Tape 24 - Response to subscribers
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Transcripts may contain inaccuracies.
- | Hello again, and welcome to this week's commentary | 0:02 |
on the current economic scene with Dr. Paul Samuelson, | 0:04 | |
professor of economics at the Massachusetts | 0:08 | |
Institute of Technology. | 0:10 | |
This weekly series is produced and recorded | 0:12 | |
by Instructional Dynamics Incorporated of Chicago. | 0:14 | |
Professor Samuelson, one of our readers | 0:18 | |
or subscribers, has sent in the following question: | 0:20 | |
"We enjoy your economic commentaries very much, | 0:23 | |
"and we derive much benefit from them. | 0:25 | |
"We wonder, though, whether they would | 0:28 | |
"not be even more valuable to your subscribers | 0:30 | |
"if you could make them just a little more controversial. | 0:32 | |
"What about it?" | 0:35 | |
- | I now feel as if I have heard everything. | 0:36 |
Just imagine a jury accusing an economist | 0:39 | |
of not being sufficiently quarrelsome. | 0:42 | |
However, joking aside, I suppose | 0:46 | |
it is a matter of taste and style | 0:48 | |
as to just how much of a polemical tone | 0:50 | |
one introduces into any current discussion. | 0:53 | |
There are always two schools of thought | 0:55 | |
in these matters. | 0:57 | |
One says to debate is to disagree and to find fault. | 0:59 | |
Another school hold to debate is to analyze. | 1:03 | |
When I can, I try to stick with the second school, | 1:09 | |
but being only human, I sometimes do slip in | 1:12 | |
to the ranks of the other, | 1:15 | |
and who is to say that one is occasionally | 1:18 | |
not more effective by being selectively polemical? | 1:20 | |
To be specific, let's consider current differences | 1:26 | |
in opinion that seem to divide the economics fraternity | 1:29 | |
in America at this time. | 1:34 | |
We have a new and increasingly | 1:37 | |
important school of monetarists. | 1:42 | |
The monetarists have their fountainhead, | 1:45 | |
you might say, at the University of Chicago, | 1:49 | |
but they have a beachhead at the Federal Reserve Bank | 1:51 | |
of St. Louis, at the University of California | 1:54 | |
at Los Angeles, at the University of Virginia, | 1:58 | |
and, indeed, in Washington itself, | 2:01 | |
there is a beachhead in the Joint Economic Committee. | 2:05 | |
Now how have things been going as | 2:10 | |
between the monetarist school and the more conventional | 2:12 | |
group of modern economists? | 2:18 | |
I hesitate to call the non-monetarists fiscalists, | 2:20 | |
because I don't think it's an issue | 2:26 | |
between whether fiscal policy is all-important | 2:27 | |
or whether monetary policy is all-important. | 2:30 | |
The proper issue in my viewpoint is the following: | 2:33 | |
Is money, by itself, broadly speaking enough, | 2:37 | |
or are other elements such as the strength | 2:41 | |
of investment demand, such as the state | 2:46 | |
of the fiscal budget also important? | 2:49 | |
Well now, not trying to be controversial, | 2:53 | |
let me survey the difference of opinion | 2:59 | |
and how they are going. | 3:04 | |
One of the bank economists who is very high | 3:06 | |
on the monetarist methods called me up recently, | 3:09 | |
and he asked me, isn't it the case | 3:13 | |
that 1968 has been a crucial test | 3:16 | |
between the two competing theories? | 3:20 | |
And hasn't the actual failure of the economy | 3:24 | |
to slow down in the last half of 1968, | 3:29 | |
and as I think, in the first quarter of 1969, | 3:34 | |
hasn't that been testimony that, after all, | 3:39 | |
the quantitative monetarists are correct? | 3:43 | |
Since he asked me, I told him. | 3:48 | |
And my answer was no. | 3:50 | |
I don't think that 1968 gas been a crucial experiment. | 3:52 | |
It is true that most GNP model builders had | 3:56 | |
at mid-year predicted lower rates of growth | 4:00 | |
than had actually materialized. | 4:03 | |
I may add myself to those numbers. | 4:05 | |
