We met with notable historian, Milbank Family Senior Fellow at the Hoover Institution from Stanford University and a senior fellow of the Center for European Studies at Harvard, Dr. Niall Ferguson to talk about the the historic and financial implications of the COVID-19 pandemic, and so much more. Enjoy!
"It's not that the Federal Reserve is discounting US treasury bills and dishing out freshly printed dollars, that's not how it works. Most of what's done in the name of quantitative easing or large-scale asset purchases is financed by creating excess bank reserves, a funny kind of money that you and I can't go and spend on Lattes at Starbucks."” – Dr. Niall Ferguson
Notable historian Dr. Niall C. Ferguson explores inflation both in the past in 1920s Germany and in the United States in the near future, with COVID-19 as a deficit intensifier with a delayed impact. He explores the thinking about pandemic lockdowns in light of the influenza wave of the late 1950s and what the USA could have done differently to limit spread. Milbank Family Senior Fellow at the Hoover Institution, Stanford University, and a senior fellow of the Center for European Studies, Harvard, Dr. Ferguson talks with Dr. Jed Macosko, academic director of AcademicInfluence.com and professor of physics at Wake Forest University.
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(Editor’s Note: The following transcript has been lightly edited to improve clarity.)
Jed Macosko: Hi, I’m Dr. Jed Macosko at Wake Forest University and Academicinfluence.com. And today we have another wonderful guest, Niall Ferguson, professor at Stanford University and coming to us from, actually, Montana today. So thank you, Professor Ferguson, for joining us today. And I like to ask all of our guests...
how did you get started in your particular field? How did you get interested in history?
Niall Ferguson: Well, Jed, as a school boy, I was drawn to literature, and probably envisaged at the age of 15 studying English literature. I read Tolstoy’s War and Peace one summer, and at the end of War and Peace, which is of course a work of historical fiction, there’s a tremendous essay Tolstoy writes, in which he offers his thoughts on the philosophy of history, and I found this extraordinarily engaging. And it was around that time that I began to think that perhaps I was a historian rather than a student of literature, so blame Tolstoy.
Jed: So what about that essay intrigued you? What is the philosophy of history, and are you studying that now?
Niall: I think I’ve been studying it in perhaps a rather amateurish sphere, I’ve only really written and published one essay in the philosophy of history, which was the introduction to a book called Virtual History. And in that introduction I offered the view, in opposition to Tolstoy, that history is a chaotic and contingent process that is not deterministic, and therefore not predictable. That we have free will perhaps more than we realize, and there is no great historical force that is propelling us forward against our will or unbeknownst to us.
"I wanted to understand the forces that govern the human world, which seemed to me to be harder in fact to identify, and therefore more interesting."” – Dr. Niall Ferguson
Tolstoy’s big question in War and Peace is, “What is the power that moves nations?” And that struck me as a great question to which there didn’t seem to be a ready off-the-shelf answer. And in Tolstoy’s telling, it’s only Napoleon who thinks that he’s driving the invasion of Russia.
In reality, Tolstoy argues, there are great forces at work of which Napoleon is unaware and these forces impact all the characters in the novel. So I guess at the age of 15 I just wanted to know more about those forces.
My mother is a physicist, so is my sister. My father was a physician, a doctor, and I’m the black sheep of the family. But they understood, I guess, the forces that govern the natural world and I wanted to understand the forces that govern the human world, which seemed to me to be harder in fact to identify, and therefore more interesting.
Jed: That is fascinating. So that was what really brought you into history, and once you started studying it you say that the philosophy of history is not what you really specialized in.
Can you tell us how you got into what you specialize in through college and grad school and then a professorship?
Niall: Well, I was fortunate to study at Oxford in the early-1980s, when there were still some extraordinary brilliant historians teaching. And I did what the Oxford curriculum requires you to do if you major in history, as they say in the United States.
I did some English Medieval history. I studied quite intensively the history of the Reformation, but I also did a good deal of work on modern European history, and in particular got interested in German history.
Back in those days, if you wanted to pursue some kind of scholarly career in history, there only really seemed to be three countries worth studying. You could study Russia if you wanted to be a kind of integral part of the Cold War. You could study Germany if you thought that Germany was always going to be the issue in Europe, or if you just wanted to have La Dolce Vita you studied Italy. And it felt as if my contemporaries chose between those three, nobody thought of studying the United States.
And I remember thinking that the big question that interested me was really a German question, or “The” German question, inspired by the great Karl Kraus’s play “The Last Days of Mankind”, which I happened to see at the Edinburgh Festival when I was an undergraduate. And that was one of those, again, literary turning points in my life. I came out of the theater thinking, “I need to understand that world.”
