WEBVTT
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Welcome once again as MIT Professor Paul Samuelson
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discusses the current economic scene.
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This series is produced
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by Instructional Dynamic Incorporated.
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This program was recorded December 23rd.
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It's a good time to wish us all
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a happy New Year in 1975.
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As we look back on 1974
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in terms of the US economy
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and in terms of the world economy,
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it's not been a vintage year.
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It's been a year of stagflation,
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it's been a year of snowballing recession
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and yet as I speak at the very end of the year,
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there are only straws in the wind
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that suggest that the rate of double digit inflation
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in the United States is at long last being tempered.
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Probably to the expert eye,
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there are gleams in the data
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which do suggest that we may be in the process
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of moving from double digit price inflation
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down to one high,
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one digit price inflation
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but how many times in this last year
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have you heard commentators saying those famous words,
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I guess we'll all believe it
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when we actually see it this time.
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Now, it was just a little time back
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at the beginning of the month of December
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that I made my annual forecast for this series,
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it was December 2nd as I recall.
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The actual course of events
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and the course of our information
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about events which is not the same thing
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because of some lag
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has been moving so fast
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that any forecast made for 1975 on the basis
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of December 2nd data,
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I think this year will be too optimistic.
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In other words, if you talk to different forecasters,
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you'll find that in less than 30 days,
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they have realized that the recession situation
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is much worse than they thought it was 30 days ago.
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Part of this of course is the fact
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that the automobile industry
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has been having such a woeful drop off in sales
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and the success of announcements of layoffs
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in the automobile industry
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are so substantial in their own right
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but also carry such a bellwether significance
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that that can't help but influence
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the December unemployment number when we see it.
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I've heard guesses
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that the December unemployment could be as high as 7%.
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I must confess that to have gone in one month
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from 6% to 6.5%
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and then in the next month to go to 7%
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would be almost without precedent
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in speed of decline
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but it's a possibility
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that must be very seriously reckoned with
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and so, since the way we check out of this year
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provides initial conditions for the next year,
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if I were to remake my forecast,
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I would definitely paint it in much grayer,
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if not blacker pictures.
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I think that the most useful thing that I can do
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is not push the limits of my own forecasting ability
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but rather provide you with a convenient round up
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of what different forecasters are thinking
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and then give you my shadings,
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my evaluations of the various probabilities.
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We should be grateful that once a year Business Week
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collects from anybody indiscrete enough
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to give them forecasts,
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their forecasts for the coming year
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and they've done this again in the December 21st issue
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of Business Week
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and I refer you to an interesting table on page 50 there.
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At the bottom of the table,
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they show econometric models,
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two, four, six, eight such models
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and they give what's expected in nominal
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or monetary GNP in billions of dollars for 1975,
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that's for the calendar year
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by those eight different models,
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they give the real growth in GNP,
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they give the price increase in GNP,
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presumably that's the implicit price deflator
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I would think to make all the results comparable
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and then they give the 1975 average unemployment.
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Aside from doing this for the eight econometric models
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at the bottom of the table,
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they include oh, more than twice eight forecasts
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at the top of the table
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which are I suppose one would have to guess
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for the most part, judgmental forecasts.
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I don't think that one should make very much
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of the difference between these so-called econometric models
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and the judgmental forecasts
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because I think that some of the people
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in the judgmental section
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that I see there, in fact do use elements of a model
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and some of the econometric models so-called
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like Townsend-Greenspan, for example,
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I'm not sure that that professes
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to be a computer model.
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I know when Alan Greenspan
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was still running the organization,
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was not in Washington advising presidents,
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I talked to him about his methods
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and although the computer had some role,
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there is a great deal of judgment.
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In fact, every one of these judgmental models,
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econometric models so-called,
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even though they're econometric,
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they do have judgments
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because I notice that Ray Fair
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who is the one econometrician who runs a model
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without any judgment, that he's not present
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in this year's round-up.
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Well, at first glance,
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it looks as if there's quite a spread
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among the different authorities
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but we'll see in a moment
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that that degree of discordance
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is if anything surprisingly low
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rather than surprisingly high.
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But before doing that,
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let me say that if I were running the editorial pages
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of Business Week,
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or if I were making the round-up of different forecasters,
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I don't think I would do it in quite this form.
