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- | Welcome once again as MIT Professor Paul Samuelson, | 0:02 |
discusses the current economic scene. | 0:05 | |
This program series is produced by | 0:07 | |
Instructional Dynamics Incorporated. | 0:08 | |
This program was recorded September 20th. | 0:10 | |
- | Today would be a good time to discuss the problem of | 0:14 |
worldwide inflation. | 0:18 | |
The increase in prices which goes on in the United States | 0:21 | |
and which properly exercises | 0:25 | |
and alarms people is not an isolated phenomenon. | 0:28 | |
Actually as we keep reminding ourselves, | 0:34 | |
if you tabulate what's happened to the price level | 0:36 | |
in the last 10 years, in the five years, | 0:40 | |
even in the last year, in a number of different countries. | 0:42 | |
Then the score of the United States is usually at the bottom | 0:46 | |
of the rate of inflation comparison with other countries. | 0:53 | |
But what is to be emphasized is | 0:58 | |
that since about 1968 there has been a common upswing | 1:01 | |
in the rate of price inflation, all over the world. | 1:07 | |
This makes one suspicious of any local causality | 1:11 | |
that is adduced. | 1:16 | |
For example, if somebody explains the German inflation | 1:18 | |
after the late 1960's, | 1:24 | |
on the basis of Willy Brandt coming into power, | 1:27 | |
the Social Democrats, | 1:30 | |
then unless a similar event has taken place simultaneously, | 1:32 | |
in every country and why should it, | 1:38 | |
that would be a remarkable coincidence | 1:40 | |
and in fact, we know it hasn't | 1:43 | |
then one becomes suspicious of explanations based upon | 1:46 | |
these different local factors. | 1:51 | |
This suggests a common international factor, | 1:55 | |
like men from mars or something very cosmic | 2:00 | |
but that also can be a trap, | 2:04 | |
because it's possible that instead of there been | 2:07 | |
an outside common external factor, | 2:10 | |
there could be emerging many of the same, | 2:13 | |
non-special factors in every country. | 2:18 | |
We have to approach this subject with an open mind. | 2:22 | |
Of course we approach it | 2:27 | |
with some previous knowledge | 2:28 | |
about what's happened in the various countries, | 2:30 | |
at other times in the past. | 2:33 | |
But let's review the troops, so to speak, | 2:36 | |
and see what some of the different explanations are | 2:40 | |
that are given. | 2:43 | |
A very popular explanation, it's been associated, | 2:47 | |
for example with Professor Robert Mundell, formerly | 2:51 | |
of the University of Chicago | 2:55 | |
and now of the University of Waterloo and Canada, | 2:56 | |
is that the whole world inflation, | 3:00 | |
is due to the balance of payments debts | 3:03 | |
of the United States. | 3:06 | |
In a measure the same sweeping thesis has been pronounced | 3:08 | |
by Professor Harry Johnson | 3:16 | |
of the Lennon's School of Economics | 3:18 | |
and of the University of Chicago. | 3:20 | |
There are many people abroad who are anxious | 3:24 | |
to believe this because in any inflation, | 3:26 | |
it's a good thing to find a villain, | 3:29 | |
to find a scapegoat. | 3:32 | |
And who can do better in that respect, | 3:34 | |
than good old Uncle Sam. | 3:36 | |
A lot of old scores to settle | 3:38 | |
and this particular thesis, | 3:40 | |
has originated independently abroad. | 3:48 | |
A second sweeping thesis, | 3:53 | |
I'm just trying to name the single most monistic thesis, | 3:56 | |
not because I think they're the most important | 4:04 | |
as you'll see in the course of our discussion, | 4:06 | |
you are forced if you wish, to have a respect for evidence | 4:09 | |
and for logic into a more eclectic position. | 4:15 | |
But let's stick with the most dramatic first, | 4:20 | |
you have the monetarist view. | 4:25 | |
I'm now reading from a publication before me | 4:28 | |
by Professor William Nordhaus of Yale University, | 4:32 | |
it's called the Worldwide Wage Explosion, | 4:35 | |
