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- | Welcome once again, as MIT professor, Paul Samuelson, | 0:01 |
discusses the current economic scene. | 0:05 | |
This series is produced | 0:07 | |
by Instructional Dynamics Incorporated. | 0:08 | |
Professor Samuelson, I understand from a recent | 0:11 | |
article in the New York Times that | 0:13 | |
mainstream economics is coming under attack. | 0:15 | |
What is your opinion? | 0:18 | |
- | My first reaction is: what else is new? | 0:23 |
I presume that you're referring to | 0:27 | |
a recent Sunday magazine section article | 0:29 | |
by an able young economist, David Gordon, | 0:33 | |
of the New School for Social Research. | 0:36 | |
Professor Gordon is analyzing what | 0:41 | |
we've been analyzing on these tapes. | 0:44 | |
The present situation with | 0:46 | |
respect to what he calls capitalism and what I | 0:49 | |
usually refer to as the mixed economy. | 0:53 | |
I think this would be a good time to devote | 0:57 | |
some thoughtful attention to his analysis | 1:01 | |
and to the analysis of other people, | 1:05 | |
because as he says, | 1:08 | |
there are about 2500 members of the economics | 1:10 | |
profession who called themselves radical economists | 1:17 | |
and who are members of the | 1:24 | |
union for radical political economy. | 1:27 | |
URPEs, so called, which publishes a journal periodically. | 1:30 | |
This is especially a good time because we're | 1:38 | |
in a period of waiting. | 1:41 | |
We're not waiting for lefty. | 1:44 | |
We're not waiting for Gadeau. | 1:47 | |
We are waiting for the turn. | 1:49 | |
Perhaps it's happened already | 1:54 | |
and we won't know it for a little while. | 1:56 | |
However, Alan Greenspan who has no motive, | 1:58 | |
one would suppose, for being pessimistic, | 2:04 | |
recently spoke before the Institutional Investors Conference | 2:10 | |
and said that the turn had not yet come, | 2:15 | |
but, that, with considerable likelihood, | 2:19 | |
it would be here by mid-year. | 2:23 | |
Well, a word, then about the Gordon analysis. | 2:28 | |
First, | 2:34 | |
I might mention, for whatever elements it would have, | 2:38 | |
that Professor David Gordon comes | 2:43 | |
from a distinguished family of economists. | 2:45 | |
His father is the | 2:49 | |
President of the American Economic Association right now, | 2:52 | |
I believe, Robert A. Gordon. | 2:56 | |
And his mother, who was Margaret Shaughnessy | 2:59 | |
and who married Robert Gordon, | 3:05 | |
has been a | 3:08 | |
respected writer in the field of Labor Relations. | 3:11 | |
I suppose it's only because of the old rule | 3:15 | |
that used to prevail at campuses of state universities | 3:18 | |
like that of the University of California, Berkeley | 3:23 | |
against nepotism so that two persons who are married | 3:26 | |
could not both have tenure in the same department. | 3:32 | |
It's only because of that archaic rule that | 3:36 | |
Margaret Shaughnessy was not, herself, | 3:40 | |
a professor in the Berkeley Department of Economics. | 3:41 | |
She was, however, for many years, | 3:46 | |
the Associate Head of their Labor Relations section. | 3:47 | |
In addition, Professor Gordon has an older brother, | 3:54 | |
Professor Robert J. Gordon, who, | 4:01 | |
although he was not quoted in the magazine article, | 4:05 | |
is a respected authority | 4:11 | |
on the problems that David Gordon was addressing himself to. | 4:14 | |
Namely the present malaise of capitalism | 4:20 | |
or the mixed economy. | 4:24 | |
And, in particular, the stagflation aspect of that problem. | 4:26 | |
Those of you who have been reading, as I recommend you do, | 4:32 | |
the Brookings papers which come out quarterly, | 4:37 | |
will realize that some of the most valuable analysis | 4:41 | |
of the post-Phillips Curve discussions have been | 4:48 | |
the statistical and theoretical analysis | 4:53 | |
by Robert J. Gordon. | 4:55 | |
Robert J. Gordon was a Harvard Undergraduate | 4:57 | |
trained at Oxford. He was a Marshall Scholar. | 5:01 | |
Ph.D from MIT. | 5:07 | |
