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- | Welcome once again as MIT Professor Paul Samuelson | 0:02 |
discusses the current economic scene. | 0:05 | |
This series is produced | 0:07 | |
by Instructional Dynamic Incorporated. | 0:08 | |
This program was recorded December 23rd. | 0:10 | |
- | It's a good time to wish us all | 0:14 |
a happy New Year in 1975. | 0:16 | |
As we look back on 1974 | 0:21 | |
in terms of the US economy | 0:24 | |
and in terms of the world economy, | 0:27 | |
it's not been a vintage year. | 0:29 | |
It's been a year of stagflation, | 0:33 | |
it's been a year of snowballing recession | 0:37 | |
and yet as I speak at the very end of the year, | 0:42 | |
there are only straws in the wind | 0:48 | |
that suggest that the rate of double digit inflation | 0:50 | |
in the United States is at long last being tempered. | 0:53 | |
Probably to the expert eye, | 1:00 | |
there are gleams in the data | 1:03 | |
which do suggest that we may be in the process | 1:05 | |
of moving from double digit price inflation | 1:09 | |
down to one high, | 1:13 | |
one digit price inflation | 1:16 | |
but how many times in this last year | 1:20 | |
have you heard commentators saying those famous words, | 1:23 | |
I guess we'll all believe it | 1:29 | |
when we actually see it this time. | 1:31 | |
Now, it was just a little time back | 1:34 | |
at the beginning of the month of December | 1:39 | |
that I made my annual forecast for this series, | 1:42 | |
it was December 2nd as I recall. | 1:46 | |
The actual course of events | 1:49 | |
and the course of our information | 1:52 | |
about events which is not the same thing | 1:55 | |
because of some lag | 1:58 | |
has been moving so fast | 1:59 | |
that any forecast made for 1975 on the basis | 2:01 | |
of December 2nd data, | 2:07 | |
I think this year will be too optimistic. | 2:11 | |
In other words, if you talk to different forecasters, | 2:16 | |
you'll find that in less than 30 days, | 2:22 | |
they have realized that the recession situation | 2:26 | |
is much worse than they thought it was 30 days ago. | 2:30 | |
Part of this of course is the fact | 2:35 | |
that the automobile industry | 2:37 | |
has been having such a woeful drop off in sales | 2:40 | |
and the success of announcements of layoffs | 2:44 | |
in the automobile industry | 2:47 | |
are so substantial in their own right | 2:49 | |
but also carry such a bellwether significance | 2:52 | |
that that can't help but influence | 2:56 | |
the December unemployment number when we see it. | 2:59 | |
I've heard guesses | 3:02 | |
that the December unemployment could be as high as 7%. | 3:05 | |
I must confess that to have gone in one month | 3:10 | |
from 6% to 6.5% | 3:13 | |
and then in the next month to go to 7% | 3:16 | |
would be almost without precedent | 3:18 | |
in speed of decline | 3:20 | |
but it's a possibility | 3:22 | |
that must be very seriously reckoned with | 3:24 | |
and so, since the way we check out of this year | 3:27 | |
provides initial conditions for the next year, | 3:31 | |
if I were to remake my forecast, | 3:34 | |
I would definitely paint it in much grayer, | 3:39 | |
if not blacker pictures. | 3:43 | |
I think that the most useful thing that I can do | 3:48 | |
is not push the limits of my own forecasting ability | 3:50 | |
but rather provide you with a convenient round up | 3:55 | |
of what different forecasters are thinking | 4:00 | |
and then give you my shadings, | 4:04 | |
my evaluations of the various probabilities. | 4:08 | |
We should be grateful that once a year Business Week | 4:14 | |
collects from anybody indiscrete enough | 4:17 | |
to give them forecasts, | 4:19 | |
their forecasts for the coming year | 4:23 | |
and they've done this again in the December 21st issue | 4:26 | |
of Business Week | 4:31 | |
and I refer you to an interesting table on page 50 there. | 4:33 | |
At the bottom of the table, | 4:41 | |
