WEBVTT
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Welcome once again as MIT professor,
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Paul Samuelson discusses the current economic scene.
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This biweekly series is produced by
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Instructional Dynamics Incorporated.
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This program was reported February 8th.
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Professor Samuelson.
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Now we have the budget message.
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We have the state of the union message.
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We have the economic report of the president.
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As I predicted in my last tape,
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one could pretty much know in advance
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exactly what would be in these documents
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and there were no surprises.
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The president having determined to give up phase two
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to move directly into phase three.
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To rely on voluntary price end wage controls
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except in the limited areas of building
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food processing health care
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had no choice in my opinion,
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but to come in with a very contractionary
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set of recommendations.
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These he has made, they have I think somewhat the supplies.
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The Congress, they certainly have irritated the Congressmen.
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But let's first before trying
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to make guesses about the politics of the situation
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look into what seems to be needed
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by the economics of the situation.
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We must begin with the observation
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that the economy is still overstrung.
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The fashionable forecasts which we discussed a month ago
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were higher than the fashionable forecasts
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that we discussed a couple of months ago
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and the present forecasts are higher still.
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I would guess that the majority
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of the forecasting fraternity now
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look for at least a 10 percent increase in money GNP.
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That's something like 115 billion increase in money GNP
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uncorrected for a price change.
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As against what they were expecting a month or two ago
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which was 105 billion.
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Even Ray (inaudible) of Princeton,
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who I told you does not ever get influenced
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by the current enthusiasms
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because has a completely mechanical
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computer method of forecasting.
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I looked at his most recent forecast
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and that seems to be up by, unless I've made a mistake,
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something like at least 10 billion dollars.
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So we have been growing at a rate of 8 percent in mil terms.
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Now it's possible to do that for a quarter or so.
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It's possible to do it for two or three quarters.
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But it's not healthy a healthy thing.
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Most economists would gladly trade
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to have lots of six percent quarters
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as against just a few eight percent quarters.
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So the time was ripe,
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if not overripe for moderation in terms of macroeconomics.
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Otherwise we will run too quickly
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into old fashioned demand-pull inflation.
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And remember, we're not yet out of the woods
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from the last cost-push inflation
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induced by the post Vietnam demand-pull inflation.
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I suppose from this point of view
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we should be thankful that the Federal Reserve
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was over-contractionary from the view of monetarists
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back from the middle of the year until November
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because with long and variable lags
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there should now be an element working
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for moderation in the picture.
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However, most people are apprehensive
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with respect to monetary analysis.
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Probably unduly so.
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At years end the money supply continued to grow.
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My information is that in January,
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the money supply did not grow at the rapid rates
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of the last part of November and December.
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It had slowed down
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to something like a four percent rate of growth.
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Nevertheless, I would suppose,
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that in the first half of this year,
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we will find reason to complain
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that the Federal Reserve is not being tight enough.
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Then in the last half of the year,
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and no doubt there will be reason to complain
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that the Federal reserve is being too tight.
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This is inevitable if the Federal Reserve
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applies a policy of gradualism.
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If the Federal Reserve has some concern
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for what's happening in the interest rate markets
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of the country and if the Federal Reserve,
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therefore permits interest rates too rise,
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but will not tolerate interest rates leaping upward
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then nobody is going to be satisfied
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with the behavior of the Federal reserve.
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On the other hand,
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the major topic of the day is a fiscal policy.
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The president,
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if he wanted to have contractionary fiscal policy
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might have introduced recommendations for tax increases.
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He made promises during the campaign period,
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that he would not, in 1973 ask for a tax increase.
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I don't know whether he will someday regret that promise.
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But there's certainly no sign that he
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or his team at this moment
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have any intention on going back on that promise.
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That leaves them only with the policy on cutting down hard
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on government expenditures.
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This (inaudible).
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For philosophical reasons,
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the Nixon Republic and administration,
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particularly in it's second term,
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well it needn't be directed concerned with re-election
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has a predilection on philosophical grounds
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for limited role for government
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and a limited role for government at the center.
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So that what spending they will be forced to do
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in the field of welfare.
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They will prefer to do out of a revenue sharing basis.