He spent a sojourn at the University of Chicago | 5:09 | |
and is now a professor at Northwestern University. | 5:12 | |
David Gordon was also a Harvard Undergraduate | 5:17 | |
and, I believe, has his Ph.D. | 5:19 | |
from Harvard University | 5:25 | |
and was connected, I think, with the urban center there. | 5:28 | |
So, | 5:34 | |
this may well be the wave of the future if | 5:37 | |
within this family of mainstream economists, | 5:40 | |
who, I think on the whole, would have been regarded | 5:45 | |
by their colleagues as on the Liberal side. | 5:48 | |
Robert A. Gordon was, for a long time, | 5:51 | |
identified with the Berkeley Cooperative. | 5:55 | |
Very prosperous and large supermarket operation. | 5:58 | |
He was connected with the Americans for Democratic | 6:03 | |
Action and has impeccable | 6:07 | |
credentials as a typical | 6:11 | |
economist of our epoch and like that typical chap, | 6:15 | |
he is, perhaps, more closely to be identified with | 6:20 | |
the majority democratic party than with the | 6:25 | |
Republican | 6:30 | |
Party. | 6:32 | |
What David Gordon does | 6:34 | |
is to analyze the present recession | 6:40 | |
in terms of it's larger significance. | 6:45 | |
And I think it's fair to say that a reader | 6:49 | |
will infer from his analysis that the system is | 6:53 | |
now in crisis and although he does not commit himself | 6:58 | |
to flatfoot predictions, | 7:03 | |
from the tone of the rhetoric, | 7:07 | |
I would have to judge that the author believes that | 7:09 | |
we will not have a | 7:14 | |
near term upturn in the economy. | 7:17 | |
He does not believe that we are on our way back to | 7:22 | |
full employment as, certainty, he would define it. | 7:25 | |
And he does not believe that we are back to | 7:31 | |
full employment with stable prices. | 7:35 | |
He believes that the root of our problem is | 7:40 | |
the production for profit of the capitalistic system | 7:45 | |
and that such a system must breed the kinds of | 7:49 | |
problems which we are now going through. | 7:53 | |
He is not rash enough | 7:57 | |
or brave enough or | 8:00 | |
loose enough to say that we are | 8:05 | |
in the final death rows of the system, | 8:08 | |
but he gives his reason for belief that we must move | 8:10 | |
toward planning and he refers to the | 8:17 | |
informal committee that was set up by | 8:23 | |
Professor Wassily Leontief, Harvard's retiring | 8:26 | |
originator of the input-output inter-industry flow. | 8:35 | |
Robert Rosa of Brown Brothers Harriman | 8:41 | |
and John Kenneth Galbraith and a number of | 8:44 | |
economists | 8:49 | |
who would be, perhaps, a bit to the left of the center | 8:51 | |
of the economists who generally advise the Democratic Party. | 8:57 | |
He thinks that such planning, | 9:03 | |
I guess that is David Gordon thinks, | 9:04 | |
is inevitable. | 9:06 | |
I suppose he thinks it is desirable. | 9:09 | |
One has to read between the lines, | 9:14 | |
but he doesn't think that it's good enough | 9:16 | |
and he doesn't think that the system, | 9:18 | |
which is based upon profit, | 9:19 | |
can survive and function effectively | 9:23 | |
even with the kind of planning which the | 9:27 | |
Leontiefs, Galbraiths, and Rosas would like to add | 9:31 | |
to our present apparatus in the mixed economy. | 9:37 | |
Now, many of the things that I've just reviewed | 9:42 | |
and have attributed to the belief of David Gordon | 9:49 | |
would also be the belief of almost any economist | 9:54 | |
that you could name almost anywhere in the spectrum. | 9:57 | |
Let's take me, for example. | 10:01 | |
I am of the view that we are not able, | 10:06 | |
in our modern mixed economy, | 10:09 | |
to have full employment and price stability. | 10:11 | |
I think there is a problem. | 10:17 | |
When David Gordon says, "The real problem is that | 10:22 | |
a recession or a depression must be contrived by | 10:25 | |
the capitalist interests to keep | 10:31 | |
the workers from being uppity, | 10:34 | |
to keep the workers from being unproductive, | 10:36 | |
to keep the workers from asking for higher money wages, | 10:39 | |