they show econometric models, | 4:43 | |
two, four, six, eight such models | 4:46 | |
and they give what's expected in nominal | 4:49 | |
or monetary GNP in billions of dollars for 1975, | 4:54 | |
that's for the calendar year | 4:59 | |
by those eight different models, | 5:00 | |
they give the real growth in GNP, | 5:03 | |
they give the price increase in GNP, | 5:06 | |
presumably that's the implicit price deflator | 5:09 | |
I would think to make all the results comparable | 5:11 | |
and then they give the 1975 average unemployment. | 5:13 | |
Aside from doing this for the eight econometric models | 5:18 | |
at the bottom of the table, | 5:22 | |
they include oh, more than twice eight forecasts | 5:24 | |
at the top of the table | 5:31 | |
which are I suppose one would have to guess | 5:32 | |
for the most part, judgmental forecasts. | 5:36 | |
I don't think that one should make very much | 5:40 | |
of the difference between these so-called econometric models | 5:42 | |
and the judgmental forecasts | 5:45 | |
because I think that some of the people | 5:46 | |
in the judgmental section | 5:50 | |
that I see there, in fact do use elements of a model | 5:52 | |
and some of the econometric models so-called | 5:56 | |
like Townsend-Greenspan, for example, | 6:02 | |
I'm not sure that that professes | 6:04 | |
to be a computer model. | 6:07 | |
I know when Alan Greenspan | 6:09 | |
was still running the organization, | 6:11 | |
was not in Washington advising presidents, | 6:16 | |
I talked to him about his methods | 6:21 | |
and although the computer had some role, | 6:23 | |
there is a great deal of judgment. | 6:26 | |
In fact, every one of these judgmental models, | 6:28 | |
econometric models so-called, | 6:32 | |
even though they're econometric, | 6:33 | |
they do have judgments | 6:36 | |
because I notice that Ray Fair | 6:38 | |
who is the one econometrician who runs a model | 6:41 | |
without any judgment, that he's not present | 6:45 | |
in this year's round-up. | 6:48 | |
Well, at first glance, | 6:52 | |
it looks as if there's quite a spread | 6:54 | |
among the different authorities | 6:57 | |
but we'll see in a moment | 6:58 | |
that that degree of discordance | 7:00 | |
is if anything surprisingly low | 7:06 | |
rather than surprisingly high. | 7:10 | |
But before doing that, | 7:14 | |
let me say that if I were running the editorial pages | 7:15 | |
of Business Week, | 7:21 | |
or if I were making the round-up of different forecasters, | 7:22 | |
I don't think I would do it in quite this form. | 7:26 | |
I don't say this in way of criticism | 7:28 | |
because obviously people are most familiar | 7:29 | |
with asking what happened in 1974 calendar year, | 7:32 | |
what happened in 1975? | 7:36 | |
But these numbers that we have here contains so much | 7:38 | |
of the past in them | 7:43 | |
that they disguise the differences | 7:44 | |
in the different forecasters' view | 7:48 | |
with respect to future. | 7:50 | |
Now, you and I know roughly the past | 7:51 | |
and what we don't know, what we're desperately interested | 7:54 | |
to know what the president of the United States now | 7:58 | |
in Vail, Colorado having to make decisions | 8:02 | |
with respect to policy desperately wants to know | 8:06 | |
is what going to happen in the future | 8:09 | |
and what people think about the future. | 8:12 | |
So, it would have been more instructive to me | 8:14 | |
if I had seen where they think we're going to be | 8:17 | |
in the fourth quarter next year. | 8:23 | |
What's going to happen from fourth quarter this year | 8:26 | |
to fourth quarter next year | 8:30 | |
or what's going to happen | 8:31 | |
from the last revised official data | 8:32 | |
that we have which is for third quarter | 8:36 | |
to the fourth quarter of next year, | 8:38 | |
in other words, what's going to happen | 8:40 | |
in calendar year 1975 itself? | 8:41 | |
And that's definitely not what these forecasts refer to. | 8:45 | |
