Tape 21 - Review of first quarter 1969

Download
- Rights
- Limited Re-Use
  CC BY-NC 4.0
  More Rights Info
- Files (1)
- MP3
- Please be patient with media downloads. They are often large files.
Share

Embed Code
<iframe src='//idn.duke.edu/ark:/87924/r47h1f35x?embed=true' height='125px' width='100%' frameborder='0' marginwidth='0' marginheight='0' scrolling='no' allowfullscreen></iframe>
Permalink

https://idn.duke.edu/ark:/87924/r47h1f35x
Skip to Item Info

Loading the media player...

Files for this Item

Transcript

Transcripts may contain inaccuracies.

-	It's time now for this week's discussion on economics	0:02
	with Dr. Paul Samuelson, professor of economics	0:04
	at the Massachusetts Institute of Technology.	0:07
	This weekly series is produced	0:10
	and recorded by Instructional Dynamics Incorporated.	0:12
	Professor Samuelson, the first quarter of the year is over.	0:15
	How would you report what has happened	0:18
	during the first quarter, and how do we stand now?	0:20
-	Now that the first quarter is over,	0:22
	we still do not have the solid statistics	0:25
	which tell us what has happened.	0:28
	For example, the Department of Commerce	0:31
	has not yet given us their first estimate	0:33
	of the gross national product for this period	0:36
	and the breakdown of that gross national product.	0:38
	However, I have opinions on the subject,	0:41
	and let me talk about them.	0:43
	First, I believe that the first quarter	0:48
	of the year has been very strong.	0:51
	When we see the statistics, this will be verified.	0:53
	As a matter of fact, that long-awaited slowdown	0:57
	has not yet, in my judgment, occurred.	1:01
	Just to give a rough guess, I will estimate	1:05
	that the first quarter this year	1:09
	in comparison with the fourth quarter of last year	1:12
	represents about a $16.5 billion increment in money GNP.	1:15
	That's essentially exactly the same	1:23
	as the $16.5 billion increment from the third	1:26
	to the fourth quarter of the year.	1:31
	And so although this is a little bit slower	1:32
	than the rate of growth of the economy year ago,	1:36
	the difference is trivial and negligible.	1:40
	So I conclude the slowdown has not yet come to us.	1:44
	Worse than that, if we look at the composition	1:52
	of the demand in the first quarter,	1:55
	I believe that it will turn out	1:59
	not to be strength based upon strong inventory accumulation.	2:06
	On the contrary, the only solid figures we have	2:12
	on inventory accumulation are for January,	2:15
	and perhaps a little bit of February.	2:18
	And these showed a remarkable moderation	2:20
	in inventory accumulation.	2:24
	These show an actual drop in the rate	2:26
	of inventory stock building	2:28
	in comparison with the end of last year.	2:31
	And so my first casual estimate is that it is final demand	2:33
	which represents the strength of the growth in GNP.	2:41
	And by final demand, economists mean the components	2:47
	of the gross national product	2:52
	after you purify out the influence of inventory changes.	2:53
	So we're going through a snake-like movement.	2:59
	In the third quarter of last year,	3:01
	final demand was extremely strong, in the 20 billions.	3:03
	And inventory growth was rather moderate.	3:08
	Then came the fourth quarter of the year.	3:12
	If you looked at the total rate of growth,	3:15
	it was not much different from the third quarter,	3:17
	but its composition had changed.	3:19
	Its composition had moved away from final demand.	3:21
	Final demand dropped into the low teens	3:25
	and toward inventory demand.	3:29
	Well, now the snake is unwinding itself once again,	3:33
	and we're back to the third quarter pattern, in my judgment.	3:36
	And it is final demand which is in the 20s, low 20s,	3:39
	in this particular quarter.	3:45
	Now what's the difference?	3:47
	A dollar is a dollar is a dollar.	3:48
	Well, a dollar isn't the same thing as another dollar	3:50
	if we're trying to look ahead,	3:53
	because I think that the strength	3:55
	in the final demand in the first quarter	3:57
	indicates greater strength in the next quarter,	4:00
	the second quarter of the year,	4:04
	then would the same increment of dollars	4:06
	if it had consisted of heavy inventory accumulation.	4:09
	Now why is that?	4:13
	It's simply because if we had had a 16 1/2 billion increase	4:14
	in the first quarter this year	4:20