then the system can pay | 10:46 | |
at preexisting prices." | 10:49 | |
When he says those things, a conservative economist, | 10:54 | |
not a member in good standing of | 11:01 | |
URPE might also say the same thing. | 11:03 | |
He might put it differently in terms of | 11:08 | |
the editorializing and the between-the-lines | 11:12 | |
normative commentary that goes along | 11:16 | |
with the description of the facts, | 11:20 | |
but economists of very a conservative stripe, indeed, | 11:21 | |
have been arguing that we do have a problem of stagflation. | 11:28 | |
That you do have a problem when the labor market | 11:32 | |
is too tight of accelerating price inflation | 11:36 | |
and such economists might say to David Gordon, | 11:41 | |
"Well, welcome to the club. | 11:47 | |
Now you, too, recognize | 11:50 | |
this particular problem." | 11:54 | |
Indeed I find it interesting, | 11:57 | |
and it's worth commenting on as a matter of methodology, | 12:00 | |
that two people of opposing political views | 12:04 | |
can be describing the same phenomena, | 12:09 | |
and in terms of the substance of | 12:15 | |
that empirical process being described, | 12:18 | |
they can be in complete agreement, | 12:23 | |
and yet, it sounds completely different. | 12:25 | |
I'll illustrate. I'll come back to the | 12:30 | |
David Gordon argument in a moment. | 12:32 | |
Recently I received from a friend at another | 12:37 | |
institution a little article | 12:40 | |
which he sent to me and said, | 12:45 | |
"Since you're a contributing editor of Newsweek, | 12:49 | |
I wonder if you would submit this under the | 12:52 | |
category that Newsweek runs of My Turn. | 12:55 | |
Newsweek, presumably, ought to be interested in | 12:58 | |
representing my viewpoint," I'm quoting him, | 13:04 | |
"which is the viewpoint of a radical economist." | 13:07 | |
And I don't particularly mean to identify him | 13:11 | |
since I can't go into the matter in detail | 13:14 | |
in the fair way that's needed. | 13:17 | |
Let me simply say that he is a person of reputation | 13:21 | |
and, as a matter of fact, is one of the few | 13:25 | |
radical economists who has tenure in this country. | 13:26 | |
That'll practically identify him | 13:29 | |
for sophisticated listeners. | 13:31 | |
And I wrote back to him and said, | 13:35 | |
"Well actually I'm a columnist for Newsweek. | 13:37 | |
The title Contributing Editor is only honorific. | 13:40 | |
I have no function or influence particularly in that regard, | 13:43 | |
but I shall be glad to forward to the editors | 13:50 | |
for whatever action they shall care to take your manuscript. | 13:53 | |
And I shall tell them, as I tell you, | 13:58 | |
that I'm forwarding this prior to having read | 14:01 | |
the manuscript so there'd be no | 14:04 | |
prejudice one way or the other. | 14:06 | |
I'm neither sponsoring it nor am I being critical of it. | 14:07 | |
So that was done. | 14:16 | |
The article has never appeared, as far as I know. | 14:18 | |
So, that's the last that I know about the matter, | 14:21 | |
but perhaps it's in the long pipeline | 14:24 | |
and one of these days I will see | 14:26 | |
it under the My Turn category in Newsweek. | 14:28 | |
After I had done my duty in this respect, | 14:33 | |
I read the article and | 14:37 | |
it was very interesting because I had read, | 14:42 | |
just that same day, | 14:46 | |
a very short extract from a speech | 14:48 | |
or some writing of Friedrich Hayek. | 14:54 | |
This appeared on the editorial page | 14:58 | |
of the Wall Street Journal. | 14:59 | |
It was just a short quotation in that column | 15:01 | |
which they often run of short and notable quotations. | 15:07 | |
Well, the Hayek quotation, in substance, | 15:14 | |
was almost identical in it's analysis | 15:19 | |
with the My Turn column by my radical friend. | 15:24 | |
What did Hayek say? | 15:34 | |
What Hayek said was that we are in a recession. | 15:35 | |
The caged in thinking of our times | 15:39 | |
will undoubtedly cause us to overact-- | 15:43 | |
overreact to that recession. | 15:47 | |
