July 17, 2010
It’s nice when you’re not alone in your opinion. It seems Harvard professor Niall Ferguson sees the world about the same way I do, at least on economic issues. He is a historian with his primary emphasis directed on economic and financial affairs. When he wrote for Newsweek back in 2009 he said:
Now, who said the following? “My prediction is that politicians will eventually be tempted to resolve the [fiscal] crisis the way irresponsible governments usually do: by printing money, both to pay current bills and to inflate away debt. And as that temptation becomes obvious, interest rates will soar.”
Seems pretty reasonable to me. The surprising thing is that this was none other than Paul Krugman, the high priest of Keynesianism, writing back in March 2003. A year and a half later he was comparing the U.S. deficit with Argentina’s (at a time when it was 4.5 percent of GDP). Has the economic situation really changed so drastically that now the same Krugman believes it was “deficits that saved us,” and wants to see an even larger deficit next year? Perhaps. But it might just be that the party in power has changed.
Niall Ferguson, An Empire At Risk, writing for Newsweek.
The New York Times is filled with inconsistencies like this. They warn us that deficits are terrible and will destroy us economically – that is, until democrats are in power, then they become the key to our economic prosperity and recovery. It’s a totally inconsistent economic perspective and it’s just more of the same left/right partisan bullshit, pitting us off against one another. I’d have more respect for Krugman if he were consistent, but he’s not.
What happens when Republicans are in power? Wars, eroding civil liberties, increasing presidential power, bailouts to big corporations and banks, and the rich getting richer while the poor get poorer. What happens when Democrats are in power? Wars, eroding civil liberties, increasing presidential power, bailouts… It’s the same.
Professor Ferguson just recently gave a lecture in Aspen talking about these issues. The article is found here.
Harvard professor and prolific author Niall Ferguson opened the 2010 Aspen Ideas Festival Monday with a stark warning about the increasing prospect of the American “empire” suddenly collapsing due to the country’s rising debt level.
“I think this is a problem that is going to go live really soon,” Ferguson said. “In that sense, I mean within the next two years. Because the whole thing, fiscally and other ways, is very near the edge of chaos. And we’ve seen already in Greece what happens when the bond market loses faith in your fiscal policy.”
Ferguson said empires — such as the former Soviet Union and the Roman empire — can collapse quite quickly and the tipping point is often when the cost of servicing an empire’s debt is larger than the cost of its defense budget.
“That has not been the case I think at any point in U.S. history,” Ferguson said. “It will be the case in the next five years.”
The affable British scholar tried to keep it light. He used a stage whisper to tell the Aspen Institute audience, “I know you’re not comfortable with the word ‘empire,’ especially just after the Fourth of July, but you are the Redcoats now.”
He said the U.S. is now deeply in the red as a country because of a combination of the Great Recession, the resulting federal stimulus and financial bailout programs, two wars, the Bush tax cuts, and a growth in social entitlement programs.
“By combating our crisis of private debt with an extraordinary expansion of public debt, we inevitably are going to reduce the resources available for national security in the years ahead,” Ferguson said. “Because as a debt grows, so the interest payments you have to make on it grow, even if interest rates stay low. And on current projections, the federal debt is going to be absorbing around 20 percent — a fifth of all the taxes you pay — within just a few years.
Ferguson said the financial crisis that started in 2007 has “has accelerated a fundamental shift in the balance of power,” with the U.S. shedding power and China absorbing it.
“I’ve just come back from China — a two-week trip there — and the thing I heard most often was, ‘You can’t lecture us about the superiority of your system anymore. We don’t need to learn anything from you about financial institutions and forget about democracy. We see where it has got you.’”
In what he called his “light moment,” Ferguson said, “I think there is a way out for the United States. I don’t think its over. But it all hinges on whether you can re-energize the real mainsprings of American power. And those two things are technological innovation and entrepreneurship.
I’ve been saying the same things on here for a long time. Our situation is eerily similar to Greece. As Professor Ferguson points out, the looming crises will jump out of nowhere the second the costs to borrow more money increase due to fears of ballooning debts and deficits. And that sort of thing happens in an instant. That’ll set off a chain reaction and destroy this economy driven by borrowed funds. This is exactly what Alan Greenspan is telling us as well.
This is scary stuff. Sure scares me. The recession we’re in now is bad enough, but a much bigger depression around the corner? Even more unemployed? The Fed has told us they have no more guns to stimulate the economy. Interest rates are already at the floor. Ugh.
*Sigh*. And you guys wants some more bad news? I’m sure that’s just what you want. 🙂
Japan is in a financial mess just like we are. Guess who they just recently elected into their House of Councillors? A pop idol, Junko Mihara. Here she is. She’s a lovely lady. I don’t know much about her music, but I’m sure she’s talented. I have nothing against her other than, uh… she’s unqualified for a position in government?
You know, imagine if you ran a big corporation which you’d built from the ground up. You’re wanting to step down to focus on other things. So you’re assembling a team to manage the company in your absence. When interviewing potential applicants for key managerial positions, who would you hire? I doubt you’d hire a woman like this. You’d say, “There’s nothing here in her resume to indicate that she knows how to run a company. She’s never studied business. She doesn’t have an MBA. She’s never took an economics course in her life. She has no experience in this sort of thing.” You’d kindly tell her she’s unqualified and say, “Next!”
But when it comes to those who run our country, we don’t think of it that way. We look for people we feel we relate to. We want someone we could sit down at the bar and have a drink with. Well, would you want your friend at the bar running the country? Probably not. But people have all sorts of strange contradictory ideas running through their heads.
From what I can tell, their thought process runs something along the lines, “Celebrities like Junko Mihara have money, so they can’t be bribed off. They seem to care more than the crooked elites running things now.” And maybe that’s true, but there’s a lot more to these things than just caring. They have to know what they’re doing as well.
Well, maybe people understand these situations. Voting someone like her into office is probably an act of desperation.
Greg and I have a business concept we like to use called the “miracle man.” When your company is performing poorly, and things aren’t going well, you always look for a miracle man. Every failing entrepreneur we’ve ever met was always searching for a miracle man. If only they could get their product into the hands of the right distributor, then it’d all work out and they’d make a ton of money. If only the right investors found their plan. If only they could find component staff. If only… If only… The burden of responsibility and hope was always shifted onto someone other than themselves. Needless to say, they never progressed.
Miracle men are always an act of desperation. You’ve given up all hope in yourself and are slowly falling to the ground, arms extended hoping someone will take your hands, lift up you into the skies, and then fly away with you into bliss everlasting.
Miracle men come in all shapes and sizes. Sometimes they’re religious deities. Sometimes they’re a real or even an imagined romantic lover. Sometimes they’re politicians. What they all have in common is that people place all their hopes and dreams in them. They also tend to blame them for everything that goes wrong in their lives.
Maybe sometimes we need a little prop and brace when we’re about to fall over. It’s also nice to have someone help us back on our feet when we’ve fallen down. But I don’t think we can ever ask someone else to carry us. Each person has to live his or her own life.
When it comes to politics, people always tend to forget that they’re the ones with all the power, not the politicians. Problem is, they don’t unite. Their enemy is the Republicans or the Democrats instead of the banking elites.