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- | Hello, this is David Francis, | 0:02 |
Financial Editor of the Christian Science Monitor. | 0:03 | |
I'd like to welcome you once again, | 0:06 | |
on behalf of Instructional Dynamics Incorporated | 0:09 | |
to a visit with MIT's Nobel prize winning economist | 0:12 | |
Paul Samuelson. | 0:15 | |
We are recording this chat in early June, | 0:17 | |
just after the International Monetary Fund | 0:21 | |
auctioned 780,000 ounces of its gold. | 0:24 | |
The average price of the winning bids | 0:28 | |
was $126.98. | 0:30 | |
Dr. Samuelson, do you see any significance | 0:35 | |
for the world in this transaction? | 0:38 | |
- | Well, David I think this has been a case | 0:41 |
of not very much ado about not very much. | 0:43 | |
The price of gold at the beginning of May, | 0:49 | |
when this first of what is promised | 0:52 | |
to be a series of auctions by the IMF was announced | 0:55 | |
was exactly where it is this morning. | 0:59 | |
It, in anticipation of the series of auctions | 1:03 | |
had fallen to its low since the end of 1974, | 1:08 | |
and was quoted somewhere between a $1.26, | 1:14 | |
$126 and ounce and $127 an ounce, | 1:19 | |
and that's exactly where it is after the auction. | 1:22 | |
The auction I think was a success, | 1:26 | |
but how could it have been otherwise? | 1:30 | |
The amount is really minuscule. | 1:32 | |
It's about one and a half week's gold production | 1:38 | |
for South Africa. | 1:41 | |
So, you can be very sure | 1:44 | |
that although the central banks | 1:46 | |
will not be allowed for a year or so | 1:49 | |
themselves directly to participate in these auctions, | 1:52 | |
you can be sure that countries like France, | 1:56 | |
with a keen interest in gold, | 1:59 | |
and with a very good friend | 2:01 | |
at the Bank for International Settlements, | 2:03 | |
would have had some way of putting in a supporting bid | 2:04 | |
just in case the Dutch auction had tended to move the price | 2:09 | |
of gold let's say down to $100 an ounce. | 2:13 | |
This would have meant a book loss | 2:16 | |
of the gold held by the major central banks | 2:19 | |
of considerable magnitude, | 2:23 | |
and although we're getting gold out of our system, | 2:25 | |
we haven't yet quite succeeded in doing so, | 2:27 | |
and therefore, they have, the central banks do, | 2:31 | |
a watching brief on the price of gold. | 2:34 | |
So the price was about as low | 2:36 | |
as it could decently have been, | 2:40 | |
and the price did hold there. | 2:42 | |
But remember, we're going to have, | 2:44 | |
in another six weeks, 16 times a year, | 2:47 | |
the same amount being brought on to the market. | 2:51 | |
It's just as if some new, very lush gold mine | 2:53 | |
had been discovered in Russia or in South Africa, | 2:57 | |
and this will put some downward pressure | 3:01 | |
on the price of gold compared to what it otherwise | 3:04 | |
would have been. | 3:07 | |
Now, I can't tell you whether this is a good or bad time | 3:08 | |
to buy gold. | 3:14 | |
The trouble with gold as a holding | 3:16 | |
is that unless you're a gypsy, | 3:19 | |
or unless you're a footloose refugee | 3:22 | |
about to make your break for some new country, | 3:25 | |
the price of gold has to rise considerably | 3:31 | |
just for you to break even. | 3:33 | |
The carrying charges, the foregone interest rates, | 3:34 | |
and so forth mean that ordinary, honest, | 3:38 | |
taxpaying citizens have to have an increase | 3:41 | |
in the price of gold probably on the order of magnitude | 3:46 | |
of 10, 12% every year just in order to break even | 3:49 | |
in comparison with their other holdings. | 3:54 | |
And so, the time will come when the price of gold | 3:55 | |