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We've had the comical spectacle
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of the mayors of this country lobbying,
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pressuring the federal government.
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Pressuring the president into a program of revenue sharing.
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Apparently the mayors in this country
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believe in Santa Claus.
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They thought that they would
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get something extra for nothing,
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but of course they've discovered
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to their concern that the revenue sharing
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which they got was not always adequate.
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But in any case there was a hook, there was a catch.
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The programs that are directly involved problems
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in the urban environment have been cut back
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by the president and now he tells the mayors
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if you have an asset out of the money
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that I've given you and let's make no mistake about it,
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these programs are now hurting.
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Of course you could have had
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a massive rethinking of social priorities,
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we could have cut down
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on the farm legislative subsidies
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which no economists approve of actually
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for gratuitous reasons connected
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with the Russian crop failure and with the food shortage,
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the farm programs at long last
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look to be on the way to be liquidated.
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But to go on we could have had a massive rethinking
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of military security expenditures.
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And there might have been a determination
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to purchase what some people would regard
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as the same security at a much lower cost.
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I'm thinking of phasing out plans for land bombers.
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I'm thinking of more concentration
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on submarine deterrent missiles, things like that.
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And have a really thorough going shakedown
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in the military establishment.
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That could include, by the way,
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now that we've gone on to a voluntary army basis,
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voluntary arms services basis,
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that could include a much smaller amount
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of better trained in the arm services of the United States.
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So to put pressure on the developing overheating
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of the american economy,
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we could have maintained those social welfare programs
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which are most desperately needed.
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Those which the proof of experience have shown
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to be the most adequate.
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Of course it's too much to ask for optimality
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its unlikely that, you know,
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our political process very often discover
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the very best program that the man
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or commissions might devise.
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But we still could have maintained these programs
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of humanitarian import
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and which also contribute towards a rectifying
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of the excessive amount of inequality
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which men of goodwill are deploying in the American economy.
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But of course you know that that would not have been likely
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and of course that didn't come to pass.
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I said that we've had the comical spectacle of mayors
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where we've had the comical spectacle of congress.
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And if a country gets what it deserves
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and if we deserve the present congress
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then we should perhaps feel less unhappy
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about our present plight.
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Many of my listeners will have seen on the TV news shows
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the testimony of the president's economic team.
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George Shultz, the domestic economic (inaudible)
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so to speak, secretary of the treasury.
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But more than that some of them call him the super
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(inaudible) in Washington, was on hand.
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Herbert Stein, the chairman
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of the Council of Economic Advisers
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man who presumably used to be the number one economist
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in the government and now number two,
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if not three or four was on hand
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the designated new head of the
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Office of Management and Budget.
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(indistinct) Industries was on hand
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and it's quite obvious that the team had briefed itself
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for a rough going over from congress
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and they were prepared as best they could
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to defend the budgetary cuts
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which the president was urging upon congress
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and the refusal to spend which the president
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unilaterally by his own executive self orders
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was imposing on that spending the money
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which congress had already voted for many programs
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due to the heart of the Congressmen.
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But if that's what they expected
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in the hands of the committee,
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they were disappointed,
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but of course pleasantly disappointed.
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Because Senator Man, a democrat, went into a tiraid
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about the huge size of the president's deficit.
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George Sultz was so taken aback
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that he took this to be an indication of a desire
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in the party congress to have a tax increase.
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And he said that into the television cameras
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directed towards the Senator,
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but obviously directed towards the American people.
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I don't understand why the congress is so bent upon
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forcing upon the American people a tax increase
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when in administration,
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president Nixon are not at all in favor of that.
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Well the last thing in the world Senator Man,
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with his upside down fiscal finance in this occasion
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willing to settle with
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was that he was in favor of a tax increase.
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And so he said,
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but you're coming in with a larger budget than last time.
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Now that employment is down to a five percent
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and we should take note of the fact
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that it is down to five percent.
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How can you justify running this huge deficit?
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Well in the first place, the stronger the economy is,
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the less will be the deficit
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and the more contractionary tax policy
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or contractionary fiscal policy
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and contractionary monetary policy eluded.
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Congressman thinks that when a lot of revenues come in,
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you don't need taxes.
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Economists know the opposite is the case.
