The historian Niall Ferguson has decided for some reason to drag your humble blogger into his feud with Paul Krugman:
For too long, Paul Krugman has exploited his authority as an award-winning economist and his power as a New York Times columnist to heap opprobrium on anyone who ventures to disagree with him. Along the way, he has acquired a claque of like-minded bloggers who play a sinister game of tag with him, endorsing his attacks and adding vitriol of their own. I would like to name and shame in this context Dean Baker, Josh Barro, Brad DeLong, Matthew O'Brien, Noah Smith, Matthew Yglesias and Justin Wolfers. Krugman and his acolytes evidently relish the viciousness of their attacks, priding themselves on the crassness of their language.
In my case I'm genuinely unaware of a situation in which I employed crass language to amplify a Paul Krugman attack on Ferguson, though I certainly have had occasion to disagree with Ferguson when he misstates Mitt Romney's educational credentials or blames Barack Obama for rapid Chinese economic growth or says J.M. Keynes was a bad economist because he was gay. Ferguson might want to consider a meta-rational approach in which he wonders if the range of people who disagree with him about such matters doesn't possibly reflect Ferguson's own wrongness rather than the vast reach of the Krugman conspiracy.
That said, it would perhaps be helpful at this context to simply turn the other cheek. Ferguson became a prominent public intellectual largely on the strength of his book about World War I, The Pity of War, and deservedly so. For starters, it's just a really well-written book. But it's also quite methodologically innovative both in terms of bringing an interdisciplinary approach to a rather cliché historical subject and also for properly arguing that counterfactual analysis should be an above-board and explicit tool of the historian's trade. When I was in college I took a course on the philosophy of history taught by the late Robert Nozick (with whom I also have some political disagreements), and I recall having written a term paper that very much took a Fergusonian line on this issue of counterfactuals. Ferguson's Virtual History, which is all counterfactuals, isn't, I think, quite as success as Pity of War but it's still a great book.
I would also suggest that one of Ferguson's scholarly essays, "How (not to) Pay For the War: Traditional Finance and Total War" offers some useful insights for peacetime as well. An excerpt (he's talking about WWI):
One rather callous way of expressing the difference between the two sides is to say that Germany succeeded far better than the Entente at iflicting maximum slaughter at minimum expense. As we have seen, the Allies spent approximately $140 billion between 1914 and 1918, the Central Powers around $80 billion. Yet the Central Powers killed many more members of the Allies' armed forces than were killed of their own men. Table 21.2 summarizes the relevant statistics. On this basis, a simple calculation can be made: Whereas it cost the Entente powers $36,485 to kill a serviceman fighting for the Central Powers, it cost the Central Powers just $11,345 to kill a serviceman fighting for the Entente. To complete the macabre balance sheet, these figures could, of course, be related to Ernest Bogart's estimates of the notional economic cost of each individual soldier killed to his country of origin. According to Bogart, an American or British soldier was worth 20 percent more than a German and had nearly double the cash value of a Russian or a Turk. But no soldier was worth as much as it cost to kill him. Ultimately the financial historian can therefore do no more than pose a question to military historians: Why on earth did Germany and its allies—who were more than three times more efficient at killing the enemy than Brtian and its allies—end up losing the war.
It strikes me that the moral of the story here is that when it comes to major sovereign states, strict considerations of public finance and the government deficit are not so important. All major belligerants dealt with wartime financial issues in part by leaving the gold standard. The shift to fiat money meant that the contest was one of real resources (men, bullets, food, steel) rather than cash, which could be printed in unlimited quantities. Notwithstanding allied casualties, Britain and France were not running out of able-bodied people. On the contrary, they were managing to recruit new allies (Italy and then more importantly the USA) into the battle. Germany, by contrast, was running out of food due to the effect of conscription on the agricultural workforce and the efficacy of the Entente blockade of fertilizer imports. Just as control of the Westeroi food supply makes House Tyrell more powerful than House Lannister, Germany's notionally sounder budget posture was of little practical value in light of Anglo-American control of the seas.
I've carried this Fergusonian view over into peacetime. What matters for national prosperity is a) the availability and distribution of real resouces and b) the capacity to mobilize those real resources. Public finance—the joint conduct of fiscal and monetary policy—is best seen as a tool of mobilization, rather than something to sweat in its own right.