will be depressed because of the demonetization of gold, | 4:01 | |
and then because of the normal demand of industry, | 4:07 | |
of dentistry, of jewelry, of display, | 4:11 | |
and there is a normal hoarding demand for gold | 4:15 | |
on part of people in parts of the world | 4:18 | |
where it's customary to hoard gold, | 4:20 | |
and also, people who have a beef against government, | 4:24 | |
and maybe have a little problem with their tax collector | 4:30 | |
who don't want the lack of anonymity | 4:33 | |
that comes with holding ordinary assets. | 4:36 | |
So that time will come, no doubt, | 4:38 | |
when, as the general price level rises, | 4:41 | |
gold will rise more or less the way copper | 4:45 | |
and OPEC oil rise with the general price level. | 4:49 | |
But whether that time has yet come or not, | 4:54 | |
I'm not wise enough to know, | 4:58 | |
and I don't think that anybody else is. | 5:00 | |
- | Seems to be the problem with gold | 5:04 |
is that it's subject to government manipulation, | 5:05 | |
and if Russia decides to sell some of its gold | 5:07 | |
to pay for its wheat, | 5:10 | |
this would depress the price of gold. | 5:12 | |
- | That's true, on the other hand, | 5:14 |
that's also true of platinum. | 5:15 | |
Russia's a great supplier of that. | 5:18 | |
And we might ask ourselves, what crop, | 5:20 | |
is it not the case that government manipulation | 5:24 | |
is a relevant factor for a speculator | 5:29 | |
to take into account? | 5:32 | |
I have reference to the meeting | 5:34 | |
which just broke up in Nairobi | 5:36 | |
which is asking that all of the third countries, | 5:38 | |
and all the staple producers around the world, | 5:43 | |
be given some kind of protection in the way of buffer crops, | 5:45 | |
which would be at the behest of bureaucrats and parliaments, | 5:49 | |
and that's one of the risks, | 5:56 | |
as a commodity speculator, or as a commodity processor, | 5:59 | |
or I dare say as a consumer, that we all have to bare. | 6:04 | |
As President Harry Truman said, | 6:09 | |
if you can't stand the heat, get out of the kitchen, | 6:12 | |
and commodity speculation may not be the place for you. | 6:15 | |
Dave, we might just make a passing reference | 6:19 | |
to the Great Potato Scandal, | 6:23 | |
not very far from where we're sitting, | 6:25 | |
in Maine, of course, the Maine potato crop | 6:27 | |
went off the board rather ingloriously | 6:33 | |
with an actual default to the tune | 6:36 | |
of several millions of dollars. | 6:40 | |
Well, the whole story is not yet told. | 6:44 | |
I'm often asked whether there was manipulation | 6:47 | |
on the part of the short sellers, | 6:50 | |
and my answer is, probably, | 6:52 | |
but there also probably, in this case, | 6:55 | |
was some manipulation in the closing days, | 6:58 | |
the end game days of buying up | 7:01 | |
train cars and all of the things | 7:07 | |
which were bottlenecks for the delivery of Maine potatoes. | 7:08 | |
Of course, the exchange itself will make good, | 7:12 | |
but it will make good at an adjudicated price. | 7:16 | |
The late President Hadley of Yale used to say | 7:21 | |
that God almighty doesn't know the marginal cost | 7:25 | |
of moving freight from New York to Chicago. | 7:28 | |
Well, I'm afraid that this is the case | 7:31 | |
where the Devil himself doesn't know | 7:33 | |
what the fair price would be to settle those contracts. | 7:37 | |
I'm sure there were some people in good faith, | 7:41 | |
I'm now talking about small people, | 7:43 | |
not the very large people, | 7:45 | |
who good faith has no meaning | 7:46 | |
when there is a tacit meeting of minds to affect prices, | 7:49 | |
but I'm sure there were people in good faith | 7:53 | |
