This page has been archived and commenting is disabled.
Niall Ferguson – The Great Degeneration
While Harvard historian Niall Ferguson's off-the-cuff remarks during the Q&A were in his words "as stupid as they were insensitive", the core message of his presentation was clear: the party of the last 20 years is now over and the longer we fail to address the real issues the bigger the hangover will be in the future. The central question Ferguson asks is whether our institutions, corporations and governments, are degenerating. As Lance Roberts of Street Talk Live notes Ferguson believes that without addressing the structural problems that plague the economy from production to employment – stimulus will fail. The reality is that the 'punch bowl' won't fix employment growth, economic growth or the rule of law.
Via Lance Roberts of Street Talk Live blog,
I am at the 10th annual Strategic Investment Conference in California which is put on annually by Altegris Investments and John Mauldin. Niall Ferguson is the Laurence A. Tisch Professor of History at Harvard University, a Senior Fellow of the Hoover Institution at Stanford University and a Senior Research Fellow at Jesus College at Oxford. He is also the author of 14 books including the must read “The Ascent Of Money: A Financial History Of The World.” The following are the notes from his presentation.
Capitalism and the rule of law the central theme of Niall’s forthcoming book “The Great Degeneration.”
What is it that ails us? Has there been enough stimulus or is the current economic malaise a symptom of something else?
Adam Smith – brought forth the idea of the “stationary state” where economies transition from growth to stability. However, it is the rule of law that allows countries to grow.
Historically, what makes nations strong is the guarantee that justice will be done. This is what separated Europe from China during the 1800’s. Today, the west is now approaching the “stationary state.”
So, the central question of the “great degeneration” is whether our institutions, corporations and governments, are degenerating. There are four symptoms of degeneration:
- Breakdown of the contract between generations.
- Excess regulation
- Rule of lawyers
- Decline of civil society
Generational Contract
Each generation has a responsibility to the next. Currently, we have violated the contract between our generation and the next. In order to restore the generational balance we could currently have to do one of two things:
- Immediately cut, and make permanent, all government outlays by 30%
- Immediately, and make permanent, increase in all federal taxes by 60%
The problem is that if these measures are not implemented immediately the percentages required to restore the generational balance rise each and every year.
While this is what is required to achieve generational balances – the individuals responsible for such decisions, however, are pursuing the opposite path – spend more and tax less.
Regulatory Excess
One of the major constraints to economic growth and the second pillar of the degeneration of our institutions is excessive regulation.
“Unlike my arch enemy Paul Krugman”….who believes that the financial crisis was not caused by deregulation – the reality that there was plenty of regulation over the financial institutions. (Enforcement of those regulations is another issue entirely) that ultimately were at the epicenter of the crisis.
The financial crisis was really a result of an increasingly complex financial system. However, in response to the financial crisis, the immediate course of action was to complicate the system further by adding layers of new regulation (Dodd-Frank, Consumer Protection, Etc.)
However, the problem is that by making a complex system more complex – the outcome is not stability but rather instability. Instability leads to inevitably bad outcomes.
The Rule Of Law
Dodd-Frank demonstrates the primary problem with the rule of law. Statutes that cover thousands of pages are ineffective, cumbersome and impedes growth. The complexity of recent laws such as Dodd-Frank, Affordable Care and others, along with our current tax code, would have our founding fathers and those of the Gilded Age reeling from disbelief.
However, here is the real problem. The world is no longer under a rule of law - but rather a rule of lawyers. The U.S. has the highest cost of law of any other country in the world. The rule of law is supposed to be speedy, efficient and effective. However, the rule of law has been corrupted by the legal system for self-serving needs.
There are three key indicators of the health of the “rule of law.”
- Legal System and Property Rights
- Regulation
- Summary of Economic Freedom
Unfortunately, all of these measures have declined dramatically since the turn of this century. The outcome of this decline over the last 13 years is that it is more difficult than ever to do business in the U.S. Compliance and regulatory costs are on the rise which reduces profitability.
Note: For evidence of this thought process simply review the top three concerns of small businesses that is inhibiting them from hiring and expanding – taxes, poor sales and government regulation.
The decline in the rule of law has led to daunting decline in the view of American Institutions. America was once the envy of the entire world - that is no longer the case. Of the 22 measures of institutional quality, covering everything from property rights to bribery, the U.S. is not at the top of the list in ANY category. More disturbing is that today – the U.S. is soundly beaten by Hong Kong on every measure.
