Krugman, Niall Ferguson Renew Debate Over U.S. Fiscal Stimulus
2010-10-13 06:41:01.277 GMT By Bomi Lim and Michael Heath
Oct. 13 (Bloomberg) — Nobel Prize-winning economist Paul
Krugman and Niall Ferguson, author of “The Ascent of Money: A
Financial History of the World,” clashed anew today over how to
revive the U.S. economy.
Krugman, 57, a Princeton University professor, is urging
the Obama administration to undertake a second round of fiscal
stimulus, while Harvard University historian Ferguson, 46, warns
such a course may trigger a “debt spiral” in the world’s
biggest economy.
“The risk is that at some point your fiscal policy loses
credibility in the eyes of investors,” Ferguson said at the
World Knowledge Forum in Seoul. “Then, very quickly, you will
find yourself in a debt spiral of rising rates, widening
deficits, crumbling credibility and yet more rising rates.”
The debate comes as minutes of the Federal Reserve policy
makers’ meeting on Sept. 21 show they were prepared to ease
monetary policy “before long” as growth slows and the jobless
rate remains near a 26-year high.
“We actually never did significant fiscal expansion,”
Krugman said at today’s forum, appearing beside Ferguson. “What
does a trillion dollars of borrowing do to the U.S. long-run
fiscal position? The stimulus right now makes almost no
difference.”
The administration’s two-year $814 billion stimulus program
ends Dec. 31, and Krugman said two months ago another $800
billion is necessary. While the National Bureau of Economic
Research said in September that the worst U.S. recession since
the Great Depression ended in June 2009, the unemployment rate
held at 9.6 percent last month.
Investor Confidence
Ferguson said the U.S. risks losing investors’ confidence
as more spending exacerbates its weak fiscal position, adding
the U.S. debt situation is worse than that of Greece. Krugman
dismissed the comments, saying there is no evidence in the
markets that bondholders will flee.
“The markets are fine until they are not fine,” Ferguson
countered.
“For more than a year since our debate began, it’s the
Chinese who’ve been consistently agreeing with me, saying that
they regard the course of U.S. fiscal and monetary policy as
dangerous,” the Harvard professor said. “So it’s not just me
you are arguing with Paul, actually, it’s the Chinese
government.”
China in July held almost $847 billion in U.S. Treasuries,
more than double the amount it held four years earlier.
U.S. economic growth slowed to an annual rate of 1.7
percent in the second quarter from 3.7 percent in the first
period. The growth figures are adjusted for changes in prices;
nominal gross domestic product doesn’t adjust for inflation.
The economy probably expanded at a 1.9 percent pace in the
quarter ended Sept. 30, according to the median estimate of 62
economists surveyed by Bloomberg News.
Krugman, a New York Times columnist, wrote last year during
a previous clash that Ferguson “hasn’t bothered to understand
the basics” of economics. Ferguson has said Krugman’s economic
assumptions are based on a “flawed” reading of John Maynard
Keynes’ model.
2010-10-13 06:41:01.277 GMT By Bomi Lim and Michael Heath
Oct. 13 (Bloomberg) — Nobel Prize-winning economist Paul
Krugman and Niall Ferguson, author of “The Ascent of Money: A
Financial History of the World,” clashed anew today over how to
revive the U.S. economy.
Krugman, 57, a Princeton University professor, is urging
the Obama administration to undertake a second round of fiscal
stimulus, while Harvard University historian Ferguson, 46, warns
such a course may trigger a “debt spiral” in the world’s
biggest economy.
“The risk is that at some point your fiscal policy loses
credibility in the eyes of investors,” Ferguson said at the
World Knowledge Forum in Seoul. “Then, very quickly, you will
find yourself in a debt spiral of rising rates, widening
deficits, crumbling credibility and yet more rising rates.”
The debate comes as minutes of the Federal Reserve policy
makers’ meeting on Sept. 21 show they were prepared to ease
monetary policy “before long” as growth slows and the jobless
rate remains near a 26-year high.
“We actually never did significant fiscal expansion,”
Krugman said at today’s forum, appearing beside Ferguson. “What
does a trillion dollars of borrowing do to the U.S. long-run
fiscal position? The stimulus right now makes almost no
difference.”
The administration’s two-year $814 billion stimulus program
ends Dec. 31, and Krugman said two months ago another $800
billion is necessary. While the National Bureau of Economic
Research said in September that the worst U.S. recession since
the Great Depression ended in June 2009, the unemployment rate
held at 9.6 percent last month.
Investor Confidence
Ferguson said the U.S. risks losing investors’ confidence
as more spending exacerbates its weak fiscal position, adding
the U.S. debt situation is worse than that of Greece. Krugman
dismissed the comments, saying there is no evidence in the
markets that bondholders will flee.
“The markets are fine until they are not fine,” Ferguson
countered.
“For more than a year since our debate began, it’s the
Chinese who’ve been consistently agreeing with me, saying that
they regard the course of U.S. fiscal and monetary policy as
dangerous,” the Harvard professor said. “So it’s not just me
you are arguing with Paul, actually, it’s the Chinese
government.”
China in July held almost $847 billion in U.S. Treasuries,
more than double the amount it held four years earlier.
U.S. economic growth slowed to an annual rate of 1.7
percent in the second quarter from 3.7 percent in the first
period. The growth figures are adjusted for changes in prices;
nominal gross domestic product doesn’t adjust for inflation.
The economy probably expanded at a 1.9 percent pace in the
quarter ended Sept. 30, according to the median estimate of 62
economists surveyed by Bloomberg News.
Krugman, a New York Times columnist, wrote last year during
a previous clash that Ferguson “hasn’t bothered to understand
the basics” of economics. Ferguson has said Krugman’s economic
assumptions are based on a “flawed” reading of John Maynard
Keynes’ model.