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The only point in increasing taxes in a situation like this,
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is for the purpose of cutting down on spending.
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In other words it must be a tax that hurts,
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it can't be a tax which isn't felt.
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So, we haven't had on the part of the opposition in Congress
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as yet any regrouping,
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any very intelligent action to react to the president.
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In the meantime, there's some very important programs
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which are languishing.
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You can go down the list of those who are in universities
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at institutions like MIT.
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I know that pure science,
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for some time has been out of favor
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and that there has been a move towards the applied science.
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The scientific advisor,
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the president never got to see the president.
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The president finally formalized that arrangement
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by having the new scientific advisor not even report to him,
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but report only through George Shultz.
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So it goes, there's a lot of money.
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Too much money I'm told for jazzy subjects like cancer.
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But there's not money for fundamental research
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which nobody can predict in detail
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will give rise to higher productivity
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in the future to a better environment,
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to less pollution to more copious
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and safer energy sources and so forth.
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Well I don't see anything that can stop this
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in the two years before the election.
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00:16:15.699 --> 00:16:20.699
No doubt congress will be accumulating grievances
273
00:16:20.810 --> 00:16:24.080
and irritations and in some future date,
274
00:16:24.080 --> 00:16:29.080
somebody may pay for these humiliations
275
00:16:30.590 --> 00:16:32.060
and their insults.
276
00:16:32.060 --> 00:16:35.220
But until the next elections,
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00:16:35.220 --> 00:16:36.930
we're pretty much on the same course
278
00:16:36.930 --> 00:16:41.681
that you find in parliamentary systems of administerial
279
00:16:41.681 --> 00:16:45.840
responsibility to a majority party in parliament.
280
00:16:45.840 --> 00:16:49.610
Keith or Palmer in Sweden,
281
00:16:49.610 --> 00:16:53.140
Keith in UK maybe unpopular with the electorate now.
282
00:16:53.140 --> 00:16:56.200
But until the next election they can put through
283
00:16:56.200 --> 00:16:59.740
their parliaments any legislation
284
00:16:59.740 --> 00:17:02.140
that they set their minds to
285
00:17:02.140 --> 00:17:04.590
because of members of their own party
286
00:17:04.590 --> 00:17:07.560
would have to jeopardize their own jobs
287
00:17:07.560 --> 00:17:11.063
by joining in a vote of no confidence.
288
00:17:13.320 --> 00:17:18.320
Let's turn to the general business situation.
289
00:17:18.580 --> 00:17:21.010
Is this (indistinct) budget,
290
00:17:21.010 --> 00:17:23.690
is there such a decline in spending
291
00:17:23.690 --> 00:17:26.450
that the over exuberance in the economy
292
00:17:26.450 --> 00:17:30.287
which I've just spoken of will be eliminated
293
00:17:31.970 --> 00:17:35.430
and indeed is there a danger that it will be followed
294
00:17:35.430 --> 00:17:37.563
by a period of too little
295
00:17:37.563 --> 00:17:40.680
purchasing power steam in the economy.
296
00:17:40.680 --> 00:17:42.018
I don't think so.
297
00:17:42.018 --> 00:17:47.018
In the first place, the budget spending will go up
298
00:17:48.770 --> 00:17:52.612
by something like seven percent in real terms.
299
00:17:52.612 --> 00:17:57.300
That is a reduction because,
300
00:17:57.300 --> 00:18:01.940
no that's not a reduction in real terms.
301
00:18:01.940 --> 00:18:05.900
In the sense that the prices haven't risen by seven percent.
302
00:18:05.900 --> 00:18:07.410
But most of that,
303
00:18:07.410 --> 00:18:10.710
much of that is an increase in transfer expenditures
304
00:18:10.710 --> 00:18:14.890
by the expanded social security program.
305
00:18:14.890 --> 00:18:17.710
And so if you subtract that out
306
00:18:17.710 --> 00:18:21.921
and look at the resulting increase
307
00:18:21.921 --> 00:18:26.830
or change in the money value of goods
308
00:18:26.830 --> 00:18:29.008
and services purchased by the government.
309
00:18:29.008 --> 00:18:34.008
And then if you deflate that by the increase in prices
310
00:18:34.980 --> 00:18:37.922
of those goods and services bought by the government.