who in the closing days of that market | 7:56 | |
innocently walked into it thinking that the shorts | 7:59 | |
were gonna be squeezed very hard, | 8:02 | |
and bought at a very high price, | 8:04 | |
thinking the price would go still high. | 8:07 | |
And, I doubt, if adjudication goes the way | 8:08 | |
it usually does, which is to look | 8:13 | |
for some kind of a golden mean between the claimants, | 8:15 | |
I doubt that those people who got in at the last moment | 8:18 | |
are going to have their, | 8:23 | |
what they thought were legitimate expectations, fulfilled. | 8:24 | |
I guess it's a lesson to us all | 8:28 | |
that as adults, we better be sure | 8:30 | |
what game it is we're sitting down | 8:34 | |
to play a round of cards in. | 8:37 | |
- | Do you think this potato futures | 8:41 |
play a useful social role in the case of potatoes? | 8:42 | |
- | Yes I do, I don't think that there's any reason | 8:46 |
why the Maine potato is so different from the Idaho potato. | 8:50 | |
That there can't be a contract found | 8:54 | |
which will allow, | 8:57 | |
with adjustments for grade and place settlements. | 9:00 | |
But I think that the potato market | 9:04 | |
does provide a useful function. | 9:09 | |
I say this, because Holbrook Working, | 9:12 | |
who was at the Food Research Institute | 9:16 | |
at Stanford University for many years, who's still alive, | 9:18 | |
but spent a lifetime studying these things, | 9:21 | |
studied markets like the onion market, | 9:23 | |
which at one time was unorganized. | 9:25 | |
There was no organized futures market in onions. | 9:28 | |
Then there was a futures market in onions. | 9:30 | |
And then because of some incidents, | 9:33 | |
a little bit like these potato incidents, | 9:36 | |
it was wiped out, and is still wiped out. | 9:38 | |
And what Holbrook Working did was to study | 9:40 | |
the behavior of prices in each of those three regimes | 9:42 | |
to see which one behaved the best from the social viewpoint, | 9:46 | |
not from the viewpoint of the speculator, | 9:50 | |
and his finding which seemed reasonable to me | 9:51 | |
in terms of the data he gave and the arguments he gave | 9:57 | |
was that the onion market, | 10:00 | |
when it was organized, did serve a useful purpose. | 10:02 | |
I may say, David, that part of the political pressure | 10:06 | |
to wipe out these markets | 10:11 | |
comes from the ordinary person in the street | 10:13 | |
who thinks of this as no more than gambling. | 10:16 | |
It's just a numbers game, | 10:19 | |
and it's a numbers game which absolutely played | 10:21 | |
by richer people, and puritanically, | 10:24 | |
they want to wipe it out. | 10:28 | |
But, I believe, in the background, | 10:31 | |
there are also interests who use this, | 10:34 | |
what you might call ordinary, vulgar prejudice | 10:38 | |
against all speculation, for their own purposes. | 10:41 | |
And these are the monopsonists, the processors, | 10:45 | |
the big buyers. | 10:48 | |
And what they find is that when there's an organized market | 10:50 | |
there's more information, the farmers really get | 10:54 | |
a better break in the buying. | 10:57 | |
And so, it's like the case of the lobbyists | 10:59 | |
in say the state of Illinois, | 11:05 | |
or in Albany, in New York, or here in Massachusetts | 11:08 | |
who are against | 11:11 | |
removing interest rate ceilings on small loans. | 11:16 | |
And you would say these lobbyists are consumers. | 11:20 | |
Well, many of them are. | 11:23 | |
You'd say they're philanthropists, | 11:24 | |
they're interested in the poor person | 11:25 | |
who has to pay high rates. | 11:26 | |
Well, many of them are. | 11:27 | |
But I have to tell you also | 11:28 | |
that many of them are loan sharks. | 11:30 | |
