Warning! Get to High Ground
Economic Warnings From Two Respected Analysts
by Gary North
Two widely respected economic commentators, Harvard’s Niall Ferguson and Nassim “black swan” Taleb, have offered highly pessimistic assessments of what lies ahead for the American economy.
Information like this is widely ignored by investors in weeks when they have decided that nothing can stop them: they will get rich by investing in the American stock market, no matter what. On July 21, Ben Bernanke told the Senate Banking committee that “the economic outlook looks unusually uncertain.” Stocks fell sharply as soon as he gave his testimony. But the Dow Jones Industrial Average recovered at the opening bell the next day, and then rose by almost 400 points over the next three business days. There was no news that countered Bernanke’s assessment. Investors simply shrugged it off.
Niall Ferguson is a professor of history at Harvard University and is also on the faculty of the Harvard Business School. This indicates that he has successfully jumped through the most rigorous of academic hoops. Because he writes voluminously and well on topics related to national finance, he is often asked to speak at high-level business conferences. He is a good speaker.
Ferguson recently was asked to write an article for London’s Financial Times. He began his article with a comment on the present state of debate over fiscal policy in the West. He said that the debate is depressing. I could not agree more.
He quoted the famous aphorism regarding the restored king of France after the defeat of Napoleon in 1815. The king was an heir of the Bourbon family. It was said that the family 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.
With respect to their assessment of those policy errors, his statement is correct. But we should not be like the Keynesians, who have never understood the policy errors of the Federal Reserve System and the Bank of England in the second half of the 1920s.