311
00:18:37.922 --> 00:18:41.340
You will then end up with an estimate of the real
312
00:18:42.400 --> 00:18:47.400
GNP goods and services purchased by the government.
313
00:18:48.760 --> 00:18:53.127
And that I think would prove to be a negative number,
314
00:18:54.640 --> 00:18:57.794
but it would not be a huge gaping hole
315
00:18:57.794 --> 00:19:01.360
in the circular flow of purchasing power.
316
00:19:01.360 --> 00:19:04.416
And I see no reason to believe that
317
00:19:04.416 --> 00:19:08.620
the first quarter of this year will not be a very strong one
318
00:19:08.620 --> 00:19:11.910
and the second quarter also.
319
00:19:11.910 --> 00:19:16.910
This leaves us with the question of whether by the third
320
00:19:16.930 --> 00:19:21.930
or fourth quarter the rate of increase in real GNP
321
00:19:22.495 --> 00:19:27.495
will be down to the normal level,
322
00:19:27.760 --> 00:19:29.660
the trend level for the American economy
323
00:19:29.660 --> 00:19:32.720
which is perhaps four and a quarter percent
324
00:19:32.720 --> 00:19:36.960
or as a few people think, but still only a few,
325
00:19:36.960 --> 00:19:40.790
down to below that so that the unemployment situation
326
00:19:40.790 --> 00:19:45.790
which has been generally improving will go into reverse.
327
00:19:45.792 --> 00:19:48.870
That could happen but I think on the basis
328
00:19:48.870 --> 00:19:52.150
of the current leads and lags
329
00:19:52.150 --> 00:19:54.560
and the inertia in the system
330
00:19:54.560 --> 00:19:57.650
and the best estimates that I've been able to see
331
00:19:57.650 --> 00:20:00.956
of what's going to happen to inventory spending
332
00:20:00.956 --> 00:20:03.956
in the next four or five quarters to housing
333
00:20:03.956 --> 00:20:07.400
to plant the equipment expenditures.
334
00:20:07.400 --> 00:20:10.310
I think it's premature to blow the whistle
335
00:20:10.310 --> 00:20:13.140
and say that the period of expansion is over
336
00:20:13.140 --> 00:20:16.800
and now we're entering into the period of stagnation
337
00:20:17.770 --> 00:20:19.313
or of stagflation.
338
00:20:21.960 --> 00:20:25.620
A word or two on the unemployment situation.
339
00:20:25.620 --> 00:20:29.060
I believe that the administration has won its bet
340
00:20:29.060 --> 00:20:31.580
that by the end of the year the unemployment
341
00:20:31.580 --> 00:20:34.481
of the United States will be in the neighborhood
342
00:20:34.481 --> 00:20:35.314
of five percent.
343
00:20:35.314 --> 00:20:37.090
You know that on the evidence available
344
00:20:37.090 --> 00:20:38.930
in the beginning of the year
345
00:20:38.930 --> 00:20:42.100
I didn't think that the best scientific judgment
346
00:20:42.100 --> 00:20:44.070
would be that that would be a correct statement.
347
00:20:44.070 --> 00:20:46.448
I said that something like five or quarter percent,
348
00:20:46.448 --> 00:20:50.920
but it was explained nicely to me by one of the members of
349
00:20:50.920 --> 00:20:53.535
the Nixon Council of Economic Advisors
350
00:20:53.535 --> 00:20:54.980
that by the end of the year
351
00:20:54.980 --> 00:20:56.550
they didn't mean the first quarter,
352
00:20:56.550 --> 00:20:58.975
they meant literally New Years midnight
353
00:20:58.975 --> 00:21:01.242
which means halfway between the fourth quarter
354
00:21:01.242 --> 00:21:02.864
and the first quarter
355
00:21:02.864 --> 00:21:07.864
and that alone would almost make their debt worthwhile.
356
00:21:08.030 --> 00:21:09.240
But many a case,
357
00:21:09.240 --> 00:21:14.240
the drop in November to 5.2 percent from 5.5 percent,
358
00:21:14.330 --> 00:21:17.230
which being a full three tenths of a percent
359
00:21:17.230 --> 00:21:18.750
looked suspicious.