We will come out of that recession temporarily, | 15:51 | |
but only at the cost of reintroducing the inflation | 15:54 | |
probably in accelerated form and then, | 16:01 | |
the public, | 16:07 | |
displeased | 16:10 | |
with | 16:11 | |
the new inflation, | 16:13 | |
would insist upon having, | 16:15 | |
or their legislators would insist upon putting on them, | 16:17 | |
comprehensive wage and price controls. | 16:19 | |
And then, civilization as we have known it, would be over. | 16:22 | |
We would have lost our liberties. | 16:29 | |
Doctor Hayek went on in rather | 16:33 | |
eloquent, if pathetic vain, to say, | 16:38 | |
however, this was not of consequence to him because | 16:44 | |
in ten years he would be dead. | 16:49 | |
Indeed, he hoped that he would be dead. | 16:52 | |
I suppose that Professor Hayek | 16:55 | |
is now 75 years of age. | 16:59 | |
According to actuarial tables, | 17:04 | |
in ten years time, he might well be dead, | 17:06 | |
but it's rather sad that he finds the | 17:09 | |
world so displeasing to a person of his | 17:12 | |
philosophical temperament that, without regret, | 17:15 | |
he leaves this veil of tears and governmental misdeeds. | 17:19 | |
Well, | 17:27 | |
what did my | 17:29 | |
self entitled radical economist friend say? | 17:32 | |
He said that the system could not go on | 17:39 | |
the way it has been going on handling stagflation. | 17:43 | |
That it would inevitably have to | 17:46 | |
have price and wage controls. | 17:48 | |
That it would inevitably have to have planning. | 17:51 | |
That it would inevitably find itself, | 17:55 | |
moved, I suppose, by inescapable forces | 17:58 | |
of history and destiny towards a more Socialist solution. | 18:01 | |
And, in his case, if I read him correctly, | 18:07 | |
he regarded this as a great, good thing. | 18:11 | |
It was the end of civilization, perhaps, | 18:13 | |
as we had known it, but bad cess | 18:15 | |
to that civilization, in his view. | 18:18 | |
And, as a younger man, he looked forward, | 18:22 | |
I'm sure, with pleasure and relish, | 18:25 | |
to the period ten years from now, | 18:28 | |
when the joint prophesy of | 18:31 | |
Proessor Hayek and himself were realized. | 18:34 | |
Well, my function here is to analyze | 18:40 | |
and let me say what my reaction was to the Hayek piece, | 18:44 | |
and then, by implication, it applies in | 18:52 | |
a considerable degree to what my | 18:55 | |
reaction would be to the My Turn column piece. | 18:57 | |
First, it seemed to me, | 19:02 | |
quite within the realms of possibility | 19:05 | |
if not preponderant probability | 19:09 | |
that the populous democracy in which | 19:12 | |
we live would be impatient about the persistence | 19:15 | |
of the high rates of unemployment which | 19:19 | |
will persist at very high rates | 19:22 | |
as I have reviewed on these tapes before. | 19:26 | |
Even if the upturn comes this spring | 19:28 | |
and even if it is quite vigorous | 19:34 | |
and even if it precedes for several years | 19:36 | |
with an election year coming up, | 19:40 | |
it's quite likely that the populous democracy | 19:42 | |
will be impatient. | 19:45 | |
It is quite within the | 19:46 | |
realm of possibility and probability that, | 19:48 | |
as a result, the government will overdo things. | 19:53 | |
Overdo things in its budgetary deficit | 19:57 | |
and fiscal policies and | 20:00 | |
overdo things with respect to monetary policy. | 20:04 | |
So, it may well be that | 20:08 | |
the abatement of inflation, which I've talked about, | 20:12 | |
and which we can sense, will come to an end | 20:15 | |
and there again will be a re-acceleration of inflation. | 20:21 | |
I would not, myself, at this time, | 20:25 | |
on the basis of my appraisal of the | 20:29 | |
political forces I've been talking about, | 20:31 | |
like to be on the side of the bet that | 20:33 | |
we'll be back to 20% price inflation by, | 20:38 | |
lets say, the end of 1976. | 20:42 | |
I shouldn't say "back to it." | 20:44 | |
We've never been there | 20:45 | |
in recent years. | 20:48 | |
