The debate rages on at the Financial Times. Berkeley economic historian Brad DeLong today takes the stimulus side, and Harvard historian Niall Ferguson defends austerity. Neither disappoints.
It was said of the Bourbons that they forgot nothing and learned nothing. The same could easily be said of some of today’s latter-day Keynesians. They cannot and never will forget the policy errors made in the US in the 1930s. But they appear to have learned nothing from all that has happened in economic theory since the publication of their bible, John Maynard Keynes’s The General Theory of Employment, Interest and Money, in 1936.
In its caricature form, the debate goes like this. The Keynesians, haunted by the spectre of Herbert Hoover, warn that the US in still teetering on the brink of another Depression. Nothing is more likely to bring this about, they argue, than a premature tightening of fiscal policy. This was the mistake Franklin Roosevelt made after the 1936 election. Instead, we need further fiscal stimulus.
Niall Ferguson, “Today’s Keynesians have learnt nothing”, Financial Times, 20 July 2010.
Brad DeLong’s counterblast:
In 1942 the US ran a federal budget deficit of 14.8 per cent of GDP; in 1943 30.8 per cent; in 1944 23.3 per cent; and in 1945 22.0 per cent – a four-year average deficit of 22.7 per cent of GDP.
Today, in 2010, the US is running a federal budget deficit that the CBO estimates at 10.3 per cent of GDP. Its score of Obama’s budget proposals has that deficit falling next year to 8.9 per cent of GDP, then over the next two years to 4.5 per cent of GDP, and remaining in the 4-5 per cent of GDP range for the rest of this decade – for an average CBO-scored Obama policy deficit of 5.3 per cent over the next eight years.
Brad DeLong, “Deficit data and the fog of war”, Financial Times, 21 July 2010.
See also Brad DeLong’s original post, “It is far too soon to end expansion”, Financial Times, 20 July 2010.
