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Niall Ferguson Softens His Austerity Stance

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I have previously criticized Niall Ferguson as one of the gurus for those creatures described by Barry Ritholtz as “deficit chicken hawks”.  The deficit chicken hawks have been preaching the gospel of economic austerity as an excuse for roadblocking any form of stimulus (fiscal or monetary) to rehabilitate the American economy.  Ferguson has now backed away from the position he held two years ago – that the United States has been carrying too much debt

Henry Blodget of The Business Insider justified his trip to Davos, Switzerland last week by conducting an important interview with Niall Ferguson at the annual meeting of the World Economic Forum.  For the first time, Ferguson conceded that he had been wrong with his previous criticism about the level of America’s sovereign debt load, although he denied ever having been a proponent of “instant austerity” (which is currently advocated by many American politicians).  While discussing the extent of the sovereign debt crisis in Europe, Ferguson re-directed his focus on the United States:

I think we are going to get some defaults one way or the other.  The U.S. is a different story.  First of all I think the debt to GDP ratio can go quite a lot higher before there’s any upward pressure on interest rates.  I think the more I’ve thought about it the more I’ve realized that there are good analogies for super powers having super debts.  You’re in a special position as a super power.  You get, especially, you know, as the issuer of the international reserve currency, you get a lot of leeway.  The U.S. could conceivably grow its way out of the debt.  It could do a mixture of growth and inflation.  It’s not going to default.  It may default on liabilities in Social Security and Medicare, in fact it almost certainly will.  But I think holders of Treasuries can feel a lot more comfortable than anyone who’s holding European bonds right now.

BLODGET: That is a shockingly optimistic view of the United States from you.  Are you conceding to Paul Krugman that over the near-term we shouldn’t worry so much?

FERGUSONI think the issue here got a little confused, because Krugman wanted to portray me as a proponent of instant austerity, which I never was.  My argument was that over ten years you have to have some credible plan to get back to fiscal balance because at some point you lose your credibility because on the present path, Congressional Budget Office figures make it clear, with every year the share of Federal tax revenues going to interest payments rises, there is a point after which it’s no longer credible.  But I didn’t think that point was going to be this year or next year.  I think the trend of nominal rates in the crisis has been the trend that he forecasted.  And you know, I have to concede that. I think the reason that I was off on that was that I hadn’t actually thought hard enough about my own work.  In the “Cash Nexus,” which I published in 2001, I actually made the argument that very large debts are sustainable, if your borrowing costs are low. And super powers – Britain was in this position in the 19th century – can carry a heck of a lot of debt before investors get nervous.  So there really isn’t that risk premium issue. There isn’t that powerful inflation risk to worry about.  My considered and changed view is that the U.S. can carry a higher debt to GDP ratio than I think I had in mind 2 or 3 years ago.  And higher indeed that my colleague and good friend, Ken Rogoff implies, or indeed states, in the “This Time Is Different” book.  I think what we therefore see is that the U.S. has leeway to carry on running deficits and allowing the debt to pile up for quite a few years before we get into the kind of scenario we’ve seen in Europe, where suddenly the markets lose faith.  It’s in that sense a safe haven more than I maybe thought before.

*   *   *

There are various forces in [the United States’] favor. It’s socially not Japan.  It’s demographically not Japan. And I sense also that the Fed is very determined not to be the Bank of Japan. Ben Bernanke’s most recent comments and actions tell you that they are going to do whatever they can to avoid the deflation or zero inflation story.

Niall Ferguson deserves credit for admitting (to the extent that he did so) that he had been wrong.  Unfortunately, most commentators and politicians lack the courage to make such a concession.

Meanwhile, Paul Krugman has been dancing on the grave of the late David Broder of The Washington Post, for having been such a fawning sycophant of British Prime Minister David Cameron and Jean-Claude Trichet (former president of the European Central Bank) who advocated the oxymoronic “expansionary austerity” as a “confidence-inspiring” policy:

Such invocations of the confidence fairy were never plausible; researchers at the International Monetary Fund and elsewhere quickly debunked the supposed evidence that spending cuts create jobs.  Yet influential people on both sides of the Atlantic heaped praise on the prophets of austerity, Mr. Cameron in particular, because the doctrine of expansionary austerity dovetailed with their ideological agendas.

Thus in October 2010 David Broder, who virtually embodied conventional wisdom, praised Mr. Cameron for his boldness, and in particular for “brushing aside the warnings of economists that the sudden, severe medicine could cut short Britain’s economic recovery and throw the nation back into recession.”  He then called on President Obama to “do a Cameron” and pursue “a radical rollback of the welfare state now.”

