Professor Paul Krugman at war with Niall Ferguson over inflation
America’s top liberal pundit is at loggerheads with a British don over how to save the world economy
by Matthew Lynn / The Times Online (UK) / August 23, 2009
One of them is a “poseur”. The other is “patronising”. One suffers from “verbal diarrhoea”. The other is a “whiner”.
A bust-up on the set of High School Musical 4 perhaps? A scrap behind the catwalk at a Milan fashion show? No. Those accusations were slung round in an increasingly bitter public row between two of the world’s most distinguished commentators on global finance and economics, professors Paul Krugman and Niall Ferguson, of Princeton and Harvard, respectively.
It started as an argument about bond prices. But last week it blew up into a row about racism, printing money, spending our way out of recession, and the fate of the global economy.
Academic spats can, of course, be famously catty. Ludwig Wittgenstein once tossed a poker at his fellow philosopher Karl Popper at a meeting of the Cambridge Moral Science Club as they argued about whether issues in philosophy were real or just linguistic puzzles. At least Krugman and Ferguson haven’t come to blows yet, although at their next meeting it might be better to hide the blunt instruments. Still, it is a long time since the academic world witnessed a dispute as gladiatorial as this one.
Henry Kissinger, who knows a bit about fights, both political and intellectual, once observed that the reason academic tussles were so vicious was “because the stakes are so small”. And although that is true in one sense — it doesn’t matter very much whether the professor from Princeton doesn’t like his rival from Harvard — it is wrong in another. The stakes in this row are pretty high.
The argument is about whether the huge stimulus programmes launched by governments around the world, and the way central banks are furiously printing money, are lifting the global economy out of recession. Or whether they are just teeing up the next crisis — hyper-inflation and an even worse economic collapse.
In a week in which it emerged that Mervyn King, governor of the Bank of England, wanted to print even more money, this is far more than an academic debate. It is about where long-term interest rates are going, and so whether mortgages will be affordable next year. It is about whether the glimmers of recovery seen now are about to be crushed by government spending.
“The deficits are stimulating the economy right now, but once the recovery starts they may choke it off,” said Stuart Thomson, a bond fund manager who controls assets of $100 billion at Ignis Asset Management. “That is what they are really arguing about.”
In short, it is about whether we are fixing the problems or whether we are just papering over the cracks, and so just storing up more trouble a few years down the road.
NO INTELLECTUAL cuts quite such a swagger in American public debate as Paul Krugman. Born in New York and educated at Yale and the Massachusetts Institute of Technology, he rose quickly through the ranks to become professor of economics at Princeton, just about the summit of the academic mountain.
Unusually for a scholar, Krugman pulls no punches. He avoids the dry, technical discourses of most economists, and engages passionately in public debate. In academia, he specialises in the detail of trade theory, work for which last year he was awarded the Nobel prize, a trophy that cemented his reputation as one of the leading economists of his generation.
But it is his column in The New York Times that has catapulted him into the stratosphere. Avowedly liberal, it ripped into the Bush regime and the excesses of Wall Street with a passion and a commitment that are rare in the usually stultifying neutral world of American journalism. Washington Monthly called him “the most important political columnist in America”, and few would dispute that judgment.
It was Krugman who said Gordon Brown’s bank rescue had “saved the world”, so creating the warm glow of approval that our beleaguered prime minister basked in for a few weeks.
In Ferguson, however, Krugman has met his match. The men are, in many ways, mirror images of one another: lippy, self-publicising academics, with a taste for the public stage and an ear for the big theory. Ferguson, a Glaswegian, was educated at Oxford before embarking on a career as a historian for which the word stellar isn’t quite good enough.
From his history chair at Oxford, he decamped to America, eventually adding a chair at Harvard Business School to his portfolio. Along the way he has written best-selling books on the history of finance and empire, and presented documentaries on television.
Married to the former Sunday Express editor Susan Douglas, he plays the media skilfully, turning himself into that modern creation, a “public thinker”. Indeed, he is very much the right-wing Krugman: a man with a solid academic background, who still engages furiously in the big public issues of the day.
THE FIGHT began at the unlikely setting of the Metropolitan Museum of Modern Art on April 30, at a symposium on the recession organised by the New York Review of Books. The panel was certainly impressive. Alongside Ferguson and Krugman were George Soros, the hedge-fund manager, and the former senator Bill Bradley.
Krugman, an ultra-Keynesian, argued for stimulus spending. Ferguson put the case for fiscal conservatism, warning of a “rapid explosion of federal debt”. At some point, the “financial credibility of the United States will be called into question”, he said.
A few days later, Krugman returned to the argument in a withering put-down on his blog, describing Ferguson’s views as “really sad” and “depressing” and belonging to “the dark ages of economics”.
Ferguson shot back in a piece in the Financial Times. “It is a brave or foolhardy man who picks a fight with Mr Krugman,” he wrote. “Yet a cat may look at a king, and sometimes a historian can challenge an economist.” Krugman was “patronising” he said, before offering him a “refresher course” in the historical context of Keynes’s work.