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I don't say this in way of criticism
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because obviously people are most familiar
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with asking what happened in 1974 calendar year,
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what happened in 1975?
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But these numbers that we have here contains so much
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of the past in them
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that they disguise the differences
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in the different forecasters' view
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with respect to future.
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Now, you and I know roughly the past
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and what we don't know, what we're desperately interested
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to know what the president of the United States now
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in Vail, Colorado having to make decisions
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with respect to policy desperately wants to know
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is what going to happen in the future
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and what people think about the future.
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So, it would have been more instructive to me
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if I had seen where they think we're going to be
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in the fourth quarter next year.
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What's going to happen from fourth quarter this year
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to fourth quarter next year
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or what's going to happen
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from the last revised official data
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that we have which is for third quarter
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to the fourth quarter of next year,
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in other words, what's going to happen
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in calendar year 1975 itself?
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And that's definitely not what these forecasts refer to.
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Therefore, I've done a little homework
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and I've taken of the econometric models
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where I'm on the mailing list,
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on the free list so to speak,
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I have jotted down what these people expect
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for the fourth quarter of the year,
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rather than the 75 to 70 for comparison.
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Now, let's take a round-up of the troops.
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We're going to have for 1975 according
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to the average of all the some 20 judgmental forecasters,
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we're gonna have a trillion and a half
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of money GNP.
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That means 1,500,
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if you want accuracy, 1,501 billions of monetary GNP.
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And roughly speaking of course
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about half the forecasters
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are strong above that number
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and half are strong below that number.
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For comparison, the last solid number
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that we had for the money GNP
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which was money GNP for the third quarter
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was around 1,415 as against 1,501.
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So, you can see that that's a substantial increase
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in the money GNP.
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Anyone who thinks that the mob believes
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that we're in a great depression
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where actual money GNP is gonna fall,
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the way it did fall in the 1929 to 1933 period,
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he will find no comfort for his view
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from any of the forecasters.
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What about the econometric models?
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Well, they definitely are more dollar prone
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than the rest.
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They assume a higher, either a higher rate of inflation
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or a higher level of real income
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because they average out for the year 1,513.
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That's $12 billion more
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on the average.
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However, if we talk about the last part of the year,
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that's likely to mean about twice that much difference,
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more like $25 billion difference
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in the average GNP expected for the fourth quarter.
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In fact, if I take the top three
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of the econometric models,
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there's map cast of General Electric,
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there's Wharton EFA, University of Pennsylvania model,
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there's Chase Econometrics,
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let's take those top three.
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They're very much bunched together
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in their money GNP estimates.
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They're 1,526 for the year, 1,525, 1,524.
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All of those above all of the judgmental forecasters
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with exception of the top judgmental forecaster,
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Robert S. Eisinger of Transamerica
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has a very slightly higher number
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but all the rest of them
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have a lower number,
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some slightly lower and some a great deal lower.
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Moreover, let's go to the bottom
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of the econometric forecasters.
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Townsend-Greenspan is at the bottom with 1,496
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and that puts them almost near the middle
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of the judgmental forecasters.
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So, the dollar numbers on the econometric models
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are definitely a bit higher
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than for the rest.
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However, let me for five of these eight models,
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Wharton, Chase Econometrics,
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the University of Michigan model,
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Data Resources, Otto Eckstein
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and Townsend-Greenspan,
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for those five, my fourth quarter numbers show
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that the differences among them
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are about twice as great as just for the calendar year.
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Thus Wharton which has 1,525 for the whole year
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has 1,593 unless I've made,
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no, I guess I haven't made an error,
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for the fourth quarter of the year.
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Chase Econometrics which has 1,524 is 1,594,
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so as far as money GNP is concerned,
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you couldn't tell the difference between Wharton
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and Chase Econometrics,
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they're just as close as peas in a pod.
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However, when we come down to University of Michigan,
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they've only 1,511,
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that is below the middle for the econometricians,
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just below but it's definitely above the middle
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for the judgmental forecasters
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but they have 1,571.