	based upon a very rapid inventory accumulation rate,	4:22
	let's say inventory is being accumulated	4:26
	at an annual rate of $10 billion or more,	4:29
	then in the quarter to come,	4:31
	we might pay for this rapid inventory accumulation	4:34
	by decumulation.	4:37
	It's exactly the kind of compensating error	4:39
	that we all get as automobile drivers	4:42
	when we fill up our tank,	4:45
	and reckon what our gasoline mileage was,	4:48
	and we find that the last time,	4:50
	we got terrific gasoline mileage.	4:52
	Well, that's probably because the man	4:54
	didn't fill up the tank equally.	4:57
	And the next time, we'll pay for this	4:59
	in having extraordinarily low gasoline mileage.	5:01
	Well, it's not inventory, in my judgment.	5:07
	And so the economy is very strong.	5:11
	Now that's the wrap-up of the general picture.	5:16
	What does it mean in terms of our various social problems,	5:20
	and in terms of various components of the GNP?	5:24
	A, unemployment still remains very low.	5:30
	At the last recorded measurement, it was 3.3%.	5:33
	The labor force is growing, I almost said magnificently.	5:38
	Employment then is still up very much.	5:43
	The growth in physical output continues,	5:47
	but it's not commensurate, I would guess,	5:52
	with the increase and input.	5:55
	So I believe that I'm discerning a slight retardation	5:57
	in the rate of growth of productivity.	6:03
	Now you might think that this slowdown	6:06
	in productivity would be bad for profits,	6:08
	and by itself, it would be.	6:12
	However, remember, volume is still increasing,	6:15
	so that the total profits can go up	6:18
	even if the profit per unit of output does not improve.	6:20
	And total product and sales are still going up.	6:30
	So I think that that does make for good profits.	6:34
	But more than that, prices are rising.	6:37
	We have not solved our inflation problem.	6:40
	We have not moved from a slightly more	6:43
	than 4% annual rate of inflation	6:47
	to a slightly more than 3% rate of inflation	6:50
	as probably the new Nixon administration has hoped	6:54
	that we would begin to do.	7:01
	On the contrary, as I read the numbers,	7:03
	we continue at the previous rate of inflation.	7:06
	Indeed, I'm not sure	7:10
	that there has not been a perceptible quickening	7:11
	of the rate of inflation since Inauguration Day.	7:14
	This shows itself in monthly increases	7:18
	in the so-called cost of living, the Consumer's Index,	7:24
	of 4/10 of 1%, which is about 5% per year.	7:27
	And the latest one figure that I saw	7:34
	did not even have any soaring food prices in it.	7:36
	It had some moderation in food prices.	7:39
	So if we begin again to get food prices going up	7:41
	added to the very substantial increase	7:46
	in clothing prices that all our wives have been noticing,	7:49
	and add it to the immutable, irrevocable increases	7:52
	in the cost of medical care,	7:58
	and the steady increases in the cost of services,	8:00
	and adding a new element, the rather significant quickening	8:04
	in the cost each month of housing	8:11
	as the higher interest rates that the Federal Reserve	8:16
	is helping to engineer begin to show themselves	8:19
	in our monthly mortgage payments,	8:23
	adding all these things together,	8:27
	you would be a great optimist to see	8:28
	in the months immediately ahead any significant diminution	8:31
	in the rate of price increase.	8:37
	This is a shame,	8:40
	but I'm afraid that's the way the picture looks.	8:41
	Well, it's an ill wind that blows nobody any good.	8:47
	And these increases in prices,	8:50
	which are so uncomfortable to us as family men	8:52
	and as consumers, do help to explain, in my opinion,	8:56
	why the profit situation is boiling along	9:01
	at a pretty fast clip.	9:05
	Now that we have the fourth quarter profit figures,	9:08
	it turns out that the fourth quarter was very good	9:11
	in terms of profits.	9:16
	I don't know whether Wall Street has taken note of this,	9:18
	but the actual year-end figures as they came in	9:20
	have exceeded almost all of the estimates.	9:24
	I believe the same thing has been going on	9:27
	in the first quarter of the year.	9:30
	We've seen these rash of announcements	9:32
	of higher administrated prices,	9:36
	and a lot of those higher prices have stuck.	9:39
	In one of my previous tapes,	9:44
	I attributed part of the timing of this	9:46