it's an interesting paper, I recommend it to you. | 4:39 | |
It appeared in the | 4:43 | |
Brookings Economic Activity Paper, 2:1972. | 4:46 | |
Which means that it came out just about a year ago | 4:52 | |
and was presumably written just a little bit before then. | 4:59 | |
It gives numbers on manufacturing wages from 1956 to 1971 | 5:04 | |
and it shows very strikingly | 5:09 | |
that there's almost a break in trend in 1968 | 5:12 | |
and that the rate of increase rises up to 1970. | 5:17 | |
This for seven different countries. | 5:22 | |
Now if he had continued the data beyond 1971, | 5:25 | |
and if he had widened he's focus | 5:35 | |
to include consumers prices, cost of living, | 5:36 | |
wholesale prices, staple prices. | 5:39 | |
Then he would not have found | 5:42 | |
that after 1971 could be complacent | 5:44 | |
that the worldwide explosion of inflation was abiding, | 5:49 | |
or at least the worldwide explosion of inflation | 5:54 | |
was abiding. | 5:58 | |
Well he sets out to list different popular theories | 6:01 | |
and then as best he can | 6:06 | |
with quarterly data from Economic Time Series, | 6:08 | |
he tries to test out the theory. | 6:12 | |
There is the monetarist theory which says | 6:15 | |
that money is always at the basis of any inflation. | 6:18 | |
And that there's been an upswing in the supply of money, | 6:24 | |
in these different countries, and that is the explanation. | 6:28 | |
He actually applies this to a cross sectional test, | 6:34 | |
in which he takes the behavior of wages, | 6:38 | |
in money terms, in the different countries | 6:43 | |
and in different times. | 6:47 | |
And puts in a monetary factor and a time trend | 6:49 | |
and a real output factor. | 6:55 | |
This is to give all the factors in the, | 6:59 | |
so called quantity theory of exchange, MV equal PQ, | 7:03 | |
a chance to operate | 7:07 | |
and then he wants to see whether the behavior is consistent | 7:09 | |
with a strong version of that. | 7:18 | |
Now of course, although he's putting up a strong version, | 7:21 | |
he's recognizes that the effect of money, | 7:23 | |
is not supposed to take place instantaneously, | 7:26 | |
he does use lag variables at the recommended best lag. | 7:28 | |
And to make a long story short, | 7:36 | |
with respect to all of the countries, | 7:39 | |
seven countries, Canada, France, West Germany, Japan, | 7:41 | |
Sweden, United Kingdom, United States, | 7:44 | |
he cannot accept the strong version, | 7:47 | |
of the monetarist hypothesis, in any case. | 7:49 | |
If you weaken the version | 7:54 | |
and just see whether there might be evidence | 7:57 | |
to believe in it, in a weaker form, | 8:01 | |
he does get some evidence for Canada, France | 8:04 | |
and West Germany | 8:08 | |
and the United Kingdom. | 8:12 | |
However there's evidence to reject the hypothesis, | 8:14 | |
also for a number of countries. | 8:21 | |
So he's conclusion is, | 8:25 | |
plainly the strict monetarist type hypothesis, | 8:27 | |
is rejected whenever the evidence is sufficient. | 8:30 | |
That is sufficient to make a crisp judgment, | 8:32 | |
one way or another. | 8:35 | |
In no country is the hypothesis accepted, | 8:36 | |
for either co-efficient that is the effect of prices | 8:38 | |
and the effect of output, in 10 cases its rejected. | 8:44 | |
Well, if I were a monetarist, I would be interested in this | 8:48 | |
because one should always test ones own theory. | 8:53 | |
But of course I wouldn't throw in the towel, | 8:57 | |
because who expects any simplified version of any hypothesis | 9:00 | |
to be realized and I think the journalistic utterances | 9:08 | |
of proponents of a theory when you get | 9:12 | |
to the scientific level have to be put aside | 9:16 | |
and you must take their best formulations | 9:20 | |
and not their total formulations, | 9:23 | |
or even their average formulations. | 9:27 | |
Well now, still another explanation which is widely used | 9:31 | |
