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<v ->Welcome once again, as MIT professor Paul Samuelson</v>

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discusses the current economic scene.

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This series is produced by

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Instructional Dynamics Incorporated.

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This program was recorded September 10th.

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<v ->The news has been coming thick and fast.</v>

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Today, I'd like to report on the first summit meeting,

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the first preparatory meeting for the summit

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called by President Ford for the major, grand, glorious,

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1,500-person summit which will meet

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at some Washington hotel at the end of this month.

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On Thursday, September 5th, 28 outside economists

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were invited to meet in the east room of the White House

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with President Ford, with his economic advisors,

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Chairman Alan Greenspan newly appointed

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to the Council of Economic Advisors,

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being in the chair for most of the day

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when the president wasn't there.

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But included at the table were

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Roy Ash, the director of the Office of Budget Management,

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William Simon, Secretary of Treasury,

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all the other economists, Dr. Fellner of the CEA,

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Dr. Seevers, and so forth.

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But also, and this was therefore

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to be not just an executive branch meeting,

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but a combined operation, a honeymoon coupling

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between Congress and executive,

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also present at the table were senators and congressmen.

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Senator Proxmire was there, Congressman Patman was there,

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John Rhodes, Dominick, so you see we had people

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from Congress both from the liberal

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and the more conservative persuasions there.

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Who were the economists invited?

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Well, I think they were a fairly predictable list of names

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once it was decided that it was

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to be a broad spectrum meeting.

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For example, John Kenneth Galbraith was included,

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and I take that to be a signal

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that people off the mainstream

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of conventional economics were to be represented there.

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In addition, there was a professor

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who was about to go to the Hoover library

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who would be, I suppose, presumed

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to represent a more conservative viewpoint.

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Now, of course you can't have everybody.

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Lacking, notably lacking, from the standpoint

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of an inside professional was that there was no invitation

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to Gardner Ackley, a former chairman

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of the Council of Economic Advisors.

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But perhaps it was felt that Otto Eckstein,

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Arthur Okun and Walter Heller were enough

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of a representation of his view.

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Also not present was professor James Tobin of Yale,

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who represents a view discernibly different

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from that, let's say, of Walter Heller,

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and perhaps of somebody like myself.

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But again, it may have been felt

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that you can't have everybody represented.

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And Richard Cooper of Yale, formerly provost,

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now returning to be a professor

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of international economics at Yale was there,

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and he did, as it happens, in giving his view,

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also give some of the views of Professor Tobin.

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Well, Professor Milton Friedman was there,

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Professor Beryl Sprinkel, the monetarist, was there.

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We did not have Alan Meltzer and Karl Brunner,

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other monetarists, represented there.

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But, by and large, there was a pretty good representation.

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I should say that Herbert Stein now a professor

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at the University of Virginia was, of course,

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invited there, and Paul McCracken,

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formerly a chairman who also seems

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to have some personal relationship

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with the new president was there.

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There were some people from, I guess

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you would have to say industry and labor,

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for example there was a representative there

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from the CIO AFL, AFL-CIO, and there was

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a representative from the Chamber of Commerce.

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It was very pleasing to see that

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there were a couple of women there.

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There was, and by the way, in my judgment,

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they performed among the outstanding performers there.

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Marina Whitman, formerly with the Nixon council

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and an expert in her own right

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in international economics, was there.

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Norma Pace, from the Paper Institute was there.

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There was an economist from IBM,

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there was an economist from Armstrong Corp,

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there was an economist from the Bank of America,

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so I suppose you could say there were some people

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who had met a payroll there and who were practical.

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I must not omit to mention that George Schultz,

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formerly secretary of treasury,

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but now at the Bechtel Corporation on the west coast

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and in a part-time relationship

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to Stanford Business School was there.

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The face lacking, missing, was Pierre Rinfret.

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It had been announced that he had been

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personally invited by the president.

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I suppose this must have been announced

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by Dr. Rinfret himself, but that the staff

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had vetoed the president's invitation.

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Well, you can't have everything.

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Now, what could have been expected before the meeting,

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and what happened at the meeting?