And at first I wanted to write a doctoral dissertation about Kraus and the satirical literature of late-19th century, early-20th century Vienna. I was talked out of that by the great late-lamented Norman Stone, who said that it would be very difficult to translate the jokes into English and that one should attempt something that had a more empirically viable foundation.
"...I was going to study the history of the German hyperinflation that culminated in 1923, because if you're going to do numbers you might as well make the numbers really, really, really long, which the numbers in the German hyperinflation generally were."” – Dr. Niall Ferguson
So I ended up going down the economic history road, and that was because, unlike my contemporaries who’d been educated in England, as a Scotsman I was really quite numerate and found math relatively easy. So I’d done a fair bit of economic history as an undergraduate. Norman’s advice was, “Do something that involves number crunching and statistics. It’ll make your doctoral dissertation somehow more compelling.” And so I decided, after much deliberation and having learnt German, which I did as a graduate student, that I was going to study the history of the German hyperinflation that culminated in 1923, because if you’re going to do numbers you might as well make the numbers really, really, really long, which the numbers in the German hyperinflation generally were. So I did my first real bit of historical research on financial and monetary history of Germany in the early-1920s.
Jed: Well, I’m sure that that was pretty esoteric, and did it lead to your getting a professorship, and then what did you do after that?
Niall: Well my father, as I mentioned, a doctor, was also a man of great West-of-Scotland Protestant good sense. And his advice, when I told him the dreadful news that I wanted to be an historian was at least to acquire some technical skills that would stand me in good stead if I failed as an historian, if my academic career didn’t go anywhere.
So the idea was partly to learn Economics as well as to learn German. And I think it was a good decision. It was the mid-80s. In fact, I finished the work on the dissertation in 1989, and at that very moment the German question sprang back into life. I’d only just got my first job as a junior fellow at Christ’s College Cambridge when the Berlin wall came down. I’d been in Berlin all summer but just missed the crucial night of November the 9th. But that meant that Germany was suddenly a live question again in a way that it really hadn’t been.
And so I was able not only to write about the financial consequences of Germany reunification, I remember writing a long essay on that subject for the New Republic, but also to persuade people that knowing about German inflation might actually not be so esoteric. And I think that that’s really why I went further down the road of financial history.
"...it's still a fundamental question every time a government runs an enormous budget deficit or a central bank prints a lot of money, as now, people ask them, "Is this going to cause inflation?""” – …
I’d acquired some skills that were suddenly applicable to some big problems. It’s worth adding that the German Hyperinflation of 1919-23 was one of the most disastrous monetary episodes in all of history, and it’s the one that’s in all the economics textbooks.
So knowing about that wasn’t entirely knowing something esoteric, it’s still a fundamental question every time a government runs an enormous budget deficit or a central bank prints a lot of money, as now, people ask them, “Is this going to cause inflation?” And I think having studied the hyperinflation I’m relatively well-qualified to attempt to answer that question.
Jed: Mm-hmm. Well, you gotta answer it now, so is there big inflation brewing? We just finished interviewing some criminologists that say that because we haven’t had inflation since the early 1990s, we have been in a lower crime wave, and there’s a direct correlation.
So are we due for more inflation? What’s going to happen now?
Niall: Well, the answer is not certain, that we saw in the period after World War I in the United States or in most European countries. There is gonna be some pretty serious inflation in some emerging markets, like Argentina, where the government has not only inflicted lockdowns on the economy but then run a large deficit which the central bank is financing by printing money. That is going to lead to high inflation, without a shadow of a doubt.
And there are a bunch of other emerging markets that are gonna be in a similar place. But the United States and the developed world generally have been in a relatively deflationary environment for a variety of reasons, including technology, but also the way in which central banks have operated since the 1980s. And so it’s not likely that we’re suddenly going to be catapulted back to 1920s, or for that matter, 1970-style inflation, especially as the kind of financing of government that’s going on now is not quite the same as we’re seeing an Argentina, in a couple of ways.
It’s not that the Federal Reserve is discounting US treasury bills and dishing out freshly printed dollars, that’s not how it works. Most of what’s done in the name of quantitative easing or large-scale asset purchases is financed by creating excess bank reserves, a funny kind of money that you and I can’t go and spend on Lattes at Starbucks.
So it’s not actually inflationary, the policy that’s being pursued at the moment, it’s better to think of it as something that’s saving off what would be a pretty savage deflation. I do think that ultimately we’ll end up with higher inflation over, let’s say, a five-year time period, because the sheer scale of the expansion that the US has undertaken and the sheer breadth of the monetary growth almost certainly translates into a weaker dollar and could translate into higher inflation expectations after the pandemic’s over, but that’s really over several years. In the short run it’s definitely not an inflation scenario, not this year and probably not next year.