is that there has been a worldwide deterioration | 9:37 | |
of the Phillips Curve trade off between money wage rates, | 9:44 | |
nominal wage rates | 9:50 | |
and the degree of unemployment in every country. | 9:51 | |
This is tested by Professor Nordhaus, | 9:56 | |
both in a naive form, where he just used unemployment, | 9:58 | |
regressed against the wage inflation. | 10:02 | |
But also in more sophisticated forms | 10:06 | |
in which the expectations of inflation are, | 10:09 | |
somehow arrived at and put in the equations. | 10:13 | |
Here too one sees the, by the late 1960s | 10:21 | |
what seems to be a deterioration | 10:27 | |
of Phillips Curve's in many countries simultaneously. | 10:30 | |
I went to a conference, | 10:34 | |
more of less on this subject in Sweden. | 10:36 | |
I think it was around 1966, really before this period. | 10:39 | |
This was a conference in honor | 10:45 | |
of Professor Erik Lindahl's 60th birthday | 10:47 | |
instead of giving him a Festschrift, a book of bound essays. | 10:52 | |
The Swedish colleagues and admirer of Professor Lindahl, | 10:58 | |
had the happier idea to have a scientific conference | 11:03 | |
around subjects which he was interested in. | 11:07 | |
And I remember there were several survey papers there, | 11:09 | |
both for Sweden but also on a cross sectional basis | 11:12 | |
and even by the middle 1960's, | 11:17 | |
if you used the Phillips Curve as your seismograph, | 11:20 | |
something ominous was beginning to be recorded in the data. | 11:22 | |
Now, mind you although I'm listing all these, | 11:30 | |
as different explanations, | 11:32 | |
a sophisticated analyst could very well argue | 11:34 | |
that there's nothing initially exclusive about them. | 11:37 | |
If the Phillips Curve is going to go to pieces | 11:40 | |
and you are a monetarist, | 11:42 | |
you might argue that it's because | 11:43 | |
of certain monetaristic behavior that that takes place. | 11:45 | |
Well, there are still others. | 11:52 | |
Let me mention one very important one. | 11:55 | |
The dual price phenomenon in Europine | 12:00 | |
and Japanese economies in which, so to speak, | 12:07 | |
there are two different regimes of prices. | 12:12 | |
There are domestic prices | 12:15 | |
and there are international prices. | 12:17 | |
And these answer to a different drum beat. | 12:20 | |
This particular thesis that I'm speaking of, | 12:24 | |
is actually associated with the name of Professor Lindahl, | 12:26 | |
who observed it in Sweden. | 12:29 | |
But I have seen comments, observing the same thing in Italy. | 12:32 | |
And the same thing in Japan. | 12:37 | |
But to Americaneers it comes as a little bit of news, | 12:40 | |
or of a strange thing, | 12:45 | |
because I haven't seen any particular evidence | 12:46 | |
that this dual price theory, | 12:49 | |
this two phases of the economy, | 12:53 | |
each which has the different kind of inflation, | 12:57 | |
that doesn't seem to apply to the United States. | 12:59 | |
However, we aught to pay attention to it | 13:03 | |
because sometimes things which happens in one country, | 13:04 | |
happen earlier there in another country | 13:07 | |
and you can get some lead on | 13:10 | |
what may happen in your own country | 13:12 | |
by observing what happens there. | 13:14 | |
Let me explain what's involved here. | 13:16 | |
I'll take Sweden as an example, | 13:19 | |
but I could as well take Italy, | 13:22 | |
or I could take Japan. | 13:24 | |
These are open economies, they are very export oriented. | 13:26 | |
Their manufacturing firms are used | 13:32 | |
to dealing in foreign trade. | 13:35 | |
They follow trends very closely. | 13:38 | |
They depend upon foreign trade. | 13:41 | |
So a large sector of the economy is completely open. | 13:44 | |
But of course, as everywhere, | 13:48 | |
the existence of transport costs gives a certain amount | 13:51 | |
of local isolation for certain goods. | 13:55 | |
The textbook examples, we used to give, | 13:58 | |