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Now, you see that's already a good 22 billion difference
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for the fourth quarter between the University of Michigan
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and Wharton and unless it's matched
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by a difference in their price estimates,
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then we would expect a great difference
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in their real output estimates
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and you'd expect a great increase
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in their unemployment estimates
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and yet when you go to look
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at their unemployment estimates,
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you find that there's a very little difference
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showing that not everybody believes
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in the same version of Okun's law
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or whatever local sage has an equivalent way
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of translating real GNP
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into unemployment numbers.
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Then very definitely below
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all of those is Townsend-Greenspan and money GNP.
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That's 1,547 for the fourth quarter
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as against 1,570-ish for the middle group
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and 1,590-ish for the other group.
272
00:15:27.500 --> 00:15:30.890
So, the computer speaks for the fourth tongue
273
00:15:30.890 --> 00:15:32.960
and doesn't tell a single story.
274
00:15:32.960 --> 00:15:36.213
It depends upon what it is that you put in it.
275
00:15:38.950 --> 00:15:40.600
Okay, I've talked about money GNP.
276
00:15:40.600 --> 00:15:42.010
I don't think it means very much to us,
277
00:15:42.010 --> 00:15:43.650
a trillion and a half,
278
00:15:43.650 --> 00:15:45.470
what does that mean, what is a trillion dollars?
279
00:15:45.470 --> 00:15:48.030
What's a trillion and a half dollars?
280
00:15:48.030 --> 00:15:51.500
What's the difference between 1,501 and 1,511?
281
00:15:51.500 --> 00:15:54.760
So, let's talk about the rate of growth
282
00:15:54.760 --> 00:15:57.653
of real GNP.
283
00:15:58.840 --> 00:16:03.370
And if you make the '75 year as a whole comparison
284
00:16:03.370 --> 00:16:06.040
with '74 year as a whole,
285
00:16:06.040 --> 00:16:09.056
a surprising thing is that except
286
00:16:09.056 --> 00:16:14.056
for one strange estimate,
287
00:16:14.100 --> 00:16:16.543
every one of the estimates is minus.
288
00:16:17.790 --> 00:16:20.603
Every one of them shows a drop.
289
00:16:21.530 --> 00:16:22.930
I guess I ought to dispose
290
00:16:22.930 --> 00:16:24.533
of the exception.
291
00:16:25.870 --> 00:16:30.203
This is the exception comes from the building industry.
292
00:16:32.010 --> 00:16:35.010
Michael Sumichrast of the National Association
293
00:16:35.010 --> 00:16:36.130
of Home Builders,
294
00:16:36.130 --> 00:16:39.210
although he has a money GNP set of numbers
295
00:16:39.210 --> 00:16:43.130
very much like a lot
296
00:16:43.130 --> 00:16:46.540
of the econometricians and a lot of the judgmental models,
297
00:16:46.540 --> 00:16:49.620
his price increase numbers
298
00:16:49.620 --> 00:16:51.850
are at least 3% below
299
00:16:51.850 --> 00:16:56.850
and as a result, he gets his real GNP 2.5% above zero
300
00:16:59.410 --> 00:17:02.210
which means that he's 3% above some of them
301
00:17:02.210 --> 00:17:04.483
and more than 3%.
302
00:17:05.490 --> 00:17:10.050
Let's hope that the loan ranger turns out to be right
303
00:17:10.050 --> 00:17:12.150
because that would be a much happier picture
304
00:17:12.150 --> 00:17:13.790
both on the inflation front
305
00:17:13.790 --> 00:17:16.700
and on the real output front.
306
00:17:16.700 --> 00:17:19.170
It's certainly a message which his Association
307
00:17:19.170 --> 00:17:21.150
of Home Builders would like to hear
308
00:17:21.150 --> 00:17:26.150
because if prices behave two, three, even 4%
309
00:17:26.470 --> 00:17:29.147
by the fourth quarter better annual rates
310
00:17:29.147 --> 00:17:32.400
than the mob thinks,
311
00:17:32.400 --> 00:17:35.430
then that's gonna come through in lower interest rates,
312
00:17:35.430 --> 00:17:37.250
it's gonna come through with easier credit
313
00:17:37.250 --> 00:17:39.480
for the housing industry,
314
00:17:39.480 --> 00:17:44.070
it's gonna come through with the greater number of starts.
