Economists really do seem to struggle with history – and sometimes geography, too. Brad DeLong needs to remember that the Financial Times is published in London. As far as most combatants were concerned, the second world war broke out in September 1939. So when I wrote “The federal debt burden [in the United States] rose only slightly – from 40-45 per cent of GDP – prior to the outbreak of the second world war”, I was referring to the increase between 1933 and 1939.
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The current [US] debt explosion relies heavily on foreign capital. Note to the compulsive stimulators: according to the latest Treasury International Capital data, China – the federal government’s single biggest foreign creditor – has quietly reduced its holdings of US Treasuries by $72bn since last July, from 13 per cent of the total debt in public hands to just 10 per cent.
In common with other stimulators, Prof De Long is confident that the day when “government action begins to crack the status of the US Treasury bond as a safe asset” will “probably not” come soon. The gentlemen in Beijing may be less sanguine.
Niall Ferguson, “1939 and all that …”, Financial Times, 21 July 2010.
Brad DeLong may be an economist, but he is also a skilled historian who does not “struggle with history”. Although World War II formally began in September 1939, when German troops invaded Poland, the US entered only after the bombing of Pearl Harbor on December 7th 1941. The second date is the relevant one for the United States.
Also in the FT today, there are contributions to the austerity debate from Ken Rogoff (“No need for a panicked fiscal surge”) and Tim Harford (“A sunlit Keynesian paradise awaits our grandchildren”).
Harvard economist Kenneth Rogoff is co-author (with Carmen Reinhart) of “This Time is Different: Eight Centuries of Financial Folly”, published last year by Princeton University Press. Economist and FT journalist Tim Harford is author of a popular book, “The Undercover Economist”.