Strange to say, however, those warnings from economists proved all too accurate.  And we’re quite fortunate that Mr. Obama did not, in fact, do a Cameron.

Nevertheless, you can be sure that many prominent American politicians will ignore the evidence, as well as Niall Ferguson’s course correction, and continue to preach the gospel of immediate economic austerity – at least until the time comes to vote on one of their own pet (pork) projects.

American voters continue to place an increasing premium on authenticity when evaluating political candidates.  It would be nice if this trend would motivate voters to reject the “deficit chicken haws” for the hypocrisy they exhibit and the ignorance which motivates their policy decisions.


 

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Bye, Bayh!

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August 14, 2008

Rumors abound concerning the potential Vice-Presidential choices of both Barack Obama and John McCain in the 2008 Presidential campaign.  Recently, many prognosticators have been voicing their opinions that Obama will choose Indiana Senator Evan Bayh as his running mate.  (Bayh’s real name is Birch Evans Bayh, III.)  As this speculation heated up, so did the tempers of many Democrats.  These Democrats recalled that not only did Bayh vote in favor of the Joint Resolution for the Use of Military Force in Iraq, he co-sponsored it with John McCain and was part of the cozy, Rose Garden ceremony on October 2, 2002 when President Bush thanked Bayh and McCain for co-sponsoring the Resolution.  The rationale supporting Bayh’s viability as VP choice is based on his reputation for being a “centrist” Democrat and therefore, a good selection as Obama’s running mate.

On August 13, Ari Melber reported for The Washington Independent that a man named Steve Clemons, described by Melber as “a former Democratic Senate aide who sometimes traffics in Washington rumors”, provided this insider’s assessment of the outlook for an Obama – Bayh ticket:

Word has reached me that at Barack Obama’s Hawaii retreat, Evan Bayh’s chances to find himself the next Democratic VP candidate have moved to better than 50/50.

(Steve Clemons is actually the Director of the American Strategy Program at the New America Foundation and he is the publisher of the political blog, The Washington Note.)  Ari Melber also pointed out that Mr. Clemons opposed the choice of Bayh and that Clemons “urged Democratic voters to contact the Obama campaign with their views on the potential pick”.  This wasn’t the first rumor making the rounds concerning the dreaded announcement that Bayh would get the nod to share the Democratic ticket.  As Melber reported:  “apprehension over the feared choice of Bayh has resulted in a new Facebook group called ‘100,000 Strong Against Evan Bayh for VP’”.

We often hear pundits recite the Cardinal Rule for Presidential candidates, in selecting their Vice-Presidential nominee, as: “Do No Harm”.  In other words:  Don’t screw up your campaign by choosing a controversial running mate.  It has become obvious that Obama would severely damage his campaign with the choice of Bayh as his VP.

Obama’s biggest campaign hurdle is his popularity with Independent voters, since they are more likely to scrutinize a candidate’s authenticity, due to the fact that they have no party allegiance.  When Obama voted in favor of the FISA “wiretap” bill to avoid looking “weak” on national security, he shot himself right in the authenticity.  When the time came to take a stand on the issue of offshore drilling (to increase the supply of oil ten years from now, when we won’t need it) he repeated the same mistake.  The choice of Evan Bayh would be “Strike Three”.  Such a misstep would alienate the Democratic “base” and dilute whatever perceived measure of authenticity he has remaining, from the standpoint of Independent voters.

A crucial “negative” in considering Bayh as Obama’s running mate is Bayh’s wife:  Susan Breshears Bayh.  Four years before Evan followed in the footsteps of his father, Birch Bayh, to pursue a seat in the United States Senate, Susan launched a career sitting as a director on the boards of fourteen different corporations.  These corporations are involved in the pharmaceutical, broadcast, insurance, food-distribution and finance industries. The Fort Wayne Journal Gazette reported on December 16, 2007 that Mrs. Bayh earns approximately one million dollars per year in director’s fees.  That article by Sylvia Smith, went on point out that as Senator, Evan Bayh cast many votes “on issues of keen interest” to those very industries.

Any Presidential candidate, whose campaign is based on the theme of “Change”, would degrade his authenticity with the selection of such a “second generation” Senator as his running mate.  As I have said before (on July 14): In the age of YouTube.com, authenticity has become a politician’s stock in trade.  For Obama, the choice of Evan Bayh as his running mate would be Barack’s third strike against his own authenticity.  Should Obama go that route, it would be time to say “Bye – Bayh!” to his chances of living in The White House.