315
00:17:44.070 --> 00:17:45.340
It's no wonder, by the way,
316
00:17:45.340 --> 00:17:49.150
that he has the lowest unemployment number
317
00:17:49.150 --> 00:17:52.290
for all of the year.
318
00:17:52.290 --> 00:17:57.290
In fact, if you believe him, our present 6.5% unemployment
319
00:17:57.720 --> 00:18:00.020
is almost a peak I guess.
320
00:18:00.020 --> 00:18:03.010
It's gonna go down to 6.3%
321
00:18:04.026 --> 00:18:07.050
on the average for the year as a whole
322
00:18:07.050 --> 00:18:09.890
and since I presume on his kind
323
00:18:09.890 --> 00:18:11.580
of estimates it's going down,
324
00:18:11.580 --> 00:18:14.220
you could expect by the end of the year
325
00:18:14.220 --> 00:18:17.140
that Mr. Sumichrast must be expecting
326
00:18:17.140 --> 00:18:21.790
that we will be below 6% unemployment.
327
00:18:21.790 --> 00:18:26.790
Well, alas he is the great exception.
328
00:18:28.020 --> 00:18:32.080
The real output year over year
329
00:18:32.080 --> 00:18:34.680
is expected to decline anything
330
00:18:34.680 --> 00:18:38.530
from a minus 0.1 which is negligible,
331
00:18:38.530 --> 00:18:42.620
that's by the big optimist Robert Eisinger
332
00:18:42.620 --> 00:18:47.430
of Transamerica down to A. Gary Shilling of White Weld
333
00:18:47.430 --> 00:18:49.960
who's had the most interesting forecasts
334
00:18:49.960 --> 00:18:52.050
of recent years from a certain viewpoint
335
00:18:52.050 --> 00:18:53.210
'cause he's been very bold
336
00:18:53.210 --> 00:18:54.840
in announcing changes.
337
00:18:54.840 --> 00:18:56.500
Well, he's grabbed the bottom time.
338
00:18:56.500 --> 00:18:57.998
One year as I remember it,
339
00:18:57.998 --> 00:19:00.650
if my memory is correct but it may not be,
340
00:19:00.650 --> 00:19:02.260
he grabbed the top
341
00:19:02.260 --> 00:19:07.260
and he has a minus 3.5% year-to-year decline in output
342
00:19:07.600 --> 00:19:12.600
which means rather colossally disappointing behavior
343
00:19:14.680 --> 00:19:18.113
I would think in the last half of 1975.
344
00:19:20.550 --> 00:19:25.500
Let me stick with the econometric models
345
00:19:25.500 --> 00:19:30.500
not because they're on the average more trustworthy,
346
00:19:32.610 --> 00:19:37.610
it may be that if you had to put your chips down,
347
00:19:40.570 --> 00:19:43.020
that you ought go with the econometric models
348
00:19:43.020 --> 00:19:44.370
'cause there's a lot more work in them,
349
00:19:44.370 --> 00:19:46.440
it isn't because of the magic I think
350
00:19:46.440 --> 00:19:50.040
of the technique
351
00:19:50.040 --> 00:19:53.350
but a lot of these forecasters
352
00:19:53.350 --> 00:19:55.400
are really back of the envelope forecasters
353
00:19:55.400 --> 00:19:57.600
and although it saves time
354
00:19:57.600 --> 00:19:59.026
to use the back of an envelope,
355
00:19:59.026 --> 00:20:01.620
it really doesn't over the long run
356
00:20:01.620 --> 00:20:03.700
get you with the best results,
357
00:20:03.700 --> 00:20:08.433
so let's stick with the econometric forecaster models.
358
00:20:09.760 --> 00:20:14.630
They show minus real growth.
359
00:20:14.630 --> 00:20:17.140
Their average drop for the year,
360
00:20:17.140 --> 00:20:18.990
year over year is minus 1.2
361
00:20:18.990 --> 00:20:21.666
which is exactly the same as the average
362
00:20:21.666 --> 00:20:25.830
of the judgmental forecasters.