Therefore, I've done a little homework | 8:50 | |
and I've taken of the econometric models | 8:54 | |
where I'm on the mailing list, | 8:59 | |
on the free list so to speak, | 9:01 | |
I have jotted down what these people expect | 9:03 | |
for the fourth quarter of the year, | 9:10 | |
rather than the 75 to 70 for comparison. | 9:13 | |
Now, let's take a round-up of the troops. | 9:20 | |
We're going to have for 1975 according | 9:29 | |
to the average of all the some 20 judgmental forecasters, | 9:32 | |
we're gonna have a trillion and a half | 9:40 | |
of money GNP. | 9:44 | |
That means 1,500, | 9:48 | |
if you want accuracy, 1,501 billions of monetary GNP. | 9:53 | |
And roughly speaking of course | 10:01 | |
about half the forecasters | 10:04 | |
are strong above that number | 10:06 | |
and half are strong below that number. | 10:08 | |
For comparison, the last solid number | 10:14 | |
that we had for the money GNP | 10:18 | |
which was money GNP for the third quarter | 10:21 | |
was around 1,415 as against 1,501. | 10:25 | |
So, you can see that that's a substantial increase | 10:30 | |
in the money GNP. | 10:37 | |
Anyone who thinks that the mob believes | 10:39 | |
that we're in a great depression | 10:41 | |
where actual money GNP is gonna fall, | 10:43 | |
the way it did fall in the 1929 to 1933 period, | 10:45 | |
he will find no comfort for his view | 10:52 | |
from any of the forecasters. | 10:55 | |
What about the econometric models? | 11:01 | |
Well, they definitely are more dollar prone | 11:03 | |
than the rest. | 11:08 | |
They assume a higher, either a higher rate of inflation | 11:11 | |
or a higher level of real income | 11:14 | |
because they average out for the year 1,513. | 11:16 | |
That's $12 billion more | 11:22 | |
on the average. | 11:27 | |
However, if we talk about the last part of the year, | 11:29 | |
that's likely to mean about twice that much difference, | 11:32 | |
more like $25 billion difference | 11:36 | |
in the average GNP expected for the fourth quarter. | 11:40 | |
In fact, if I take the top three | 11:45 | |
of the econometric models, | 11:48 | |
there's map cast of General Electric, | 11:51 | |
there's Wharton EFA, University of Pennsylvania model, | 11:54 | |
there's Chase Econometrics, | 11:58 | |
let's take those top three. | 11:59 | |
They're very much bunched together | 12:01 | |
in their money GNP estimates. | 12:03 | |
They're 1,526 for the year, 1,525, 1,524. | 12:05 | |
All of those above all of the judgmental forecasters | 12:10 | |
with exception of the top judgmental forecaster, | 12:14 | |
Robert S. Eisinger of Transamerica | 12:18 | |
has a very slightly higher number | 12:22 | |
but all the rest of them | 12:26 | |
have a lower number, | 12:29 | |
some slightly lower and some a great deal lower. | 12:31 | |
Moreover, let's go to the bottom | 12:37 | |
of the econometric forecasters. | 12:41 | |
Townsend-Greenspan is at the bottom with 1,496 | 12:44 | |
and that puts them almost near the middle | 12:49 | |
of the judgmental forecasters. | 12:54 | |
So, the dollar numbers on the econometric models | 12:57 | |
are definitely a bit higher | 13:00 | |
than for the rest. | 13:04 | |
However, let me for five of these eight models, | 13:09 | |
Wharton, Chase Econometrics, | 13:14 | |
the University of Michigan model, | 13:18 | |
Data Resources, Otto Eckstein | 13:20 | |
and Townsend-Greenspan, | 13:23 | |
for those five, my fourth quarter numbers show | 13:25 | |
that the differences among them | 13:30 | |
are about twice as great as just for the calendar year. | 13:32 | |
Thus Wharton which has 1,525 for the whole year | 13:37 | |
has 1,593 unless I've made, | 13:42 | |
no, I guess I haven't made an error, | 13:46 | |
for the fourth quarter of the year. | 13:47 | |
Chase Econometrics which has 1,524 is 1,594, | 13:49 | |
so as far as money GNP is concerned, | 13:52 | |
you couldn't tell the difference between Wharton | 13:54 | |