I didn't have a specific complicated model, | 4:08 | |
but I did think there would be a greater slowdown | 4:12 | |
than did materialize. | 4:16 | |
But I don't think that that fact of greater strength proves | 4:18 | |
that an eclectic theory was wrong. | 4:22 | |
Let me give some reasons for that view. | 4:25 | |
First, suppose we review the year 1968 | 4:29 | |
from the viewpoint of a simple-minded monetarist. | 4:33 | |
Suppose he is armed with the formula | 4:37 | |
that the St. Louis Federal Reserve Bank has developed | 4:39 | |
and which you've heard about on some of these tapes. | 4:42 | |
According to this formula, in order to predict | 4:46 | |
what is going to happen to GNP, | 4:49 | |
and to do it in the best way that is possible, | 4:51 | |
you must know the rate of growth of the money supply | 4:55 | |
for the present quarter, the last quarter, | 4:58 | |
and for four quarters in all. | 5:02 | |
You can modify your forecast slightly | 5:05 | |
by knowing government expenditure, | 5:07 | |
but tax rate information is absolutely worthless | 5:10 | |
to you, and the formula, if you try to put tax changes | 5:13 | |
into it, spits out an answer of zero effects | 5:17 | |
from tax changes. | 5:21 | |
Now, suppose we knew this formula | 5:23 | |
at the beginning of the year. | 5:26 | |
We didn't, because it wasn't published | 5:28 | |
until November of 1967, but we can job backwards | 5:29 | |
and see how it would have done. | 5:33 | |
And I've been helped in this audit, | 5:35 | |
this post-mortem, by a recent publication | 5:38 | |
by the Federal Reserve of St. Louis itself. | 5:41 | |
And suppose that we're trying to predict | 5:45 | |
what would have happened in 1968 calender year. | 5:48 | |
That means the four quarters after the last quarter | 5:54 | |
of 1967, and suppose for the sake of the experiment | 5:57 | |
that we actually knew at the beginning of 1968 | 6:02 | |
what we could not have known, namely, | 6:05 | |
the exactly correct figures for the money supply | 6:08 | |
in each of the actual four quarters for 1969. | 6:11 | |
And suppose then upon this basis | 6:16 | |
we had predicted where the GNP would be | 6:18 | |
at the end of 1968. | 6:22 | |
If I said 1969 a moment ago, I meant 1968. | 6:26 | |
All of these tests are on the year | 6:30 | |
that has just passed. | 6:32 | |
As I understand it from reading the Federal Reserve, | 6:36 | |
the Federal Reserve forecast would have been in error. | 6:40 | |
It would have been too low. | 6:45 | |
Indeed, like a simple-minded fiscalist, | 6:48 | |
a simple-minded monetarist would have been too low. | 6:52 | |
And suppose then that the forecast | 6:55 | |
of a simple minded fiscalist had turned out to be true. | 6:59 | |
Suppose, for example, the third quarter increase | 7:03 | |
in money GNP last September had turned | 7:06 | |
out to be only 12 billion. | 7:10 | |
And suppose the fourth quarter increase last December | 7:13 | |
had turned out to be only 10 billion, | 7:18 | |
pretty much in line with what had been forecast | 7:20 | |
by the middle of year fast GNP models. | 7:23 | |
Then, if I understand what the Federal Reserve Bank | 7:28 | |
of St. Louis has been saying, the final answer | 7:30 | |
as then given would have been more nearly | 7:34 | |
in accordance with the predicted value | 7:37 | |
from their formula. | 7:40 | |
Now, if I were a polemicist I would make a lot | 7:42 | |
of this, but I actually don't, because I don't | 7:44 | |
think that anybody at mid year | 7:47 | |
who was a sophisticated monetarist would have used the | 7:49 | |
end of the year data. | 7:54 | |
And so as I fair-mindedly score what has been going on, | 7:57 | |
I think qualitatively the monetarists have prepared | 8:01 | |
their own opinion and public opinion, | 8:07 | |
and the opinion of more eclectic economists like myself, | 8:09 | |
more for what was actually happening | 8:13 | |
by playing down the weakness in the economy. | 8:16 | |