363
00:20:25.830 --> 00:20:29.660
Where they differ is in the price increase
364
00:20:29.660 --> 00:20:33.950
because they're 90 basis points higher,
365
00:20:33.950 --> 00:20:35.890
their average price increase year over year
366
00:20:35.890 --> 00:20:37.727
is 9.6 as against 8.7
367
00:20:39.010 --> 00:20:41.130
for the judgmental forecasters.
368
00:20:41.130 --> 00:20:44.980
And let's pray that the judgmental ones are right
369
00:20:44.980 --> 00:20:48.830
because that would be a happier outcome
370
00:20:48.830 --> 00:20:53.043
even with the same real output results.
371
00:20:54.190 --> 00:20:56.900
If you were to look at the average
372
00:20:56.900 --> 00:20:58.730
of the econometric models,
373
00:20:58.730 --> 00:21:03.140
showing the minus 1.2% year-over-year drop in real output,
374
00:21:03.140 --> 00:21:08.140
a 9.6% increase in nominal prices,
375
00:21:08.930 --> 00:21:10.510
creating implicit inflator,
376
00:21:10.510 --> 00:21:14.510
you would think this is the most disappointing
377
00:21:15.464 --> 00:21:18.300
of all possible outlooks
378
00:21:18.300 --> 00:21:20.430
but that's misleading
379
00:21:20.430 --> 00:21:22.570
because so much of that disappointment
380
00:21:22.570 --> 00:21:27.570
has already figured into the last half of 1974 data.
381
00:21:28.390 --> 00:21:30.460
And we know that was disappointing.
382
00:21:30.460 --> 00:21:31.940
What we wanna know is where there's light
383
00:21:31.940 --> 00:21:33.130
at the end of the tunnel
384
00:21:33.130 --> 00:21:35.810
and therefore let me give you the results
385
00:21:35.810 --> 00:21:37.160
of my homework
386
00:21:37.160 --> 00:21:41.230
and show you how dramatically the picture changes,
387
00:21:41.230 --> 00:21:42.180
it's the same picture
388
00:21:42.180 --> 00:21:44.173
but looked at in the right way.
389
00:21:45.410 --> 00:21:50.410
Let's, for example, take the gloomiest one of them all,
390
00:21:50.790 --> 00:21:52.700
Townsend-Greenspan.
391
00:21:52.700 --> 00:21:57.700
Minus 2.4% for the year over year change in real output.
392
00:21:59.585 --> 00:22:03.140
But when I look at what Townsend-Greenspan is expecting
393
00:22:03.140 --> 00:22:04.460
for the fourth quarter of the year,
394
00:22:04.460 --> 00:22:09.180
the great pessimist, I find it's a plus 4.3%.
395
00:22:09.180 --> 00:22:10.930
Plus 4.3%.
396
00:22:10.930 --> 00:22:14.320
So, you see, it really isn't all that gloomy.
397
00:22:14.320 --> 00:22:17.653
It means that we're gonna have a turn, a trough,
398
00:22:18.768 --> 00:22:20.770
a lower turning point, so-called
399
00:22:20.770 --> 00:22:22.968
in National Bureau terminology
400
00:22:22.968 --> 00:22:25.490
some time around the middle of the year
401
00:22:25.490 --> 00:22:27.280
and we're gonna be definitely on the upswing,
402
00:22:27.280 --> 00:22:30.380
in fact, we're gonna be back at our trend rate
403
00:22:30.380 --> 00:22:34.610
of growth by the fourth quarter of the year
404
00:22:34.610 --> 00:22:37.120
according to the pessimist.
405
00:22:37.120 --> 00:22:40.560
Again, let's look at the rate of price increase.
406
00:22:40.560 --> 00:22:45.330
Now, Townsend-Greenspan is not the most pessimistic.
407
00:22:45.330 --> 00:22:49.110
On the contrary it's among the econometricians
408
00:22:49.110 --> 00:22:51.330
right in the middle or toward the bottom
409
00:22:51.330 --> 00:22:55.080
in terms of pessimism,
410
00:22:55.080 --> 00:22:57.960
that means it's towards the top in terms of optimism.
411
00:22:57.960 --> 00:23:02.960
But it still calls for a 9.5% year-over-year price increase.
