Niall Ferguson's Horrible Track Record On Economics

BloombergHarvard historian Niall Ferguson landed himself in hot water this past Friday at a conference when he equated the economic philosophy of John Maynard Keynes with the fact that Keynes was gay and childless.

Basically, he was trying to cleverly equate Keynes’ famous line “in the long run we’re all dead” to a mentality which doesn’t care about the future, due to lack of offspring. Of course, that Keynes line is taken out of context, and Keynes clearly thought about the long term, and beyond that it’s just straight up offensive to say that being gay is incompatible with long-term thinking.

If there were any connection, then the obvious next step would be to be against any gay leader or policymaker of philosopher on the suspicion that they were incapable of long-term consideration.

Ferguson eventually gave an unqualified apology (which seemed pretty sincere), but it’s worth pointing out that in the last few years, Ferguson has self-immolated a number of times trying to fight an anti-Keynesian battle.

Last August, Ferguson wrote a cover story for Newsweek slamming Obama’s economic stewardship, which prompted us to go back through his own track record of prognostication.

His most spectacularly incorrect call came in in the Summer of 2009, when he took a victory lap, proclaiming that since interest rates were rising, he was correct that the bond vigilantes were rebelling against the large stimulus and historic deficits.

On Wednesday last week, yields on 10-year US Treasuries – generally seen as the benchmark for long-term interest rates – rose above 3.73 per cent. Once upon a time that would have been considered rather low. But the financial crisis has changed all that: at the end of last year, the yield on the 10-year fell to 2.06 per cent. In other words, long-term rates have risen by 167 basis points in the space of five months. In relative terms, that represents an 81 per cent jump. 

Most commentators were unnerved by this development, coinciding as it did with warnings about the fiscal health of the US. For me, however, it was good news. For it settled a rather public argument between me and the Princeton economist Paul Krugman. 

It is a brave or foolhardy man who picks a fight with Mr Krugman, the most recent recipient of the Nobel Prize for Economics. Yet a cat may look at a king, and sometimes a historian can challenge an economist. 

A month ago Mr Krugman and I sat on a panel convened in New York to discuss the financial crisis. I made the point that “the running of massive fiscal deficits in excess of 12 per cent of gross domestic product this year, and the issuance therefore of vast quantities of freshly-minted bonds” was likely to push long-term interest rates up, at a time when the Federal Reserve aims at keeping them down. I predicted a “painful tug-of-war between our monetary policy and our fiscal policy, as the markets realise just what a vast quantity of bonds are going to have to be absorbed by the financial system this year”.

Unfortunately for Ferguson his victory lap was premature. While rates did rebound from their crisis lows in 2009, subsequent years have only seen a steady grind lower.

FREDThen in May 2011 he wrote for The Daily Beast about “The Great Inflation Of The 2010s.”

He actually said in the piece: “Yes, folks, double-digit inflation is back. Pretty soon you’ll be able to figure out the real inflation rate just by moving the decimal point in the core CPI one place to the right.”

This was totally incorrect. Double-digit inflation is not back. Hopefully by this point you don’t need a chart to show you that.

In February 2010 he predicted a Greek crisis was coming to America. Verdict: Wrong.

And in June 2009, he predicted a painful conflict (imminently) between monetary and fiscal policy. Verdict: wrong.

Meanwhile in more timely silliness, here’s a video (via Mike Konczal) in which Niall Ferguson calls it a “law of finance” that when debt passed 90% of GDP, growth slows precipitously. Ferguson is at 1:18 mark.

While none of this speaks to his skills as a historian, the crisis and post-crisis period has been characterised by him railing against the Keynesian establishment, and impaling himself at every turn.

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