	to the fact that corporate executives are less fearful,	9:50
	that frowns will be emanating from the White House	9:55
	and from the Council of Economic Advisers	9:59
	if they do raise their prices,	10:02
	and they have been raising their prices.	10:04
	Since this is a time for a report card,	10:10
	this is a time to grade little Johnny	10:14
	on his reading, and on his English,	10:16
	and how he is mastering conversational French,	10:18
	and the new math, I must go on and give my comments	10:21
	as an academic observer and teacher, so to speak,	10:27
	to give grades to the new team of the Nixon administration	10:31
	at the end of the first quarter of the year	10:36
	on how they're doing as managers.	10:38
	You know the word economics comes originally	10:43
	from management, management of the household.	10:45
	Well, we don't pretend to be home economists,	10:49
	but as political economists,	10:52
	we purport to prescribe to the nation,	10:54
	how have Paul McCracken, and Herbert Stein,	10:59
	and Hendrik Houthakker done as members	11:03
	of the Council of Economic Advisers?	11:06
	How has Arthur Burns as economic counselor	11:09
	with cabinet rank to the president been doing?	11:13
	Finally, the big question is,	11:18
	how has Mr. Nixon been doing	11:21
	in the economic sphere as a president?	11:25
	Of course, it's very early in the game.	11:30
	And the primary thing which must be said	11:33
	upon the report card is evidence is still incomplete.	11:36
	Scotch verdict is called for,	11:40
	not proven one way or the other, and this is very natural.	11:44
	But going beyond that, and recognizing that the new team	11:50
	has actually been in office less than a quarter,	11:54
	even though 1/4 of the year is gone,	11:56
	let's see what indications there seem to be	11:59
	for the future and for future report cards.	12:05
	I would say that the new administration	12:10
	has been going very slow in all of its actions.	12:13
	It disbelieves in fine tuning.	12:17
	If you identify fine tuning with activism,	12:20
	which seems to me to be one possible	12:24
	operationally meaningful definition of fine tuning,	12:27
	then the new Nixon team	12:32
	is claiming to go in for gross tuning, and not fine tuning.	12:37
	They're moving very slowly in their actions.	12:44
	Are they getting somewhere below the surface?	12:51
	Again, an outsider is not able to judge.	12:55
	But we live in a very open society,	12:58
	and there's nothing more open than the society there	13:01
	on the banks of the Potomac.	13:05
	And if really big things were in the offing	13:07
	for handling the inflation,	13:12
	I'm sure that in the Kiplinger newsletters,	13:14
	in the gossip at the Cosmos Club,	13:17
	I would've picked up signs of it.	13:20
	And my report is that there's very little	13:23
	actually brewing on the scene to handle this inflation.	13:27
	Indeed, some of the new men	13:32
	in Washington must feel very frustrated,	13:35
	and let me go over the problem as it must appear to them.	13:38
	First, they	13:45
	have found they really cannot cut the Johnson budget.	13:49
	On the contrary, to tell the truth and shame the devil,	13:54
	and when all the statistics come in,	13:58
	it's going to turn out that the new team cannot stay	14:01
	within the totals of the Johnson budget.	14:04
	This is true in the military sphere.	14:08
	We were promised casually,	14:11
	and one shouldn't hold anyone to this kind of promise,	14:14
	from the highest circles that there would be	14:18
	about a $3 billion cut in the Defense Department.	14:23
	We have now been told by Secretary Laird	14:27
	that it's more like 500,	14:31
	sorry, three billion.	14:36
	If I said million, I meant billion.	14:37
	It's more like 1/2 a billion, or 500 million,	14:40
	that's gonna be saved.	14:43
	Now as far as I can tell, I'm not an expert in this,	14:44
	but all the experts and insiders	14:47
	reading Mr. Laird's speech carefully realized	14:51
	that that 1/2 a billion figure is not a genuine figure.	14:55
	And for the fiscal year, counting in the supplementaries,	14:58
	which Laird's programs are gonna call for,	15:03
	we are going to have an increase in the military budget,	15:06
	not a saving of 1/2 a billion dollars,	15:10
	and the betting has only to do	15:13
	with how big that increase is.	15:17
	So we do not have savings on the defense budget in view.	15:20