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Before the meeting, I don't think you could expect too much

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of any importance and after the meeting,

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I think that history will record

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that that expectation was correct,

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because after all, the views of all the people

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at that table have been made available

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to the public and made available

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to the government, long since.

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My own fear was that the only purpose

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of the summit, once the president had committed himself

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to it, was going to be an anticlimactic purpose

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but that the usefulness of such a summit meeting,

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preliminary summit meeting but I go

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for all the meetings and the final, big summit meeting

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is not to discover new truths.

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You can't expect new anti-Keynesian theorems

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or pro-Keynesian theorems or quite

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in different ballparks from Keynes theorems

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to emerge from a brainstorming session

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in public by a group of experts like that.

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The truth is found in the solitary study,

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in the seminar room, even in bathtubs,

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not in public committee meetings like that.

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So I said to myself, what purpose could this serve?

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And I concluded that such a conference

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can sometimes be successful when you have a position

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to sell, a position that most men of goodwill agree with

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and what you need is a blue-ribbon certification

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of that, a public relations kickoff,

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and this was, to me, a very foreboding

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and pessimistic conclusion, because I asked myself,

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what is it that anyone could imagine,

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anyone in Washington, that is,

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that would constitute such a program?

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And the only program that I thought of

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that people could agree on and which would need selling

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would be a program of blood, sweat, and tears.

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What you have to do is to tough out this period

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of stagnation, it hurts you, but it's really good

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for you and what we need to have is the American people

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back up the view expressed by so many economists

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of the previous administration that,

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to put it bluntly, what the country cannot avoid,

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what the country actually needs,

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what the country will be better off for

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is 6+% unemployment for a long, long time.

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Indeed, the daydreams of a Washington

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administration economist, if I use my ESP,

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I think it's not very hard to paint

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what is in those daydreams, it's the following,

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that we should not have the economy so acutely down

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as to constitute what the National Bureau

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of Economic Research calls a recession.

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But, just on the edge of that particular dividing line,

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we should keep the economy pretty much flat,

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definitely growing below the par needed

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to keep the labor force occupied.

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So we should hope to have the unemployment rate increase,

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towards 6%, do something cosmetic

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and substantive about relieving some

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of the human suffering, the worst human suffering

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connected with that, but not all of the human suffering,

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or else the medicine won't provide its therapy

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and hold on for about a couple of years,

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in which case, inflationary expectations

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will be squeezed out of the system

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and then, again, I want you to know

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that I'm quoting the view of one group

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of economists, perhaps the minority

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of all economic experts somehow defined,

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then there would be no reason why

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we couldn't go forward for the rest of the decade

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with steady prosperity and reasonable price stability.

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I'm not sure what numbers would correspond

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to all that, but I think I'm not caricaturing the position

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if I say that the price level,

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as measured by the Consumer's Price Index

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and the GNP deflater, presumably needn't grow

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by more than an average of two or 3%,

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the last part of the decade, after the middle

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of the decade, and that the real growth

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for the economy could be pretty steady,

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averaging about 4% after the shakeout period.

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Well, to get there from here,

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what's needed, according to this view,

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is a austere budget, most of the economists

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who have this view think that an austere budget

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is the only good budget anyway,

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that there's an awful lot of waste

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in the federal budget and it is always

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in season to cut down on it.

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So what one should have would I presume be a $5 billion cut,

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at least, from the next fiscal policy budget,

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hold it down to below $300 billion, as Dr. Greenspan said,

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I'm sorry, Mr. Greenspan, it's not so important

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that X billion dollars be cut,

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as that we show a definite new pattern,

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a definite repentance for the loose budgetary policies

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of the past, that we'd be on our way towards progress.

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Of course, what should also take place,

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according to these economists, is a strengthening

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of the political hand of the Federal Reserve

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to keep the rate of growth of the money supply down,

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to keep it down to a reasonable long-run number,

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like 4% or 5%, in that particular ballpark,

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and it would be nice to get 20 out of 28 experts

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to sign their John Hancocks to such a program.