The Decline of Civil Society
Lastly, the decline of civil society is most disturbing. One way to look at this is by looking at the active membership is voluntary associations which has plummeted in recent years. Americans are no longer actively involved in civil society and now depend on the government to “solve problems.”
The problem with this, of course, is that the decline of the civil society also leads to a decline in economic output. Dependency on government to solve social issues has very little economic benefit. While the rest of the world is getting better in term of building better institutions – the U.S. is getting progressively worse.
Bright Spots
However, the good news is, as compared to others, is that the U.S. is ageing less rapidly. China, as an example, will be harshly impacted by an aging population in the next two decades.
For the U.S., despite have a completely flawed and non-existent energy policy, the country is undergoing and energy revolution that is just now becoming apparent. Natural gas is the new gold rush.
While a large portion of the U.S. will continue to languish due to regulatory and fiscal policy – there are four growth corridors:
- Great Plains
- Third Coast Region
- Intermountain Region
- Gulf Coast
However, the boom in these areas is not due to just the location of natural gas but rather pro-business regulatory and tax policies. If the current Administration was paying attention they would take the time to emulate the state governments that are growing versus declining. (The problem is that these are all red states)
There is no question that institutions matter. It explains why the developed economies are struggling versus emerging markets. The problem is that, despite mainstream media commentary and Keynesian economists, the decline of institutions cannot be saved by monetary policy.
In other words…Washington is killing economic prosperity.
“The U.S. has the right to be stupid…and has been exercising that right for years.”
We have allowed our government to whittle away at the rule of law and replace a vibrant economic system with a European style welfare state. If you want to be stupid…keep doing what you are doing.
Q.A.
Worried about the U.S. – What of Japan?
The main lesson to be learned this year is the limit of monetary policy. The story last year was that the Central Banks are the only game in town. The story this year, is that despite stimulus spending which is simply an anti-volatility policy, the economy will not achieve “escape velocity.”
I predict that the limits of monetary policy will be witnessed by the end of this year. We have a structural economic policy problem – not a monetary one.
Question By Paul McCulley
“The long run is a misleading guide to current affairs…in the long run we are all dead.”
Are we in a liquidity trap, are we at a zero bound of interest rates and stuck at 8% unemployment?
Keynes was a homosexual and had no intention of having children. We are NOT dead in the long run…our children are our progeny. It is the economic ideals of Keynes that have gotten us into the problems of today. Short term fixes, with a neglect of the long run, leads to the continuous cycles of booms and busts. Economies that pursue such short term solutions have always suffered not only decline, but destruction, in the long run.
Have Corporations Usurped Government?
“It is corruption when corporations can buy regulation. It is corruption when laws are sponsored by Wall Street.”
It is a sad state when the current level of corruption of the U.S. government is what was once only associated with third world countries ruled by dictators. The problem is that crony capitalism is a profound predicament in the U.S. and we now suffer from a third world disease.
What Is The Solution To Restore Growth?
The fiscal problems are a function of structural problems. Without addressing the structural problems that plague the economy from production to employment – stimulus will fail. The reality is that the “punch bowl” won’t fix employment growth, economic growth or the rule of law. The party of the last 20 years is now over and the longer we fail to address the real issues the bigger the hangover will be in the future.
»
- 41302 reads
- Printer-friendly version
- Send to friend
- advertisements -
Which always seem to come at the expense and sacrifice of everyone *else* to please something that thinks it's $DEITY.
Is this the same Ferguson that wrote a book stipulating that British should have stay out of WW I but for the Labour Party. The Labour did not want an election (election are unpredictable). Besides, the war would be done by Christmas.
yep. "The Pity of War"
I don't know if Thomas Jefferson said this:
"When governments fear the people, there is liberty," reads the quotation. "When the people fear the government, there is tyranny. The strongest reason for the people to retain the right to keep and bear arms is, as a last resort, to protect themselves against tyranny in government."
http://edition.cnn.com/2013/01/11/opinion/jefferson-fake-gun-quotation
(CNN is telling he didn't, but you know, you can't trust CNN)
The BIG BIG problem here is global and the US gvt has a lot to do with it.
