This is not a regular crisis: Niall Ferguson wkf2011 l 2011.10.06

“Crisis is not really the right word for what increasingly resembles a global depression comparable with those of 1873-8 and 1929-32,” said Niall Ferguson when depicting the global economy of late. The current state of affairs is much more severe than we believe, warned the world-renowned economist, historian, and professor at Harvard University upon diagnosing recent economic conditions from a historical perspective.

“The US seems almost certainly to be re-entering recession,” Ferguson cautioned in an interview with Maeil Business Newspaper a week before the 12th World Knowledge Forum(WKF), to which Ferguson was a guest speaker last year.

“It is a false dichotomy to say that the choice for governments is between austerity and stimulus,” he continued when asking about the best solutions to sail through the crisis. Ferguson discredited the hype on stimulus, saying it “is a relatively weak policy lever, despite the hopes of Keynesian economists, because the multiplier is negligible.” Instead, he prescribed new policy measures aimed at bettering business incentives for hiring and investment.

“That means simplifying tax systems and regulation -- and above all reducing the uncertainties that currently surround both future taxation and future regulation,” Ferguson stressed. Taking Ferguson’s advice, Korea’s recent government-politician wrangle over corporate tax reductions adds to uncertainties in the tax system and has a negative impact on corporate investment and hiring plans.

Despite a weak US economy, however, Ferguson predicted a strong dollar. “The worse things get in Europe, not to mention in some emerging markets, the more of a safe haven the dollar appears,” he was quoted as saying. “Under these circumstances, the decline of the dollar is going to take much longer than most economists used to believe.”

In regards to Europe, Ferguson advised the regional block to make further headways in fiscal union. “But it will take a great deal of upheaval to persuade the Germans to write the peripheral economies a blank check,” he hinted at the difficulties ahead. “The solution is to administer a 60% haircut to holders of Greek banks and recapitalize or wind up the banks rendered insolvent by this move.”

[2011.10.04 Written by Bong-kwon Park, Sung-hoon Song - Samji Chung / edited by Soyoung Chung]

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