It’s the Tax Code, Stupid: Niall Ferguson Solves Our Economic Mess

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.”

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Comments (6)
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  • Robert says:

    Hav­ing kids in col­lege, it’s refresh­ing to hear a pro­fes­sor not spout­ing the Key­ne­sian / Krug­man dog­ma. It has been plain to see that it does not work.

  • Constantine says:

    What a tool. Tax sim­pli­fi­ca­tion only helps the super wealthy, who are already mak­ing mas­sive prof­its but not cre­at­ing jobs.

    The sim­ple fact is that large cor­po­ra­tions con­trol the vast amount of wealth and have found ways to squeeze the most out of the fewest amount of work­ers, and will con­tin­ue to do so as long as they can get away with it. It has absolute­ly noth­ing to do with tax­es.

  • TJ68LA says:

    What’s stu­pid is to talk about “the gov­ern­ment print­ing mon­ey”. If our demo­c­ra­t­ic gov­ern­ment real­ly con­trolled the cur­ren­cy and cre­at­ed it as need­ed to expand the econ­o­my, the gov­ern­ment would­n’t be drown­ing in debt.

    This pompous tool is going right along with the main­stream media and econ­o­mists by hid­ing the real way mon­ey is cre­at­ed: pri­vate banks lend­ing it into exis­tence via Frac­tion­al Reserve Bank­ing. That mon­e­tary base that was tripled? All cre­at­ed as debt, it all needs to be paid back +inter­est with noth­ing to pro­vide for real eco­nom­ic growth and full employ­ment.

    I wish one of these “experts” would tell me how when you have a mon­e­tary sys­tem in which every dol­lar in cir­cu­la­tion was cre­at­ed as debt, that there is any oth­er out­come for an expand­ing econ­o­my but for con­sumers, busi­ness­es and gov­ern­ments to be crushed by the bankers’ dic­ta­tor­ship of debt.

  • Nick says:

    End the dou­ble tax­a­tion of sav­ings. So he thinks that tax­ing cap­i­tal gains and div­i­dends at half the rate of labor isn’t enough. Wants it to go to zero. How the hell is that NOT going to make the rich rich­er and leave the aver­age per­son with more of the tax bur­den?

  • Betsy C says:

    Niall Fer­gu­son maybe a pro­fes­sor but on the oth­er hand is a idiot. Gov­ern­ment bet­ter stop sell­ing any land to for­eign­ers pure crazi­ness!!

  • Phil Smith says:

    Niall Fer­gu­son needs to be in front of con­gress every­day!!!

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