Tuesday, June 26, 2012

Niall Ferguson did not predict the financial crisis of 2009

I've been busy with Prof Niall Ferguson, the right-wing ideologue and current Reith lecturer. He tends to contradict himself - here is Matt Yglesias' collection of his contradictions - and the blog Though Cowards Flinch points out that he said in 2006 "I was sure that this financial crisis was going to happen" but that in 2005 he had said "Recessions are happening less often and when they do they are not too steep and not too protracted." This quote has disappeared from the Los Angeles Times, but it is still up here in the Telegraph.

And just in case it should accidentally disappear from the Telegraph too, I am going to copy and paste it here as well. Here goes:

We're turning Japanese - so Labour could have 30 more years in power

A politician without office is like a snail without a shell. There is simply no way of disguising the inherent, slug-like vulnerability of being in opposition. Yet hope springs eternal, even for a naked snail. It is not only the British Conservatives who cling fondly to the illusion that if they can only find the right leader, they will return to power on a wave of rekindled public enthusiasm. This is also the collective fantasy of the Democratic Party in the United States.
Yet what went on in Blackpool last week strongly reminds me of the energies the Democrats expended in 2004 to find a candidate capable of beating George W Bush. Like the arcane rituals that ultimately brought forth John Kerry, the process of selecting a new Tory leader is not without its human interest. In each case, there is something of the beauty contest, but also something of the freak show.
And yet the ghastly possibility cannot quite be extinguished that it is all a complete and utter waste of time. Perhaps it simply doesn't matter who leads these parties. Perhaps they would be doomed to lose even if they could rejuvenate Margaret Thatcher or resurrect Franklin Roosevelt.
To this proposition, all politicians who inhabit the shadow world of opposition have a knee-jerk response. Sooner or later, they say, the public will tire of the party in power. Then, under the new, modernising, charismatic leadership of (fill in the desired name), we shall sweep back into office.
It can happen, of course. In Poland, the two centre-Right parties have just won decisively, ending four years of incompetent rule by former Communists. In Spain last year, the Social Democrats returned to power after eight years in opposition, ousting José María Aznar's People's Party. Yet democracy in both those countries is a relatively young phenomenon. In more mature democracies, I venture to suggest, there is a discernible tendency for incumbent parties to stay in power for longer.
We in the English-speaking world still tend to expect the major parties to take fairly regular turns at running the country. Power in Britain has changed hands seven times since the Second World War - in 1945, 1951, 1964, 1970, 1974, 1979 and 1997. In the United States during the same period the White House has been home to six Republicans and five Democrats. But consider the cases of Germany and Japan, where democracy has also been functioning smoothly since it was restored after the Second World War. The German Christian Democrats have lost power only twice since 1949 and are on the brink of regaining it as I write.
In Japan, voters swing even less. Last month Prime Minister Junichoro Koizumi's Liberal Democratic Party won a decisive election victory. This means that, apart from a brief ten-month interlude in 1993-94, the LDP has now been in power for more than half a century.
With its elaborate code of politeness and its intricate social hierarchies, Japan is the nearest thing to another planet you are ever likely to visit. Things work with an efficiency that irresistibly reminds the Western visitor of Star Trek's Mr Spock (a perfect example being the automated toilets that wash and dry your backside for you). Yet in some ways Japan is not Vulcan at all. It is simply the future of planet Earth. Ahead of the curve in so many ways, Japan may also be showing us where 21st century Western politics is heading: forward to the new one-party state.
The phrase "one-party state" is usually associated with undemocratic regimes. Fascists and Communists alike were always attracted to the forms of popular rule - speeches, rallies, campaigns and even votes - while dispensing with the essential ingredient of choice. Yet one-party states can also arise in free societies.
The Japanese case is, in fact, far from unique. The Social Democratic Party governed Sweden without interruption from 1932 until 1976. The Christian Democratic Party occupied a position of similar dominance in Italy from 1945 until 1980. The Labour Party ran Israel from independence until 1977.
It has happened in the English-speaking world too. Apart from Peel's government in the mid-1840s and a handful of short-lived minority ministries on either side of it, the Whigs were in office from 1830 until 1874. The Tories were in power (albeit sometimes in coalitions) from the First World War until the end of the Second, with only the briefest of Labour interludes in 1924 and 1931.
In the United States, the Democrats had a virtual stranglehold on Congress from the 1930s until the 1960s. My colleague at Stanford's Hoover Institution, Marty Anderson, points out that since 1968, the Republicans have been quietly building up a position in all the key institutions of US government that could prove equally enduring.
To be sure, in every case apart from Japan, all these near-monopolies on power have expired after around 40 years - slightly less than a generation. But if a week is a long time in politics, a generation is an eternity. Just ask any of today's Tory wannabes how they fancy shadowing their Labour counterparts for, say, another 32 years.
Is it conceivable that this is not the beginning of the end of Labour rule, but only the end of the beginning? Is Britain turning Japanese? I can think of four good reasons why it might be.
First, our old anxieties about the Left's reliability with regard to defence have ceased to matter since the end of the Cold War. Second, our increasingly "liberal" social behaviour (more children out of wedlock, less attendance at church) has eroded the credibility of conservatism as an ideology. Third, our transformation into one of the world's most urban societies has marginalised the Tory party's traditional rural base.
The fourth and most important point, however, is economic. Tory optimists have been telling themselves since 1997 that sooner or later Labour must blunder, just as the Tories did over the Exchange Rate Mechanism in 1992. They fondly remember how often economic crises have pulled the rug out from underneath Labour prime ministers. Yet they overlook three things. First, economic volatility has declined markedly since the 1970s. In all the G7 countries, annual growth rates vary much less than they used to. So do inflation rates. Recessions are happening less often and when they do they are not too steep and not too protracted.
Second, the huge increase in international capital flows mean that it is far easier than it used to be for advanced economies to finance both budget and current account deficits. This year the United Kingdom will run a current account deficit that 30 years ago would have sent the pound over a cliff, closely followed by the party in power. Today no one cares.
The third point is simply that we now have lower expectations of economic policy-makers than we did in the 1970s. If growth slows, we are more likely to blame Asian competition than Gordon Brown. If inflation or interest rates jump upwards, we throw our brickbats at Threadneedle Street, not Downing Street.
For all these reasons, I find the idea of another few decades of Labour rule distinctly more plausible than a Tory election victory under yet another brave new leader. Apart from anything else, Western societies are following Japan in getting steadily older. Already, close to one in six of us is 65 or older; 30 years from now it will be one in four. "Time for change" is a slogan that excites young people. It has less appeal to a senescent society.
So good luck to whichever snail finally wins the race for the Tory leadership. I only hope you are ready for a lifetime of slugging it out in opposition.
  • Niall Ferguson is Professor of History at Harvard University and a Senior Research Fellow of Jesus College, Oxford www.niallferguson.org
© Niall Ferguson, 2005

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