would be things like bricks. | 14:00 | |
Bricks are very heavy, they're not very valuable per pound, | 14:03 | |
the transport costs become very heavy. | 14:07 | |
If you move bricks between regions, even within a country, | 14:11 | |
they are also made out of materials which are ubiquitous. | 14:16 | |
To be found anywhere, anyplace will have some sand | 14:20 | |
and limestone, there are exceptions to this. | 14:23 | |
And so, the market for bricks is always set in local terms. | 14:28 | |
Same thing would be true of haircuts, of personal services | 14:34 | |
and a great number of domestic goods. | 14:38 | |
So in Sweden you have two vertical layers, | 14:41 | |
the domestic goods economy and the world goods economy. | 14:47 | |
Now what happened in the 1960's, | 14:55 | |
already very visible by the middle of the 1960's. | 14:58 | |
What you found was that domestically prices | 15:02 | |
where already rising chronically in every year. | 15:05 | |
4%, 5% that would be the Swedish expectation, | 15:10 | |
with respect to the domestic prices. | 15:14 | |
However if you look at the world price sector | 15:19 | |
of the Swedish economy | 15:22 | |
and you compile an index number | 15:23 | |
of price movements there you you'd find | 15:25 | |
that prices hadn't moved at all. | 15:27 | |
And the explanation given was, | 15:29 | |
that the Swedes could not unilaterally raise their price, | 15:31 | |
they had to meet the foreign competition. | 15:34 | |
Now you might ask why didn't those industries die. | 15:37 | |
How could they meet the foreign competition. | 15:40 | |
Well apparently their profit margins could be squeezed, | 15:42 | |
apparently there were favorable shock effects | 15:46 | |
upon efficiency. | 15:48 | |
And miracles, miracles, year after year after year | 15:50 | |
the Swedish economy and manufacturing for the world market | 15:54 | |
would show productivity changes of 8% per annum. | 15:59 | |
These have a Japanese like sound to American ears. | 16:05 | |
Because we consider ourselves as doing very well | 16:10 | |
if as a year ago and two years ago, | 16:12 | |
in a burst of productivity we get 4%, | 16:17 | |
5% productivity increases | 16:21 | |
and more commonly we have to settle for 2 1/2 % and 3% | 16:23 | |
and right now its thought, | 16:29 | |
just to bring it to the present date | 16:30 | |
that in the year ahead, | 16:34 | |
we may not even have a 1/2 to 1% productivity | 16:36 | |
because of the impending growth recession | 16:40 | |
that most of the experts still expect. | 16:43 | |
Well, in any case, all those different countries, | 16:47 | |
are subject to common competition | 16:52 | |
and you find them all with the dual price system | 16:56 | |
with their prices held down on exportable | 16:59 | |
and importable manufacturing goods. | 17:06 | |
In order to understand, then, the worldwide inflation, | 17:11 | |
what you have to do postulate is that for some reason, | 17:14 | |
which itself needs explanation, | 17:18 | |
the common level to which the international competition | 17:20 | |
has kept those international prices, | 17:26 | |
there's longer that stability. | 17:28 | |
But now, is everywhere at rates like, | 17:30 | |
and now I'm just reaching for numbers, | 17:37 | |
lets say five or 6% per annum. | 17:39 | |
Not as great as what we've seen in food, fiber and metals. | 17:41 | |
The staple supply and demand determined prices, | 17:47 | |
but much greater than before. | 17:50 | |
And so, stick with example, Sweden, | 17:52 | |
the world goods part of the Swedish market, | 17:56 | |
no longer is holding down the comprehensive index | 18:02 | |
by showing 0% increase per year, | 18:06 | |
or 1% increase per year. | 18:12 | |
It is now showing somewhat comprable increases | 18:14 | |
to those in the domestic tier section | 18:18 | |
of the Swedish economy, | 18:23 | |
and similarly in Italy, in Germany, France, | 18:24 | |
Western Europe generally, Japan and the United States. | 18:30 | |
So we are really left with the query | 18:35 | |