360
00:21:18.750 --> 00:21:21.750
And now that they've revised the data it seems it stands up.
361
00:21:23.187 --> 00:21:24.260
And the continuance in December
362
00:21:24.260 --> 00:21:26.462
of another 5.2 percent month,
363
00:21:26.462 --> 00:21:28.380
now that they've revised the data,
364
00:21:28.380 --> 00:21:31.576
it turns out to be an overstatement of unemployment.
365
00:21:31.576 --> 00:21:36.204
It was now with new seasonal corrections, 5.1 percent.
366
00:21:36.204 --> 00:21:37.949
And then in January,
367
00:21:37.949 --> 00:21:41.690
which I guess we can say is around the end of the year,
368
00:21:41.690 --> 00:21:45.210
we had 5.0 percent.
369
00:21:45.210 --> 00:21:50.210
So there isn't any reason at this time,
370
00:21:53.024 --> 00:21:58.024
not to think that in the months ahead,
371
00:21:58.130 --> 00:22:03.070
the number may well work it's way below a five percent,
372
00:22:03.070 --> 00:22:04.593
more or less steadily.
373
00:22:05.460 --> 00:22:09.060
The major doubt in this regard, I think,
374
00:22:09.060 --> 00:22:12.440
would be the fact that the improvement
375
00:22:12.440 --> 00:22:14.273
in the unemployment numbers.
376
00:22:17.000 --> 00:22:18.650
Which could come about either
377
00:22:18.650 --> 00:22:22.860
because the job situation was exceptionally strong
378
00:22:22.860 --> 00:22:27.860
or because the labor force growth was weaker than expected.
379
00:22:33.050 --> 00:22:34.820
Either of those two could have been possibilities
380
00:22:34.820 --> 00:22:37.102
was turned out in the last few months
381
00:22:37.102 --> 00:22:39.535
that it's been weakness in the labor force.
382
00:22:39.535 --> 00:22:42.510
Seems to me that that's fair enough.
383
00:22:42.510 --> 00:22:46.030
After all, there was excessive strength in the labor force
384
00:22:46.030 --> 00:22:50.830
for month after month after month back early in 1972
385
00:22:50.830 --> 00:22:55.657
and indeed in 1971 and so the rosy expectations
386
00:22:55.657 --> 00:22:59.260
of the administration were rewarded for that reason.
387
00:22:59.260 --> 00:23:01.890
Well you can't get it coming and going
388
00:23:01.890 --> 00:23:05.390
and since they got it earlier,
389
00:23:05.390 --> 00:23:07.820
we got to let them get some relief
390
00:23:07.820 --> 00:23:10.590
from a relaxation in the labor force.
391
00:23:10.590 --> 00:23:14.790
A relaxation, by the way although it wasn't predicted.
392
00:23:14.790 --> 00:23:18.125
The magnitude is not at all out of the ball park
393
00:23:18.125 --> 00:23:20.010
for what seems reasonable
394
00:23:20.010 --> 00:23:22.173
at this stage of the business cycle.
395
00:23:23.270 --> 00:23:25.472
I don't know that the productivity
396
00:23:25.472 --> 00:23:29.939
has been doing anything noteworthy.
397
00:23:29.939 --> 00:23:34.000
As you know, early in the business cycle expansion,
398
00:23:34.000 --> 00:23:35.250
productivity does very well
399
00:23:35.250 --> 00:23:37.957
and that has turned out to be true.
400
00:23:37.957 --> 00:23:39.680
In this expansion,
401
00:23:39.680 --> 00:23:43.470
once we got into a period of real expansion,
402
00:23:43.470 --> 00:23:48.310
got behind the 1971 very weak endemic expansion,
403
00:23:48.310 --> 00:23:50.950
productivity did improve
404
00:23:50.950 --> 00:23:54.256
and although we can't expect to maintain that pace
405
00:23:54.256 --> 00:23:57.450
there is no reason to think that it will go away,
406
00:23:57.450 --> 00:24:00.163
the productivity and pace will go away overnight.
