Why Niall Ferguson would be wrong even if he weren’t deceiving people.

For the past week, all any one is taking about is Niall Ferguson’s Newsweek article on the case against re-electing President Obama.  There has been a lot of arguing between Ferguson and many high-profile bloggers about various points in the article which are either false or misleading.  There is also the revelation that Newsweek does not actually fact-check their articles.  I think that aspect of it has been pretty well hashed-over, so I’m not going to spend much time on it.

What I want to address is why Ferguson thinks Romney would be any better.  Because, the question is not “is Obama the best candidate for the Presidency,” but  “is he better than Romney?”  Ferguson’s reasons for favoring Romney seem to rest largely on the fact that his V.P. is Paul Ryan.  Big deal.  The Vice-Presidency is practically worthless except in the hands of somebody with vast experience with how Washington works and tons of connections within the political arena.  But I don’t think Romney wants to market Ryan as “the next Dick Cheney”.

Then, of course, there is the problem that Ryan is not really all he’s cracked up to be, as documented by Ferguson’s arch-nemesis, Paul Krugman.  I’ll address that in a minute but first let’s allow, for the sake of argument, that Paul Ryan is, as Ferguson writes “truly sincere about addressing this country’s fiscal crisis.”  He’s still just the Vice-President.  Arguably, he could do more to implement his budget schemes in his current position as Congressman than as Romney’s back-up.

But here is where things get problematic:  Ferguson’s argument is that the economy has sucked under Obama.  That’s true.  There’s no two ways about it, as they say.  And while that’s not completely or even mostly Obama’s fault, his administration has definitely made some mistakes on that front.

So, is the Romney/Ryan ticket likely to do a better job or a worse job?

Ferguson describes Ryan’s plan, kind of assuming that his plan is what Romney will pursue:

Replace Medicare with a voucher program for those now under 55 (not current or imminent recipients), turn Medicaid and food stamps into block grants for the states, and—crucially—simplify the tax code and lower tax rates to try to inject some supply-side life back into the U.S. private sector. Ryan is not preaching austerity. He is preaching growth.

“Growth”, eh? Well, to get growth, you need a multiplier effectThe estimated values for multipliers on tax cuts range from 1.29 to 0.27, according to Mark Zandi, Chief Economist at Moody’s, in a study cited by Wikipedia. The same study estimated the multipliers for government spending increases ranged from 1.73 to 1.36.  These are the different effects a change in tax cuts or spending have on growth of domestic output. (GDP)

If you notice, the number 1.36 is greater than the number 1.29.  That means that if you multiply the same number by both, you get a greater answer from the number that’s greater.  The spending increase number is greater than the tax cut number.  I realize this is difficult to understand.  Apparently, a Harvard professor and the Republican candidate for Vice-President can’t follow it.

Alright, so I’m being a sarcastic jerk.  There is an alternative explanation: that everything we thought we knew about basic macro-economics is wrong, in which case all bets are off.  We may as well just go back to the barter system.  Neoclassical synthesis?  No thank you!  The Republicans seem beholden to a school of thought which, rather than having a macro-economic model and a micro-economic model, simply extrapolates the principles of classical micro to describe the macro.

Remember what Ferguson wrote, about “supply-side life”?  Well, that’s a swell plan if you’re facing a supply side recession, as we were in the 1970s.  But we’re not facing that now.  We’re facing a demand-side recession.  How do I know this?  Because there has been a decrease in GDP and low inflation–almost deflation.  If it were a supply-side issue, there would have been a decrease in GDP and a rise in the price level–aka “stagflation“.  Meaning, the supply-side stuff advocated by Ronald Reagan that worked to an extent in the early ’80s won’t work now.

(Not that I suppose you care, but here is a graph of what the present problem is.  It’s lousy quality, and I just sketched it without using any numbers or anything, but I couldn’t find any public domain graphs of an Aggregate Demand decrease online.)

The Recession: Aggregate Demand decreases, causing decrease in price level and GDP

So, Paul Ryan–and, Ferguson would have us presume, Romney–are bringing supply to a demand fight.  Their plan is to cut taxes and reduce spending, when what they should be doing is increasing spending and leaving taxes alone until the economy has recovered, at which point they could reduce spending and raise taxes to start dealing with the debt problem.

That is why, even though Obama has messed up his handling of the economy, it would not be smart to vote him out because of it.  His replacements would be even worse.


  1. Krugman wrote until his fingers were blue that Obama’s stimulus package, which is what a demand side recession needs was too small for the problem we faced and that when it played out he wouldn’t be able to ask for more and that the Republicans would call it a failure. All Republican ads in 2010 called the stimulus a failure and they still do; which it wasn’t since it worked to a limited degree ask any: teacher, contruction worker, police or firefighter that had 2 to 3 extra years of work before the layoffs started. Like you said Obama may not have bargained or fought as hard for some things progressives want, but the alternative is so much worse.


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