and Chase Econometrics, | 13:57 | |
they're just as close as peas in a pod. | 13:59 | |
However, when we come down to University of Michigan, | 14:03 | |
they've only 1,511, | 14:05 | |
that is below the middle for the econometricians, | 14:08 | |
just below but it's definitely above the middle | 14:12 | |
for the judgmental forecasters | 14:15 | |
but they have 1,571. | 14:20 | |
Now, you see that's already a good 22 billion difference | 14:21 | |
for the fourth quarter between the University of Michigan | 14:26 | |
and Wharton and unless it's matched | 14:28 | |
by a difference in their price estimates, | 14:30 | |
then we would expect a great difference | 14:35 | |
in their real output estimates | 14:38 | |
and you'd expect a great increase | 14:42 | |
in their unemployment estimates | 14:44 | |
and yet when you go to look | 14:46 | |
at their unemployment estimates, | 14:47 | |
you find that there's a very little difference | 14:49 | |
showing that not everybody believes | 14:53 | |
in the same version of Okun's law | 14:55 | |
or whatever local sage has an equivalent way | 14:58 | |
of translating real GNP | 15:02 | |
into unemployment numbers. | 15:05 | |
Then very definitely below | 15:08 | |
all of those is Townsend-Greenspan and money GNP. | 15:12 | |
That's 1,547 for the fourth quarter | 15:15 | |
as against 1,570-ish for the middle group | 15:19 | |
and 1,590-ish for the other group. | 15:23 | |
So, the computer speaks for the fourth tongue | 15:27 | |
and doesn't tell a single story. | 15:30 | |
It depends upon what it is that you put in it. | 15:32 | |
Okay, I've talked about money GNP. | 15:38 | |
I don't think it means very much to us, | 15:40 | |
a trillion and a half, | 15:42 | |
what does that mean, what is a trillion dollars? | 15:43 | |
What's a trillion and a half dollars? | 15:45 | |
What's the difference between 1,501 and 1,511? | 15:48 | |
So, let's talk about the rate of growth | 15:51 | |
of real GNP. | 15:54 | |
And if you make the '75 year as a whole comparison | 15:58 | |
with '74 year as a whole, | 16:03 | |
a surprising thing is that except | 16:06 | |
for one strange estimate, | 16:09 | |
every one of the estimates is minus. | 16:14 | |
Every one of them shows a drop. | 16:17 | |
I guess I ought to dispose | 16:21 | |
of the exception. | 16:22 | |
This is the exception comes from the building industry. | 16:25 | |
Michael Sumichrast of the National Association | 16:32 | |
of Home Builders, | 16:35 | |
although he has a money GNP set of numbers | 16:36 | |
very much like a lot | 16:39 | |
of the econometricians and a lot of the judgmental models, | 16:43 | |
his price increase numbers | 16:46 | |
are at least 3% below | 16:49 | |
and as a result, he gets his real GNP 2.5% above zero | 16:51 | |
which means that he's 3% above some of them | 16:59 | |
and more than 3%. | 17:02 | |
Let's hope that the loan ranger turns out to be right | 17:05 | |
because that would be a much happier picture | 17:10 | |
both on the inflation front | 17:12 | |
and on the real output front. | 17:13 | |
It's certainly a message which his Association | 17:16 | |
of Home Builders would like to hear | 17:19 | |
because if prices behave two, three, even 4% | 17:21 | |
by the fourth quarter better annual rates | 17:26 | |
than the mob thinks, | 17:29 | |
then that's gonna come through in lower interest rates, | 17:32 | |
it's gonna come through with easier credit | 17:35 | |
for the housing industry, | 17:37 | |
it's gonna come through with the greater number of starts. | 17:39 | |
It's no wonder, by the way, | 17:44 | |
that he has the lowest unemployment number | 17:45 | |
for all of the year. | 17:49 | |
In fact, if you believe him, our present 6.5% unemployment | 17:52 | |
is almost a peak I guess. | 17:57 | |
It's gonna go down to 6.3% | 18:00 | |
on the average for the year as a whole | 18:04 | |
and since I presume on his kind | 18:07 | |