You can’t offer to lecture Krugman on Keynes, however, without expecting the return punch to be a big one. Earlier this month, Ferguson wrote another piece for the FT, comparing Barack Obama to Felix the Cat: “Felix was not only black,” he wrote. “He was always very, very lucky.”
Krugman saw the opportunity to deploy the nuclear weapon of American academic arguments — an accusation of racism. “I cannot fathom the state of mind that led Ferguson to think this was a good way to introduce a column,” he blogged furiously. “Admittedly, it doesn’t really distract from his larger point, since as far as I can tell he doesn’t have one.”
As it was succinctly put in the posters for Jaws: The Revenge, this time it was personal. Over on the influential Huffington Post blog, Ferguson defended the intro, rather amusingly pointing out that Felix was just a black cat, “not an African-American cat”. Krugman shot back on his blog: “He’s a whiner too.”
Undaunted, Ferguson enlisted the opinion of Henry Louis Gates Jr, one of America’s leading African-American scholars, who handed down the verdict that referring to Felix as black wasn’t racist, on the grounds that he really did have black fur, and, anyway, it wasn’t clear that cats had race.
None of which was going to appease Krugman. On his blog on August 17, he put the boot straight into the British academic. “For the record, I don’t think that Professor Ferguson is a racist. I think he’s a poseur. I’m told that some of his straight historical work is very good. When it comes to economics, however, he hasn’t bothered to understand the basics, relying on snide comments and surface cleverness to convey the impression of wisdom. It’s all style, no comprehension of substance. And this time he ended up choking on his own snark.”
This weekend Ferguson said: “I am saddened by Krugman’s resort to ad hominem attacks, couched in the language of the playground. I presume it is because he knows, but bitterly resents, that I won the argument we had back in April about the future path of long-term interest rates.”
He is disappointed by Krugman’s insistence on playing the man rather than the ball. “He certainly seems much more ready these days to speculate about the cultural significance of Felix the Cat than to discuss the issue I once again raised in my FT piece — namely the potential dangers of the spiralling US fiscal deficit,” said Ferguson. “It is all very sad and an illustration of the dangers of blogging, which encourages verbal diarrhoea.”
Krugman didn’t respond to a request for an interview for this article. But it is unlikely the battle will end there — keep an eye on his blog tomorrow morning.
IS there anything to this argument, other than a couple of intellectual egos that have got out of control? Plenty, as it happens.
Leave aside the personalities — these are both men who could happily start a fight in an empty room — and there is a substantive issue at stake.
“What they are really arguing about is whether we should exit quickly from the policy that has been taken up,” said Stephen Lewis, a veteran City economist with Monument Securities. “Even Krugman would agree that you cannot carry on building up public debt forever. Ferguson’s point is that we should be looking for the exit right now.”
In that, he is far from alone. Warren Buffett, the world’s richest man, was warning last week of the dangers of what he called, with his skill for a pithy phrase, “greenback emissions” — the vast accumulation of public debt that risks turning America into a “banana republic”.
The debate could not be more relevant in Britain. The Conservative leader David Cameron has already warned that Gordon Brown’s plans to double the UK’s national debt has created a risk of default, with crippling consequences.
The reality is that governments are racking up debt on an unprecedented scale. “We have never been in a position like this before, not even during the great depression of the 1930s,” said Lewis.
Maybe that’s why people are looking for guidance from historians as much as economists. Because while the economists blithely assure the public that the policies are the right ones, you don’t need to be a Harvard history professor to know the past tells us that the prescriptions of experts often go badly wrong, no matter how confidently the medicine is administered. And when that happens, everyone ends up paying a high price.
Men of many words
Paul Krugman does not disguise his aggressive approach to public life. The Princeton professor’s personal website carries this warning for readers: “With any luck, you will find many of these pieces extremely annoying. My belief is that if a column does not greatly upset a substantial number of people, the author has wasted the space.”
It is a dictum he has followed closely, even if to his cost. It is thought that he missed out on a senior role in the Clinton administration by giving too direct an answer about whether the president could balance the budget and afford healthcare reform. It was a resounding “no”.
“You have to be very good at people skills, biting your tongue when people say silly things,” Krugman said later.
He did serve on the White House Council of Economic Advisers during the Reagan administration. He has had more than 20 books published, and his hero is the British economist John Maynard Keynes.
The collapse of the American banking system allowed Krugman to say that advocates of laissez-faire capitalism had got it wrong. “We’re all socialists now,” he said, calling for the government to “seize the commanding heights of the economy”.
Niall Ferguson has taken a similarly rugged approach to academia and public life, never afraid of a contrary approach. This runs through many of his general works — he argued that the British Empire was not a bad thing and that a de facto American-led empire could do even more good works.
The same approach runs through his economic histories. In his best known book, The Ascent of Money, he examined how good banking and financial systems eclipsed poor ones.
Unlike Krugman, he has been sceptical about the effectiveness of government programmes to fix the economic crisis. “My worry is that we end up with an over-reaction,” he said. “All this zeal for regulation actually grows out of a very faulty analysis. If deregulation were such a big problem, why was it that the most regulated entities, banks, caused the biggest trouble?”