Don't blame the lamestream media for this one. When it comes to our protracted economic stagnation, there is ultimately one place to point the finger: It's those pesky mainstream economists.
That's the conclusion of Niall Ferguson, history professor at Harvard and author of The Ascent of Money: A Financial History of the World. Ferguson makes his point in the first installment of a new animated series of "Op-Vids" from The Daily Beast. "What is an Op-Vid," writes The Daily Beast on Vimeo? "Opinion, without the pundits yelling. Handmade animation, without the caricatures. Essays without the text. Complex topics, without the boring." Without the boring what? Complexity?
Ferguson makes some curious claims. He admits that stimulus spending has worked up to a point: It helped avoid another Great Depression. But it didn’t create a sustained recovery. Why? Because there wasn’t enough of it? No. Because it leaks. In a global economy, Ferguson argues, you would need chaos theory to understand where the stimulus actually ends up. Even more curiously, Ferguson argues that rising income inequality in America “limits the effectiveness of Keynesian policies, because they need average households to boost their spending.” (So you can forget about hiring teachers, firefighters or construction workers; that wouldn’t help “average” households spend more.)
Having thus defeated Keynesianism, Ferguson moves on to offer a solution: Simplify the tax code. Never mind the shortfall in aggregate demand for goods and services. Never mind that corporations--sitting on $2 trillion in uninvested cash reserves--have maintained near-record profits despite the shortfall by cutting production and laying off workers. Simplify the tax code, says Ferguson, and American companies will hire more American workers. Problem solved.
As a footnote, it's worth pointing out that in early 2009 Ferguson was involved in a very public debate with Princeton economist Paul Krugman over the effectiveness of fiscal expansion. Ferguson argued that government borrowing would damage the economy by driving up interest rates. Nearly three years later, interest rates have remained very low. Looking back on the debate, Krugman said of Ferguson, "He doesn't understand Macroeconomics 101."