as to why at the worldwide level the constraints | 18:40 | |
of worldwide competition have caused an acceleration | 18:45 | |
of the rate of price increase as against, | 18:51 | |
say the early 1960's. | 18:53 | |
Well, I could go on to list other factors, | 18:56 | |
which were listed by Nordhaus, | 19:01 | |
I'll list some of factors I don't intend to say much about. | 19:02 | |
'Cause I haven't anything interesting to say about them, | 19:06 | |
very rapidly. | 19:09 | |
It could be argued that the demographic factor, | 19:11 | |
there's an increase proportion of young workers in the | 19:15 | |
United States labor force | 19:19 | |
and this is also true in a number of other countries | 19:20 | |
because of the war time | 19:22 | |
and immediate post war burst of births. | 19:24 | |
And that this means that the Phillips Curves, | 19:29 | |
haven't really deteriorated, | 19:34 | |
it's just that the, there are more young people | 19:35 | |
who are subject to more unemployment, | 19:38 | |
and if you weigh things properly, | 19:40 | |
you'll find that the situation is indeed worse. | 19:43 | |
But its not because there's been any change in anything, | 19:46 | |
except the waiting. | 19:50 | |
Then it could be argued | 19:52 | |
that we live in an increasingly militant, social | 19:54 | |
and political environment. | 19:58 | |
This shows itself in confrontations, | 20:00 | |
in university discord, | 20:03 | |
it also shows itself in labor union militants | 20:07 | |
and trade union pushfulness has increased. | 20:11 | |
The Japanese, for example, | 20:16 | |
have a very docile labor force, | 20:18 | |
perhaps their luck, if you wanna call it that, | 20:21 | |
is running out. | 20:24 | |
The French Revolution of 1968, | 20:26 | |
which surprised everybody who thought | 20:29 | |
that de Gaulle had brought order | 20:30 | |
and stability and civility to France forever, | 20:33 | |
is an example. | 20:37 | |
And you certainly find in Germany, | 20:39 | |
sociological and political are factors, | 20:43 | |
now that the defeat is far behind, | 20:46 | |
now that the miracle of productivity, | 20:49 | |
is no longer so remarkable, | 20:53 | |
you see the left-wing of the social democrats | 20:57 | |
and you see much more student activism, | 20:59 | |
in the German universities, | 21:02 | |
than ever took place at Kent State, | 21:04 | |
or anywhere in the United States. | 21:06 | |
And this is sometimes blamed for the situation. | 21:08 | |
Of course, we realize | 21:14 | |
that this would serve Nordhaus better | 21:16 | |
as a possible explanation, | 21:21 | |
if he does stop with 1970 or 1971 | 21:22 | |
because, it's been, since 1971 in the United States, | 21:27 | |
at least, | 21:30 | |
that there seems to have been a surprising quieting down | 21:31 | |
of the Phillips Curve wage cost push effects in the | 21:37 | |
United States. | 21:43 | |
Well now, finally there is the factor which, | 21:45 | |
I think an American here at home would deem quite important. | 21:50 | |
And that is, that we've have a depreciation of our currency. | 21:56 | |
This factor could also be adduced | 22:02 | |
for the British wage explosion, | 22:04 | |
following the 1967 devaluation of the Pound. | 22:08 | |
An increase in prices could be expected on a, | 22:14 | |
once-and-for-all basis at least in some measure | 22:18 | |
to follow in any country, | 22:21 | |
which has depreciated it's currency. | 22:22 | |
This is not a very good explanation for worldwide inflation | 22:24 | |
because the effects that I'm talking about, | 22:30 | |
or should be talking about, | 22:32 | |
I think are the effects of depreciation. | 22:33 | |
And the effects of appreciation are the opposite. | 22:36 | |
Perhaps was I unfortunate | 22:39 | |
that I followed Nordhaus in speaking of devaluation, | 22:40 | |
let's speak of the British depreciation of the Pound in 1967 | 22:43 | |
and let's keep in mind the American depreciation | 22:48 | |
of the Dollar after August 15th 1971. | 22:52 | |