Through time and since Kennedy's assassination, US govts have accomplished so many atrocities... And on 9/11 they've cross all the lines. Nobody trusts the US gvt, even many US citizens. A government capable of doing what they did on 9/11 and after that, a System that works that way, looses ALL CREDIBILITY. The World DOESN'T trust the US gvt. Some may FEAR it, but NOBODY BELIEVES A WORD THEY SAY.
So things are shifting. A new paradigm. And I don't believe it's the NWO. The NWO may be some ulterior, last resource to try to handle things, but other actors are going elsewhere. There's nothing to be wonder about the BRICS building relations WITHOUT the US. Many are building relations WITHOUT the US. Even US partners, european ones.
The only way to fix this for the US would be to acknowledge what everybody knows, take responsability, prosecute those who were responsible, help to reconstruct the countries the US military have destroyed, start the future on the basis of truth and justice and you will see how economics improve. Fact is, with the lost of trust in US gvts comes also the lost of trust in everybody standing behind their lies. The whole "First World" is falling apart.
What are US citizens going to teach their childrens about 9/11? About Sandy Hook, Boston? About Afghanistan, Irak, Lybia, etc.? Lies? It would be dramaticaly wrong for them, cognitive dissonance; a nightmare. The truth? Yes, but if the governments keep in denial, these kids would never trust their governments anymore and there's no need to say how things go that way. In fact, US, Europe allies have been setting up security forces to go AGAINST their citizens (in the UE, Eurogendfor).
What it has to do with Economics? Everything, as you know it's all connected.
The entire "First World" System and sorroundings are corrupted to the core. Acknowledge that and we can all work together.
Otherwise things are gonna get worse and worse and at some point either the US and NATO allies bomb the rest of the World or the rest of the World is gonna go ahead, sort of without the US and NATO allies.
US/NATO would never be able to dominate the whole World, fighting against their own citizens and all the rest.
That's what I believe, summarized in few words with my poor English. As some ZH's readers know, I'm an optimist.
You underestimate how well-armed the US and NATO First World nations are along with their ability to make a lot of pro-BRIC places have a Very Bad Day.
That, and you seem to have some sort of grudge against the First World nations that is expressed in your wish to see them fall.
Oh, not at all. I'm a "First World" citizen too. (I quote "First World" for obvious reasons).
And it's precisely because I don't underestimate how well-armed the US and NATO forces are that I think if there isn't a huge reset based upon truth and justice, we're all fucked.
By the way, why do you attack me? Are you comfortable with the present situation? What do you think about 9/11? Do you justify it, sort of Macchiavello's way?
Just curious: you mentioned that "...since Kennedy's assassination, US govts have accomplished so many atrocities". I'd suggest going back just a little further, to the assassination of Diem, head of the South Vietnamese government. Some revisionist historians claim Kennedy was blameless; others say he orchestrated it. I'm with the latter group. Heck, governments here and everywhere else have been committing atrocities since time immemorial. It's the human thing to do, you know.
About Diem, you're right.
About "the human thing to do", I have hope.
JFK definiteley orchestrated Diem's assassination. CIA said Diem was moving to slowly and JFK was looking weak on commies. JFK and brother Bobby actually did more political assassinations than any other adminstration.
lotta good it did 'em
Two of my several disagreements with the author:
"Each generation has a responsibility to the next. Currently, we have violated the contract between our generation and the next."
When the next generation is filled with people who came here illegally and refused to integrate into the American culture, I lost interest in the future generation as a whole. I continue to care about those who adhere to the cultural standards I grew up with. This place worked much better when immigrants wanted to become Americans, not split off and form Mexifornia or Atzlan (although it would be sort of neat seeing how Feinstein, Pelosi, Boxer and all those other libs would fare).
Rather than the author's solutions to the financial problem of government debt, I propose both of these:
Are you native originary american or your ancesters went to that land as the most and didn't integrate into native culture either?
Technically, there is no such thing as "one generation and the next". Last time I looked, folks were getting born every minute of every day and dying that way too...?!?!
It's simply a myth that financial institutions were deregulated and allowed to do their thing in the 90s and 2000s. It isn't true.
Rather, they were "mal-regulated" by political actors with agendas -- cheap and ever-expanding credit, and superbanks that were supposedly better at competing globally -- the two main agendas. The financial sector, for its part, was all too happy to go along. As the middlemen of debt and financial markets, they stood to make a lot of money in transactional costs, while simultaneously "getting with the program" politically and currying favor with powerful politicians like Barney Frank and Chris Dodd. Plus the Fed would always be there with the Greenspan-Bernanke "put."
