pstau001012001.wav
Loading the media player...
Transcript
Transcripts may contain inaccuracies.
- | Instructional Dynamics Incorporated welcomes you | 0:02 |
to another in a series of commentaries | 0:04 | |
on the current economic scene for the week of January 27th. | 0:06 | |
Speaking will be Dr. Paul Samuelson, Professor of Economics | 0:10 | |
at the Massachusetts Institute of Technology. | 0:13 | |
Professor Samuelson what's on the docket for this week? | 0:16 | |
- | I've just been reading the new Economic Report | 0:19 |
of the President, and I'd like to make some comments today | 0:21 | |
about it during this last part of January. | 0:25 | |
Of course this is a lame duck report | 0:30 | |
of an outgoing administration. | 0:32 | |
So it doesn't have the usual interest | 0:35 | |
as a harbinger of policy programs yet to come. | 0:37 | |
After all who remembers that last report | 0:41 | |
that Dr. Saulnier willed the nation | 0:42 | |
when President Kennedy's new team was taking over. | 0:45 | |
Nevertheless, the present document I think | 0:49 | |
does have a certain value as a valedictory, | 0:51 | |
since big things did happen in the economic sphere | 0:54 | |
during the Kennedy Johnson years. | 0:57 | |
And it does provide a background against which | 0:59 | |
to measure the problems and accomplishments | 1:02 | |
of the new Nixon team. | 1:04 | |
As is now standard, the report is divided into two parts. | 1:08 | |
The first part is really the President's own. | 1:12 | |
It may be written for him by council members, | 1:15 | |
but that's true of all official documents | 1:19 | |
ever since the time of Woodrow Wilson who used | 1:21 | |
to peck these things off on his own typewriter. | 1:23 | |
All official papers of the President | 1:27 | |
are in a sense ghosted for him by his advisors and staff. | 1:29 | |
Nevertheless they carry the definite imprint | 1:34 | |
of his personality and represent | 1:36 | |
in the last analysis his views and not that | 1:38 | |
of the ghosts anymore | 1:42 | |
than of the typewriter that types them. | 1:45 | |
But the second part of the Annual Report, | 1:49 | |
Economic Report is the professional work | 1:51 | |
of the professional council. | 1:53 | |
It goes without saying that this second half | 1:56 | |
doesn't say anything that the President would disagree with, | 1:59 | |
but I believe there is no implication | 2:02 | |
that the President does agree | 2:03 | |
with every last word and emphasis in that report. | 2:05 | |
Now most people just read the first part improperly. | 2:08 | |
But most economists hurry through that first part | 2:12 | |
because what they find scientifically interesting | 2:16 | |
is in the second part. | 2:19 | |
Indeed so great is the interest | 2:21 | |
in the council's professional report | 2:23 | |
that thousands of copies are sold | 2:25 | |
every year for classroom use. | 2:26 | |
And it's actually become a commercial, | 2:29 | |
commercially profitable enterprise | 2:31 | |
to edit these volumes for commercial sale | 2:33 | |
to college classroom use. | 2:37 | |
And particularly in the 1960s the council reports | 2:41 | |
under Hiller, and Ackley, and Okun | 2:44 | |
seem to have drawn widespread approbation | 2:48 | |
from inside the academic profession. | 2:51 | |
Now I've just gone over my bookshelf | 2:55 | |
of all the annual reports since the very beginning. | 2:56 | |
But before giving you a highly subjective | 3:00 | |
survey and appraisal of them, let me call attention | 3:03 | |
to what is in the present one. | 3:07 | |
At the beginning, and this is in the President's own report, | 3:11 | |
there is an explicit prediction | 3:13 | |
of what next year's GNP will be. | 3:15 | |
The forecast is for next year's GNP of 921 billion | 3:19 | |
that's an increase of about 60 billion | 3:23 | |
or almost exactly seven percent in money terms. | 3:26 | |
This forecast is almost one percent higher | 3:30 | |
than the Conference Board Forecast of Paul McCracken | 3:33 | |
and others that I have mentioned earlier in previous tapes. | 3:36 | |
And of the typical bank forecast like that | 3:42 | |