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This would put pressure on Congress,

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in fact, some of the economists

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of this persuasion think the people are ahead

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of Congress in this respect

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and this particular prescription,

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which doesn't, perhaps, to everybody's ears sound great,

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is said by these economists to be the best

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that is really feasible, it just is not possible

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to avoid having unemployment rise.

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It is just not possible to have unemployment not rise

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without bringing us right back to a new twist

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of the inflationary spiral.

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And the low two-digits price inflation could begin

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to turn into something worse, moreover,

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according to these economists again,

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the change from low, two-digit inflation

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which is improving to two-digit inflation

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which is not improving is going, inevitably,

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under the American political system

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to bring in controls

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and infringements on personal and private liberties

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so that, although there's a cost involved

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in this program, anyone who is rational

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and who values freedom and who carefully puts

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into the balance scales, on the one side,

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the cost in terms of some extra unemployment

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and some sacrificed real growth in the short run,

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which isn't even a cost in the long run,

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according to this view, just a trade-off through time.

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On the other side, if you don't do it,

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and that's the alternative which we're urged, always,

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to look at, you will have lost your freedoms

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and no sacrifice, for a person who really values freedom,

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is too great to preserve one's freedoms.

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And it would help some if 20 out

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of 28 economists were to support that viewpoint.

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I emphasize 20 out of 28 because unanimity

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among the broad spectrum group of economists

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is certainly not to be expected by any reasonable man.

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Usually about 20 in the crowd go one way,

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the consensus way, and then you always have another eight,

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another 1/3 who are distributed

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on both sides of that consensus,

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those who think that a more rightward,

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a more conservative, in the case

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of fighting inflation, a more contractionary set

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of policies is indicated and then, of course,

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always a group on the other side,

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presumably the AFL-CIO.

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00:16:39.848 --> 00:16:43.130
One would have ordinarily, in most years,

264
00:16:43.130 --> 00:16:45.580
thought John Kenneth Galbraith, etc.,

265
00:16:45.580 --> 00:16:47.243
would be on the other side.

266
00:16:47.243 --> 00:16:50.500
Well, that isn't at all what happened.

267
00:16:50.500 --> 00:16:55.500
First, it was decided that this should be on television.

268
00:16:56.310 --> 00:16:59.700
Of course, this means this is on educational television,

269
00:16:59.700 --> 00:17:01.680
it doesn't mean high Nielsen ratings

270
00:17:01.680 --> 00:17:05.940
but it does mean any person out in the community

271
00:17:05.940 --> 00:17:08.960
who is near an urban area and who wants

272
00:17:08.960 --> 00:17:11.550
to follow the proceedings is able to do so.

273
00:17:11.550 --> 00:17:14.120
And so you have the spectacle of economists

274
00:17:14.120 --> 00:17:18.260
on the air, all day long, if they scratched an ear

275
00:17:19.610 --> 00:17:24.610
and were within camera view, then

276
00:17:24.950 --> 00:17:28.993
that was transmitted all across our great country.

277
00:17:31.420 --> 00:17:36.060
My forebodings were not realized

278
00:17:37.520 --> 00:17:39.470
and actually, at the end of the day,

279
00:17:39.470 --> 00:17:44.300
when I thought back on my return to Cambridge,

280
00:17:44.300 --> 00:17:46.640
on what had happened, I decided

281
00:17:46.640 --> 00:17:48.780
that it had been about as good a day

282
00:17:48.780 --> 00:17:53.167
as one might have hoped for because what is it

283
00:17:53.167 --> 00:17:57.120
that the economists there agreed upon?

284
00:17:57.120 --> 00:17:59.500
Well, they didn't agree on anything,

285
00:17:59.500 --> 00:18:04.500
if 28 out of 28 is your test, but using my rough rule

286
00:18:05.610 --> 00:18:09.469
of, where 2/3 to 3/4 stood,

287
00:18:09.469 --> 00:18:14.373
then there was a surprising measure of agreement.