Combinating in Smithsonian at the end of 1971. | 22:59 | |
And then the several depreciation's | 23:02 | |
of the Dollar in February, March | 23:05 | |
and under the floating regime, in the months after March | 23:08 | |
of this year itself. | 23:13 | |
The reason why you can't use this as an explanation, | 23:16 | |
in worldwide inflation, | 23:18 | |
is that the German's are asking themselves, | 23:19 | |
how do we account for the fact | 23:22 | |
that we've had an appreciation, | 23:24 | |
and several appreciations | 23:26 | |
order magnitude over the years, | 23:29 | |
since the late 1960's of 40-some-percent, | 23:31 | |
recon one way and recon another way, | 23:35 | |
you can get it to be over 60%. | 23:37 | |
And we've had inflation. | 23:40 | |
If inflation is causing United States by depreciation | 23:43 | |
then relief from inflation, | 23:47 | |
or even deflation aught to be caused in Germany | 23:50 | |
by that same event. | 23:53 | |
Well, that doesn't seem to have been a strong enough effect. | 23:56 | |
I don't think however you should sell it short completely, | 24:00 | |
because I believe if you look at the Canadian experience, | 24:03 | |
you will find that at times, | 24:07 | |
when the United States was having bouts of inflation | 24:10 | |
and the Canadian Dollar was floating | 24:14 | |
and was in fact floating upwards, | 24:16 | |
that there was a certain measure of buffering | 24:19 | |
of the Canadian rate of inflation against infection | 24:22 | |
by the US rate of inflation. | 24:28 | |
Well, let me say a few words of analysis, | 24:33 | |
about the related thesis | 24:38 | |
that the United States has been exporting inflation. | 24:41 | |
Unfortunately we haven't been exporting at all, | 24:46 | |
this could have been used more asymmetrically, | 24:49 | |
back in the early 1960's when the miracles in Germany | 24:53 | |
and on the continent | 24:59 | |
and in Japan were beginning to run out | 25:00 | |
and they were havin' good deal more inflation than we were. | 25:02 | |
Fact, you remember in that period, | 25:05 | |
oh let's say 1960 to 1964, | 25:08 | |
the US basic deficit was actually improving, | 25:12 | |
was lessening, because we were having less inflation. | 25:17 | |
In that case, you could have said | 25:20 | |
that we were sweeping our inflation abroad. | 25:22 | |
Well, if we had been sweeping our inflation abroad, | 25:27 | |
in the Nixon years since 1968, | 25:32 | |
let's say in the post Indo China war years, after 1965. | 25:36 | |
We certainly had not succeeded in sweeping it all abroad, | 25:41 | |
because there's been plenty left here at home to plague us. | 25:43 | |
How do we give a run for it's money of the theory | 25:48 | |
that it's the United States balance of payments, | 25:50 | |
deficit which is at stake. | 25:52 | |
Well, let's first look at the deficit, | 25:56 | |
when the US parity is not moving, | 25:58 | |
is being maintained by whatever means. | 26:01 | |
If the United States is running a deficit, | 26:08 | |
it means we're importing a lot. | 26:11 | |
That means we have a strong demand for goods | 26:13 | |
and services abroad. | 26:17 | |
That means, in terms of microeconomics, | 26:18 | |
that there are strong markets, | 26:21 | |
that prices are being bit up abroad. | 26:23 | |
That this supplies of goods, which the US gets from abroad, | 26:26 | |
are taken out of the increasing marginal costs margin | 26:33 | |
and that raises prices to us, | 26:39 | |
but of course to the competitive market, | 26:41 | |
it also raises prices to all the demanders abroad, | 26:42 | |
think of Germany as your example. | 26:45 | |
So there is a direct microeconomic demand effect, | 26:48 | |
on prices abroad. | 26:52 | |
Lets look at this in a slightly deeper way, | 26:55 | |
at the macroeconomic level. | 26:59 | |
According to the analysis of income determination, | 27:02 | |
the multiple kand, | 27:11 | |
in the familiar Keynesian multiplier process, | 27:15 | |