412
00:23:04.620 --> 00:23:06.940
However, when I look at this fourth quarter number
413
00:23:06.940 --> 00:23:09.920
for next year, that's plus 6.6%,
414
00:23:11.290 --> 00:23:13.890
so you see, we definitely are going
415
00:23:13.890 --> 00:23:18.093
to be according to the Townsend-Greenspan scenario,
416
00:23:18.093 --> 00:23:23.093
out of two digit inflation and into well,
417
00:23:24.040 --> 00:23:26.430
you can't even call it high one digit inflation.
418
00:23:26.430 --> 00:23:30.160
You have to call it middling one digit inflation
419
00:23:30.160 --> 00:23:32.863
by the end of the year.
420
00:23:34.270 --> 00:23:36.373
Or let's take its unemployment.
421
00:23:37.410 --> 00:23:39.680
It has a lower unemployment estimate
422
00:23:39.680 --> 00:23:41.930
than the mob,
423
00:23:41.930 --> 00:23:43.870
both of the judgmental forecasters
424
00:23:43.870 --> 00:23:45.860
who tend to be high, they on the average think
425
00:23:45.860 --> 00:23:48.296
for the year it'll be 7.3%,
426
00:23:48.296 --> 00:23:51.450
the econometricians who perhaps gauge this thing
427
00:23:51.450 --> 00:23:56.450
with a little more input, sweat, have only 7.1%.
428
00:23:57.420 --> 00:23:59.390
That's hardly a significant difference
429
00:23:59.390 --> 00:24:00.790
but it's a little bit lower.
430
00:24:00.790 --> 00:24:02.980
Well, for the year as a whole, Townsend-Greenspan
431
00:24:02.980 --> 00:24:07.980
has 6.8% which is definitely below the crowd.
432
00:24:08.160 --> 00:24:13.160
In fact, except for that Michael Sumichrast outlier
433
00:24:16.360 --> 00:24:17.193
that I told you about,
434
00:24:17.193 --> 00:24:19.230
that's the lowest unemployment number
435
00:24:19.230 --> 00:24:21.917
on the average for the year of anybody
436
00:24:23.010 --> 00:24:25.920
but in the fourth quarter of the year,
437
00:24:25.920 --> 00:24:28.634
instead of 6.8 of the average for the year,
438
00:24:28.634 --> 00:24:32.530
it's 6.7, so unemployment is really coming down.
439
00:24:32.530 --> 00:24:36.750
I guess therefore a lot of people
440
00:24:36.750 --> 00:24:40.580
if given their choice even for policy purposes
441
00:24:40.580 --> 00:24:44.997
would buy the Townsend-Greenspan scenario
442
00:24:44.997 --> 00:24:48.350
as not too bad a deal.
443
00:24:48.350 --> 00:24:52.930
Of course it involves a little regrettable unemployment
444
00:24:52.930 --> 00:24:57.440
but you can't make omelets without breaking eggshells
445
00:24:57.440 --> 00:25:01.490
and that's part of the necessary price we pay
446
00:25:01.490 --> 00:25:03.490
for our past excesses
447
00:25:03.490 --> 00:25:07.557
in order to get our system onto a better
448
00:25:07.557 --> 00:25:10.700
and healthier growth path in future.
449
00:25:10.700 --> 00:25:14.300
Well, that's Townsend-Greenspan.
450
00:25:14.300 --> 00:25:17.470
Let's look at the Wharton model
451
00:25:17.470 --> 00:25:18.680
and Chase Econometrics.
452
00:25:18.680 --> 00:25:20.960
You know that Wharton has been more pessimistic
453
00:25:20.960 --> 00:25:23.640
in this period and let's see in this respect.
454
00:25:23.640 --> 00:25:27.650
Well, the story there is also not so bad.
455
00:25:27.650 --> 00:25:31.360
Although there's a minus 1% rate of growth for the year
456
00:25:31.360 --> 00:25:36.090
which by the way is not a great fall-off
457
00:25:37.300 --> 00:25:41.063
compared to the average of the mob.
458
00:25:43.291 --> 00:25:44.150
By the fourth quarter of the year
459
00:25:44.150 --> 00:25:47.410
Wharton thinks we'll be at 5% rate
460
00:25:47.410 --> 00:25:48.760
of growth of real output
461
00:25:48.760 --> 00:25:51.170
which is a really healthy rate of growth.
