives rather than foreigners (as in Japan), it’s a plain physical impossibility to rob future generations. Never mind economics: we are talking physics here.
That is, it is physically impossible for people in 2030 to produce for example steel and concrete that can be used by people in 2013. That involves time travel, and it’s no big surprise that Ferguson subscribes to time travel (unwittingly no doubt).
Of course, one generation can pass on national debt to the next. But that debt is in effect simply a debt owed by one lot of people to another. I.e. the children of holders of national debt inherit an ASSET not a LIABILITY.
Debt held by foreigners.
As distinct from closed economies or “Japan like” economies dealt with above, if a substantial portion of debt is held by foreigners, the citizens of the debtor country WILL EXPERIENCE a standard of living hit if and when those foreigners want repayment of the debt (and don’t decide to re-invest the proceeds in the debtor country). That fact was pointed out by R.A.Musgrave (no relation) in the American Economic Review in the 1939.
But that’s not an anti-deficit argument: it’s an argument against DEBT. Put another way, there are plenty of economists who have no objections to DEFICITS while arguing at the same time that those deficit should accumulate as money (monetary base to be exact) rather than debt. Milton Friedman was an example: see paragraph starting “Under the proposal…” (p.250).
Warren Mosler argued likewise. See second last paragraph here.
Those horrendous interest costs.
Next, Ferguson claims, “The rapidly rising quantity of these bonds certainly implies a growing charge on those in employment, now and in the future, since - even if the current low rates of interest enjoyed by the biggest sovereign borrowers persist - the amount of money needed to service the debt must inexorably rise.”
The REALITY is that the REAL or inflation adjusted rate of interest on US, Japanese, UK, and German debt is currently zero or even negative. That is, the yield is about 2%, but the rate of inflation in the latter four countries (and others) is also around 2%.
That is, there is no REAL burden on “those in employment”. And correspondingly, there is no real return on capital invested for savers or debt holders.
That old “unfunded liability” argument.
Next, Ferguson claims, “But the official debts in the form of bonds do not include the often far larger unfunded liabilities of welfare schemes like - to give the biggest American schemes - Medicare, Medicaid and Social Security.”
Well I have news for Ferguson: the UK state pension scheme is not funded. It’s what’s known as “pay as you go” scheme. I.e. the cost of pensions in 2013 is paid for by taxpayers in 2013. And nothing wrong with that. Indeed, there are even private “pay as you go schemes”.
In short, assuming sufficient taxes are collected in the US in say 2030 to pay for pensions in 2030, there won’t be any increased deficit.
I’ve had enough – Ferguson is an idiot.
Frankly I cannot be bothered reading any more of Ferguson’s nonsense. He is clearly incompetent.
That book of his will remain unread on my bookshelf – or I might chuck it in the bin.