can be regarding as in part being the export surplus. | 27:19 | |
Time and again we've seen this operate, | 27:25 | |
the late J.M. Clarke of Columbia University, | 27:28 | |
when he came to write a history | 27:30 | |
of the American economy in World War I | 27:32 | |
for the Carnegie Foundation, | 27:36 | |
actually developed independently of Keynesian, | 27:38 | |
the multiplier doctrine. | 27:40 | |
He noticed that we went from a mild recession in 1913, 1914, | 27:41 | |
into a very considerable prosperity, | 27:46 | |
before we ever got into the war this on the basis, | 27:49 | |
of our export surplus generated by belligerents, | 27:52 | |
military war orders in the United States, | 27:55 | |
these were mostly in lines for shipping reasons, | 27:59 | |
but even hand delivered were ready to trade with the Germans | 28:02 | |
and the Turks at that time. | 28:07 | |
So the effect, our deficit is somebody else's surplus | 28:12 | |
and this acts as a stimulant to the total affective demand, | 28:18 | |
in those particular economies. | 28:24 | |
This is reinforced and as a matter of fact, | 28:28 | |
the effects are not added to it, | 28:31 | |
we're saying the same thing in some degree, | 28:32 | |
but they're not identical. | 28:34 | |
By the increase in the monetary reserves, | 28:36 | |
which occurs in the countries abroad, | 28:41 | |
while this process is taking place. | 28:44 | |
And by the way, which stays there, | 28:47 | |
even after the basic deficit has come to be zero. | 28:48 | |
I'm thinking if you're on a gold standard | 28:52 | |
of the actual flow of gold into those countries, | 28:54 | |
that gold is expanded | 28:57 | |
by the banking system in the usual fashion. | 28:58 | |
But even if, gold is not being much used, | 29:01 | |
in international trade in the early 1960's, | 29:05 | |
and it wasn't very much being used. | 29:07 | |
If the countries abroad support the American Dollar, | 29:11 | |
their central banks are willing to take those Dollars in, | 29:15 | |
then and their people are not willing to hold those Dollars, | 29:17 | |
then the central bank must effectively increase, | 29:20 | |
the high powered money, the reserves of the banking system | 29:24 | |
and the amount of currency in circulation abroad. | 29:29 | |
And so the, | 29:32 | |
this reinforces the monetarists view. | 29:33 | |
I think therefore Americans should not be a defensive | 29:38 | |
that, and deny what is undeniable. | 29:42 | |
That our balance of payments is one deficit, | 29:45 | |
is one reason for inflation abroad. | 29:50 | |
It's also one reason for non-inflation at home, | 29:52 | |
because we would have less goods and greater scarcity, | 29:55 | |
and more bidding up of prices at home. | 29:58 | |
It cannot however be used as a worldwide explanation, | 30:01 | |
including the United States. | 30:04 | |
Well my time is just about up, I wanna add something, | 30:07 | |
which Nordhaus had no reason to add, | 30:12 | |
because he stopped really with 1971, | 30:15 | |
we have had a simultaneous worldwide business cycle. | 30:19 | |
An upswing in money national incomes | 30:23 | |
and real national incomes and all countries. | 30:26 | |
And this has coincided with a period | 30:28 | |
of impaired supply of basic agricultural products, | 30:31 | |
and mining products | 30:36 | |
and so in addition you've had commodity price inflation. | 30:37 | |
This is a common international factor, | 30:42 | |
and in the volatile price indexes, | 30:47 | |
its probably the most important of all. | 30:50 | |
It's by no means the most discouraging of all, | 30:52 | |
because what supply and demand sends up, it may | 30:54 | |
and I think will at a later date, send down. | 30:58 | |
- | If you have any comments or questions | 31:02 |
for Professor Samuelson, | 31:03 | |
address them to | 31:04 | |
Instructional Dynamics Incorporated, | 31:05 | |
166 East Superior Street, Chicago, Illinois, 60611. | 31:08 |
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