462
00:25:51.170 --> 00:25:54.630
Of course it's flat from that time on
463
00:25:54.630 --> 00:25:56.010
as is Townsend-Greenspan.
464
00:25:56.010 --> 00:25:59.770
By the way, the 4.3% is not on its way up to six or 7%,
465
00:25:59.770 --> 00:26:02.983
it's flat in the period thereafter.
466
00:26:03.900 --> 00:26:06.290
What about Michael Evans of Chase Econometrics?
467
00:26:06.290 --> 00:26:10.083
Always an interesting analyst to scrutinize.
468
00:26:11.130 --> 00:26:14.920
He has not much of a drop-off for the year.
469
00:26:14.920 --> 00:26:16.820
In fact, he is the most optimistic
470
00:26:16.820 --> 00:26:19.470
for the year's over year figures
471
00:26:19.470 --> 00:26:21.760
but in the fourth quarter of the year,
472
00:26:21.760 --> 00:26:23.590
instead of having the minus 0.8
473
00:26:23.590 --> 00:26:25.890
which is the average year-over-year figure,
474
00:26:25.890 --> 00:26:28.316
he has plus 6.2 and rising.
475
00:26:28.316 --> 00:26:33.023
So, that's really a very optimistic picture.
476
00:26:34.763 --> 00:26:36.270
The University of Michigan
477
00:26:36.270 --> 00:26:39.213
I guess is the most pessimistic.
478
00:26:45.150 --> 00:26:49.410
They have only 3.6% at the end of the year.
479
00:26:49.410 --> 00:26:51.133
Now you say that's pessimism?
480
00:26:52.582 --> 00:26:54.790
Not a decline, an increase
481
00:26:54.790 --> 00:26:56.650
and that's practically at the trend rate
482
00:26:56.650 --> 00:26:59.430
and who knows whether the trend rate
483
00:26:59.430 --> 00:27:01.610
which we've always taken in recent past
484
00:27:01.610 --> 00:27:05.780
to be 4% or 4 and 1/3%, four and 1/4%,
485
00:27:05.780 --> 00:27:09.420
maybe because of productivity deterioration
486
00:27:09.420 --> 00:27:11.980
and the new demographic changes
487
00:27:11.980 --> 00:27:13.677
that that's working its way down
488
00:27:13.677 --> 00:27:18.677
to even below 4%, so 3.6% isn't too bad.
489
00:27:20.060 --> 00:27:24.290
Again, if you could believe these forecasters,
490
00:27:24.290 --> 00:27:26.280
the picture is not so black
491
00:27:26.280 --> 00:27:28.370
because the rate of price increase
492
00:27:28.370 --> 00:27:29.880
in the fourth quarter
493
00:27:29.880 --> 00:27:34.880
is not up there crowding two digits
494
00:27:35.110 --> 00:27:39.150
at 9.6% and so forth as they show for the year as whole
495
00:27:39.150 --> 00:27:40.200
on the average.
496
00:27:40.200 --> 00:27:41.483
On the contrary,
497
00:27:42.950 --> 00:27:46.380
Townsend-Greenspan I've told you calls for 6.6%
498
00:27:46.380 --> 00:27:48.984
in the last quarter,
499
00:27:48.984 --> 00:27:53.300
7.1% is what Otto Eckstein at Data Resources thinks
500
00:27:53.300 --> 00:27:54.490
for the fourth quarter.
501
00:27:54.490 --> 00:27:56.070
University of Michigan which is a pessimist
502
00:27:56.070 --> 00:27:59.130
is 8.1%, Wharton which is pessimistic
503
00:27:59.130 --> 00:28:02.760
has 8.14, eight and 1/7%,
504
00:28:02.760 --> 00:28:05.203
Chase Econometrics has seven and 1/3%.
505
00:28:06.550 --> 00:28:09.180
That is a good deal better
506
00:28:09.180 --> 00:28:13.003
than what we are now experiencing.