Don't let anyone tell you otherwise -- they're peddling horsesh*t. Just read Morgensen and Rosner's Reckless Endangerment to learn about the politically-driven and conscious transformation of Fannie and Freddie in the 90s into full-blown crony operations, mainly Democratic, but benefitting all members of Congress with kickbacks (skimmed profits) and stuffing all Congressional staff offices with Fannie and Freddie staffers and paying for phony "research" and "community organizers" concerning mortgage financing (pushing the "houses for all" mantra). Some well-known neo-Keynesian economists, and a few Republicans as well, also got in on this gravy train.
As in Europe, with its fantastic program of core banks lending to peripheral countries at artificially low rates, this was a political job and a result of conscious policy. No free market system of banking, with stable money and market-set interest rates, would ever have led to such a thing.
NOTE: Keynes was bisexual, not gay, as far as anyone can tell. He and his wife, Lydia Lopokova (a well-known Russian ballerina and refugee from the 1917 revolution), tried more than once to have children. It was an unfair cheap shot at Keynes on Ferguson's part.
But his larger point holds: there is a long run, even if we're not there for it. But even people who do have children can be myopic.
http://www.pbs.org/wgbh/pages/frontline/shows/wallstreet/weill/demise.html
Mr. Weill goes to Washington.
This smacks of 'Senior's Last Hour', but I'm guessing he'll never admit he was wrong unlike Senior.
Ouch! Comments are harsh on poor Ferguson.
Niall is actually not a bad guy at all. I like him. I've seen him engaged in ongoing debates with the statists and giving them a whole lot of shit. They have been savagely attacking him. They hate his guts.
He's an economic historian and knows what the fuck is going on. As an economic academic, not a lawyer, what he's saying comes as close as it gets to calling the politicians and bankers fucking crooks who need to be in jail.
I don't agree with his remedy (60%/ 30%), but that is no doubt the current sad, simple math.
Glad Niall pointed out that Keynes was a woman-hating Vaginaphobe. He was also an elitist, from an elitist family, and member of the Cambridge Apostles (think Skull and Bones) who believed the elites should rule. Keynes was also treasurer of the Cambridge Eugenics Society. Being a homosexual meant the dude was definitely into it up to his elbows.
Psssst--gwar5! Tonight's Bash Niall Night.
"Being a homosexual meant the dude was definitely into it up to his elbows"
Elbows is not the word. Now behave yourself.
My bad! I guess you have to be a real degenerate like me to get the pun. Keynes was an elitist fister... err, I mean firster.
fracking for gas, bright spot and legacy
in the same sentence, the man must be a wizard !
the Koch brothers should hire him or buy his university.
.
front man apologist, propagandist walking and talking.
please
None of this shot means jackshit to me.
You learn the rules of the game and how it is played, on the street. You are intelligent and quick enough and have the cajones to survive and thrive, or you do not.
Someone is always smarter, quicker, etc. but you can get your share.
End of story. The weak are eaten. The rest of this is just noise, which humans make a lot of. That's ok, scares up the herd I am tailing (downwind of course).
Paraphrasing Ferguson:
- Wall.St/Fed is a Scam
- Lawyers are Scammers
- Govt, owned by these scammers, is there to give the "Offical Imprimatur" to The Scam.
- Society is sick from and cannot survive The Scam
Gee... thanks for the heads-up Fergie - I'd never haff guessed.
Does someone have to be a Haaaa...vud Prof. to have these kinds of blinding insights ? tia
Why is anybody still listening to Kissinger's official biographer/apologist?
At least the mainstream media is covering this story -granted they are only covering the homosexual comment. He's not really criticizing gays, it's just that any mention publicly of homosexuality that does not profusely praise the lifetsyle is reported as homophobic and evidence of bigotry, mental illness, hate and evidence of being a member of some lower life form.
Boy we have come a long way in my lifetime. But maybe the lesson learned is that if you want coverage from the mainstream media of good economic ideas-you should suggest that homosexuality is something less than God's great gift to humanity. This will certainly get you on the evening news. And I am not a homophobe -love the sinner hate the sin - let he who has no sin cast the first stone.