	What about the wasteful spending	15:28
	that's been going on through all these Democratic years	15:31
	in the non-defense part of the budget,	15:36
	the civilian part of the budget?	15:39
	Surely, great cuts are possible there.	15:40
	Well, if great cuts are possible there,	15:43
	the new team has not been able to discover them,	15:45
	at least, has not been able to discover any	15:50
	that are politically palatable.	15:52
	And many of the uncontrollable items in the budget	15:54
	such as, for example, interest on the public debt,	15:58
	are soaring upward beyond earlier estimates.	16:02
	The uncontrollable items are going up,	16:06
	and the controllable items turn out, in fact,	16:10
	in terms of political palatability, not to be controllable.	16:13
	And those items are not going down,	16:18
	but instead, are also staying level or going up.	16:21
	So on the side of fiscal policy,	16:26
	the public expenditure side,	16:30
	one could pity the new team for their frustration	16:36
	in not being able to get public expenditure down.	16:41
	So let's just jot down no substantial reductions	16:44
	in government expenditure	16:50
	on the fiscal policy spending side.	16:53
	Now what about taxation?	16:57
	If you were an activist, that is, a fine-tuner,	17:01
	and you saw prices rising as much as they have been rising,	17:04
	and unemployment staying as low,	17:08
	the balance of payments deteriorating,	17:10
	it would leap to your mind to use an increase in tax rates.	17:13
	The new team has painfully decided	17:19
	that it will recommend that the 10% surcharge be extended.	17:25
	I predicted in these tapes that that would be the case.	17:33
	I predicted in these tapes that that would be the case	17:37
	in the last words of President Johnson.	17:40
	And I predicted that Mr. Nixon would go along	17:44
	with that in his preliminary words.	17:47
	And I predicted that after he used all the time	17:48
	and breathing space left to him,	17:52
	that he would find himself reluctantly recommending	17:56
	that the surcharge be continued, and that has now happened.	18:01
	But the point of my present discussion is,	18:06
	will anyone have the guts, anyone have the will,	18:10
	to recommend a still greater increase in tax rates?	18:16
	And my confident prediction to that is no.	18:21
	This is too bitter an ideological pill	18:27
	for the new team to swallow,	18:30
	and they will not recommend an increase in the surcharge	18:32
	over and above the continuation of the 10% surcharge.	18:39
	Even though, in my judgment, a strong economic case	18:44
	can be made for such an additional surcharge.	18:49
	Well, where does that leave us?	18:55
	We know that plant and equipment spending,	18:57
	according to the intentional's official survey	19:00
	of the SEC and the Department of Business Economics,	19:03
	Office of Business Economics,	19:07
	shows a soaring 13.9 or 14% increase.	19:09
	This is more than our capital goods industries	19:14
	are capable of producing.	19:17
	The intention will be falsified	19:20
	by the reality of deliveries.	19:24
	But the intention, the attempt to get deliveries will add	19:27
	to the backlogs, will add to the length of the queues,	19:32
	will add to the inflationary pressure,	19:36
	will add to the rate of markups due to exuberant demand	19:39
	in our capital goods industries.	19:45
	And so it might be thought that if this is one	19:48
	of the overly strong sectors of the economy,	19:52
	we might use a specific tax	19:57
	to reduce the rate of inflation in this sector.	20:01
	And actually, that is what I proposed	20:06
	in a recent Newsweek column,	20:11
	namely that the 7% investment tax credit be suspended.	20:13
	The high officials in the new administration,	20:18
	Secretary David Kennedy of Treasury, for example,	20:23
	have said that they were against this,	20:29
	but now under pressure, they are beginning	20:33
	to take a little more seriously this possibility.	20:37
	I believe that I made a prediction	20:41
	on these tapes some time ago	20:43
	that after they took a hard look at this,	20:46
	they would not, for a variety of reasons,	20:48
	including ideological reasons,	20:51
	find themselves able to make such a recommendation.	20:54
	In my judgment, but I won't go into that	21:01
	during this report card period,	21:05
	it makes good sense when plant	21:08
	and equipment spending is excessive,	21:11
