I usually steer clear of Niall Ferguson’s economic writings. They might be good for a laugh but rarely warrant serious attention. Last time I remember reading his stuff, he was yelling about how Obama’s stimulus would cause hyperinflation.

But the guy is a professor at Stanford, one of the country’s top universities, so I guess some people do take him seriously. For this reason, when an old friend passed along a Ferguson column in the Wall Street Journal, I thought I would take a look.

In this piece Ferguson tells us that when a nation spends more on interest than it does on defense, then it faces ruin as a great power. The US is now passing into this ruin territory, as interest payments are now around 3.2 percent of GDP, roughly equal to current defense spending. If interest payments rise in the years ahead, as currently projected, then by Ferguson’s view, collapse is imminent.

The Ferguson Rule here makes about as much sense as the groundhog’s shadow as a weather forecast, but lots of people have fun with Groundhog Day. There’s no reason we can’t have a bit of fun with the Ferguson Rule.

First off, it is creative. Many people have heard stories of major powers spending themselves into trouble by diverting massive amounts of resources into their military and wars. The Soviet Union is arguably a recent example of this story, but this can also be a story of France before its revolution in the 18th century and the decline of the Spanish empire.

But according to the Ferguson Rule, these countries didn’t spend enough on the military. The key is to spend more on the military than on interest payments and then Niall Ferguson will be happy. So, if we just tossed in another $100 billion or so a year on the military (0.3 percent of GDP) all will be good.

This raises some interesting questions about what counts as military spending. The planes, tanks, and troops are pretty straightforward, but how about building up our infrastructure? Can we count that as defense spending so that we don’t violate the Ferguson Rule for the collapse of great powers? If that sounds far-fetched, that’s exactly what we did back in the 1950s when we constructed the interstate highway system, paid for it with the National Interstate and Defense Highways Act of 1956.

Would education also pass as defense? After all, we need educated people to build and operate advance weapons systems. When I went to college in the 1970s, the government gave me a “National Defense Student Loan,” which was a program designed to increase access to college after the Soviet Union beat us into space with its Sputnik satellite.

We can even include much of our medical research as defense spending. After all, we have to be prepared to defend the country from biological warfare, so spending on epidemiology and other areas could also be listed under “defense.”

With a bit of playing around with the categorization of spending we should be able to get well above the 3.2 percent of GDP now being spent on interest, and even above higher levels of interest spending projected for later in the decade.

Reducing the Interest Burden

While there are many creative ways, apart from just spending more on the military, to get the defense side up, and not violate Ferguson’s Rule, we can also have some fun on the interest side. To take an obvious one, the Fed could just lower interest rates, as it may do later this year if Trump’s Reality TV Show economic management throws the economy into a recession. This would quickly lower our interest burden and let American again be a great power.

But we can get much more creative. First, it is important to remember that direct spending is only one way the government pays for things. It also issues patent and copyright monopolies as incentives for innovation and creative work. This is not a trivial matter. It is likely that the rents from these government-granted monopolies exceed $1 trillion a year, more than twice what the government collects from the corporate income tax.

The neat thing about paying for innovation and creative work by granting these monopolies is that the rents are effectively a private tax. The government tells Microsoft to innovate or Disney to make a movie and then tells them that it will arrest people who infringe on the monopoly it has granted them.

Since we are on the topic of private taxes, and Niall Ferguson is a historian, we can move to the idea of tax farming. Tax farming is a system where the government sells off the right to collect a tax. This was a common practice in prior centuries, but is much rarer these days (although versions still exist, such as a city selling off the right to collect parking meter revenue).

The import taxes (tariffs) Donald Trump is imposing are great targets for tax farming. We’re currently looking at around $300 billion a year in annual revenue from Trump’s taxes on imports from Canada, Mexico, and China, but the total may end up much higher.

Suppose we were to sell off the rights to collect these taxes at the nation’s customs’ posts. The interest rate on 10-year inflation-indexed Treasury bonds is currently just under 2.0 percent. (Inflation-indexed bonds are the appropriate benchmark, since the tax collections should rise roughly in step with nominal economic growth.)

This means that we should be able to sell off the rights to collect Donald Trump’s import taxes for around $15 trillion. This would cut the debt not held by the Federal Reserve Board (the Fed owns roughly $5 trillion in debt) in half. That would cut our interest payment by around 1.6 percent of GDP, leaving them at 1.6 percent of GDP, well under the Ferguson Rule cutoff. America would be safe as great power long into the future!

To be clear, this would be nutty policy. Tax farming is corrupt and inefficient, which is why it has largely disappeared from the world. But if we need a way to satisfy the Ferguson Rule, and save our great power status, it is a simple way to do it.

Deficits and Debt for Serious People

In spite of what Niall Ferguson claims, our national debt is not about to strangle us. That’s not just my assessment, that is what the financial markets are telling us. The interest rate on 10-year Treasury bonds is just over 4.2 percent. This means investors are putting trillions of dollars on the line betting that their money is secure in U.S. government debt. The 4.2 percent rate is lower than it was at the end of the 1990s when the budget was in surplus and the debt to GDP ratio was half its current level.

For those interested in going back in time and seeing why the deficits look larger today than had been expected, the story is not on the spending side. Back in 2009, the Congressional Budget Office (CBO) projected that the federal government would be spending 23.9 percent of GDP in 2025. That is 0.6 percentage points of GDP more than it projected we would spend in its January budget report.

The big difference is on the tax side. In 2009, CBO projected tax revenues would be equal to 20.8 percent of GDP in 2025. CBO is now projecting that revenue will be equal to just 17.1 percent of GDP. If Elon Musk and DOGE boys really want to know where our deficits came from, they would be looking on the tax side. But that probably hits too close to home.