Now, mind you, nobody had told us exactly | 8:21 | |
what the strength in the economy was due to. | 8:24 | |
It may have been due to increases | 8:30 | |
in the money supply at this date or that date, | 8:33 | |
but as I've reported on this tape earlier, | 8:36 | |
I assure you that playing that game, | 8:38 | |
that kind of a numbers game in which you try fair-mindedly, | 8:41 | |
just from the money supply, to make good forecasts | 8:45 | |
of the GNP will lose you your money at Las Vegas | 8:48 | |
and will lose you your money | 8:51 | |
at the National Industrial Conference Board sweepstakes, | 8:52 | |
just as easily as almost any other method. | 8:55 | |
And I will remind listeners to this tape | 8:59 | |
that I have collected from monetarists | 9:02 | |
the most astounding spread of actual forecasts | 9:05 | |
for the present time and for the past time. | 9:10 | |
So, if anyone were naive enough to think | 9:14 | |
that a crucial experiment in a complicated field | 9:17 | |
like economics were possible between two | 9:22 | |
such divergent viewpoints, he would | 9:26 | |
at the very least have to have a recorded case | 9:29 | |
where a fair, documented account of all the forecasts made | 9:33 | |
with one method was contrasted | 9:39 | |
with all the forecasts made by the other method, | 9:41 | |
and then it turned out that one of the methods agreed | 9:44 | |
among itself and agreed with the subsequent facts, | 9:48 | |
and the other method agreed among itself | 9:51 | |
but disagreed with the subsequent facts. | 9:54 | |
That I must report to you, in all seriousness, | 9:57 | |
and not at all in a polemical vein, | 9:59 | |
is not the case. | 10:03 | |
The monetarist forecasts that I have | 10:04 | |
in my files are for an 11 billion increase | 10:06 | |
in the first quarter of this year | 10:10 | |
from one of the best of the monetarists | 10:12 | |
and also one of the most vocal, | 10:14 | |
and I have from some fiscalists forecasts | 10:17 | |
that are a low as that, but very few | 10:23 | |
from such people, and the actual facts | 10:25 | |
which we do not yet know, I am convinced, | 10:30 | |
will be considerably higher than that. | 10:32 | |
Now it is true that there are some monetarists | 10:35 | |
who have a higher figure for the first quarter | 10:38 | |
but now you must catch your rabbit | 10:41 | |
before you can make the stew. | 10:44 | |
You much catch the right monetarist | 10:46 | |
and I will say this, | 10:48 | |
that if you can catch the right forecaster | 10:51 | |
you don't need fiscalism, monetarism, | 10:53 | |
or anything else. | 10:55 | |
All you need is a man who is clairvoyant | 10:56 | |
and he will give you the best answers. | 11:00 | |
Now, let me, I will return | 11:04 | |
if time permits later to the exact expectations | 11:07 | |
of a reasonable eclectic model | 11:13 | |
and I will compare them with | 11:15 | |
what I would think would be reasonable expecations | 11:17 | |
from a monetarist model. | 11:21 | |
But I don't think we should try to make bricks without straw | 11:22 | |
and so I suggest that right now | 11:25 | |
we shift gears and we begin to talk | 11:27 | |
about the current situation. | 11:29 | |
Let's bring some facts into the picture. | 11:31 | |
Where do we stand a little bit | 11:35 | |
after the middle of April? | 11:38 | |
First, as I am talking we do not yet have | 11:41 | |
even the first official estimates of the first quarter | 11:45 | |
of the year, so I must guess on those, | 11:48 | |
and I will give you my best guesses. | 11:52 | |
If I had to put down a single number, | 11:55 | |
I suppose I would put down the number | 11:57 | |
of a $17 billion increase in the money GNP, | 11:59 | |
in comparison with the fourth quarter of last year. | 12:04 | |
This is every bit as large an increase | 12:08 | |
in the rate of growth of the money series | 12:12 | |
as took place in the fourth quarter. | 12:15 | |
I won't quarrel. | 12:19 | |
Perhaps it will be a little bit less than that. | 12:20 | |