	to hit plant and equipment spending directly	21:13
	by a suspension of the investment tax credit,	21:18
	even though it involves a great number	21:22
	of very serious administrative headaches.	21:26
	However, it looks to me as if the new team	21:30
	will not make that recommendation,	21:33
	and I still stand by that prediction.	21:36
	I may say that I never have any hesitation	21:39
	in throwing overboard some past prediction or viewpoint.	21:42
	I believe in the doctrine of cutting one's losses.	21:48
	And so if I change my mind on that,	21:51
	the listeners of this tape will be among the first	21:53
	to learn of that momentous fact.	21:58
	What then does this leave with the new administration	22:04
	in terms of controlling the inflation,	22:10
	in terms of moderating the inflation down	22:14
	towards a 3 1/3% or even a 3 1/2% rate of price increase.	22:18
	By and large, since fiscal policy turns out	22:25
	to be unavailable or they're unwilling	22:29
	to use activist fiscal policy,	22:33
	it leaves them with a dependence upon the Federal Reserve.	22:36
	It leaves them with a hope	22:41
	that the Federal Reserve will do the right thing.	22:44
	Now I don't know what different people think	22:47
	is the right way to run the railroad	22:53
	of American macro stabilization policy	22:55
	between the central bank, the Federal Reserve,	22:59
	and the executive branch of the government.	23:03
	In my judgment, the only sensible long-run way	23:07
	to run this railroad is to have unified policy	23:12
	between the Treasury and the Federal Reserve.	23:16
	And this means that in the longest run,	23:19
	the Federal Reserve should be in the last analysis	23:22
	responsible to the executive branch of the government.	23:28
	This, of course, with the concurrence of Congress.	23:33
	Now that's not the way our system is now running.	23:38
	Since 1952, increasingly, the Federal Reserve	23:45
	has proclaimed its independence	23:51
	from the executive branch of the government,	23:54
	and its responsibility ultimately only to Congress.	23:58
	Hence, while the new team would like the Federal Reserve	24:05
	to do what they deem to be the right thing,	24:09
	namely to do all the controlling,	24:14
	the inflation that we're gonna see,	24:16
	it is not at all the case	24:19
	that they can command Chairman Martin	24:21
	and his six colleagues to do their bidding.	24:24
	However, I don't think there's a real serious problem here,	24:28
	because in my judgment, the Federal Reserve	24:35
	is likely in the next months to itself	24:38
	be wanting to do as much tightness	24:43
	as most of the members of the new administration team	24:47
	of economists would want them to do.	24:55
	I suspect that the rate of growth of the money supply,	24:58
	just to take one of the many factors	25:04
	that I would consider to be important,	25:08
	that the rate of growth of the money supply	25:11
	will be held down by the Federal Reserve	25:13
	in the months to come	25:18
	to below the say 4% rate,	25:22
	which the monetarists believe is the constant rate	25:28
	that should be maintained.	25:35
	And so as far as those monetarists	25:37
	in the new administration are concerned,	25:41
	I can't see that they'll want the Federal Reserve	25:43
	to be going tighter than the Federal Reserve	25:46
	will already be going.	25:50
	Indeed, I expect to hear some criticism	25:52
	of Federal Reserve for overdoing it.	25:54
	I mean criticism on the part not of Wright-Patt them,	25:57
	but on the part of monetarists.	26:00
	Because the typical monetarist prescription now	26:02
	is that the previous excess over 4%	26:05
	should be brought down gradually to 4%	26:09
	rather than as I think.	26:12
	But I warn you, I'm not a gross-tuner, and I am an activist.	26:15
	I believe that monetary growth	26:22
	should be brought down below 4%	26:26
	to compensate for the excess which took place earlier.	26:28
	And so the Federal Reserve cannot be blamed, in my judgment,	26:35
	by the new administration economists for doing too little.	26:40
	If anything, they were likely	26:44
	to be blamed for doing too much.	26:46
	Now will this control the inflation?	26:48
	Well, nobody expects a monetary policy	26:53
	to have its effects within a month or two.	26:57
	So we have to ask ourself,	27:00
	what is implied for next Labor Day?	27:02
	What is implied for next Thanksgiving	27:05