of the Harris Trust Company which I mentioned. | 3:44 | |
Indeed this forecast is getting rather close to my own, | 3:47 | |
I may hasten to say independently arrived at forecast | 3:51 | |
which was for 924 billion. | 3:54 | |
And it's a bit shy of Heller's, | 3:57 | |
Walter Heller's forecast of 926 billion. | 3:58 | |
The very fact that there is a forecast | 4:04 | |
in the document is itself significant. | 4:05 | |
Some of you will recall that Arthur F. Burns | 4:08 | |
when he was Eisenhower's first | 4:11 | |
Chairman of the Council of Economic Advisors, | 4:13 | |
had always strongly resisted any such procedure. | 4:17 | |
Believing apparently that the Dutch and Swedish patterns | 4:22 | |
in which the government makes an explicit forecast | 4:27 | |
and sometimes sets targets and goals | 4:30 | |
was not called for by American law. | 4:33 | |
I should say parenthetically that we've had a number | 4:38 | |
of interesting careful audits | 4:40 | |
of these forecasting forecasts | 4:42 | |
by the Dutch Statistical Office | 4:44 | |
and by the Swedish Government Authorities. | 4:48 | |
Professor Henri Theil now of the University of Chicago | 4:52 | |
and earlier from Rotterdam has gone over them | 4:56 | |
with a fine toothed comb and the results | 4:58 | |
of the audit seem to be that these forecasts | 5:02 | |
have been amazingly good and to have been actually improving | 5:05 | |
in accuracy over the years. | 5:07 | |
Well it was only at the end of the Eisenhower years | 5:11 | |
that such an explicit forecast was ever given. | 5:13 | |
That was in the time of Dr. Saulnier, | 5:16 | |
not in the time of Arthur Burns. | 5:19 | |
Actually even a few years earlier there had been | 5:21 | |
an implicit forecast in the official year end documents, | 5:24 | |
and this for the reason | 5:29 | |
that you cannot present a budget estimate | 5:30 | |
for the new fiscal year | 5:33 | |
without making some definite estimate | 5:35 | |
of what the level of income is likely to be | 5:36 | |
that forms the base for our progressive income tax. | 5:40 | |
So clever analysts could deduce from the budget material | 5:43 | |
what the projected GNP actually was, | 5:47 | |
and this number kept coming out | 5:51 | |
in congressional hearings on the budget. | 5:52 | |
So now, | 5:56 | |
it seems to have become practice, | 5:59 | |
we'll see what the new administration does | 6:01 | |
actually to give an explicit forecast. | 6:03 | |
It was on the basis of this explicit forecast | 6:08 | |
of a seven percent increase in money GNP | 6:11 | |
that the outgoing President Johnson | 6:15 | |
with something of a concurrence agreed upon in advance | 6:18 | |
by the incoming President Nixon proposed | 6:21 | |
that the 10 percent surcharge be retained after July 1st. | 6:26 | |
Of course President Nixon keeps all his options open, | 6:30 | |
and if new information suggests that | 6:33 | |
that surcharge should be cut to one half | 6:37 | |
and not extended or not extended at all. | 6:40 | |
He isn't at all committed by anything | 6:44 | |
that's happened up to this time. | 6:46 | |
The official forecast does not expect inflation | 6:49 | |
to come to an end. | 6:52 | |
I was given recently two quotations from Arthur Burns | 6:54 | |
from something that he seems | 6:59 | |
to have said in Philadelphia. | 7:01 | |
And one of them, and I quote and I can't vouch | 7:04 | |
for the accuracy of the quotation, went something like this, | 7:07 | |
"That if we don't control inflation we will have a crash." | 7:12 | |
Well now I'm not sure exactly what a crash is, | 7:16 | |
but we're certain to have one of those things | 7:19 | |
if the second quotation of Arthur Burns is correct | 7:25 | |
namely that "The only acceptable rate | 7:29 | |
of price inflation is a zero rate of price inflation." | 7:31 | |
Because neither the outgoing council, | 7:36 | |
nor Wall Street, nor any of the business economists | 7:39 | |
that I know expect that our four percent rate of inflation | 7:42 | |
may taper down to a zero rate within this year. | 7:46 | |
The optimists among them think | 7:51 | |
that the rate of inflation may perhaps taper down | 7:53 | |