Perhaps it will be a little bit greater than that. | 12:23 | |
A few weeks ago I would have said a little bit less | 12:26 | |
than this figure, but that was before | 12:29 | |
I saw the February inventory figures, | 12:32 | |
and I then had to bank on the January inventory figures, | 12:35 | |
which were extremely modest. | 12:41 | |
In fact, they were almost unbelievably modest. | 12:42 | |
As it turns out, they were unbelievable, | 12:45 | |
because now the Department of Commerce has revised | 12:48 | |
those figures upward. | 12:51 | |
They still are modest in January, | 12:52 | |
but February is consderably above January. | 12:55 | |
And so it seems to me that strength in final demand, | 12:59 | |
which I mentioned in an earlier tape, | 13:04 | |
will now be reinforced by some strength, | 13:06 | |
not outstanding strength, | 13:11 | |
but at least not weakness, in the rate | 13:13 | |
of inventory accumulation. | 13:15 | |
And as we all know, for short run purposes, | 13:17 | |
knowledge of what's gonna happen | 13:21 | |
in inventories can be very precious knowledge | 13:22 | |
for the short run predictor. | 13:25 | |
What about prices? | 13:30 | |
I see no signs that the rate | 13:32 | |
of price inflation is yet abating. | 13:34 | |
We still are getting increases in copper prices, | 13:38 | |
in metal prices, in administered prices, | 13:41 | |
so that, although I am constantly | 13:45 | |
on these tapes speaking of a better | 13:48 | |
than 4% rate of price inflation, | 13:51 | |
perhaps I should mend my ways | 13:53 | |
and speak more accurately of a 4.5% and a 5% rate | 13:56 | |
of price inflation. | 14:00 | |
Now I am surprised by how short the viewpoint is | 14:03 | |
of the marketplace and the financial commentators. | 14:10 | |
It constantly amazes me, | 14:14 | |
and I should not be amazed, because | 14:16 | |
I've been watching them for many years, | 14:17 | |
and I should now philosophically accept the reality, | 14:19 | |
but I am so amazed that in one two week period | 14:23 | |
everybody is talking about tight money. | 14:26 | |
Then in another two week period | 14:29 | |
they are talking about the end of tight money. | 14:31 | |
Then a few weeks go by and again | 14:35 | |
they are talking about tight money. | 14:37 | |
The marketplace, if I may say so, | 14:40 | |
overreacts to every bit of news. | 14:43 | |
Let me illustrate. | 14:47 | |
The bond market, during the month of March, | 14:50 | |
and early in April, very first days in April, | 14:54 | |
was actually improving in terms of the price of bonds. | 14:58 | |
Interest yields were actually going down. | 15:02 | |
Why? | 15:05 | |
Well, one of the explanations given was | 15:06 | |
that the Federal Reserve is a paper tiger. | 15:08 | |
The Federal Reserve does not mean what is says. | 15:12 | |
The Federal Reserve does not mean business. | 15:14 | |
I believe it was on Thursday, April 3rd, | 15:17 | |
when the Federal Reserve showed | 15:20 | |
that it did mean business. | 15:23 | |
It raised the discount rate, | 15:24 | |
and what is perhaps more significant as a signal | 15:27 | |
to the marketplace, since after all the discount rate | 15:30 | |
was lagging behind the increase | 15:33 | |
in the prime rate and market rates generally. | 15:36 | |
What was more significant, | 15:39 | |
the Federal Reserve increased reserve requirements. | 15:40 | |
Then the market said for several days | 15:43 | |
the Federal Reserve does mean business. | 15:47 | |
We're going to have monetary restraint. | 15:50 | |
The money supply is not going to grow | 15:54 | |
as fast as it grew in 1967, | 15:58 | |
or as it grew in 1968. | 16:01 | |
The Fed does mean business. | 16:03 | |
And indeed, for a day or two, bond prices fell, | 16:06 | |
and bond yields hardened. | 16:09 | |
But then the market decided | 16:13 | |
it would work the other side of the street. | 16:16 | |
The market said, well, if the Fed means business, | 16:18 | |
and is fighting inflation, the Fed will succeed | 16:21 | |