	by what seems to be the indicated Federal Reserve tightness?	27:08
	I spoke to one of the most prominent bank monetarists	27:15
	on the telephone just a couple of days ago.	27:18
	And as usual, those fellows are very big swingers.	27:22
	And he gave me predictions of a 10 billion increase	27:27
	in GNP in the third quarter of the year,	27:31
	and a 10 billion increase in GNP	27:36
	in the fourth quarter of the year,	27:38
	which brings down the rate of growth of the GNP	27:40
	from what I've told you I think has happened	27:43
	in the first quarter of the year	27:46
	down to just 2/3 of that level,	27:49
	and which would be certainly a step toward controlling	27:51
	and moderating the rate of inflation.	27:58
	I doubt, in fact, I will make book,	28:03
	let's say I'll bet a great, big dime,	28:08
	against a great, big dime,	28:12
	that the third quarter of the year will be stronger	28:14
	than is indicated by this monetarist's view.	28:18
	To make a long story short,	28:25
	it seems to me that the new administration	28:28
	is not being active enough to using its own value judgments	28:32
	about the trade-off between unemployment,	28:39
	and price stability, and balance payments equilibrium,	28:41
	not using my value judgments.	28:44
	Maybe in a way, I welcome the profligate nature	28:46
	of the new administration.	28:51
	Maybe in a way, we're getting what I talked about	28:54
	in my London Financial Times piece on New Year's Day	28:58
	that the Nixon administration,	29:04
	which is, by and large, a business man's administration,	29:08
	would come in and do pretty much	29:11
	what the Kennedy-Johnson populist administration had done.	29:14
	And it's like a license to sin.	29:19
	You have respectable people sinning.	29:22
	They're respectable in the eyes of the business community.	29:24
	And this would make for a great exuberance in the economy.	29:27
	Well, maybe we're getting that.	29:31
	But to complete the report card,	29:34
	they've been too little active in the fiscal policy area.	29:37
	They are depending upon the Federal Reserve.	29:41
	And although I think the Federal Reserve will tighten,	29:43
	I don't think that we've seen the end of tight money	29:47
	or the peak of interest rates.	29:50
	I do not believe that that operation will be sufficient	29:52
	to give us a really significant slowdown	29:58
	such as to $10 billion by the third quarter of the year.	30:03
	That doesn't mean that as we move into the fourth quarter	30:07
	and into the first quarter of next year	30:10
	that you finally won't get the results	30:11
	of the monetary tightening.	30:14
	But in my judgment, this is likely	30:18
	to fall exceptionally heavily on housing,	30:22
	and I think that's bad social policy.	30:26
	However, our time is just about up.	30:30
	And there'll be plenty of time on future occasions	30:34
	to talk about the particular incidents	30:36
	of tight money on the construction industry.	30:39
-	That concludes this week's commentary	30:42
	on the current economic scene	30:45
	with Professor Paul Samuelson of MIT.	30:46
	If you have questions or comments,	30:49
	write Instructional Dynamics Incorporated,	30:51
	166 E. Superior Street, Chicago, 60611.	30:54

Item Info

Title:

Tape 21 - Review of first quarter 1969

Date:

1969

Contributor:

Samuelson, Paul A. (Paul Anthony), 1915-2009

Subject:

Format:

audiocassettes

Language:

English

Digital Collection:

Paul A. Samuelson papers, 1933-2010 and undated

Source Collection:

Paul A. Samuelson papers, 1933-2010

Series:

Economics Cassette Series: Paul Samuelson

Rights:

Limited Re-Use

CC BY-NC 4.0

Rights Note:

This material is made available for research, scholarship, and private study. Copyright in this material has not been transferred to Duke University. For reuses of this material beyond those permitted by fair use or otherwise allowed under the Copyright Act, please see our page on copyright and citations: https://library.duke.edu/rubenstein/research/citations-and-permissions.

Identifier:

RL10082-CS-0021
ref2181_n0m
samuelsonpaul
duke:325044
pstau001021
ark:/87924/r47h1f35x
e5301586-64be-4f33-9fba-913231ed9de1

Permalink:

https://idn.duke.edu/ark:/87924/r47h1f35x

Sponsor:

Sponsor this Digital Collection

Tape 21 - Review of first quarter 1969

Transcript

Item Info

Economists' Papers Archive

More Info & Options