288
00:18:15.240 --> 00:18:19.430
For example, at least that number,

289
00:18:19.430 --> 00:18:23.040
in fact, probably all but three or four in the room

290
00:18:24.540 --> 00:18:27.620
said that it was clear that the Federal Reserve

291
00:18:27.620 --> 00:18:29.580
had been too tight.

292
00:18:29.580 --> 00:18:34.580
I said that if 23 out of 28 economists say

293
00:18:35.900 --> 00:18:38.590
the Federal Reserve has been too tight,

294
00:18:38.590 --> 00:18:43.407
it means that they really have overstayed their gambit.

295
00:18:48.022 --> 00:18:51.470
Unfortunately Dr. Arthur Burns, chairman

296
00:18:51.470 --> 00:18:54.370
of the Federal Reserve was not in the room all day

297
00:18:54.370 --> 00:18:57.190
and when this particular type

298
00:18:57.190 --> 00:19:00.150
of analysis reached its crescendo, I noted

299
00:19:00.150 --> 00:19:02.320
that he was not in the room but I was assured

300
00:19:02.320 --> 00:19:05.010
that a little bird would tell him what went on

301
00:19:05.010 --> 00:19:08.150
in the room and when the president returned,

302
00:19:08.150 --> 00:19:11.380
Arthur Burns also returned.

303
00:19:11.380 --> 00:19:12.760
The president got the message

304
00:19:12.760 --> 00:19:14.290
and the Federal Reserve got the message.

305
00:19:14.290 --> 00:19:19.290
In fact, just yesterday, the Federal Reserve,

306
00:19:20.680 --> 00:19:25.110
through an official spokesman, unnamed,

307
00:19:25.110 --> 00:19:28.780
said that it already had turned.

308
00:19:28.780 --> 00:19:31.560
It didn't need the advice of those experts,

309
00:19:31.560 --> 00:19:35.500
it had its own advice and the change

310
00:19:35.500 --> 00:19:39.270
in its reserve requirements on large CDs

311
00:19:39.270 --> 00:19:42.753
that are over four months duration,

312
00:19:44.019 --> 00:19:46.250
that was a signal of the turn.

313
00:19:46.250 --> 00:19:47.740
Moreover, the federal funds rate,

314
00:19:47.740 --> 00:19:50.480
which had been above 12% and which is watched

315
00:19:50.480 --> 00:19:53.980
as a bellwether, had moved down even earlier

316
00:19:53.980 --> 00:19:55.350
to 11 and a half percent.

317
00:19:55.350 --> 00:19:57.630
All this news was so joyous and good

318
00:19:57.630 --> 00:20:01.260
that the stock market was up for a couple of days

319
00:20:01.260 --> 00:20:06.260
in a row, however, lest you think the joy was overdone,

320
00:20:07.670 --> 00:20:12.670
the stock market managed to take a very sharp fall,

321
00:20:13.540 --> 00:20:16.270
just yesterday, as I'm speaking,

322
00:20:16.270 --> 00:20:21.270
but it had another event, for those who want

323
00:20:21.750 --> 00:20:23.340
to explain the stock market,

324
00:20:23.340 --> 00:20:25.910
to give them a possible explanation.

325
00:20:25.910 --> 00:20:30.910
Namely, just three days after this era

326
00:20:31.320 --> 00:20:34.030
of good feeling in which jokes

327
00:20:34.030 --> 00:20:37.640
about the little brown jug that passes

328
00:20:37.640 --> 00:20:39.040
between the University of Michigan

329
00:20:39.040 --> 00:20:42.370
and the University of Minnesota were being bandied about

330
00:20:42.370 --> 00:20:46.690
at the president's table and the president

331
00:20:46.690 --> 00:20:49.820
was being congratulated on no longer having an enemy list

332
00:20:49.820 --> 00:20:51.560
and having just a list of friends

333
00:20:51.560 --> 00:20:55.280
and a listing of everybody and when I spoke

334
00:20:55.280 --> 00:20:58.430
of the need for middle-of-the-road policies

335
00:21:00.950 --> 00:21:05.950
and emphasized my strong Midwestern credentials,

