The worst case against the Obama administration

August 20, 2012

Well, this is unusual.

On Sunday, Paul Krugman noticed Niall Ferguson writing something apparently false about the Affordable Care Act. Today, Ferguson responded to Krugman's critique by saying, in effect, that he wasn't wrong so much as he was very carefully trying to mislead his readers.

The sentence in question is straightforward enough. Ferguson wrote:

The president pledged that health-care reform would not add a cent to the deficit. But the CBO and the Joint Committee on Taxation now estimate that the insurance-coverage provisions of the ACA will have a net cost of close to $1.2 trillion over the 2012–22 period.

The intended meaning is pretty clear. Ferguson is saying Obama "pledged" that the Affordable Care Act would reduce the deficit, "but" the Congressional Budget Office and Joint Tax Committee now say otherwise.


Charles Dharapak/AP

The problem, as Krugman pointed out, is that the CBO and the JCT do not now say otherwise. Ferguson is simply wrong. But that's understandable. The CBO did release a confusing report back in March 2012 in which they updated their estimates for the insurance coverage provisions of the law (which is to say, the part of the kaw that spends money) without including estimates for the revenue provisions, or the Medicare provisions, which are the parts that save money. It was easy to get confused. But if you actually read the report, it said that the Affordable Care Act was going to cut the deficit by more than the CBO initially thought, not by less.

But Ferguson says he wasn't confused. Rather, he phrased his original comments very carefully in order to deceive his readers. You see, Ferguson specified that he was only talking about the "insurance-coverage provisions," and so, if you happen to be an employee of the Congressional Budget Office and you're aware of the difference between these reports, you would've understood that when Ferguson wrote —

The president pledged that health-care reform would not add a cent to the deficit. But the CBO and the Joint Committee on Taxation now estimate that the insurance-coverage provisions of the ACA will have a net cost of close to $1.2 trillion over the 2012–22 period.

— that the first sentence and the second sentence had nothing to do with each other. Of course, most people are not employees of the CBO, and so they just got tricked. In the pages of Newsweek. Bummer for them.

That's not the only time that Ferguson's argument veers factually astray. He says that only "half of us [are] paying the taxes." That's not true: Only half of us are paying federal income taxes. Most all of us are paying payroll taxes, and state and local taxes.

He says that "The Patient Protection and Affordable Care Act (ACA) of 2010 did nothing to address the core defects of the system: the long-run explosion of Medicare costs as the baby boomers retire, the 'fee for service' model that drives health-care inflation." If you don't think the ACA did anything to address "fee for service" medicine, you simply don't know anything about it.

He says, "The total number of private-sector jobs is still 4.3 million below the January 2008 peak." You might remember that Obama didn't become president until January 2009. This blames him for a year of Bush's losses.

I could go on and on like this, but Matt O'Brien has already done the spadework. I actually can't recall running into a piece in which the argument is so carefully written as to mislead the reader without, in most cases, being entirely untrue.

But while the fact that Ferguson is trying to trick his readers about the facts of his case might be a reason to be skeptical of the rest of his piece, it's not the main reason. After all, Ferguson's careful misdirection is arguably evidence of a quick and agile mind. He might be cheating to strengthen his argument. But that doesn't mean his argument is wrong.

Rather, the main reason to mistrust Ferguson is that, for years now, his argument has been wrong.

Almost since the crisis began, Ferguson has pushed a very specific theory with a very specific prediction: The bond markets, he has said, are going to revolt against American debt. And if that doesn't happen, inflation is going to run amok.

As Joe Weisenthal details, back in September 2009, Ferguson was warning that "long-term rates have risen by 167 basis points in the space of five months," which "settled a rather public argument" Ferguson had been conducting with Paul Krugman, in which Ferguson argued the markets were turning on our debt and Krugman argued that they were not. So who was right? Well, the interest rate on 10-year Treasuries was 3.73 percent when Ferguson wrote that column. Today, they're 1.81 percent. Point, Krugman.

Having been rebuffed by the bond market, Ferguson then predicted that we were entering a period that would come to be known as "the great inflation of the 2010s". We were not. On Sunday, Bloomberg News published an article that began with the sentence, "So much for the inflation warnings."

These predictions — and others, like when Ferguson warned that "the Chinese clearly feel they have enough U.S. government bonds" — were the testable hypotheses generated by Ferguson's worldview. That worldview, in essence, was that the United States was under imminent threat from its debt, and that the result would either be a crisis as the U.S. proved unable to pay its creditors or runaway inflation as the Fed printed money in excess of what the economy could handle.

These predictions were wrong. But Ferguson hasn't updated the theory to account for their failure. Instead, he has simply applied that same theory to argue that Paul Ryan, who he first met at "a dinner in Washington where the U.S. fiscal crisis was going to be the topic of discussion," should be vice president, because his deficit-reduction plan could "end four years of economic underperformance [and] stop the terrifying accumulation of debt."

If Ferguson's theory had passed its previous tests and we had evidence that the debt is what's holding back our economy, perhaps that would be a reasonable prediction. But Ferguson's theory failed its previous tests, and there's no evidence that debt is what's holding back our economy right now. Which is one more thing Ferguson never tells you.

And this is really a rather important point about the current crisis. There is a strain of thinking that argued, from the beginning, that Obama's policies would fail because the required borrowing would send interest rates soaring. Ferguson was a member of this club, but so was the Wall Street Journal editorial board, which warned, back in May 2009, that the bond vigilantes "appear to be returning with a vengeance now that Congress and the Federal Reserve have flooded the world with dollars to beat the recession."

It is no surprise that most of the folks who bought into this theory were early and enthusiastic backers of Paul Ryan. After all, he bought into this theory, too, and his initial budgets included deep, quick cuts. More so than any other politician, he translated this theory into legislation. But the theory's primary predictions proved wrong. That has not, however, had any reputational impact on the people who believed those predictions, and their champion is now on the GOP's presidential ticket, but neither he nor his backers appear to have rethought any element of their critique or of their program.

This doesn't say anything one way or another about the success of Obama's policies. You might think they failed, for instance, because they didn't do enough to address housing debt. That would lead you to a verdict on Obama that's no less harsh than Ferguson's, but that actually has some empirical evidence behind it. Or you might think they failed because the stimulus was too small, and because Obama renominated Ben Bernanke to lead the Federal Reserve. Or you might think they did about as well as could be expected, and that the key measure isn't that things aren't as good as we wish they were, but that they could have been much, much worse.

Whatever you believe about Obama's policies, the Ferguson/WSJ/Ryan theory has clearly failed in its main predictions, and it's worrying to see that this hasn't led to a more serious effort to rethink its premises. After all, Romney and Ryan might well win this election, and it would be nice if the people they were listening to were pushing them to fix what's actually gone wrong rather than what they wish had gone wrong.

Related: The best case against the Obama administration's economic policies. 

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Dylan Matthews | August 20, 2012