of estimates it's going down, | 18:09 | |
you could expect by the end of the year | 18:11 | |
that Mr. Sumichrast must be expecting | 18:14 | |
that we will be below 6% unemployment. | 18:17 | |
Well, alas he is the great exception. | 18:21 | |
The real output year over year | 18:28 | |
is expected to decline anything | 18:32 | |
from a minus 0.1 which is negligible, | 18:34 | |
that's by the big optimist Robert Eisinger | 18:38 | |
of Transamerica down to A. Gary Shilling of White Weld | 18:42 | |
who's had the most interesting forecasts | 18:47 | |
of recent years from a certain viewpoint | 18:49 | |
'cause he's been very bold | 18:52 | |
in announcing changes. | 18:53 | |
Well, he's grabbed the bottom time. | 18:54 | |
One year as I remember it, | 18:56 | |
if my memory is correct but it may not be, | 18:57 | |
he grabbed the top | 19:00 | |
and he has a minus 3.5% year-to-year decline in output | 19:02 | |
which means rather colossally disappointing behavior | 19:07 | |
I would think in the last half of 1975. | 19:14 | |
Let me stick with the econometric models | 19:20 | |
not because they're on the average more trustworthy, | 19:25 | |
it may be that if you had to put your chips down, | 19:32 | |
that you ought go with the econometric models | 19:40 | |
'cause there's a lot more work in them, | 19:43 | |
it isn't because of the magic I think | 19:44 | |
of the technique | 19:46 | |
but a lot of these forecasters | 19:50 | |
are really back of the envelope forecasters | 19:53 | |
and although it saves time | 19:55 | |
to use the back of an envelope, | 19:57 | |
it really doesn't over the long run | 19:59 | |
get you with the best results, | 20:01 | |
so let's stick with the econometric forecaster models. | 20:03 | |
They show minus real growth. | 20:09 | |
Their average drop for the year, | 20:14 | |
year over year is minus 1.2 | 20:17 | |
which is exactly the same as the average | 20:18 | |
of the judgmental forecasters. | 20:21 | |
Where they differ is in the price increase | 20:25 | |
because they're 90 basis points higher, | 20:29 | |
their average price increase year over year | 20:33 | |
is 9.6 as against 8.7 | 20:35 | |
for the judgmental forecasters. | 20:39 | |
And let's pray that the judgmental ones are right | 20:41 | |
because that would be a happier outcome | 20:44 | |
even with the same real output results. | 20:48 | |
If you were to look at the average | 20:54 | |
of the econometric models, | 20:56 | |
showing the minus 1.2% year-over-year drop in real output, | 20:58 | |
a 9.6% increase in nominal prices, | 21:03 | |
creating implicit inflator, | 21:08 | |
you would think this is the most disappointing | 21:10 | |
of all possible outlooks | 21:15 | |
but that's misleading | 21:18 | |
because so much of that disappointment | 21:20 | |
has already figured into the last half of 1974 data. | 21:22 | |
And we know that was disappointing. | 21:28 | |
What we wanna know is where there's light | 21:30 | |
at the end of the tunnel | 21:31 | |
and therefore let me give you the results | 21:33 | |
of my homework | 21:35 | |
and show you how dramatically the picture changes, | 21:37 | |
it's the same picture | 21:41 | |
but looked at in the right way. | 21:42 | |
Let's, for example, take the gloomiest one of them all, | 21:45 | |
Townsend-Greenspan. | 21:50 | |
Minus 2.4% for the year over year change in real output. | 21:52 | |
But when I look at what Townsend-Greenspan is expecting | 21:59 | |
for the fourth quarter of the year, | 22:03 | |
the great pessimist, I find it's a plus 4.3%. | 22:04 | |
Plus 4.3%. | 22:09 | |
So, you see, it really isn't all that gloomy. | 22:10 | |
It means that we're gonna have a turn, a trough, | 22:14 | |
a lower turning point, so-called | 22:18 | |
in National Bureau terminology | 22:20 | |
some time around the middle of the year | 22:22 | |
and we're gonna be definitely on the upswing, | 22:25 | |
in fact, we're gonna be back at our trend rate | 22:27 | |