336
00:21:06.060 --> 00:21:11.060
the president jumped to grab the middle-of-the-road,

337
00:21:11.770 --> 00:21:15.740
said he was a middle-of-the-road person

338
00:21:15.740 --> 00:21:17.410
and of course, we have no reason to doubt

339
00:21:17.410 --> 00:21:22.410
that he's a Midwestern person and all was good feeling

340
00:21:22.970 --> 00:21:25.670
but of course, just two days ago,

341
00:21:25.670 --> 00:21:30.670
the president, after taking guidance

342
00:21:30.960 --> 00:21:35.790
from non-earthly sources decided

343
00:21:35.790 --> 00:21:37.190
that he would give an absolute

344
00:21:37.190 --> 00:21:42.190
and unconditional pardon to the recent president

345
00:21:43.010 --> 00:21:47.730
and this, in the view of short term observers,

346
00:21:47.730 --> 00:21:50.505
seems to suggest that the honeymoon's over,

347
00:21:50.505 --> 00:21:55.505
so that the middle-of-the-road policy

348
00:21:56.070 --> 00:21:59.040
advocated last Thursday by the group

349
00:21:59.040 --> 00:22:02.890
of experts will not have a chief executive

350
00:22:02.890 --> 00:22:05.770
who has quite as much clout to put it through.

351
00:22:05.770 --> 00:22:07.449
But let me stick to economics.

352
00:22:07.449 --> 00:22:11.510
On the budget, it was pointed out

353
00:22:11.510 --> 00:22:13.370
by very many of the experts there,

354
00:22:13.370 --> 00:22:17.770
that the government expenditure,

355
00:22:17.770 --> 00:22:20.570
in real terms, in goods and services,

356
00:22:20.570 --> 00:22:25.570
or in money terms, has been going down,

357
00:22:25.810 --> 00:22:29.660
relative to the GNP in this recent inflation period.

358
00:22:29.660 --> 00:22:32.210
After all, there's been a substantial cut

359
00:22:32.210 --> 00:22:34.286
in defense expenditures.

360
00:22:34.286 --> 00:22:36.330
We've been able to give less support

361
00:22:36.330 --> 00:22:38.853
to agriculture, etc., etc.

362
00:22:39.774 --> 00:22:42.730
This is particularly true at the federal level.

363
00:22:42.730 --> 00:22:47.100
The state and local expenditures have not

364
00:22:47.100 --> 00:22:50.020
gone down in the way that the federal have,

365
00:22:50.020 --> 00:22:53.140
but that's understandable because of revenue sharing

366
00:22:53.140 --> 00:22:55.130
and also because of the needs for schools

367
00:22:55.130 --> 00:22:58.463
and roads and other things at the local level.

368
00:22:59.340 --> 00:23:02.500
If you add in the expansion of transfers,

369
00:23:02.500 --> 00:23:04.060
because we are in a welfare state,

370
00:23:04.060 --> 00:23:06.325
the increase of Social Security expenditures

371
00:23:06.325 --> 00:23:10.230
and other transfer expenditures of the federal government,

372
00:23:10.230 --> 00:23:14.810
then what you find is that the share

373
00:23:14.810 --> 00:23:19.640
of GNP, it's really not an appropriate comparison,

374
00:23:19.640 --> 00:23:21.900
but let's make it because it's always made,

375
00:23:21.900 --> 00:23:26.900
of total government spending at all levels has been flat,

376
00:23:27.160 --> 00:23:29.670
it has not been going up in this particular period.

377
00:23:29.670 --> 00:23:31.910
I won't go through the numbers with you

378
00:23:31.910 --> 00:23:35.892
on this occasion, but if you will look at the unified budget

379
00:23:35.892 --> 00:23:38.820
and the budget on national income account

380
00:23:38.820 --> 00:23:41.720
and the full employment budget, etc., etc.,

381
00:23:41.720 --> 00:23:45.630
you will not find that the simple-minded thesis

382
00:23:45.630 --> 00:23:48.260
that deficits out of control have caused

383
00:23:48.260 --> 00:23:52.130
this last inflation can be substantiated.