in its fight in inflation, and if inflation is controlled, | 16:23 | |
then there's no reason for interest rates | 16:29 | |
to be so high, and consequently, | 16:30 | |
we saw for several days, again, | 16:33 | |
a weakening, a lowering of long term interest yields. | 16:37 | |
Now, what a jump, what a leap that was | 16:47 | |
from the Fed has an intention to control inflation | 16:51 | |
to the conclusion that the Fed has all | 16:54 | |
but controlled inflation and so we might as well act | 16:58 | |
as if it's controlled inflation | 17:00 | |
and begin to buy bonds and assume | 17:01 | |
that the money market is going to ease. | 17:04 | |
It reminds me of the Gilbert | 17:07 | |
and Sullivan play The Mikado. | 17:10 | |
You remember in the play, someone is to be punished, | 17:13 | |
and the executioner is told by the mikado | 17:18 | |
to punish, to behead the guilty person, | 17:22 | |
and the execution, without doing a thing, | 17:26 | |
says since the word of the mikado is law, | 17:28 | |
and he's all-powerful, then it is | 17:31 | |
as if the thing has been done. | 17:32 | |
If it is as if the thing has been done, | 17:34 | |
it has been done, and how marvelous | 17:36 | |
it was nobody had to take any actions whatsoever. | 17:38 | |
Well, the Federal Reserve is not that kind of a mikado. | 17:41 | |
It is not all-powerful. | 17:44 | |
By setting its mind to controlling inflation | 17:46 | |
it doesn't succeed instantaneously | 17:49 | |
in controlling inflation. | 17:50 | |
And so we must look for actual slowdowns | 17:52 | |
in the rate of real growth of the economy | 17:56 | |
before we can say that the Federal Reserve | 17:58 | |
is getting anywhere in its fight. | 18:01 | |
Now I believe that some of these slowdowns | 18:04 | |
are on the way. | 18:06 | |
Monetarists believe that some slowdowns are | 18:08 | |
on the way. | 18:11 | |
Eclectic economists believe the slowdowns are | 18:13 | |
on the way, but we must see signs of them, | 18:16 | |
and we must evaluate quantitatively those signs | 18:21 | |
before we write the scenario of overkill | 18:25 | |
and of recession. | 18:28 | |
So let me count straws in the wind | 18:30 | |
and go over some of the signs of what's happened | 18:33 | |
in the economy. | 18:36 | |
The unemployment rate, which had been 3.3%, | 18:38 | |
a very low rate for the United States, | 18:42 | |
for several months, three months, | 18:44 | |
or was it four months, has risen by 1/10 | 18:46 | |
of 1% to 3.4%. | 18:49 | |
Big deal. | 18:52 | |
What kind of a significant sign of a slowdown is that? | 18:53 | |
I would say, objectively, that as yet | 18:59 | |
it says very little. | 19:02 | |
Moreover, if I remember the figures correctly, | 19:04 | |
the length of the working week actually increased | 19:08 | |
in the last sample. | 19:12 | |
So in the labor market itself, we have, at best, | 19:13 | |
only the beginning of a slowdown. | 19:19 | |
There is an old proverb, a journey | 19:22 | |
of a thousand miles begins with one step. | 19:25 | |
Well said, well told, but I would add | 19:28 | |
that after you have taken one step, | 19:32 | |
you have not gone a thousand miles, | 19:34 | |
you've only gone one step. | 19:35 | |
That is a prosaic fact of life. | 19:37 | |
And so, in the labor market, we do not yet have | 19:40 | |
any significant sign of easing. | 19:44 | |
And make no mistake about it, | 19:48 | |
all the indications are that the new administration, | 19:50 | |
the Nixon Administration, has no hidden weapons | 19:54 | |
by which it can go from a 4.5% rate | 19:57 | |
of price inflation to, I will not say a 1% rate, | 20:01 | |
or a 2% rate, or a 0% rate, but to a 3% rate, | 20:05 | |
just by wishing it and without creating | 20:10 | |
some significant slackness in the economy. | 20:13 | |
So I take that particular straw in the wind, | 20:16 | |
and I say we are at the beginning of the process at best. | 20:20 | |
What about housing? | 20:25 | |
