The Election Choice: Ferguson tosses his chips

Niall Ferguson’s essay in Newsweek on why President Obama shouldn’t be re-elected has drawn scads of attention — but less for its argument than for the blatant distortions, near lies, and bald misrepresentations that Ferguson offers to back his view.  If you google “Niall Ferguson lies” you will find over 500 sites detailing those lies, from scholars such as Paul Krugman, Brad DeLong, and even former allies and publishers such as Andrew Sullivan and bloggers at  It is quite a remarkable spectacle for one of Harvard’s top dogs (Ferguson is a University Professor, Harvard’s highest rank for its most distinguished faculty).

I am not going to venture further into the doo-doo of decoding Ferguson’s arguments.  Rather, I want to draw attention to what is going on in the arguments around America’s economy and what pundits are doing to our politics.

While the details may be debated, there can be no doubt that since the 1980s, the rich have gotten much richer, while average American workers has seen their wealth fall and their income stagnate.  After each recession since 1980-81, the recoveries have been jobless, the gains from productivity increases have increasingly gone to corporate profits and executive compensation rather than real wages, while health care costs have eaten up much of the gain in worker compensation, enriching pharmaceutical and hospital firms without providing much gain in life-expectancy.  Since 2000, firms have reduced pensions and shifted them to workers or voided them entirely, while the government benefits that supported a middle-class life, such as public parks, public schools, and federal and state support for colleges have been progressively defunded and their quality eroded.

The details have been documented in books such as Robert Frank’s The Winner Take All Society.  Moreover, the manner in which the tables have turned against workers and in favor of corporate executives and financial analysts was not driven mainly by impersonal global or technological trends: rather it was the result of a clear and concerted lobbying and policy campaign by business leaders to grab and keep more of America’s economic success for themselves.  That too has been detailed by Paul Pierson and Jacob Hacker’s Winner Take-All Politics, and Hedrick Smith’s new book, Who Stole the American Dream.  (To see it all in one quick summary, see Smith’s timeline of American middle class decline.)

Of course, most Americans are upset about this trend and want this election to start changing things.  But, amazingly, the conservative business-friendly punditry has managed to make Americans blame their government, and not business practices, for these changes.  Here is Ferguson’s example.  Where Hedrick Smith sees the period from 1980 to 2010 producing two Americas, one gilded and the other strained and beseiged, Ferguson also describes America becoming two different groups.  But Ferguson describes America as a “50-50 nation” in which 50% pay taxes and 50% receive government benefit checks.  In this view, it is the 50% who pay taxes who are the ‘good guys’ who create wealth, while it is the 50% who receive government benefits who are the ‘bad guys’ who lazily lay back and take wealth from the rest.

As the blogosphere notes, when it comes to lies, this is wrong in so many ways it is hard to count.  First of all, it is true that 46% of Americans do not pay federal income tax, as their income is either too low, or they have losses that more than offset any gains.  Many of these are beneficiaries of the Bush-era tax cuts (the percentage not paying federal income taxes would drop to 36% if those were repealed, but don’t look for Republicans to favor that).

Most of these are Americans living in poverty or getting social security and other meagre pensions.  Nonetheless, they still pay social security and medicare taxes if they get any wage income at all; they still pay sales taxes on most things they buy, and they pay property taxes even if they rent, as their rental payments goe in part to cover property taxes paid by their landlord.

Oh, and the government checks that people get?  Ferguson counts food stamps, medicare, social security, and unemployment benefits.  But does he count the mortgage deduction that benefits especially owners of larger homes?  Does he count the tax loopholes designed to benefit those whose incomes come from dividends, capital gains, or farming?  IF you count those special treatment benefits (which are the exact equivalent of taxing someone at normal rates and then sending them a benefit check for the difference), then pretty much everyone in the US draws a federal payment, and more goes to the rich.  Indeed, our social security system is financed in the following manner:  Imagine everyone pays the same 6.2% social security tax on their income; but people who earn over $110,000 per year get a rebate check from the government.  If you earn $1,000,000 per year, you get a rebate check of $55,180 per year from Uncle Sam.  Isn’t that an insane way to design a tax system?  Except that is exactly how the US social security tax works; it’s just that we exempt all income over $110,000 per year up front rather than give rebate checks.

So Ferguson’s claim that we are nation in which only half the people contribute to state coffers while half (the other half? hardly!) get income from the state is simply ridiculous.  It is hard to imagine a more misleading and deceitful claim about the structure of American society.

And yet — people buy it (and apparently distinguished professors at our finest universities get to make those claims in national media, while being handsomely paid to do so).  At face value, Ferguson’s claims would inspire hardworking but hard-pressed American’s to blame government for taking their money and giving it to folks who don’t work and don’t deserve it (I guess like the kids from low-income families who are going to lose their school lunches if Paul Ryan has his way, or families who lost their jobs AND their pensions and health care when the companies they worked for for decades and who promised them pension and health benefits declared bankruptcy and new business-designed bankruptcy laws let them walk away from those claims.)  Ferguson’s misdirection deflects attention from the simple fact that THEIR taxes might be lower if the multi-millionaires like Romney paid more than 13%.  I should say that is not unusual — throughout modern history, the only way the rich prevail in democracies is by convincing ordinary people that if they do not shower benefits on the rich, then ordinary folks will lose what little they have to those who have even less.

If I had to sum things up, I would try to answer this question:  How in the
world did Americans become convinced that the Federal government  — which prior to 1980 cleaned up the environment, protected unions, prevented unscrupulous lending, promoted social mobility and expanded the middle class through support for college education while fighting discrimination, is the problem, while private sector CEOs — who drove down wages, offshored jobs, undermined pensions, watered down health care, shifted all benefits from productivity gains away from workers and into their own pockets, destroyed the solvency of our national banking system and then sought and gained huge government bailouts when their bets went bad — embody the solution.

In that sense, this election offers a clear choice: Obama is the poster child for the beneficiary of every government policy that made it possible for a smart, talented Black American to attend Harvard and become President, while Romney is the poster child for the job-offshoring, tax-avoiding and self-enriching CEO.   Ferguson wants to persuade us that we should vote for the latter.  It would be interesting to see if he could make an honest and truthful argument for that.

About jackgoldstone

Hazel Professor of Public Policy at George Mason University
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