384
00:23:52.130 --> 00:23:54.800
Quite the contrary.

385
00:23:54.800 --> 00:23:57.550
Where you will find an expanding role for government,

386
00:23:57.550 --> 00:24:00.560
and this is of importance, and it's something,

387
00:24:00.560 --> 00:24:03.460
which by the way, Arthur Burns

388
00:24:03.460 --> 00:24:06.450
and his associates should be thinking about all the time

389
00:24:06.450 --> 00:24:10.537
is in the intermediate financing level

390
00:24:13.430 --> 00:24:16.990
by government of outside government activities,

391
00:24:16.990 --> 00:24:19.500
whenever the Federal Reserve is very tough on housing,

392
00:24:19.500 --> 00:24:22.150
then Congress and executive arrange

393
00:24:22.150 --> 00:24:25.740
to have the government do some floating

394
00:24:25.740 --> 00:24:30.740
of bonds by Freddie Mac and Fannie Mae

395
00:24:31.087 --> 00:24:35.420
and Jenny somebody-or-other and there's still

396
00:24:35.420 --> 00:24:40.320
some more brainchildren to come

397
00:24:40.320 --> 00:24:42.860
and if you take in all the borrowing

398
00:24:42.860 --> 00:24:45.750
for purposes like this and throw that

399
00:24:45.750 --> 00:24:49.320
in the budget of the governments,

400
00:24:49.320 --> 00:24:51.610
at all level, then you do begin

401
00:24:51.610 --> 00:24:53.900
to see an increasing percentage

402
00:24:53.900 --> 00:24:55.900
of the resources of the country,

403
00:24:55.900 --> 00:24:58.850
not in government, not by government,

404
00:24:58.850 --> 00:25:03.450
but under government, strong government influence,

405
00:25:03.450 --> 00:25:06.050
but it would be a very peculiar theory

406
00:25:06.050 --> 00:25:11.050
of macroeconomics which could associate the 12% inflation

407
00:25:12.270 --> 00:25:16.490
with that particular factor and none

408
00:25:16.490 --> 00:25:21.093
of the experts at that table proceeded to do so.

409
00:25:23.170 --> 00:25:26.350
One of the experts there, Dr. Sprinkel,

410
00:25:26.350 --> 00:25:29.240
of the Harris Trust in Chicago,

411
00:25:29.240 --> 00:25:34.240
did emphasize the money levels of the budget

412
00:25:34.700 --> 00:25:37.327
but since the prices

413
00:25:42.350 --> 00:25:46.160
which everything, the prices of everything,

414
00:25:46.160 --> 00:25:50.403
which are important in deciding what this magnitude is,

415
00:25:51.280 --> 00:25:53.240
if he had deflated by that,

416
00:25:53.240 --> 00:25:56.040
then he would not have had his point.

417
00:25:56.040 --> 00:25:58.860
Moreover, he was the one seeming optimist

418
00:25:58.860 --> 00:26:01.830
about what's going to happen to the economy

419
00:26:01.830 --> 00:26:04.380
in the next year and he pointed, for example,

420
00:26:04.380 --> 00:26:08.010
to the fact that the leading indicators were pretty strong

421
00:26:08.010 --> 00:26:10.230
and I seem to recall over the years

422
00:26:10.230 --> 00:26:14.430
that Dr. Sprinkel has been one of the important experts

423
00:26:14.430 --> 00:26:16.800
interpreting those leading indicators.

424
00:26:16.800 --> 00:26:20.210
However, if he still follows that subject closely,

425
00:26:20.210 --> 00:26:22.960
he knows very well that many people

426
00:26:22.960 --> 00:26:26.193
inside the government and in particular,

427
00:26:27.180 --> 00:26:32.180
the Boston Federal Reserve Bank has systemically done

428
00:26:33.930 --> 00:26:38.930
what's suggested, namely, to deflate the leading indicators

429
00:26:39.610 --> 00:26:44.020
because just to have signs of inflation does not mean

430
00:26:44.020 --> 00:26:46.730
signs of strength in the real economy

431
00:26:46.730 --> 00:26:51.190
and when you begin to deflate,

432
00:26:51.190 --> 00:26:54.880
then the leading indicators are not all that strong.