407
00:24:04.920 --> 00:24:07.698
I return to what must be the key question
408
00:24:07.698 --> 00:24:11.099
and preoccupation for anyone who wants to understand
409
00:24:11.099 --> 00:24:15.800
the developing business cycle situation in the Unites States
410
00:24:17.210 --> 00:24:21.000
in 1973 and in 1974.
411
00:24:21.000 --> 00:24:23.360
The key must be found in the behavior
412
00:24:23.360 --> 00:24:25.363
of prices and of wages.
413
00:24:26.710 --> 00:24:28.883
If phase three works,
414
00:24:30.521 --> 00:24:35.521
if the moderating of inflation which had been going
415
00:24:36.470 --> 00:24:39.550
on before phase one
416
00:24:39.550 --> 00:24:42.850
and which when I'm very strongly in phase one
417
00:24:42.850 --> 00:24:46.738
and continue but with less strength
418
00:24:46.738 --> 00:24:50.300
(that is the degree of moderation in phase two).
419
00:24:50.300 --> 00:24:52.520
If that continues nicely
420
00:24:52.520 --> 00:24:55.920
and if the administration wins its bets
421
00:24:55.920 --> 00:24:59.470
that by the end of the year prices will be growing
422
00:24:59.470 --> 00:25:01.300
at less than three percent
423
00:25:01.300 --> 00:25:02.713
and that's the beginning of 1973.
424
00:25:03.997 --> 00:25:08.997
And then I think we can look to a strong 1974.
425
00:25:13.320 --> 00:25:16.830
I think its fruitless to try to look beyond then.
426
00:25:16.830 --> 00:25:18.203
But remember this,
427
00:25:19.144 --> 00:25:22.573
almost none of the experts,
428
00:25:23.420 --> 00:25:24.860
those who are for administration
429
00:25:24.860 --> 00:25:26.870
or those who are against administration
430
00:25:26.870 --> 00:25:28.660
are really that optimistic.
431
00:25:28.660 --> 00:25:33.520
Almost all the forecasts before phase two was abandoned,
432
00:25:33.520 --> 00:25:38.520
looked for prices to be increasing in 1973 itself.
433
00:25:38.780 --> 00:25:43.113
Somewhere around the three and a half percent rate.
434
00:25:44.031 --> 00:25:48.080
Less than three and a half if you compare '72 with '73.
435
00:25:48.080 --> 00:25:52.440
But three and a half in '73 itself.
436
00:25:52.440 --> 00:25:54.520
After phase two was removed,
437
00:25:54.520 --> 00:25:57.590
I think representative of what we've seen happening
438
00:25:57.590 --> 00:26:02.110
for example in fuel and oil in the number of other lines
439
00:26:02.110 --> 00:26:03.810
that relevant price increases
440
00:26:03.810 --> 00:26:05.640
frowned on by the administration,
441
00:26:05.640 --> 00:26:09.560
but they have yet pulled a big stick out of the closet.
442
00:26:09.560 --> 00:26:11.290
They've I guess pulled it out of the closet
443
00:26:11.290 --> 00:26:12.710
and now put it on the table,
444
00:26:12.710 --> 00:26:15.946
but they have yet beat anybody with it.
445
00:26:15.946 --> 00:26:19.920
After phase three was introduced,
446
00:26:19.920 --> 00:26:22.971
most of these estimates went up to three and a quarter
447
00:26:22.971 --> 00:26:27.971
through three quarters, four percent.
448
00:26:27.990 --> 00:26:29.810
Since I though the estimates previously
449
00:26:29.810 --> 00:26:32.320
were a little bit on the overly optimistic side
450
00:26:33.480 --> 00:26:34.960
and I'm not alone in thinking this.
451
00:26:34.960 --> 00:26:37.010
Many monetarists have also thought this
452
00:26:37.010 --> 00:26:42.010
and then I had to take their new numbers
453
00:26:42.030 --> 00:26:43.529
and still add something on.
454
00:26:43.529 --> 00:26:48.529
And so although I have to reserve judgment
455
00:26:49.370 --> 00:26:54.269
until we see how the wage settlements break.
456
00:26:54.269 --> 00:26:57.860
How the Arabic Workers' Affair
457
00:26:57.860 --> 00:27:01.213
or whether the team stirs later in the spring.