Bob Barr Gets It Going

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July 24, 2008

Libertarian Party Presidential candidate, Bob Barr, turned some heads when the July 6 Zogby Poll had him capturing 6% of the nationwide popular vote.  Given the fact that Barr has received almost no national media attention, some commentators began to take notice of this interesting candidacy.   Of particular concern is Barr’s impact on the races in those “battleground” states that draw attention in polls.  Conservative blogger, Kevin Tracy, has complained that the poll results listed on RealClearPolitics.com, do not disclose Barr’s numbers.  As for the “battleground” states, Zogby has Barr with 8% of the vote in Colorado, 7% of the vote in Ohio, 7% of the vote in McCain’s home state of Arizona, and 6% of the vote in Florida.  A July 22 Rasmussen Poll had Barr getting 5% of the vote in Georgia, in contrast with the July 8 Zogby result of 8% for Georgia.  MSNBC’s polling expert, Chuck Todd, reported that the July 23 MSNBC/Wall Street Journal poll results showing Barr with only 2% have a much greater margin of error than the results for a two-way race because only a “half-sample” was used for the four-way race that included Barr and Ralph Nader.  He suspected that a full sample would likely indicate a larger number for Barr.

So far, Barr is on the ballot in 31 states.  He has a fight underway to get on the ballot in West Virginia.  In Ohio, Federal Judge Edmund Sargus, Jr. held that the Ohio state Legislature failed to revise ballot rules after they were struck down as unconstitutional in 2006 by the 6th U.S. Circuit Court of Appeals.  Ohio Secretary of State, Jennifer Brunner (a Democrat) is seeking an expedited appeal.  Of course, the court hearing her appeal will again be the 6th U.S. Circuit Court of Appeals, so a victory for Barr seems likely there, as well.

Barr has an interesting background that makes him well-suited for the Presidency at this time.  To start with, in 1966, he graduated from High School in Tehran, Iran.  In 1970 he received his Bachelor’s Degree, cum laude, from the University of Southern California.  He received a Master’s Degree in International Affairs from George Washington University in 1972.  He received his law degree from Georgetown in 1977.  During that time (1971 – 1978) Barr was employed by the Central Intelligence Agency.  Barr served in Congress as the Representative for Georgia’s 7th Congressional District from 1995 to 2003.  In Congress, he served as a senior member of the Judiciary Committee, as Vice-Chairman of the Government Reform Committee, as a member of the Committee on Financial Services and the Committee on Veteran’s Affairs.

Despite the lack of media attention, he is running a clever campaign.  On July 19, he made a surprise appearance at the Netroots Nation blogger conference, stealing a bit of attention from the “surprise” visit by Al Gore.  On July 22, while John McCain was visiting Manchester, New Hampshire, he drew a bit of attention away from McCain’s visit to that city by appearing there himself.  Mark Hayward of the New Hampshire Union Leader, reported on July 23 that Barr spent a good deal of time at a stop in Manchester, “explaining his disappointments with the way the war in Iraq and the Patriot Act turned out.”   Barr voted in favor of both the Patriot Act and the Joint Resolution for the Use of Military Force in Iraq.  Although Barr is not yet on the ballot in New Hampshire, the Zogby Poll has him at 10 percent in that state.

As the campaign progresses, it will be interesting to observe where Barr gets his support.  MSNBC’s Chuck Todd pointed out that there is a component of “anti-Obama” voters among Barr’s supporters.  Whether this comes from racism, belief in the “secret Muslim” rumors, or a perceived lack of experience, will make for an interesting study.  It would also be interesting to ascertain whether any Obama supporters shifted their allegiance to Barr as a result of Obama’s vote in favor of the FISA “wiretap” bill.  Polls taken in the wake of that vote (July 11 Newsweek and July 13 Rasmussen) showed Obama’s support among independent voters dropping significantly.  Did they see Obama’s compromise on this issue as a lack of authenticity?

For now, Barr’s candidacy is perceived primarily as a threat to John McCain.  As Faye Fiore reported in the July 23 Los Angeles Times:

Barr is regularly compared to Ralph Nader, the Green Party spoiler who drew crucial votes from Democrat Al Gore in 2000.  Worried McCain supporters have begged Barr to drop out. The renegade responds with his famous bespectacled glare, referring to himself in the third person, as is his habit:  “The GOP has no agenda, no platform and a candidate who generates no excitement.  That’s not Bob Barr’s fault.”