433
00:26:54.880 --> 00:26:58.720
Lemme illustrate for example, if there's a frost

434
00:26:58.720 --> 00:27:01.610
in Minnesota and in the Dakotas and in Canada,

435
00:27:01.610 --> 00:27:05.260
then grain prices go up to limit in the commodity markets.

436
00:27:05.260 --> 00:27:09.810
This contributes strength to the sensitive price index.

437
00:27:09.810 --> 00:27:12.750
Well, on a simple-minded basis,

438
00:27:12.750 --> 00:27:16.530
the sensitive price index has been one

439
00:27:16.530 --> 00:27:17.960
of the leading indicators,

440
00:27:17.960 --> 00:27:20.980
but that's really an omen of disaster,

441
00:27:20.980 --> 00:27:25.280
not a good omen of strength in the economy

442
00:27:25.280 --> 00:27:27.100
when, in the present situation,

443
00:27:27.100 --> 00:27:29.280
those prices misbehave and I could go on

444
00:27:29.280 --> 00:27:33.320
and enumerate other examples of the inflation

445
00:27:33.320 --> 00:27:37.190
that is in the leading indicators.

446
00:27:37.190 --> 00:27:40.730
So, to come to the second point of agreement,

447
00:27:40.730 --> 00:27:45.730
the majority there indicated that what was crucial

448
00:27:46.470 --> 00:27:51.470
was not the cuts in the budget.

449
00:27:52.890 --> 00:27:56.893
They were rather cavalier on that particular topic.

450
00:27:58.060 --> 00:28:01.770
Thirdly, and this is what was being reflected there

451
00:28:01.770 --> 00:28:04.560
by both of these earlier things was

452
00:28:04.560 --> 00:28:06.350
there was pretty general agreement

453
00:28:06.350 --> 00:28:11.230
that it was not simple demand-pull inflation

454
00:28:11.230 --> 00:28:13.110
which we were suffering from.

455
00:28:13.110 --> 00:28:13.990
There was a great deal

456
00:28:13.990 --> 00:28:18.033
of emphasis placed upon supply factors.

457
00:28:20.840 --> 00:28:23.090
Hendrick Houthakker of Harvard, for example,

458
00:28:23.090 --> 00:28:27.790
had an omnibus bill with 45 different reforms in it,

459
00:28:28.940 --> 00:28:31.580
each of which would hurt some private interest

460
00:28:31.580 --> 00:28:35.200
but which would microeconomically improve the performance

461
00:28:35.200 --> 00:28:38.820
of the American economy and probably

462
00:28:38.820 --> 00:28:41.470
also improve the equity of the American economy

463
00:28:41.470 --> 00:28:45.450
and, when put in the for the first time,

464
00:28:45.450 --> 00:28:48.380
would make a one-time contribution

465
00:28:48.380 --> 00:28:53.173
to reducing the current rate of inflation.

466
00:28:54.040 --> 00:28:57.410
I thought that the emphasis upon supply was a good one,

467
00:28:57.410 --> 00:29:00.670
but it ought not to have been thought,

468
00:29:00.670 --> 00:29:02.436
as it seemed to be thought there,

469
00:29:02.436 --> 00:29:06.970
that there was a exhaustive dichotomy

470
00:29:06.970 --> 00:29:09.580
between demand factors and supply factors

471
00:29:09.580 --> 00:29:11.430
because there was a third factor,

472
00:29:11.430 --> 00:29:14.290
which I thought ought to be stressed

473
00:29:14.290 --> 00:29:16.420
and it certainly isn't simple demand

474
00:29:16.420 --> 00:29:19.710
but also can't be called simple supply.

