Monday, May 17, 2010

Niall Ferguson on the end of Western supremacy

The Harvard historian Niall Ferguson, in a presentation at a conference in Christchurch, New Zealand, has made a number of points which support and give added substance to the line I have been taking in recent posts.

  • We might, he claimed, be witnessing an extraordinary event: the end of Western supremacy.

  • The current plight of the US is evident in the flow of interest payments. In the next 4 or 5 years the US will be spending more on debt servicing than defense. It is predicted that by 2040 interest payments will amount to 20% of GDP.

  • The only time a government has reduced large scale debt by slashing expenditure, tax rates and other prudent fiscal means was in Britain in the aftermath of the Napoleonic wars. The hard decisions were facilitated by the fact that Britain was only a partial democracy at the time, and much of the heavy lifting was courtesy of the Industrial Revolution.

  • The most recent historical precedent for such high levels of debt as we now face was the US and European debt after World War 2. It took three decades of growth - and inflation - to fall.

  • Inflation is coming. Bonds are as safe a haven as Pearl Harbor in World War 2.

  • In response to a question from the audience, Prof. Ferguson said that the resurgence of Keynesian policies was "sowing the seeds of the next crisis." He predicted an eventual return to favor of the theories of the Chicago School.