Because they know that what creates | 11:32 | |
the best business for them, | 11:35 | |
this was documented years ago | 11:37 | |
by the Russell Sage Foundation, | 11:38 | |
what creates the best business for them | 11:39 | |
is unrealistically low interest rates, | 11:41 | |
at which poor people can't get the money, | 11:45 | |
in which case they're driven right down the corral | 11:47 | |
into the welcoming arms of the loan sharks. | 11:50 | |
So you always have to be suspicious | 11:54 | |
about what's behind the Robin Hood slogan. | 11:56 | |
Sometimes it's Robin Hood, | 12:00 | |
but sometimes it's a Sheriff Nottingham | 12:01 | |
who's playing both sides of the street. | 12:04 | |
- | Oh yes, going back to the gold picture, | 12:05 |
I find it interesting that in this situation, | 12:08 | |
the best-developed countries are allied | 12:11 | |
in interest with South Africa, | 12:15 | |
in having a high price for gold, | 12:18 | |
because the less-developed countries | 12:20 | |
are the beneficiaries of the IMF sales. | 12:22 | |
- | Yes, that's true, because, | 12:25 |
the provision is that one-sixth of the IMF gold | 12:28 | |
is to be used for the benefit of the third world. | 12:33 | |
However, I think that this is fairly small potatoes. | 12:38 | |
By the way, let's just keep things in focus. | 12:41 | |
I don't say that every Assistant Professor | 12:46 | |
could have been in this gold market, | 12:48 | |
but all you needed was a $50,000 ante | 12:50 | |
to have made a bid this last time, | 12:57 | |
and you could have borrowed, no doubt, part of that, | 12:59 | |
pledging the gold that you get against it, | 13:02 | |
putting it in escrow. | 13:05 | |
And we're only talking about $250,000 worth of gold, | 13:06 | |
which was the minimum amount that anybody could buy. | 13:10 | |
And I dare say that those people who did buy, | 13:13 | |
I'm now talking about the little fellas, | 13:15 | |
not the big fellas who may have been supporting the price, | 13:17 | |
maybe shaved off some commission charges | 13:21 | |
and got themselves not a bad deal. | 13:23 | |
Of course, now you have the problem | 13:26 | |
of what do you want to do with $250,000 worth of gold, | 13:27 | |
bought on borrowed money, | 13:31 | |
which, by the way, is the usual way | 13:32 | |
that anybody collateralizes, holds gold. | 13:34 | |
That's why it's misleading to think | 13:38 | |
that when the price of gold dropped as it did, | 13:39 | |
in 1975, from just about $200 an ounce | 13:42 | |
to $130 an ounce, you need to say, | 13:46 | |
well, which one of us has not had a common stock | 13:48 | |
which dropped by that amount? | 13:51 | |
That is not the story. | 13:53 | |
The story is that you're in there on margin, | 13:55 | |
and you're pyramided. | 13:57 | |
And when the price of gold dropped | 13:59 | |
as little as from $195 down to $175 | 14:01 | |
you got a call from your friendly banker, | 14:04 | |
saying, sorry old chap. | 14:07 | |
However, I really don't want to pose here | 14:08 | |
as an enemy of gold, or any form of innocent merriment. | 14:11 | |
All I would say to people is, | 14:16 | |
that if you're going to sit down to this card game, | 14:18 | |
you might as well know the odds. | 14:21 | |
And I think that the worst odds by far | 14:23 | |
are buying of these commemorative coins | 14:27 | |
that people are buying. | 14:29 | |
They think that they've got an asset, | 14:31 | |
and of course, what they've got is a dust collector. | 14:33 | |
- | Yeah, I regard those as a ripoff, | 14:36 |
'cause usually the price of the gold content | 14:37 | |
is much less than their actual price. | 14:41 | |
- | Yes, I'm sorry to say, | 14:42 |
that a lot of the official bodies | 14:44 | |