to something like three percent. | 7:58 | |
That's the unanimous opinion of economic experts. | 8:01 | |
Well let me modify my opinion, | 8:05 | |
I can't say that this opinion is completely unanimous. | 8:08 | |
I do know a professor at Cornell | 8:11 | |
who says he doesn't believe in Phillips Curves | 8:13 | |
relating current unemployment | 8:17 | |
and wage settlement increases. | 8:19 | |
And who thinks that a moderate reduction | 8:25 | |
in the rate of growth of the money supply | 8:28 | |
will actually end the wage increases | 8:29 | |
in excess of productivity fairly easily | 8:32 | |
in the coming year. | 8:35 | |
But I think he has rather few adherents | 8:37 | |
in that particular belief. | 8:39 | |
Going back now to the new Council Economic Report, | 8:43 | |
I could not find an explicit quarter by quarter profile | 8:48 | |
of expected gross national product increases in it. | 8:51 | |
At least from my first examination. | 8:55 | |
It is my inference however, | 8:58 | |
that Dr. Arthur Okun probably does go along | 8:59 | |
with the majority view that the first half of 1969, | 9:03 | |
particularly the second quarter of it | 9:07 | |
will show a definite slowing down | 9:09 | |
in the growth rate relative to the growth rates | 9:12 | |
that we've seen in the quarters of 1968. | 9:14 | |
But this brings me to an interruption | 9:20 | |
of my train of thought, my first duty I suppose | 9:21 | |
is to keep listeners up to date | 9:25 | |
on what seems to be happening. | 9:28 | |
And I have been brooding over the fourth quarter figures. | 9:30 | |
You may recall that the first estimate | 9:35 | |
that the Department of Commerce has given us says | 9:37 | |
that the GNP, the gross national product grew 16.8 billions | 9:39 | |
in the fourth quarter of the year, | 9:44 | |
this is in current money terms. | 9:47 | |
Which is a slight drop, significant but not large drop | 9:49 | |
from the 18.1 billion growth of the third quarter, | 9:54 | |
and a somewhat larger drop | 9:59 | |
from the 21.7 billion of the second quarter. | 10:01 | |
However, as I read the fine print, | 10:06 | |
the official release tells us that this estimate was | 10:09 | |
on the basis of only the October | 10:11 | |
and November inventory data. | 10:13 | |
The December figures were simply unavailable. | 10:16 | |
Now what about December? | 10:20 | |
We know that the Christmas retail sales were disappointing, | 10:22 | |
whether that was due to the flu, | 10:26 | |
or to a rise in the saving rate back | 10:27 | |
to the seven percent level that fitted in little more | 10:31 | |
with the earlier predictions | 10:35 | |
of the adherence of fiscal restraint | 10:37 | |
or to whatever reason there was | 10:39 | |
that disappointment in retail sales in December. | 10:41 | |
This suggests to me that quite a lot of inventory | 10:47 | |
may have piled up involuntarily in December. | 10:50 | |
So when the Department of Commerce comes to make | 10:54 | |
that second estimate of the fourth quarter figures, | 10:56 | |
I wonder whether their report will not go up | 11:01 | |
from a 10 billion annual rate | 11:07 | |
of inventory accumulation first estimate | 11:08 | |
by a couple of a billion. | 11:14 | |
Now I suspect that this will make their second estimate | 11:16 | |
of total GNP growth in the fourth quarter right up there | 11:19 | |
with the kind of growth that was reported | 11:25 | |
in the third quarter. | 11:28 | |
Well who cares about ancient history? | 11:31 | |
My reason for bringing this up | 11:33 | |
is that some analysts expect inventories | 11:37 | |
to be top heavy in the early months of this year | 11:41 | |
precisely because of last year's | 11:46 | |
involuntary inventory accumulation. | 11:47 | |
They say that all those autos in dealer showrooms | 11:52 | |
are going to be followed by a cutback | 11:56 | |
in Detroit production schedules. | 11:58 | |
And thus they're among those who are betting | 12:01 | |
on some weakness in the first half, | 12:03 | |
not a recession but some weakness. | 12:05 | |
Now say to quarterly rates of growth | 12:08 | |
that averaged in the first half | 12:09 | |
13 billion dollars per quarter, | 12:12 | |