We recently got some housing numbers, | 20:27 | |
and the number of housing starts, | 20:29 | |
for the month of March I guess it was, is down. | 20:31 | |
It's down to just a little bit above a million | 20:35 | |
and a half housing starts, | 20:38 | |
which is down from the previous month, | 20:39 | |
and which is down from the previous month. | 20:42 | |
So here I would say, although one cannot | 20:44 | |
from a few spring months discern | 20:47 | |
with great confidence a strong trend, | 20:51 | |
still here I would say we're beginning | 20:54 | |
to see some signs that credit policy, | 20:55 | |
that monetary restraint, is beginning | 20:59 | |
to bite a little bit, and it is showing itself | 21:02 | |
where a priori, and plausible reasoning, | 21:05 | |
and historical experience tells us | 21:08 | |
it ought to show itself in the construction area. | 21:10 | |
So I believe that we're a little bit along the way, | 21:15 | |
but again, this is still the very beginning | 21:19 | |
of the process. | 21:23 | |
I made a forecast in January | 21:24 | |
at the institutional investors conference, | 21:28 | |
that by the end of the year housing starts | 21:31 | |
would be down considerably. | 21:33 | |
It caused a great deal of consternation, | 21:35 | |
I was later told, in that audience of 2,700 people. | 21:38 | |
I suppose some of them were rushing | 21:42 | |
to their brokers to get rid of their gypsum stocks, | 21:44 | |
but it just seemed to me that | 21:47 | |
that's the old Farmer's Almanac standard | 21:48 | |
textbook explanation based upon having | 21:52 | |
to control inflation primarily | 21:57 | |
through the instrumentality | 21:59 | |
of Federal Reserve monetary policy. | 22:02 | |
Let me now turn to the budget. | 22:05 | |
We have heard recently of the provisional Nixon budget. | 22:08 | |
On the face of it, there is a cut | 22:16 | |
from the Johnson numbers. | 22:18 | |
There is a cut in the defense area | 22:22 | |
of a little bit over of a billion dollars. | 22:25 | |
And there's a cut in the welfare, | 22:27 | |
civilian non-defense area, | 22:30 | |
of a couple of billion dollars. | 22:33 | |
I don't think it's profitable for me | 22:36 | |
in a discussion like this to go | 22:39 | |
into the numbers game of just | 22:43 | |
which of the figures area likely to be phony, | 22:45 | |
and which are likely to be genuine, | 22:48 | |
which are important cuts, | 22:50 | |
and which are unimportant cuts. | 22:54 | |
I think that Mr. Nixon has given | 22:57 | |
us a signal that he takes very seriously | 23:00 | |
the inflationary problem, and his signal says | 23:03 | |
he's going to do the best he can | 23:06 | |
to control fiscal expenditures. | 23:07 | |
Mr. Nixon is not, apparently, a monetarist. | 23:11 | |
He does believe it makes a considerable difference | 23:15 | |
how the fiscal position stands, | 23:19 | |
both with respect to taxation | 23:22 | |
and with respect to expenditures. | 23:23 | |
And so, I will summarize the recent news | 23:26 | |
in this regard simply in this way, | 23:29 | |
that Mr. Nixon has promised us a slightly tighter budget | 23:32 | |
than it was thought he would be able to contrive. | 23:39 | |
Now events may falsify his estimates, | 23:44 | |
and when I say events, I mean events in Vietnam. | 23:48 | |
I mean events like the North Korean airplane incident | 23:53 | |
which has taken place recently. | 23:59 | |
Fiscal expenditures are not made in Washington. | 24:03 | |
I repeat, fiscal expenditures | 24:06 | |
of the United States are made in Moscow, | 24:08 | |
are made in Peking, are made in Hanoi, | 24:11 | |
are made in Seoul, and are made all around the globe. | 24:16 | |
So this is a factor which we all must take into account. | 24:20 | |
Mr. Nixon has restated his wish | 24:27 | |
that the surtax be extended. | 24:31 | |
And the chairman of the House Ways and Means Committee, | 24:36 | |
Wilbur Mills, whose good will is needed | 24:40 | |
for the extension of that surtax, | 24:43 | |