are part of this ripoff, including the United States. | 14:46 | |
The friendly U.S. government in our bicentennial year | 14:49 | |
you know, is producing one ounce bicentennial coins. | 14:52 | |
Now, we know what ounce of gold is worth, roughly. | 14:57 | |
$127. | 15:01 | |
A little fine printing on it, | 15:03 | |
which would make it $127 and a half? | 15:05 | |
(interviewer laughs) | 15:07 | |
Alright, but what do you think | ||
your friendly Uncle Sam is selling these for? | 15:09 | |
$400. | 15:12 | |
- | $400, oh wow. | |
- | So, if you have to buy gold coins, | 15:14 |
and there's something to be said for a person | 15:15 | |
with a yen for gold that just can't be satisfied | 15:17 | |
without having a gold holding, | 15:19 | |
is they should buy gold coins, | 15:21 | |
but at least buy the wholesale kind, the Krugers. | 15:22 | |
Krugerrands from South Africa. | 15:27 | |
You buy very low premium, | 15:30 | |
and they're convenient and they're assayable. | 15:32 | |
The trouble with buying a bar of gold | 15:35 | |
is the moment you buy it, | 15:37 | |
it's, so to speak, lost its good name, | 15:38 | |
and when you want to sell it, | 15:42 | |
it has to be assayed all over again, | 15:43 | |
which is a very expensive process. | 15:44 | |
So I wouldn't put the gold in my wine cellar, | 15:48 | |
protected by your Pinckert and Rowland system, | 15:53 | |
unless you're gonna hold it a long time. | 15:56 | |
That's a pretty expensive way of doing it. | 15:58 | |
Also, as every chemist knows, it's pretty heavy stuff, | 16:00 | |
you want to be sure that your house foundation can stand. | 16:04 | |
(they laugh) | 16:07 | |
- | I heard the other day | |
of somebody who has what might be expected, | 16:10 | |
they put some lead in the middle | 16:14 | |
of some of these gold bars. | 16:15 | |
- | Oh, yes, you see, | |
W.C. Fields said it so well, | 16:18 | |
"You can't cheat an honest man." | 16:19 | |
And the people who've been skirting the law, | 16:22 | |
I don't want to point my finger in any particular scandal, | 16:27 | |
but you know, right here in our Berkshire Mountains | 16:30 | |
there was a big operation | 16:33 | |
which is now under investigation by the SEC, | 16:36 | |
and in Switzerland, involving, | 16:39 | |
literally hundreds of millions of dollars, | 16:42 | |
and they're now trying to see | 16:44 | |
whether there even was an accounting for this. | 16:45 | |
Now, I dare say they're gonna find | 16:49 | |
every ounce of gold there. | 16:50 | |
But it was certainly jumping the gun. | 16:52 | |
It wasn't until December 31st, 1974 | 16:55 | |
that you or I or any God-fearing, honest, | 16:57 | |
law-abiding American citizen | 17:01 | |
could have an outright position in gold. | 17:02 | |
We could have gold mine shares, of course, | 17:04 | |
but we couldn't have an outright position in gold. | 17:07 | |
Well, there were quite a number of elderly gentlemen, | 17:09 | |
and gentleladies, who were putting their money | 17:12 | |
through the Berkshires into Switzerland | 17:18 | |
in various forms of gold, | 17:21 | |
warehouse receipts and so forth. | 17:23 | |
Questionable legality. | 17:25 | |
Well, W.C. Fields would understand that. | 17:29 | |
- | Well, let's turn to the domestic economy. | 17:31 |
You were down in Washington recently | 17:34 | |
discussing the picture with high government officials. | 17:36 | |
What did you find out as to the economy? | 17:39 | |
- | Well, I was actually at a White House meeting. | 17:42 |
I was invited for lunch with the President. | 17:46 | |
First question I asked, of course, | 17:49 | |
was, is this a bipartisan lunch? | 17:51 | |
We're right in the middle of primaries, | 17:53 | |
and I was assured that yes, | 17:56 | |