475
00:29:19.710 --> 00:29:24.710
Namely, even when the market demand is soft,

476
00:29:25.920 --> 00:29:28.290
even when the supply capabilities

477
00:29:28.290 --> 00:29:31.060
of a set of industries is good,

478
00:29:31.060 --> 00:29:33.600
let's take the automobile industry, for example,

479
00:29:33.600 --> 00:29:38.600
there can be a tendency for prices quoted

480
00:29:38.870 --> 00:29:43.870
to rise and for example, Dr. Houthakker said

481
00:29:46.030 --> 00:29:48.620
that it was a scandal from an anti-trust viewpoint

482
00:29:48.620 --> 00:29:53.190
that General Motors and the other three big companies

483
00:29:53.190 --> 00:29:55.530
were raising their prices on autos.

484
00:29:55.530 --> 00:29:57.780
Now that's not a supply factor in the sense

485
00:29:57.780 --> 00:30:02.780
of a harvest failure but it's an incomes policy worsening.

486
00:30:05.760 --> 00:30:09.070
And so, although incomes policy is not the best word,

487
00:30:09.070 --> 00:30:11.911
but because my time is short, I'll stick with that,

488
00:30:11.911 --> 00:30:15.090
I think that there should have been more emphasis there

489
00:30:15.090 --> 00:30:19.330
on the problem of demand, the problem of supply,

490
00:30:19.330 --> 00:30:22.400
and the problem of the pricing out,

491
00:30:22.400 --> 00:30:26.310
in an incomes policy sense, of each degree

492
00:30:26.310 --> 00:30:30.840
of balance of supply and demand.

493
00:30:30.840 --> 00:30:35.840
Well, lemme just finish since the time is running out.

494
00:30:35.850 --> 00:30:39.480
There was, to me, a surprising amount

495
00:30:39.480 --> 00:30:42.610
of support, except it was a minority,

496
00:30:42.610 --> 00:30:46.200
definite minority but there were three or four people there

497
00:30:46.200 --> 00:30:51.200
who seemed to be favorable to price/wage controls.

498
00:30:55.020 --> 00:30:57.080
Professor Galbraith, there's no surprise in that

499
00:30:57.080 --> 00:31:00.740
but it seemed as if Robert Nathan,

500
00:31:00.740 --> 00:31:04.730
of the consulting firm that bears his name,

501
00:31:04.730 --> 00:31:09.730
was in favor of that and it actually shocked

502
00:31:10.290 --> 00:31:13.330
and outraged George Schultz, who had been

503
00:31:13.330 --> 00:31:17.320
with the vast majority, in fact leading it,

504
00:31:17.320 --> 00:31:18.430
in saying that it was time

505
00:31:18.430 --> 00:31:22.333
for the Federal Reserve to ease up.

506
00:31:23.200 --> 00:31:25.759
Well, all things considered, given

507
00:31:25.759 --> 00:31:30.400
that you had 28 different minds there,

508
00:31:30.400 --> 00:31:34.550
it seems to me that there was an impressive amount

509
00:31:34.550 --> 00:31:39.250
of agreement and I think the agreement was

510
00:31:39.250 --> 00:31:43.590
in the direction of compromising

511
00:31:43.590 --> 00:31:46.160
with the various evils in the problem.

512
00:31:46.160 --> 00:31:50.900
And I dare say that a service was done,

513
00:31:50.900 --> 00:31:55.900
even to those whose major apprehension is

514
00:31:56.031 --> 00:31:58.480
with respect to the rate of inflation

515
00:31:58.480 --> 00:32:02.110
because what they were advocating was just,

516
00:32:02.110 --> 00:32:05.330
politically, not feasible, not in the cards

517
00:32:05.330 --> 00:32:06.630
and it was going to be self-defeating.

518
00:32:06.630 --> 00:32:09.660
It was going to result in a reversal

519
00:32:09.660 --> 00:32:13.563
in the other direction which none of us would want.

520
00:32:15.480 --> 00:32:17.410
<v ->If you have any comments or questions</v>

521
00:32:17.410 --> 00:32:19.330
for Professor Samuelson, address them

522
00:32:19.330 --> 00:32:22.010
to Instructional Dynamics Incorporated,

523
00:32:22.010 --> 00:32:27.010
450 East Ohio Street, Chicago, Illinois, 60611.