rather than say 18 billion dollars per quarter. | 12:14 | |
You can get an argument on this matter. | 12:19 | |
There are other people who say that, | 12:21 | |
and some in the Detroit auto companies, | 12:22 | |
that if we keep the inventories of the dealers big, | 12:26 | |
top heavy if you please they'll get out | 12:31 | |
like bird dogs and sale those cars and really hustle. | 12:33 | |
And so the production schedules can be maintained. | 12:37 | |
Well now I suppose that a good monetarist should not believe | 12:44 | |
in weakness | 12:50 | |
in the GNPs in the first couple of quarters of the year. | 12:53 | |
Putting myself his shoes I would be tempted | 12:58 | |
to look for 18, 20, or even 22 billion dollar rates | 13:02 | |
of growth per quarter in the first half of the year. | 13:06 | |
And indeed if the first half should fall | 13:10 | |
significantly short of this, | 13:12 | |
and if as I expect the Fed will be slowing down the rate | 13:15 | |
of growth of the money supply | 13:19 | |
between now and Father's Day. | 13:21 | |
Then I guess the monetarist would have at that time | 13:22 | |
to go through something of an agonizing reappraisal. | 13:26 | |
Were I in his shoes then, I suppose I would have to predict | 13:31 | |
that the last half of the year will also be at least as weak | 13:34 | |
as is fashionably, | 13:38 | |
fashionably being expected by non-monetarists | 13:41 | |
that the first half will be. | 13:45 | |
Well in that case I'd have to come up with an estimate, | 13:47 | |
the GNP will simply not end up | 13:51 | |
for the calendar year having grown the seven percent | 13:52 | |
that the Council of Economic Advisors | 13:56 | |
has just now predicted. | 13:58 | |
But I should speak for myself, and not for Miles Standish | 14:02 | |
and if the first half does turn out to be about | 14:07 | |
as weak as what we've just been talking about, | 14:12 | |
I shall then most likely still look for something | 14:15 | |
of an upswing in the third quarter. | 14:19 | |
Now it is possible that the momentum of the boom | 14:22 | |
could've been broken by then, | 14:24 | |
and that the adverse delayed effects | 14:27 | |
of Federal Reserve restraint to which I give some weight | 14:29 | |
would make for a continued stagnation. | 14:33 | |
But putting all the factors together quantitatively | 14:39 | |
in an eclectic fashion, it seems to me at this point, | 14:42 | |
and actually I don't, I'll know more in April, | 14:47 | |
but at this point it seems to me more likely | 14:50 | |
that the possibility of a working off of inventory | 14:53 | |
would be followed by some resumption of inventory building. | 14:56 | |
When I say working off inventory, | 15:02 | |
I don't mean an actual decline | 15:03 | |
but a slowing down in the rate of growth | 15:07 | |
of it as the economy catches up. | 15:10 | |
Now the exact timing of such a ripple | 15:13 | |
in inventory building is very hard to gauge. | 15:16 | |
And I wouldn't be tempted to bet | 15:21 | |
that a process like that could be completed so quickly | 15:24 | |
as two quarters if it weren't for the fact | 15:27 | |
that I'm rather expecting that the Nixon Administration | 15:29 | |
will find itself willy nilly | 15:35 | |
stepping up governmental expenditures by mid-year | 15:38 | |
beyond the lame duck figures we have already been presented. | 15:41 | |
I should say that those lame duck figures do have in them | 15:46 | |
as part of legislation a very sizable increase | 15:49 | |
in government payrolls in the third quarter of the year. | 15:54 | |
To the tune of something | 15:58 | |
like three billion dollars annual rate. | 15:59 | |
Well let me return now, | 16:05 | |
to a purely subjective survey | 16:09 | |
of the work of past Councils of Economic Advisors. | 16:12 | |
Now I want to warn you that I can't pretend | 16:17 | |
to be free of prejudice in this matter. | 16:20 | |
And I regard this as something like Kiplinger's Newsletter, | 16:24 | |
I speak informally and not in the polished and careful terms | 16:30 | |
that would be appropriate to a written article | 16:38 | |
on the subject. | 16:41 | |