that other characters equally as dangerous as myself | 17:58 | |
would be there. | 18:04 | |
People like Walter Heller, and Arthur Okun, | 18:04 | |
and Charles Schultz, and so I felt it was okay to go. | 18:09 | |
On the other hand, when they brought in the cameraman, | 18:14 | |
I was a little bit nonplussed, | 18:17 | |
and since I happened to be sitting | 18:18 | |
right on the President's left, | 18:19 | |
I think the left was perhaps | 18:20 | |
the proper position for me to have been sitting, | 18:22 | |
and since it wasn't a wide-zoom camera, | 18:25 | |
I began to receive inquiries from the rest of my friends | 18:28 | |
as to whether I had changed my political allegiance, | 18:32 | |
and I assured them that I was just as unsound as ever. | 18:37 | |
(they laugh) | 18:40 | |
That was not the case. | ||
Well, that was the kind of meeting | 18:42 | |
where the only thing one can legitimately discuss | 18:45 | |
is what one said oneself. | 18:48 | |
But it was the day when the news came out | 18:54 | |
that the first quarter strength, | 18:56 | |
which we knew to be very strong, | 18:58 | |
seven and a half percent real growth | 18:59 | |
of the GNP after correcting for inflation. | 19:01 | |
And the good news about the inflation, | 19:05 | |
which was that it had gone below 4% in the first quarter. | 19:07 | |
Well, along came the revisions, | 19:12 | |
and instead of being revisions in the direction | 19:14 | |
that unbelievers had expected, | 19:18 | |
namely, writing down the real numbers, | 19:21 | |
and writing up the rate of inflation, | 19:24 | |
the revisions were even more pleasant to contemplate | 19:26 | |
than the original numbers. | 19:30 | |
If your notion of pleasantness | 19:33 | |
is the stronger the economy's growing, the better, | 19:35 | |
and if your notion of inflation is, | 19:38 | |
that if in the short run, inflation is behaving very well, | 19:42 | |
that's the best possible sign | 19:46 | |
that in the longer run we may also have some luck. | 19:48 | |
I may say that that last line of argument | 19:51 | |
seems to me to carry some conviction. | 19:53 | |
It's good news that the first quarter | 19:58 | |
rate of inflation was low, | 20:00 | |
because that gives us better hope | 20:01 | |
that although we expect the fourth quarter of the year | 20:04 | |
to show a higher rate of inflation than the first quarter, | 20:07 | |
it may not show quite as high as we earlier feared. | 20:10 | |
Particularly since the planting of the food crop | 20:15 | |
has been very good. | 20:20 | |
You know, it got in early, the crop, | 20:22 | |
there's more planted now than at the usual time, | 20:25 | |
and although there's always some place | 20:28 | |
in the country which lacks rain, | 20:29 | |
Minnesota is an example right now, | 20:31 | |
by-and-large, the outlook could be, | 20:34 | |
for a reasonably large corn crop. | 20:38 | |
The soybean crop won't be quite as large, | 20:41 | |
because so much of it is going into corn. | 20:44 | |
They're competitive there. | 20:46 | |
Well, it was right at the day of that meeting | 20:48 | |
at the White House that the preliminary announcement | 20:52 | |
came out, a little earlier perhaps than I would have learned | 20:54 | |
if I stayed in Cambridge, Massachusetts, | 20:58 | |
maybe 20 hours earlier, | 21:00 | |
that the figures had been revised | 21:02 | |
upward to eight and a half percent. | 21:04 | |
And people differ in the way they accept that news. | 21:06 | |
For myself, I thought that, | 21:11 | |
the aphorism applicable to modern architecture | 21:15 | |
perhaps applies here: | 21:19 | |
Beyond a certain point, more is less. | 21:21 | |
That is, I think eight and a half percent | 21:25 | |
is getting to be a bit too much of a good thing. | 21:28 | |
