[I was in Washington last week for the passage of the stimulus package]. “I felt a strange sense of familiarity in the air. Usually Washington feels totally alien to me. It was just like being in Westminster, where power was in the legislature. And the key issue was whether the upper house and the lower house could make a deal. The president wasn't even in town. If you give Congress that kind of power – basically Congress wrote the deal – then you're half way to a British or Canadian system in which the legislature makes the decisions. And the legislature is much more likely to make protectionist decisions. After all, these are pretty much the same people who put all those anti-China bills into the works in the last session of Congress … So I'm a little nervous about how this will play out in the next one or two years … After all, this is the land of permanent election campaigning. Congressmen are saying to themselves, ‘ how am I going to campaign? I don't want to lose my job. What's my line going to be?' It's going to be very tempting to say ‘American jobs for American workers.' It's a pretty good slogan. It worked well in Britain.”
“That's out there. There's a lot of populist disgruntlement, and it's going to get bigger.”
Heather Scoffield: We've discussed many possible nasty outcomes to this crisis. Is there a way out?
Niall Ferguson: “We've discussed two reasons to non-suicidal. I'm trying to stay cheerful. One is that Chimerica is holding up. The Chinese don't seem to want to get divorced from their American spouse.”
“The other is that this isn't leading to World War Three or Four, depending on how many world wars you think there have been. There will be instability, but I don't see that instability producing something as huge as the 20th century conflicts. But it's hard to see a simple and quick macroeconomic happy ending. That I really struggle to visualize.
But the good news is only as good as this: the United States, which is Canada's biggest trading partner, is not going to suffer as badly as many other economies around the world. And that means that from Canada's point of view, it's not standing right on top of the biggest fault lines in the global system. The biggest fault lines in the global system are in Asia. They may also be in Eastern Europe. That's where things are going to be really unpredictable.”
“The two great zones of conflict in the 20th century were central and eastern Europe, and a critical part of northeast Asia – Manchuria, Korea. It makes me a little nervous that those are also places that are going to take a very heavy share of the pain. But we're looking at a Great Recession, not a Great Depression. We may be looking at a Lost Decade.
There was a time when if you said the United States was going to suffer a lost decade like Japan did in the 1990s, everybody would have said you were a mad pessimist. That begins to look like quite a good scenario. And I think it's a realistic scenario.
One of the facts is if you subtract mortgage equity withdrawal from the Bush years, the real underlying rate of growth of the U.S. economy was 1 per cent. So much of the consumption has been fuelled by mortgage equity withdrawal. So that seems like a reasonable growth rate for 10 years. … We just don't have an improvement of standard of living of the sort we're grown used to. And indeed if you have a more equitable redistribution through the tax system, which Obama is committed to, it might actually be no discernible downside for middle America and lower-class Americans. So many of the benefits of the boom went to the elites. If you have a lost decade plus redistribution, it may not be that dramatic a change for many, many people. People just have to get over the fact that their wealth wasn't worth what they thought it was in 2006. Whether it's their stock market portfolio or their housing. If we simply go back to where we were, in 2005, that's surely not the worst thing that could happen to us.”
