Hoisted from the Archives Monday Smackdown: Niall Ferguson: Jumping the Gun on the Great Inflation of the 2010s
And in my tickler file is a note to remember this, from four years ago. Never mind that Niall Ferguson was totally wrong wrong wrong WRONG imbecilic in his claim that "true" consumer price inflation in 2011 was 10%/year. How has his prediction that "the great inflation of the 2010s" was underway (or about to get underway) fared?
May 1, 2011:
...as the line that launched the great inflation of the 2010s.... William Dudley... former chief economist at Goldman Sachs, put it this way: ‘Today you can buy an iPad 2 that costs the same as an iPad 1 that is twice as powerful. You have to look at the prices of all things.’ Quick as a flash came a voice from the audience: ‘I can’t eat an iPad.’ Dudley’s boss, Ben Bernanke, was more tactful.... But... if we’ve avoided rerunning the 1930s only to end up with a repeat of the 1970s, the public will judge him to have failed.
To this, the Fed has a stock response. It points to the all-urban consumer price index (CPI-U) and notes that it was up only 2.7 percent in March relative to the same month a year earlier.... To ordinary Americans, however, it’s... prices of food on the shelf and gasoline at the pump.... And with average gas prices hitting $3.88 a gallon last week, filling up is now twice as painful as when President Obama took office.... The spike in gas prices is the result of Fed policy, which has increased the monetary base threefold in as many years....
The CPI is losing credibility... as economist John Williams tirelessly points out [because] it’s a bogus index.... If the old methods were still used, the CPI would actually be 10 percent. Yes, folks, double-digit inflation is back. Pretty soon you’ll be able to figure out the real inflation rate just by moving the decimal point in the core CPI one place to the right....
Fact: the dollar has depreciated relative to other currencies by 17 percent since 2009. That European vacation is going to cost nearly a fifth more than you anticipated when you booked the flights a year ago.... Maybe inflation expectations started shifting when the guy from Goldman—a Marie Antoinette for our times—seemed to say: let them eat iPads!
Has Niall Ferguson learned anything since 2011. Has he marked his beliefs to market in any way? Does he show any signs of needing to inform his readers of his awful forecasting track record? Or of having any moral foundations under what he writes other than his post-modern relativistic amorality?
Not that I can tell.
Last October he was still claiming that "there is no smooth exit" from quantitative easing. (There is: sell bonds, and if interest rates go up too much as you sell bonds, raise reserve requirements.) He was still claiming that, rather than being completely wrong and simply not understanding the world he lived in back in 2010, he has merely "jumped the gun" with his predictions of an outbreak of inflation:
October 26, 2014:
...show there is no smooth exit from QE3.... Those of us who worried about inflation back in 2010 clearly jumped the gun.... [But] current policy could lead to inflation... if monetary policy ‘accedes to persistent movements in money growth by responding too weakly.’ Why might that happen? Because... current monetary policy has fiscal and distributional consequences that could make it addictive from the point of view of finance ministries and investors. Even if those temptations are resisted and inflation remains dormant, there remains the bigger problem of financial stability...
Smart young whippersnapper Noah Smith brought the smackdown last October:
...and invaded the solar system tomorrow, there are people who would immediately start writing articles blaming the incursion on the Federal Reserve's program of quantitative easing. Niall Ferguson... might be one of those people... blam[ed] QE for the stock market volatility of Oct. 15. Ferguson writes:
I suspect that the return of volatility has relatively little to do with poor growth data or political turbulence. Instead, it is mainly about monetary policy…. QE offers a ‘tradeoff between more stimulus today at the expense of a more challenging and disruptive policy exit in the future,’ as the authors of a recent paper, put it. ‘Stimulus now is not a free lunch, and it comes with a potential for macroeconomic disruptions when the policy is lifted.’… Like the ‘taper tantrum’ of summer 2013, this year’s October volatility has shown that there is indeed no smooth way out.
The paper Ferguson cites... presents an interesting conjecture, and shows some evidence that monetary policy changes can disturb the financial system.... But Ferguson takes this evidence and draws two conclusions that seem like a stretch.... His first conclusion is that this is a big worry... a reason to avoid QE.... The taper tantrum didn't coincide with a lasting rise in the VIX.... Nor did the real economy seem particularly hobbled by the taper tantrum....
Ferguson’s other questionable conclusion is that the tapering of the Fed’s asset purchases was responsible for the events of Oct. 15. But... there was no major Fed announcement.... Ferguson sees Oct. 15 either as a delayed reaction to earlier indications of tightening, or a sign of a sudden shift in the market’s expectations regarding future tightening. But he presents no evidence for either of these.... Ferguson was one of the people who predicted back in 2010 that QE would cause high inflation. But unlike more circumspect inflation-warners such as hedge-fund manager Cliff Asness, Ferguson never admitted that he had been wrong about his inflation prediction. Instead, he cited the bogus website ShadowStats.com to claim that inflation in 2010 was actually in the double digits.... His reasoning starts with a conclusion -- that QE is bad -- and grabs hold of any available justification to support this conclusion...