Now I realize that there authorities whom I respect | 21:32 | |
who point out how early we are in the business cycle, | 21:36 | |
and how far we are from capacity, | 21:38 | |
and bottlenecks, in the labor market, | 21:42 | |
or in almost all of our industries. | 21:45 | |
And therefore, the faster we're now growing, | 21:48 | |
the sooner we'll get the unemployed back to jobs. | 21:51 | |
The sooner we'll be on our way | 21:55 | |
toward reaching the goal of at least below 6% | 21:58 | |
overall unemployment rate. | 22:03 | |
But, for myself, I would like to have this | 22:07 | |
be a long expansion, sustained, | 22:12 | |
going through '77, into '78, | 22:16 | |
and for that matter, since I'm getting my targets, | 22:20 | |
I'd like to have the rest of this decade | 22:23 | |
show makeup for the woeful behavior | 22:25 | |
of the American economy in the first part of the decade. | 22:30 | |
- | Yes, Chase Econometrics says, predicts, in fact, | 22:33 |
that the economy will turn down in 1978. | 22:37 | |
Do you think this sort of prediction is actually possible? | 22:40 | |
- | Well, Dr. Michael Evans of Chase Econometrics | 22:45 |
was perhaps of all the consensus forecasters, | 22:50 | |
I call him a consensus forecaster, | 22:53 | |
although he has his own idiosyncrasies, | 22:56 | |
and his own strengths and perhaps weaknesses, | 23:00 | |
he was the one who was nearest to the mark | 23:04 | |
on the first quarter numbers. | 23:05 | |
Seven and a half percent was his forecast. | 23:08 | |
So, let us sing the praise of famous men | 23:11 | |
while such praise is in season. | 23:14 | |
And therefore, we read with greater interest his views. | 23:17 | |
Now, of course what I think is of interest | 23:20 | |
is not any flat-footed prediction | 23:23 | |
by Dr. Michael Evans or anybody else | 23:26 | |
that inflation's going to be worse than we think, | 23:29 | |
or that we're going to move into recession | 23:32 | |
last part of 1977, and by 1978 be well into it. | 23:34 | |
What's interesting is the story he tells. | 23:38 | |
What is the line of analysis | 23:41 | |
by which he buttresses that argument? | 23:44 | |
And I think that Chase Econometrics | 23:47 | |
does have an interesting story to tell, | 23:51 | |
and if I believed in it 100%, | 23:53 | |
I would be a bit more apprehensive | 23:59 | |
than I actually am now about the likelihood | 24:03 | |
of the scenario that he's outlined being realized. | 24:07 | |
I have before me, the sound cannot reproduce, | 24:12 | |
but I will describe the chart that I have before me, | 24:17 | |
which happens actually to be taken | 24:20 | |
from the most recent Chase Econometrics forecast. | 24:22 | |
This is a forecasting service, | 24:28 | |
which very many corporations and banks, | 24:30 | |
and I daresay, a few universities, also are subscribed to. | 24:34 | |
And I find it very informative to read, | 24:40 | |
along with that of some of the other consensus forecasters. | 24:45 | |
Well this particular chart tries to estimate | 24:48 | |
what the potential real Gross National Product | 24:51 | |
for the nation is as we move into '77. | 24:54 | |
And he gives what the Council of Economic Advisors, | 24:59 | |
or the Congressional Budget Office, | 25:04 | |
have estimated for the real GNP, | 25:06 | |
and according to that potential | 25:09 | |
we've got a lot of room to grow. | 25:12 | |
We're still a baby in this recovery. | 25:15 | |
We can grow, grow, at the pace we've been going, | 25:19 | |
for several years before we run into the ceiling | 25:24 | |
of our potential bottleneck. | 25:28 | |
And he marks that A, and it's the sort of thing | 25:30 | |
that most economists have used. | 25:33 | |