The weakness in the democratic process ensures the victory of the Wall Street over the Real Economy for the foreseeable future. Things are definitely going to get much much worse before they get better for the real economy i.e. for more than 90% of the population.
http://www.marketoracle.co.uk/Article40231.html
Randall said it best...
http://www.youtube.com/watch?v=dGOVbXF7Iog
Civil society is an interesting concept. Forgotten to a certain degree, which is why it's interesting now.
Are you principally a consumer, or a citizen, a productive member of civil society?
Consumption is a function of modern economic theory. It's important, but is it a ground for identity?
It is difficult to think of something like civitas, or a community of responsible individuals, whose responsibility is framed by the rule of law, when people are tripping over themselves to buy sale items at Walmart ...
It is difficult now to encounter the rule of law, not based on state coercion and power, in collusion with legions of lawyers representing special interests, but based on and grounded in, individual responsibility -- which by nature extends to those around us, our community or civitas.
I had to stop reading this BS at the point where he says to raise all taxes by 60%. This guy is an idiot. I'll tell you what, you can raise em all you want, if no one has a job, and no one is willing to work under slave conditions, then you'll get no tax revenue what-so-ever.
oops. double post
Reinstate Glass-Steagall. FIle crimina charges against company executives that willfully break laws--incarcerate them. Today on Wal St, crime pays handsomely. Change that and we'll change our society.
Ferguson is completely detached from real world problems, a posh academic with three jobs and counting plus income from speaking engagements like this one. Ferguson gets from $50,000 to $75,000 per speaking engagement. So it is no surprise that Ferguson's economic theories have degenerated into being an apologist for the thieves and looters who have wrecked the world's economy in the past 20 years with junk derivatives, pacts with druglords and endless wars.
In the real world, the CDC reported that from 1999 to 2010, the suicide rate for American men in their 50s skyrocketed "by nearly 50%." Those suicides tear apart the social fabric of this country, yet you won't hear a word about people taking the suicide route from President Obama. After all, Obama has said that behind closed doors he decides who gets killed by U.S. drone attacks, so Obama glories in death. So if a bunch of middle aged American white men decide to bump themselves off, big deal. Obama would rather talk about basketball and Michelle's hairdo.
New York Times article on CDC report on suicide rates in America (2May2013) Edited
From 1999 to 2010, the suicide rate among Americans ages 35 to 64 rose by nearly 30 percent, to 17.6 deaths per 100,000 people, up from 13.7. The most pronounced increases were seen among men in their 50s, a group in which suicide rates jumped by nearly 50 percent, to about 30 per 100,000. For women, the largest increase was seen in those ages 60 to 64, among whom rates increased by nearly 60 percent, to 7.0 per 100,000. While reporting of suicides is not always consistent around the country, the current numbers are, if anything, too low.
“It’s vastly underreported,” said Julie Phillips, an associate professor of sociology at Rutgers University who has published research on rising suicide rates. “We know we’re not counting all suicides.”
Your criticism of Ferguson does not, in any way, stack up with what you wrote. And so what he gets $75K per speaking engagement. If people are prepared to pay that, what is it to you? And how does your discussion on suicide rates support your criticism of Ferguson who correctly argues that Keyensianism is dead and robbing forward wealth from the next generation (deficit spending) has and will continue to fail miserably? Not following a poorly constructed criticism that stands on pegged legs. -1
Maybe Ferguson over-reacted to Paul McCulley's question because Paul was holding his fluffy pet rabbit in the hall....A 60% increase on a 30% tax rate makes a 48% rate....15% rate would jump to 24%...maybe that is still cheaper than parts of Europe but surprises me that Ferguson would recommend...many are always screaming how right wing he is but he likes high taxes?...seems someone should simmer down...or get a rabbit.
Ferguson's a bum on the take. A slave to the moneyed interests, he'll say anything for a buck and what he's saying here is news? Jeez, I know nothing, absolutely nothing, about finance; but I do know that this entire structure is creaking and about to come down in a smoldering heap. I also confidently assume that almost all Zero Hedge readers know this fact, too. The great thinker, my ass.
ever try to 'charge' your battery by driving your VW Bug around town?
Just keep popping the clutch ...
she rebuilt the engine in the dining room and
then drove the thing up the library steps and then
did 360's on that lawn. that charged my battery
for going on 35 years even though she left me
for her girlfriend of prior and many years,
for what it's worth, lesson learned anyway.