Certainly not in peacetime years, normal peace time years. | 20:50 | |
And, as you know, there are authorities who predict that. | 20:58 | |
Perhaps professor Hayek himself | 21:02 | |
had numbers like that in mind. | 21:05 | |
Perhaps the My Turn columnist | 21:09 | |
had numbers like that in mind if his preferred | 21:14 | |
prescription of Galbraithian wage | 21:17 | |
and price controls were not followed. | 21:20 | |
I think that that's excessive in terms of what's likely. | 21:23 | |
But that we should, sometime in 1976, | 21:26 | |
be moving back into two digit price inflation | 21:31 | |
or seem to be moving back, it seems to me, | 21:35 | |
is quite | 21:38 | |
possible with depreciable probability. | 21:44 | |
Now will that result in our having a | 21:48 | |
wage price freeze and price controls? | 21:52 | |
I think that's a more difficult issue to appraise. | 21:56 | |
But, let's, for the sake of the argument, | 22:02 | |
go along with the view that just prior to the election, | 22:04 | |
say, in order to keep the lid on, | 22:09 | |
just during the election period we have | 22:12 | |
one of those comprehensive wage price freezes | 22:15 | |
that, experience tell us, | 22:18 | |
worked pretty well in the short run. | 22:21 | |
They certainly could make the period just | 22:23 | |
before the election look dandy. | 22:25 | |
The real economy would be growing, | 22:27 | |
the employment opportunities would be improving | 22:29 | |
even though the level of unemployment was still | 22:33 | |
woefully high, and prices seem to be behaving themselves. | 22:36 | |
Let's suppose all this happens. | 22:43 | |
Is that the end of civilization? | 22:45 | |
Well it's not the end of civilization as I have known it. | 22:47 | |
It's not the end of civilization as a | 22:50 | |
historian will record civilization has been | 22:54 | |
in Western Europe, | 22:58 | |
Japan, and similar affluent countries | 23:00 | |
of the post-World War II period. | 23:04 | |
On the contrary, this is part of | 23:06 | |
the normal Brownian movement, | 23:08 | |
you might say, of our times. | 23:10 | |
And I wanna remind you that is precisely, | 23:13 | |
in decades, puncuated by occasional episodes of | 23:16 | |
the sort that we're describing that | 23:21 | |
we have had the real GNP growth for the | 23:23 | |
world and particularly for the industrial world. | 23:26 | |
That goes beyond anything in recorded history, | 23:31 | |
whether of pure capitalism, pre-captalism, | 23:37 | |
or post-capitalism. | 23:40 | |
The miracles of the 1950s, 1960s let's say | 23:43 | |
in Western Germany and Japan, | 23:48 | |
just to give examples, | 23:50 | |
have not been miracles which were performed under | 23:51 | |
the auspices of a Hayekian nineteenth century whig | 23:57 | |
state economy set of relations. | 24:04 | |
On the contrary, they have been what | 24:06 | |
Schumpeter would have called capitalism in an oxygen tent. | 24:09 | |
They have been, what some critics would call, | 24:15 | |
paternalistic capitalism. | 24:18 | |
They have been directed economies. | 24:20 | |
They've economies as, for example in | 24:23 | |
the case of Western Germany, | 24:25 | |
where a very large fraction of the total GNP | 24:27 | |
passes through the hands of government | 24:30 | |
using the term "government" for all the | 24:33 | |
different levels of German government. | 24:36 | |
So, I would not, myself, Hamlet-like, | 24:39 | |
wish to opt out of such a world. | 24:44 | |
Moreover, I don't believe that the next time | 24:48 | |
we go into wage price control will be | 24:50 | |
the last irreversible coup | 24:52 | |
representing the death of our liberties | 24:57 | |
never to revive again. | 25:00 | |
Because the history of our times has been | 25:02 | |
history of episodic flirtations with | 25:05 | |
wage and price controls which work well | 25:08 | |
only in the short run and which | 25:11 | |
the peoples and their governments | 25:15 | |
tire of and dispose of after an interval. | 25:19 | |
So, I would, myself, be willing to give heavy odds | 25:24 | |
that if we went into such an episode of price wage control | 25:28 | |
