Common Ground in Krugman vs. Ferguson

Paul Krugman & Niall Ferguson

Hard as it may seem to believe in today's world, there was a time when not all bankers were reviled.

Equally shocking, perhaps, is that prior to the 1980s the U.S. financial system really didn't experience a major financial crisis for the previous half century. This also was an era of significant economic progress for America as a whole.

For several months now Professors Paul Krugman and Niall Ferguson have been squaring off on camera and in print over whether the U.S. needs a second government stimulus to kickstart the economy. You can check out videos of their their respective arguments on CNN here and here.

While there is a large gap on where they stand in the fiscal debate, there is a topic where they appear to share common ground, and that is the need to fix banking.

They come at the problem from different, but not necessarily mutually exclusive angles. In April 2009, Professor Krugman penned a NY Times article in which he convincingly argues that banking should become "boring" again. Krugman makes reference to America's strong economic performance during the middle of the century, and how at the tail end of this period "only the least ambitious of my classmates sought careers in the financial world". Perhaps the two biggest reasons for why banking could be described as boring during the mid-century were the memory of the Great Depression, and the legacy of financial regulation enacted in the wake of the century's greatest economic disaster.

Professor Ferguson's most recent book, High Financier, is the story of the mid-20th century London banker Sigmund Warburg. As Ferguson describes in the below video, Warburg was very much a relationship, as opposed to a transaction, oriented banker. Ferguson describes Warburg as somewhat of a 'financial physician' and possessing the equivalent of the Hippocratic Oath for finance.

Watch the full episode. See more Need To Know.

Federal Judge Richard Posner, author of A Failure of Capitalism, used the following metaphor in describing the need for banking regulation reform: "If you're worried that lions are eating too many zebras, you don't say to the lions, 'You're eating too many zebras.' You have to build a fence around the lions. They're not going to build it."

While Krugman would probably agree with Posner and be more in favor of fixing banking through regulation than Ferguson would, there is at least one thing these two argumentative academic heavyweights both agree on: banking does need fixing.