Jed: And all of this five-year inflation that you’re talking about is due to COVID, if it hadn’t been for COVID we would still just be in this sort of flatline time?
Niall: Yeah, I think inflation expectations are the key here, it’s when the public starts to anticipate higher prices that you start getting something like a meaningful increase in inflation. And that I don’t think would have happened without the huge shock that we’ve experienced this year.
Not so much because COVID-19′s a disastrous pandemic by historical standards, it’s not even in the top 20, but because countries like the United States and many European countries did lockdowns in 2020, there was a huge decline in output and a great many people were suddenly out of work. And the government’s response, most obviously in the US, was then to run a huge budget deficit, literally send people checks through the mail. Many people ended up getting paid actually more than they had been paid in work. And this, in the short run, isn’t of course going to be inflationary, we’re trying to offset a massive contraction, which left its own devices, would have been Great Depression-like.
"…as a historian, I've been struck by how often in history it's been a geopolitical crisis, usually a war, that has triggered a big move in inflation expectations."” – Dr. Niall Ferguson
But the question is, “What happens when the pandemic is finally brought under control by a combination of a vaccine or vaccines and other measures?” And at that point there will be a lot of money to be spent, that people right now have been saving a chunk of. So there will be a change of behavior and a change of expectations at some point in the next few years. The last thing I’ll add is that, as a historian, I’ve been struck by how often in history it’s been a geopolitical crisis, usually a war, that has triggered a big move in inflation expectations. And I think it would take something like that really to shift people’s expectations.
That’s why I spend a lot of my time looking at the US-China relationship and the way Cold War 2 has been evolving. I should have explained at the outset that I wasn’t just interested in the economic history of Germany, I was interested in the history of Germany and relating the economics and the financial history to the history of politics and geopolitics. You’re only really interested in Germany as an historian, I think, if you want to understand why two World Wars and a Holocaust emerged from Germany’s politics.
So I really approached that early part of my work with a non-economic question, the question was, “What had gone so wrong in Germany? Why had this very advanced economy, with the best universities in the world in the 1920s, ended up going down the path of Nazism?” And a big part of the answer I think is the trauma of the hyperinflation of 1923, which really discredited democracy in the eyes of a great many German voters.
Jed: Interesting. So, as a historian, getting back to this current geopolitical crisis of COVID, you’re saying as a historian you don’t see it as a big… It’s not in the top 20.
So had we not gone into lockdown we would have been following in this more historical path of keeping business going as usual, do you think that would have been better for our country? It would have been a more historical approach, but have we evolved as a society and as a civilization beyond just letting the weak and sick die, or what’s going on?
Niall: Well, the way to answer that question is partly to look at historical experience, but also to look at the experience of other countries in 2020.
In 1957-58, the United States and the world were hit by a new strain of influenza, people called it the Asian flu, it did indeed originate in China. And unlike COVID-19 this strain of flu killed the young as well as the old. It probably didn’t kill as large a proportion of world population as COVID-19 ultimately will kill, but if you factor in the fact that young people were suffering and dying, it was in some ways worse. If you just calculate quality adjusted life years lost.
COVID-19 is very unusual historically, because it overwhelmingly kills people over the age of 65, and indeed in Europe it’s been people over 80 who’ve been the great proportion of victims. And that’s why I say COVID-19 is not by historical standards a top 20 pandemic, I think it ranks about 25 right now. And it’s not gonna get anywhere close to 1918-19, which was even worse Influenza pandemic.
Now, in 1957-58, faced with a comparable pandemic, roughly comparable with our own, governments did pretty much nothing. There were no lockdowns, in fact there weren’t even school closures, and there were two great waves and death, and the ultimate death toll was… We can’t be exactly sure, but certainly in the region of 100,000, maybe 200,000 Americans.
Now, if you had simply done that with COVID-19, you would have ended up with a lot more dead Americans. It’s hard to say, the Imperial College epidemiologist estimated 2.2 million if the US did nothing. I think that was on the high side. Nicholas Christakis at Yale has a new book just coming out, he comes down at closer to a million. I think in the end, even with lockdowns, even with social distancing, we’re going to see substantial numbers, more Americans, die.
Larry Summers just estimating 625,000 is the ultimate death toll. I think when you put these numbers together, a policy of doing nothing, a 1957-58 strategy of basically letting it rip and trying to get a vaccine, which was what they did, would have had too high a death toll to be acceptable.
But that doesn’t mean we had to do lockdowns, because Taiwan didn’t do lockdowns, South Korea didn’t do lockdowns. What they did was what we should have done, which was very quickly to ramp up testing, and contact tracing and isolation of people who tested positive. And by doing that from the very get-go in January, Taiwan was able to keep the number of casualties down, last I checked, to single figures.