It is a tool which was questioned very severely | 25:36 | |
by Dr. Arthur Burns in 1962, | 25:41 | |
in a famous speech of his criticizing | 25:45 | |
the Camelot/Kennedy Council of Economic Advisors. | 25:48 | |
But since then, the Federal Reserve has come around | 25:53 | |
to using the tool of potential national product. | 25:57 | |
That's par, then you see how far you are below par, | 25:59 | |
and if you're very far below par, | 26:03 | |
then that's both the potential for growth, | 26:06 | |
but it's also a rather good sign for inflation | 26:09 | |
because that gap between the actual GNP | 26:12 | |
and the potential, producable GNP at full employment, | 26:14 | |
properly defined, is a measure | 26:19 | |
of the resistance to price advance. | 26:22 | |
Well, he plots that, but then he gives | 26:26 | |
an intermediate estimate, which is a good deal lower, | 26:31 | |
but then he gives his own best estimate, | 26:34 | |
and that is a great deal lower, | 26:36 | |
so that he actually has the economy | 26:38 | |
hitting the ceiling in '77. | 26:42 | |
- | Oh, yes. | |
- | And, of course, if everybody could agree with that, | 26:47 |
then there's much less room above us, | 26:51 | |
and this recovery is a good deal older | 26:54 | |
than we think. | 26:58 | |
Now, his best estimate is, and we'll go along, | 27:01 | |
not as strong as the first quarter, | 27:04 | |
and in this, other forecasters agree with him, | 27:06 | |
but that we will, by the end of '77, | 27:10 | |
be growing less than the trend rate of the economy, | 27:14 | |
and therefore, unemployment will be on the rise again. | 27:19 | |
Indeed, there's not much reduction in the unemployment rate | 27:21 | |
according to his most pessimistic forecast. | 27:26 | |
Well, I always like to look at the different forecast, | 27:31 | |
the optimistic and the pessimistic, | 27:36 | |
and if you really want your blood to run, | 27:38 | |
you just look at his second alternative forecast, | 27:42 | |
which involves no investment boom, | 27:46 | |
that's no boom in plant equipment expenditures | 27:49 | |
in 1966 and 1967. | 27:51 | |
And the bad news there is, we're already, | 27:53 | |
I would have to say, on his numbers, | 27:56 | |
are moving into a growth recession. | 27:59 | |
Well, my best judgment is that that is too pessimistic. | 28:01 | |
That, by the way, is also Evan's best judgment, | 28:06 | |
'cause this is an alternative forecast. | 28:09 | |
I would think it more realistic at this time | 28:11 | |
to go along with the view of Albert Summers, | 28:14 | |
the conference board whom I've quoted many times here. | 28:19 | |
He gives, I'll just give the numbers, | 28:24 | |
'cause our time is very scarce, | 28:25 | |
he gives real growth eight and a half percent annual rate | 28:27 | |
in the first quarter, dropping to just below 7%, | 28:30 | |
but then going up in the third quarter | 28:33 | |
to seven and a half percent, | 28:35 | |
and 6% the last part of the year. | 28:37 | |
Well, as far as he's concerned, | 28:40 | |
up through the middle of '77, we have a healthy advance, | 28:42 | |
but even he begins to show a growth recession after that. | 28:46 | |
I must say, this is all very iffy, | 28:49 | |
and we'll have to have more time to go into | 28:52 | |
how one weighs the probabilities | 28:55 | |
looking two years ahead, three years ahead, | 28:58 | |
five years ahead. | 29:01 | |
- | Thank you very much. | 29:03 |
If you subscribers would like to ask questions | 29:05 | |
of Professor Paul Samuelson, | 29:08 | |
or suggest subjects for him to discuss, | 29:10 | |
please write to Instructional Dynamics Incorporated, | 29:14 | |
450 East Ohio Street, Chicago, Illinois, 60611. | 29:18 |
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