458
00:27:03.010 --> 00:27:05.060
(indistinct) with the general guidelines.
459
00:27:06.630 --> 00:27:08.453
I think there is reason,
460
00:27:09.760 --> 00:27:12.770
as a betting man to have some apprehension on this score.
461
00:27:12.770 --> 00:27:16.260
The result is that there will be increasing anxiety
462
00:27:16.260 --> 00:27:18.720
in the country about inflation.
463
00:27:18.720 --> 00:27:21.710
There will be increasing apprehension
464
00:27:21.710 --> 00:27:23.757
and anxiety in Washington.
465
00:27:23.757 --> 00:27:28.757
And the forces that urge upon the Federal Reserve
466
00:27:31.200 --> 00:27:36.200
sharply contractionary policy will grow in strength.
467
00:27:36.620 --> 00:27:40.486
The forces that urge upon the budget
468
00:27:40.486 --> 00:27:45.360
sharply contractionary policy will grow in strength.
469
00:27:45.360 --> 00:27:48.010
And it's out of the working's out,
470
00:27:48.010 --> 00:27:53.010
I think of such forces that the next period of stagnation,
471
00:27:54.110 --> 00:27:57.293
the next period of recession will be bred.
472
00:27:58.790 --> 00:28:01.454
This process can be helped of course
473
00:28:01.454 --> 00:28:03.550
by the natural forces of over exuberance in the system.
474
00:28:03.550 --> 00:28:06.430
If inventory accumulation moves up to
475
00:28:06.430 --> 00:28:11.160
a 12 billion annual rate in some quarters
476
00:28:11.160 --> 00:28:13.230
then onto 15 then onto 18.
477
00:28:13.230 --> 00:28:15.990
You have very many of those and you will naturally
478
00:28:15.990 --> 00:28:18.110
get an overstocking in the economy
479
00:28:18.110 --> 00:28:22.042
and there will be natural forces working for stagnation
480
00:28:22.042 --> 00:28:24.260
and recession reinforcing
481
00:28:24.260 --> 00:28:28.060
the contractionary forces of rushing.
482
00:28:28.060 --> 00:28:31.535
Now all of this is not inevitable.
483
00:28:31.535 --> 00:28:34.450
There is something that can be done about it.
484
00:28:34.450 --> 00:28:38.110
It seems to me that the proper policy
485
00:28:38.110 --> 00:28:40.846
is not at all times study as you go.
486
00:28:40.846 --> 00:28:44.560
Just agree upon what kind of a budget you want
487
00:28:44.560 --> 00:28:47.750
on the social philosophical grounds agreed upon
488
00:28:47.750 --> 00:28:50.443
what rate of growth of money supply you want.
489
00:28:50.443 --> 00:28:53.828
That's not the council which I would urge.
490
00:28:53.828 --> 00:28:56.800
It seems to me that the best council
491
00:28:56.800 --> 00:29:00.450
is lean against the wind that your best judgment tells you
492
00:29:00.450 --> 00:29:03.870
is gonna prevail in the next six months.
493
00:29:03.870 --> 00:29:06.377
Unless that wind is blowing in exactly the right direction
494
00:29:06.377 --> 00:29:08.950
for a healthy American economy.
495
00:29:08.950 --> 00:29:13.950
And that's why I have been supporting the movement
496
00:29:14.999 --> 00:29:17.762
for moderation on the credit front
497
00:29:17.762 --> 00:29:20.980
for five or six months now.
498
00:29:20.980 --> 00:29:23.220
Including the period when the Federal Reserve
499
00:29:23.220 --> 00:29:26.050
had a slow growth in the money supply.
500
00:29:26.050 --> 00:29:30.760
And that is why on budgetary grounds
501
00:29:30.760 --> 00:29:35.369
I think that the case is strong for restraint.
502
00:29:35.369 --> 00:29:39.100
If you have any comments or questions
503
00:29:39.100 --> 00:29:41.010
for Professor Samuelson, address them to
504
00:29:41.010 --> 00:29:43.250
Instructional Dynamics Incorporated
505
00:29:43.250 --> 00:29:45.051
166 East Superior Street,
506
00:29:45.051 --> 00:29:48.143
Chicago, Illinois 60611.