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Niall Ferguson versus Paul Krugman

August 18th, 2010 · 2 Comments

Better stick to history (he writes fine books, no doubt about that). Here some figures which should make him blush…
Famous is his public bout with Krugman (and some others like Roubini and Soros) last year, Ferguson vehemently arguing against stimulus spending. (see here and here for a written impression).

  • Ferguson writes, “It is hardly surprising, then, that the bond market is quailing. For only on Planet Econ-101 (the standard macroeconomics course drummed into every U.S. undergraduate) could such a tidal wave of debt issuance exert ‘no upward pressure on interest rates.’ ” [Slate]

He then cried victory when interest rates on 10 year Treasuries approached 4% (as a sign the bond vigilantes didn’t trust US public finances anymore).

  • Ferguson said: “I am saddened by Krugman’s resort to ad hominem attacks, couched in the language of the playground. I presume it is because he knows, but bitterly resents, that I won the argument we had back in April about the future path of long-term interest rates.” [Timesonline]

We haven’t heard from him since interest rates on Treasuries started to slump soon after that ‘win’, needless to say..

When the figures did no longer support his thesis, he invoked behavioural finance to argue the importance of ‘confidence’. According to him lack of confidence in public finance is keeping companies from investing.

  • “The evidence is very clear from surveys on both sides of the Atlantic. People are nervous of world war-sized deficits when there isn’t a war to justify them. According to a recent poll published in the FT, 45 per cent of Americans “think it likely that their government will be unable to meet its financial commitments within 10 years”. Surveys of business and consumer confidence paint a similar picture of mounting anxiety.” [Ferguson in FT]

Could it be that, instead of a distant and hypothetical crash in public finance and/or the distant prospect of higher taxes, could it be that companies are not investing (despite record low interest rates and piles of cash they own) because of, well, consumers are not buying (as they are deleveraging and or unemployed or afraid of becoming unemployed) and they can’t even keep existing plant occupied? What do you think? Look at the figure below to get some perspective..

Tags: Sovereign debt crisis

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