Facts vs Ferguson
Matthew Martin 10/11/2013 04:05:00 PM
That's the problem Niall Ferguson keeps finding himself in. This latest rounds have been pretty fun to watch with, for example, Ferguson failing to correctly read CBO reports, and then desperately trying to convince us he does know how to read them.
That last link provides another good example of how Ferguson is bad at history, something I've commented on before. Here's the chart he copied from the CBO report:
This is the evidence he submits to back his claim that we are facing an immanent debt crisis that absolutely has to be fixed immediately, and that Krugman is insane for suggesting otherwise. But Ferguson fails to do what every good historian should do by instinct--pay attention to the dates! Actually, the CBO data he cites shows the debt-to-GDP ratio will fall over the next decade under current policy. Not until 2028 will we return to the current levels of debt. An historian would remember to keep those dates in perspective. The time between now and when the CBO projects we will return to current levels of debt is longer than the amount of time it took the Nazi's to rise to power, do their thing, and surrender to the Allies. There's just no way to read these graphs as saying that a debt crisis is immanent. According to the CBO we are looking at an extended period ahead of us in which debt levels will remain less than what they are now.
If he were a good historian, Ferguson would also be able to put the numbers into perspective. Even carrying out the forecast to 2038, they remain below the debt levels the US had during the early 1950s. And they remain way, way less than what plenty of other countries have sustained without incident. Japan has debt over 200% of GDP, and retains some of the lowest interest rates in the world. And even Ferguson's home country has sustained bouts at 250%, and nevertheless went on to conquer a quarter of the planet! Quite frankly, the United Kingdom still has not repaid a dime of its debts from the Napoleonic Wars. Yes, you can do that as a sovereign, because economies grow while nominal debts do not.
But all this is irrelevant because, as I've noted before, all forecasts are wrong. What I mean is that the debt projection is a "current policy" basis, when in reality congress will continue to make regular changes to the law as it always had. Relatively small changes that congress regularly approves, such as tweaking medicare reimbursement rates, modifying income tax thresholds, etc will reduce those projected deficits, resulting in stable debt-to-GDP ratios.
Despite his fervent attacks on Paul Krugman's views, the evidence Ferguson submits very much confirms everything Krugman has been saying. Krugman has never, ever said that we won't need to make a few policy changes eventually to reduce long-run deficits, and healthcare spending in particular. But, only Krugman has been honest about the time frame: this isn't an immanent crisis. This is a modest, slow, decades from now problem that we'll have tons of time to fix once the economy is back to full employment.