As Dr. Samuel Johnson said in another context, | 16:42 | |
one is not under oath in informal discussion of this kind | 16:49 | |
and so a little candid | 16:54 | |
statement of viewpoint is not inappropriate. | 16:59 | |
Let me then give this highly prejudiced, informal survey | 17:04 | |
of the Council of Economic Advisors. | 17:11 | |
The institution was set up you'll recall | 17:13 | |
by the Employment Act of 1946. | 17:15 | |
Sometimes called the Full Employment Act of 1946. | 17:19 | |
The exact intention of Congress in setting up | 17:22 | |
that act cannot be summarized definitively | 17:25 | |
because Congress does not have one mind | 17:31 | |
and Robert Taft at that time had quite a different view | 17:33 | |
of the matter than | 17:37 | |
did the partisans of the legislation. | 17:40 | |
But the first Chairman of the Council of Economic Advisors | 17:46 | |
was a very distinguished elder statesman in economics, | 17:50 | |
Edwin Norris, Agricultural Economist. | 17:53 | |
He's Emeritus today from the Brookings Institution | 17:56 | |
and he's a man of very high reputation | 18:01 | |
in the economics profession. | 18:03 | |
He is not at the forefront, however of research in the area. | 18:06 | |
And his original view was that the council should | 18:12 | |
be kind of an academic scientific body. | 18:16 | |
And this did not survive the man | 18:23 | |
who followed him immediately Dr. Kiserling. | 18:26 | |
Dr. Kiserling is not popular | 18:31 | |
with professional economists in every quarter. | 18:35 | |
Sometimes it's said against him | 18:39 | |
that he doesn't have a PhD in economics. | 18:41 | |
Well that can't be the real reason | 18:43 | |
because we know popular people | 18:44 | |
without PhDs and we know people | 18:48 | |
with PhDs who are utter idiots and also unpopular. | 18:50 | |
But in any case, Dr. Kiserling was an activist | 18:54 | |
he followed a line of his own | 19:00 | |
and he did believe in getting involved in things. | 19:03 | |
As I score his record, | 19:10 | |
this is purely subjective, it does not go down | 19:14 | |
in history as a distinguished one. | 19:18 | |
He spoke a great deal in favor of private enterprise, | 19:20 | |
but that was taken | 19:23 | |
perhaps wrongly to be just pious talk. | 19:28 | |
He spoke a great deal about controlling inflation | 19:32 | |
but those people worried most about inflation | 19:34 | |
were perhaps not pacified by his remarks. | 19:38 | |
And according to my records | 19:42 | |
he did not call the 1948 recession | 19:45 | |
as early as a number of other economists had called it. | 19:50 | |
There's nothing despicable about that, but he did right | 19:54 | |
into 1949 when everybody could see | 19:58 | |
that there was a recession still advocate | 20:00 | |
the fiscal restraint which he and President Truman | 20:05 | |
had thought appropriate in earlier stage. | 20:09 | |
One thing he did do for the country | 20:13 | |
that I think was extremely important | 20:15 | |
and that is he put a great deal of pressure | 20:19 | |
upon the steel industry and some other basic industries | 20:22 | |
to expand capacity beyond what they wanted | 20:24 | |
to do at the time and this stood us | 20:27 | |
in very good stead in terms of national security | 20:30 | |
during the Korean War period | 20:33 | |
and later. | 20:39 | |
Well in 1952 when General Eisenhower came in, | 20:42 | |
one might say that in congressional quarters | 20:46 | |
the Council of Economic Advisor's stock was being quoted | 20:48 | |
at a very low rate and there was even a possibility | 20:51 | |
that the whole operation would be phased out. | 20:55 | |
At this point Arthur F. Burns was appointed Chairman, | 20:59 | |
and I do think that he succeeded | 21:04 | |
in restoring the stock of the Council as an institution. | 21:07 | |
In fact, according to my reading of the matter | 21:14 | |
he handled the recession of 1953, 54 very well. | 21:18 | |
He was a strong voice crying in the Eisenhower wilderness | 21:25 | |
in favor of expansionary fiscal and monetary policy | 21:28 | |
as against Secretary of Treasury George Humphrey. | 21:34 | |
And in these first Eisenhower years, | 21:38 | |