at the time of the next presidential election | 25:33 | |
that long before the next presidential election. | 25:36 | |
In fact, at even odds before the next congressional | 25:41 | |
election we would dispose of that. | 25:45 | |
Well, now, when I read an article | 25:49 | |
by a critic of mainstream economics, | 25:54 | |
I am looking for assistance. | 25:57 | |
It's much more important for a person like myself | 26:00 | |
to read the counter arguments of his opponents | 26:03 | |
or critics than to read the arguments of | 26:08 | |
his friends because he can fabricate for | 26:11 | |
himself the arguments of his friends. | 26:14 | |
He knows only too well how those arguments goes. | 26:16 | |
If I could do a better job of explaining what's | 26:20 | |
going to happen to the modern American system, | 26:23 | |
call it what you wish, | 26:25 | |
by getting help from the Devil | 26:27 | |
I would welcome help from the Devil. | 26:28 | |
I would hang by my heels, | 26:32 | |
although I don't particularly relish that position | 26:35 | |
if that would enable me to have a | 26:38 | |
smaller squared error of prediction as to | 26:40 | |
what's going to happen and what would happen | 26:43 | |
under different policy prescriptions. | 26:45 | |
Alas and alack when I read very carefully the | 26:51 | |
David Gordon article from this point of view. | 26:54 | |
When I removed from the souffle, | 26:58 | |
you might say, the err of rhetoric which | 27:01 | |
tells me something about how young David Gordon | 27:04 | |
feels about the world and about the economy | 27:09 | |
and shows me some contrast between, let's say, | 27:13 | |
how young Robert J. Gordon would feel or | 27:18 | |
how elder Robert A. Gordon would feel. | 27:20 | |
Those are interesting to read about, | 27:24 | |
but not really of very much help to me in | 27:28 | |
my task of understanding the future of the American economy. | 27:32 | |
When I remove that souffle, | 27:37 | |
I did not find very much in the way of guidance. | 27:41 | |
There was, for example, | 27:46 | |
a few lines in which the author said that | 27:48 | |
capitalists in this country cannot make extra | 27:53 | |
profits on machinery because they are | 27:56 | |
checked and balanced by other | 28:00 | |
capitalists who can buy machinery. | 28:02 | |
But where the capitalists can make their extra profits | 28:06 | |
is on their hiring of labor. | 28:09 | |
Now, I think that Doctor Gordon has somewhere | 28:12 | |
read about the labor theory of value | 28:16 | |
and I think that these cryptic lines are supposed | 28:19 | |
to be an application to the real world of today | 28:24 | |
of that labor theory of value. | 28:28 | |
But, I was tempted to write to him | 28:32 | |
and ask him, "in what sense, | 28:36 | |
in what refutable or confirming sense can you | 28:40 | |
specify a competitive model in which you make extra profit | 28:45 | |
that one way and not the other way?" | 28:48 | |
What is there, for example, in the writings | 28:50 | |
of Piero Sraffa, who could never be called | 28:52 | |
a neo-classical economist which would give comfort | 28:54 | |
to that particular hypothesis? | 28:58 | |
Well, I think the answer is, | 29:02 | |
and I say this on reflection having thought about | 29:04 | |
it a good deal and read about it a good deal | 29:07 | |
that there really is nothing in that line | 29:10 | |
of argument that is informative to somebody | 29:12 | |
who wants to understand the real world. | 29:15 | |
Mainstream economics is, quite obvious, | 29:18 | |
is not good enough, but | 29:22 | |
alas and alack, | 29:25 | |
we must still wait in this period of waiting | 29:26 | |
for useful, interesting innovational improvements | 29:29 | |
upon what it is that we seem now to have. | 29:35 | |
- | If you have any comments or questions | 29:40 |
for Professor Samuelson, address them | 29:41 | |
to Instructional Dynamics Incorporated, | 29:43 | |
four fifty (450) East Ohio Street, Chicago, Illinois, | 29:46 | |
six oh six one one (60611). | 29:49 |
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