We all know Niall Ferguson. He is the adequate historian who has turned into a dreadful economic commentator, empire apologist and who has been given control of the Tory’s History Curriculum.
In 2003 he wrote in favour of George W Bush’s deficts, calling him the “Gun and Butter” President. Today he is a loud critic of deficits and has repeatedly predicted Armageddon for the UK and the US if they do not slash public spending.
Cognitive Dissonance? Its deafening.
Delightfully Matthew Yglesias and his intern Ryan have taken up Brad DeLong‘s challenge and spliced two Ferguson articles together to illustrate how little credence we should give this man’s policy recommendations. 2003 Ferguson is in bold, 2010 Ferguson is in italics and there is much more at Ygelsias’s blog which I heartily recommend:
Guns or butter: this is the choice historians conventionally say that governments face. The administration is currently engaged in an audacious — some would say reckless — experiment to disprove this theory. To judge by his actions, the President’s response to the question “Guns or butter?” is: “Thanks, I’ll take both.” This, in short, is the guns and butter presidency.
Are there precedents for such a combination? What’s to say this deficit-spending won’t work? Keynes would tell us that in the current environment we must boost aggregate demand.
Certainly. Long before Keynes was even born, weak governments in countries from Argentina to Venezuela used to experiment with large peace-time deficits to see if there were ways of avoiding hard choices. The experiments invariably ended in one of two ways. Either the foreign lenders got fleeced through default, or the domestic lenders got fleeced through inflation.
But the United States has broken the guns or butter rule before. Under President Ronald Reagan, substantial increases in military spending coincided with comparable increases, relative to gross domestic product, in personal consumption — that proportion of G.D.P. that the public, as opposed to the government, spends. The crucial point, of course, is that in the short term at least, fiscal policy is not a zero-sum game.
But this doesn’t respond to long run inflationary fears. When economies were growing sluggishly, that could be slow in coming. But there invariably came a point when money creation by the central bank triggered an upsurge in inflationary expectations.
But, as Keynes remarked, in the long run we are all dead! Aren’t these “inflationary expectations” priced into the markets? [cont…]