"We were still dithering around through February and it wasn't really until mid-March that governments in the US and the UK thought, "Oh God, we have to do something drastic." And that was when the lockdowns happened, causing much, much more economic damage than I think would have been the results of a Taiwanese or South Korean strategy."” – Dr. Niall Ferguson
So we didn’t need to do nothing, we had to do something, but we did the wrong thing. Instead of acting early, following Larry Brilliant advice, “Early detection, early action”, we dithered around. We were still dithering around through February and it wasn’t really until mid-March that governments in the US and the UK thought, “Oh God, we have to do something drastic.” And that was when the lockdowns happened, causing much, much more economic damage than I think would have been the results of a Taiwanese or South Korean strategy.
Jed: No. I agree. Wow. Now, back to your career. So you were at Christ Church when the Berlin wall fell. Where did…
Niall: “Christ’s”. Not to be confused with Christchurch. Christ’s Cambridge, my first experience of Cambridge, I’d been Oxford all through my undergraduate and graduate years, but my first job was at Christ’s College Cambridge, and that was where I heard the news that the Berlin Wall had come down.
Jed: Yeah it’s Christ’s College, thank you for correcting me.
Where did you go from there? And how did you end up at Stanford?
Niall: Well, I’d done a tour of duty in Germany, researching my PhD at the University Of Hamburg, came back to Cambridge, taught there for three years, and then moved back to Oxford. And I’d taught for about a decade as the history tutor at Oxford, became professor of financial history at Oxford.
But by the late ’90s I was beginning to feel that the work I was doing in financial history, I’d written a book about the history of the Rothschild bank, I had written a book about World War 1, The Pity of War, that was very much concerned with its financing, was more interesting to Americans than to Brits who generally like their historians to write about kings, queens and prime ministers. And I did find that I was getting more invitations to talk in the US, whether in New York or at Harvard, than I was getting in the UK.And so I think I got itchy feet around about the year 2000 and started to consider the possibility of moving to the US.
I had been due to give a lecture at NYU the day after 9/11, I think it was scheduled for 9/12, but of course, I never flew, and I sat in my Oxford rooms watching the twin towers fall. And in my very bloody-minded Scottish way I decided there and then “I’m definitely going to the US, I’m not going to have these people mess with me.”
And so I wrote very shortly after that to the Dean of the Stern Business School at NYU saying “I’m in the market”, and he faxed over a job offer the next day, and in a very short time after that I had left Oxford and was teaching at NYU.
I spent two years there, and then Larry Summers persuaded me to move to Harvard, which was a bit of a dream come true, because I think I’d had a crush on Harvard for some years. Had 12 happy years teaching history and business at Harvard, as the Lawrence Tisch Professor of History. And then reached a point a few years ago, in 2016, when I’d kind of done enough teaching, felt I’d achieved all I was going to achieve at Harvard, had to choose was I gonna spend the rest of my career there or do something different, and decided to do something different and accepted an offer at the Hoover Institution to go over to California, and that’s where we would now be located were it not for COVID-19.
Jed: Absolutely amazing, just to hear what all you’ve done, all the books you’ve written, it’s really incredible. Just as we go...
What would you say to people who are interested in Economics or History or Politics, if they’re in high school or going into college, what should they be thinking about?
"You may not be interested in Economics and History, but they are interested in you..."” – Dr. Niall Ferguson
Niall: Well, I’d actually address this also to the people not interested in those things, and I would say, “You may not be interested in Economics and History, but they are interested in you, and they will have an effect on your life, and it will probably be a negative effect if you don’t really have any understanding of that facet of life.”
I think Economics is often taught in an abstract fashion, with a great deal too much math and not enough history, and I prefer to understand things by finding out where they came from. So I wrote a book called The Ascent of Money back in 2008, which was really pre-financial crisis, designed to explain a financial crisis that I thought was coming. And I think that book’s a good introduction to my style of history because it explains the whole complex system of money, of banks, of stock markets, and all the rest of it, in a way that is designed to be intelligible to the lay reader.
There’s not, I think, an equation. Maybe there’s one equation in the book, but it’s really not crucial, and it’s designed to explain the international financial system in terms of where it came from. And I found that that book has been my most successful book ’cause it answered a need for people who, in 2008, began to realize that financial history was definitely interested in them and wanted to have an answer to the question, “Where did all this come from and how did we get into this mess?”
Jed: Wow. Well, thank you for that good book advice. And we really appreciate you taking some time with us today to talk about your career, talk about the interesting things you’ve studied, it’s been truly fascinating for me. Thank you so much.
Niall: Thanks Jed, I appreciate it.
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