In my first post on this blog I linked to one of many recent Niall Ferguson piece in which the right-leaning economic historian castigates Keynesians for their stimulatory tendencies. Ferguson is adamantly opposed to the idea that when there are lots of idle resources (labour and capital) and not much sign of private demand for those resources resuming, Government should step in to fill the gap. He doesn’t even believe that’s the case when the usual first-choice policy level, monetary policy, has reached the limits of its usefulness, a nominal interest rate that is close to zero.
What’s interesting is that Brad DeLong has unearthed a Ferguson piece from the New York Times in 2003 in which he argues precisely the opposite. Ferguson was apparently convinced back then, with the US and world economies in a much less parlous state, that the US federal government could step in to boost aggregate demand without threatening runaway inflation or imperilling its own solvency.
What led to Ferguson’s change of mind? I suspect it is nothing more than a change in the political party in power.
Ferguson accuses Krugman of the opposite crime, of opposing deficit spending in 2003 and supporting it in 2010 for reasons of partisanship. The difference between the two is that Krugman can point to significant differences in context that warrant a changed position. Principally, the nominal interest rate is at its zero bound. Another factor is that this has been (and is, for the most part) a truly global downturn, precluding a typical export-led recovery.