I believe that a Burns Council generally did prevail. | 21:43 | |
His finest hour in my judgment, | 21:48 | |
was in predicting that 1955 | 21:51 | |
would be an extremely strong year. | 21:55 | |
He made a prediction beyond | 21:57 | |
that of any of the expert analysts | 21:58 | |
and he turned out to be right in this matter. | 22:01 | |
He was followed by Dr. Saulnier | 22:05 | |
and | 22:10 | |
I believe that | 22:12 | |
if we give credit when credit is due | 22:15 | |
and if we have to give blame when blame is due, | 22:17 | |
I would score the last four | 22:20 | |
or five Eisenhower years very low. | 22:24 | |
They were years of great stagnation, | 22:26 | |
of very slow growth, of eroding profits, | 22:28 | |
and of a rising trend of unemployment. | 22:34 | |
And therefore, | 22:37 | |
the new coming council | 22:41 | |
of Heller, Tobin, and Gordon, | 22:44 | |
I mentioned three names because in the Kennedy Johnson years | 22:48 | |
the council has been a committee and not a one man show, | 22:51 | |
was I think the best council we've ever had. | 22:57 | |
No my listeners know that I have a favorable view | 23:02 | |
of the present Council of Economic Advisors. | 23:06 | |
Paul McCracken, and Herbet Stein, and Hendrick Houthakker. | 23:10 | |
But the real vintage group, I think, | 23:16 | |
was the first Kennedy council. | 23:20 | |
It was followed by two very able ones I may add. | 23:23 | |
I have gone over the oral history | 23:26 | |
of the Kennedy economic policies | 23:28 | |
in the archives of the Kennedy Library, | 23:32 | |
and I've recorded my own memories. | 23:36 | |
And I have just been astounded | 23:39 | |
by what happened in the first 90 | 23:40 | |
to 100 days within the council. | 23:42 | |
Very important concepts that have now | 23:46 | |
become standard of the gap | 23:48 | |
of the full employment budget, | 23:51 | |
of the fiscal dividend, | 23:54 | |
of the, | 23:57 | |
the analysis | 23:59 | |
of how structural unemployment would be affected | 24:01 | |
by changes in effective demand. | 24:05 | |
All these things were engineered | 24:07 | |
during this same very busy period. | 24:11 | |
And since this is a time for valedictory, | 24:14 | |
I will simply say that the 95 months | 24:19 | |
of unbroken expansion which undoubtedly will go | 24:23 | |
to over 100 and which is equivalent in terms | 24:27 | |
of the annals of the National Bureau of Economic Research | 24:30 | |
as one would measure the age of a man | 24:32 | |
to a 300 year old, | 24:35 | |
well I exaggerate, 225 year old man. | 24:38 | |
Is the fitting tribute to the activism | 24:43 | |
and expert analysis of the Councils of Economic Advisors | 24:48 | |
during this particular period. | 24:54 | |
I could not have predicted such good performance. | 24:57 | |
I did not predict such good performance | 25:00 | |
in the State of the Economy basic paper | 25:01 | |
that I prepared for John F. Kennedy just as he took office. | 25:06 | |
But as I went back to re-read that paper, | 25:10 | |
the vision of | 25:14 | |
what constituted our problem that was | 25:17 | |
in that paper I think was vindicated | 25:19 | |
by subsequent experience. | 25:22 | |
Let us hope that with the new problems, | 25:25 | |
some of them inherited from the very success | 25:29 | |
of the Kennedy Johnson expansionist measures, | 25:31 | |
that the new problems of the new council | 25:35 | |
will be as resourcefully and as effectively, | 25:38 | |
and now I speak as a professor of economics | 25:42 | |
and as interestingly treated from a scientific viewpoint | 25:44 | |
as these old problems. | 25:49 | |
- | You have been listening | 25:52 |
to Professor Paul Samuelson, Professor of Economics | 25:53 | |
at the Massachusetts Institute of Technology. | 25:56 | |
If you have comments, questions, or suggestions | 25:58 | |
write Instructional Dynamics Incorporated | 26:00 | |
166 East Superior Street, Chicago 60611. | 26:03 |
File Info
The preservation of the Duke University Libraries Digital Collections and the Duke Digital Repository programs are supported in part by the Lowell and Eileen Aptman Digital Preservation Fund