507
00:28:14.070 --> 00:28:17.420
And quite a number of monitorists
508
00:28:17.420 --> 00:28:18.630
whom I've talked to
509
00:28:20.340 --> 00:28:23.910
believe that by the middle of the year,
510
00:28:23.910 --> 00:28:28.000
you could have a 6% rate of price increase
511
00:28:28.000 --> 00:28:31.080
provided the rate of growth of the money supply
512
00:28:31.080 --> 00:28:33.720
is held down to a steady course
513
00:28:33.720 --> 00:28:36.810
of about five to 6%
514
00:28:36.810 --> 00:28:41.810
and one young monitorist told me
515
00:28:42.080 --> 00:28:45.590
that his unemployment numbers are back to 6%
516
00:28:47.240 --> 00:28:49.720
in the last part of 1975
517
00:28:53.450 --> 00:28:55.793
on that same assumption.
518
00:28:56.770 --> 00:29:01.770
I think that the combination seems a little doubtful to me.
519
00:29:02.010 --> 00:29:05.700
I think we could get the price improvement
520
00:29:05.700 --> 00:29:07.610
if the economy is weak enough
521
00:29:07.610 --> 00:29:10.110
but given that he doesn't expect a great weakening
522
00:29:10.110 --> 00:29:13.040
of the economy, I don't see how he can have it both ways
523
00:29:13.040 --> 00:29:15.550
on the basis of recent past experience
524
00:29:15.550 --> 00:29:18.180
but I like to stress the fact
525
00:29:18.180 --> 00:29:21.980
that we don't have any controlled experiments
526
00:29:21.980 --> 00:29:24.010
which give us a great deal of confidence
527
00:29:24.010 --> 00:29:25.980
in our ability to appraise
528
00:29:25.980 --> 00:29:30.293
that short run trade-off relationship.
529
00:29:31.440 --> 00:29:34.320
On the unemployment, you'll be interested
530
00:29:34.320 --> 00:29:36.450
for the fourth quarter of the year
531
00:29:36.450 --> 00:29:41.450
that these different forecasters expect
532
00:29:41.520 --> 00:29:44.137
about seven and 1/4%, 7.5%, 7.5%,
533
00:29:48.047 --> 00:29:50.610
6.7% for Townsend-Greenspan
534
00:29:50.610 --> 00:29:54.280
which is definitely on the disappointing side
535
00:29:54.280 --> 00:29:57.090
but it ought to do something for us
536
00:29:57.090 --> 00:30:02.020
in terms of the amount of current inflationary pressure
537
00:30:02.020 --> 00:30:05.300
which will occur at the end of 1975.
538
00:30:05.300 --> 00:30:08.410
Well, to wrap it all up,
539
00:30:08.410 --> 00:30:11.520
I don't think that there are enough outliers
540
00:30:11.520 --> 00:30:13.170
among these forecasters
541
00:30:13.170 --> 00:30:14.610
to take account of the fact
542
00:30:14.610 --> 00:30:16.670
that the recession might be worse
543
00:30:16.670 --> 00:30:18.780
than we think it to be.
544
00:30:18.780 --> 00:30:21.380
I was quoted in the same Business Week story
545
00:30:24.160 --> 00:30:26.220
as saying that the big difficulty
546
00:30:26.220 --> 00:30:27.560
with the forecasters
547
00:30:27.560 --> 00:30:29.940
is they haven't given enough probability spread
548
00:30:30.849 --> 00:30:33.020
around their numbers,
549
00:30:33.020 --> 00:30:38.020
so I'm counseling you to put in great, big elements
550
00:30:40.200 --> 00:30:43.970
of salt on both sides of these particular forecasts
551
00:30:43.970 --> 00:30:47.960
with respect to every element.
552
00:30:47.960 --> 00:30:50.960
Nevertheless, if you go by the odds,
553
00:30:50.960 --> 00:30:52.590
it doesn't seem to me
554
00:30:52.590 --> 00:30:55.130
that the greatest amount of pessimism
555
00:30:55.130 --> 00:30:59.053
which I hear and which I still hear is justified.
556
00:31:00.930 --> 00:31:02.860
If you have any comments or questions
557
00:31:02.860 --> 00:31:04.310
for Professor Samuelson,
558
00:31:04.310 --> 00:31:07.630
address them to instructional Dynamics Incorporated,
559
00:31:07.630 --> 00:31:11.163
450 East Ohio Street, Chicago, Illinois, 60611.