The fact that historian-turned-deficit scaremonger Niall Ferguson is taken seriously has always confused and dismayed me -- not just because we have quite enough homegrown deficit scaremongers and don't need British imports, but also because a man who was so absurdly and publicly wrong about the Iraq War has been allowed to slide seamlessly into being publicly wrong about economic policy. That's why it's nice to see the Financial Times' Martin Wolf respond to Ferguson by siding definitively with the progressive argument:
Prof Ferguson is trying to frighten US policymakers out of sustaining or, better still, increasing fiscal stimulus, even though the true issue is longer-term sustainability. He also accuses opponents of believing in a “Keynesian free lunch”. Not so. The argument is, rather, that the benefits of the higher output today exceed the costs of debt service tomorrow.Prof Ferguson believes instead in a conservative free lunch. This is the view that fiscal tightening today would have little effect on activity. ... If these governments had decided to balance their budgets, as many conservatives demand, two possible outcomes can be envisaged: the plausible one is that we would now be in the Great Depression redux; the fanciful one is that, despite huge increases in taxation or vast cuts in spending, the private sector would have borrowed and spent as if no crisis at all had happened. In other words, a massive fiscal tightening would actually expand the economy. This is to believe in magic.
Remember: Don't take the economic advice of those who are "bedeviled by the haunting fear that someone, somewhere may be getting social insurance."
-- Tim Fernholz