When confronted about being a McCain “spoiler” during the July 6 edition of CNN Newsroom, Barr responded:

This is precisely the problem with the two-party system that we have here. They are always looking for someone to blame, other than themselves.

.  .  .  This preemptive blaming doesn’t do either party very well.   It’s an awfully weak position for the McCain campaign and the Republicans to be in months out from the election, already blaming me for their loss.

It will be interesting to watch what the pollsters can learn from Barr’s candidacy.  As Barr gets more publicity, his popularity is likely to increase.  If he can make it to 10 percent in a nationwide poll, he will be invited to participate in some of the debates.  That would be very interesting.

The Race Tightens

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July 14, 2008

Jonathan Darman’s July 11 article for Newsweek discusses that magazine’s latest poll, showing Barack Obama ahead of John McCain by only 3 percentage points.  Since this is probably within the poll’s margin of error (not discussed in the article) the two candidates are now in a statistical dead heat.   This is in sharp contrast with last month’s Newsweek poll, showing Obama with a 15-percent lead over McCain (51 to 36).  The July 13 Rasmussen poll showed each candidate with 46 percent.  Darman and other commentators struggled with this shift in popular opinion.  Darman noted:

But perhaps most puzzling is how McCain could have gained traction in the past month.  To date, direct engagement with Obama has not seemed to favor the GOP nominee.

Perhaps the explanation for McCain’s popularity bump is evident in the preceding text of Mr. Darman’s article, discussing Obama’s controversial position favoring the new FISA law.  Civil libertarians and the more liberal-leaning Democrats were outraged by Obama’s support for this bill.  The Obama camp believed that this disappointment would be short-lived, since those factions had no other alternative than to support Barack.  What these wizards failed to consider was the effect this betrayal would have on independent voters.  Hillary Clinton paid a high political price for her support of the Joint Resolution for the Use of Military Force in Iraq.  That Resolution was passed because there were too many Democrats in Congress who believed a vote against the Resolution would make them appear weak on national security.  It was that same fear of appearing weak on national security that drove Obama and other Democrats to vote in favor of the new FISA law.

In the age of YouTube.com, authenticity has become a politician’s stock in trade.  A politician’s denial of having made a statement (or of having played golf recently) can be easily rebutted with an audio-visual presentation of that politician’s own words or acts.  The lack of authenticity is perceived as a measure of dishonesty.  Concern for appearing weak is itself a sign of weakness. Obama’s support for the FISA bill tells me that he would indeed have voted in favor of the Iraq Resolution, had he been a member of United States Senate at the time.  Hillary Clinton learned her lesson from the Iraq Resolution controversy and voted against the FISA bill.  Nevertheless, had she been the presumptive Democratic Presidential nominee, would she have voted the same way?

The information obtained from the recent Newsweek poll suggests that authenticity may have played a role in the popular opinion shift.  As Jonathan Darman pointed out:

In the new poll, 53 percent of voters (and 50 percent of former Hillary Clinton supporters) believe that Obama has changed his position on key issues in order to gain political advantage.

What may have come as a surprise to Obama’s advisors, was that the Democrat has lost popularity among independent voters.  Although these voters may not have been as heartbroken as the members of MoveOn.org, over Obama’s support for the FISA legislation, they may have detected the strong odors of weakness and inauthenticity.  As Mr. Darman observed:

In the new poll, McCain leads Obama among independents 41 percent to 34 percent, with 25 percent favoring neither candidate. In June’s NEWSWEEK Poll, Obama bested McCain among independent voters, 48 percent to 36 percent.

In other words, Obama lost his 12-point lead among independent voters and he now trails McCain among independents by 7 points.  McCain has apparently taken a page from the Bush playbook by deliberately making gaffes in order to appear less polished – and hence, more authentic to the voters.  (One example of this was his repeated conflation of the activities of Iranian operatives and those of Al-Qaeda terrorists in Iraq.)  McCain is appearing as “likeably” less articulate than his opponent, reinforcing the aura of authenticity.  The only way for the Obama camp to stay in this fight is to keep McCain’s own “flip-flops” in the public eye.  Taking “the high road” at this point appears to be political suicide.  Although it doesn’t make for a good slogan:  “Less of a flip-flopper than McCain” should become the theme for the Obama campaign.