of growth by the fourth quarter of the year | 22:30 | |
according to the pessimist. | 22:34 | |
Again, let's look at the rate of price increase. | 22:37 | |
Now, Townsend-Greenspan is not the most pessimistic. | 22:40 | |
On the contrary it's among the econometricians | 22:45 | |
right in the middle or toward the bottom | 22:49 | |
in terms of pessimism, | 22:51 | |
that means it's towards the top in terms of optimism. | 22:55 | |
But it still calls for a 9.5% year-over-year price increase. | 22:57 | |
However, when I look at this fourth quarter number | 23:04 | |
for next year, that's plus 6.6%, | 23:06 | |
so you see, we definitely are going | 23:11 | |
to be according to the Townsend-Greenspan scenario, | 23:13 | |
out of two digit inflation and into well, | 23:18 | |
you can't even call it high one digit inflation. | 23:24 | |
You have to call it middling one digit inflation | 23:26 | |
by the end of the year. | 23:30 | |
Or let's take its unemployment. | 23:34 | |
It has a lower unemployment estimate | 23:37 | |
than the mob, | 23:39 | |
both of the judgmental forecasters | 23:41 | |
who tend to be high, they on the average think | 23:43 | |
for the year it'll be 7.3%, | 23:45 | |
the econometricians who perhaps gauge this thing | 23:48 | |
with a little more input, sweat, have only 7.1%. | 23:51 | |
That's hardly a significant difference | 23:57 | |
but it's a little bit lower. | 23:59 | |
Well, for the year as a whole, Townsend-Greenspan | 24:00 | |
has 6.8% which is definitely below the crowd. | 24:02 | |
In fact, except for that Michael Sumichrast outlier | 24:08 | |
that I told you about, | 24:16 | |
that's the lowest unemployment number | 24:17 | |
on the average for the year of anybody | 24:19 | |
but in the fourth quarter of the year, | 24:23 | |
instead of 6.8 of the average for the year, | 24:25 | |
it's 6.7, so unemployment is really coming down. | 24:28 | |
I guess therefore a lot of people | 24:32 | |
if given their choice even for policy purposes | 24:36 | |
would buy the Townsend-Greenspan scenario | 24:40 | |
as not too bad a deal. | 24:44 | |
Of course it involves a little regrettable unemployment | 24:48 | |
but you can't make omelets without breaking eggshells | 24:52 | |
and that's part of the necessary price we pay | 24:57 | |
for our past excesses | 25:01 | |
in order to get our system onto a better | 25:03 | |
and healthier growth path in future. | 25:07 | |
Well, that's Townsend-Greenspan. | 25:10 | |
Let's look at the Wharton model | 25:14 | |
and Chase Econometrics. | 25:17 | |
You know that Wharton has been more pessimistic | 25:18 | |
in this period and let's see in this respect. | 25:20 | |
Well, the story there is also not so bad. | 25:23 | |
Although there's a minus 1% rate of growth for the year | 25:27 | |
which by the way is not a great fall-off | 25:31 | |
compared to the average of the mob. | 25:37 | |
By the fourth quarter of the year | 25:43 | |
Wharton thinks we'll be at 5% rate | 25:44 | |
of growth of real output | 25:47 | |
which is a really healthy rate of growth. | 25:48 | |
Of course it's flat from that time on | 25:51 | |
as is Townsend-Greenspan. | 25:54 | |
By the way, the 4.3% is not on its way up to six or 7%, | 25:56 | |
it's flat in the period thereafter. | 25:59 | |
What about Michael Evans of Chase Econometrics? | 26:03 | |
Always an interesting analyst to scrutinize. | 26:06 | |
He has not much of a drop-off for the year. | 26:11 | |
In fact, he is the most optimistic | 26:14 | |
for the year's over year figures | 26:16 | |
but in the fourth quarter of the year, | 26:19 | |
instead of having the minus 0.8 | 26:21 | |
which is the average year-over-year figure, | 26:23 | |
he has plus 6.2 and rising. | 26:25 | |
So, that's really a very optimistic picture. | 26:28 | |
The University of Michigan | 26:34 | |
I guess is the most pessimistic. | 26:36 | |
They have only 3.6% at the end of the year. | 26:45 | |
Now you say that's pessimism? | 26:49 | |
Not a decline, an increase | 26:52 | |
and that's practically at the trend rate | 26:54 | |
and who knows whether the trend rate | 26:56 | |
which we've always taken in recent past | 26:59 | |
to be 4% or 4 and 1/3%, four and 1/4%, | 27:01 | |
maybe because of productivity deterioration | 27:05 | |
and the new demographic changes | 27:09 | |
that that's working its way down | 27:11 | |
to even below 4%, so 3.6% isn't too bad. | 27:13 | |
Again, if you could believe these forecasters, | 27:20 | |
the picture is not so black | 27:24 | |
because the rate of price increase | 27:26 | |
in the fourth quarter | 27:28 | |
is not up there crowding two digits | 27:29 | |
at 9.6% and so forth as they show for the year as whole | 27:35 | |
on the average. | 27:39 | |
On the contrary, | 27:40 | |
Townsend-Greenspan I've told you calls for 6.6% | 27:42 | |
in the last quarter, | 27:46 | |
7.1% is what Otto Eckstein at Data Resources thinks | 27:48 | |
for the fourth quarter. | 27:53 | |
University of Michigan which is a pessimist | 27:54 | |
is 8.1%, Wharton which is pessimistic | 27:56 | |
has 8.14, eight and 1/7%, | 27:59 | |
Chase Econometrics has seven and 1/3%. | 28:02 | |
That is a good deal better | 28:06 | |
than what we are now experiencing. | 28:09 | |
And quite a number of monitorists | 28:14 | |
whom I've talked to | 28:17 | |
believe that by the middle of the year, | 28:20 | |
you could have a 6% rate of price increase | 28:23 | |
provided the rate of growth of the money supply | 28:28 | |
is held down to a steady course | 28:31 | |
of about five to 6% | 28:33 | |
and one young monitorist told me | 28:36 | |
that his unemployment numbers are back to 6% | 28:42 | |
in the last part of 1975 | 28:47 | |
on that same assumption. | 28:53 | |
I think that the combination seems a little doubtful to me. | 28:56 | |
I think we could get the price improvement | 29:02 | |
if the economy is weak enough | 29:05 | |
but given that he doesn't expect a great weakening | 29:07 | |
of the economy, I don't see how he can have it both ways | 29:10 | |
on the basis of recent past experience | 29:13 | |
but I like to stress the fact | 29:15 | |
that we don't have any controlled experiments | 29:18 | |
which give us a great deal of confidence | 29:21 | |
in our ability to appraise | 29:24 | |
that short run trade-off relationship. | 29:25 | |
On the unemployment, you'll be interested | 29:31 | |
for the fourth quarter of the year | 29:34 | |
that these different forecasters expect | 29:36 | |
about seven and 1/4%, 7.5%, 7.5%, | 29:41 | |
6.7% for Townsend-Greenspan | 29:48 | |
which is definitely on the disappointing side | 29:50 | |
but it ought to do something for us | 29:54 | |
in terms of the amount of current inflationary pressure | 29:57 | |
which will occur at the end of 1975. | 30:02 | |
Well, to wrap it all up, | 30:05 | |
I don't think that there are enough outliers | 30:08 | |
among these forecasters | 30:11 | |
to take account of the fact | 30:13 | |
that the recession might be worse | 30:14 | |
than we think it to be. | 30:16 | |
I was quoted in the same Business Week story | 30:18 | |
as saying that the big difficulty | 30:24 | |
with the forecasters | 30:26 | |
is they haven't given enough probability spread | 30:27 | |
around their numbers, | 30:30 | |
so I'm counseling you to put in great, big elements | 30:33 | |
of salt on both sides of these particular forecasts | 30:40 | |
with respect to every element. | 30:43 | |
Nevertheless, if you go by the odds, | 30:47 | |
it doesn't seem to me | 30:50 | |
that the greatest amount of pessimism | 30:52 | |
which I hear and which I still hear is justified. | 30:55 | |
- | If you have any comments or questions | 31:00 |
for Professor Samuelson, | 31:02 | |
address them to instructional Dynamics Incorporated, | 31:04 | |
450 East Ohio Street, Chicago, Illinois, 60611. | 31:07 |
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