has said that he will put a great deal | 24:45 | |
of pressure upon the Nixon Johnson budget | 24:48 | |
to squeeze it even harder than has been squeezed | 24:52 | |
in the official presidential estimates. | 24:55 | |
And since Mr. Mills has a certain limited degree | 25:00 | |
of unilateral power, he is a strong-minded man | 25:03 | |
with a great deal of elbow force in the Congress, | 25:07 | |
I take it that there will be considerable pressure. | 25:11 | |
Now I'm not a political soothsayer, | 25:16 | |
and I cannot tell you how much of | 25:19 | |
this pressure will succeed. | 25:22 | |
I think inevitably there will be some slippage | 25:25 | |
between the numbers that Mr. Mills says | 25:28 | |
he's satisfied with and what actually happens. | 25:33 | |
But nevertheless this will not be a loose budget. | 25:36 | |
It will be on the whole a tight budget. | 25:38 | |
As a matter of fact, from the standpoint | 25:40 | |
of a humanitarian, very much interested | 25:43 | |
in the poor, and very much interested in the aged, | 25:45 | |
the Nixon budget will appear as a reactionary budget, | 25:49 | |
because Social Security wage taxes are to go up, | 25:54 | |
and Social Security benefits are to go up, | 25:59 | |
but they are not to go up as much | 26:01 | |
as had been promised by President Johnson. | 26:03 | |
And that is one of the ways that Mr. Nixon is getting | 26:07 | |
his extra surplus. | 26:11 | |
Now, in fairness I should say that, | 26:13 | |
although Mr. Nixon appears to a humanitarian | 26:16 | |
to be a reactionary, some of the most anguished voices | 26:19 | |
that one hears in the land these days | 26:22 | |
are the truly conservative Republicans | 26:25 | |
who think that Mr. Nixon has compromised on every matter, | 26:28 | |
and that he has turned out to be | 26:32 | |
a wishy-washy, Tweedledum liberal. | 26:34 | |
I think there is no help for that. | 26:38 | |
Both are saying the same thing. | 26:40 | |
Mr. Nixon, by and large, has taken the middle road. | 26:42 | |
I would like to see him move a little bit | 26:46 | |
to the left of that middle road, | 26:48 | |
but speaking for myself I'm pleased | 26:50 | |
that he isn't way off there in the right. | 26:52 | |
He's moved very slowly in all matters. | 26:54 | |
And since I come from a university campus, | 26:57 | |
it happens at the moment to be a peaceful campus, | 27:01 | |
I rather like a situation in which the people | 27:04 | |
in control move very slowly. | 27:07 | |
That's what the doctor prescribes | 27:10 | |
in these particular days. | 27:12 | |
Let me return to an analysis of the prudent man's outlook | 27:18 | |
for business conditions in the United States | 27:25 | |
for the rest of 1969. | 27:27 | |
Without doubt, a most important factor is | 27:30 | |
what is happening to the peace negotiations | 27:33 | |
in Paris and elsewhere. | 27:36 | |
Without doubt, a most important factor is | 27:39 | |
what will happen in terms of deescalation | 27:43 | |
of the war. | 27:46 | |
If we begin to bring out tens of thousands, | 27:47 | |
50,000 troops from Vietnam by the end of the year, | 27:50 | |
that will make a significant difference. | 27:56 | |
Having said that, I must say that the people | 28:01 | |
who trade stocks from day to day | 28:04 | |
in the market, have been extremely volatile | 28:06 | |
is this matter. | 28:09 | |
As with respect to the Federal Reserve, | 28:11 | |
they are plunged from gloom one day | 28:15 | |
into rosy optimism another. | 28:18 | |
Almost nothing will happen out of Paris. | 28:21 | |
Almost no announcement of any significance will be made, | 28:24 | |
but suddenly the go-go performance fund-minded people | 28:27 | |
in Wall Street will decide that we're | 28:32 | |
in a peace rally of the stock market, | 28:34 | |
and that peace is almost here. | 28:38 | |
So I must depart from my role as a reporter | 28:41 | |
and try to be an analyst and sage, | 28:45 | |
and tell you what I think is happening. | 28:48 | |
As I read between the lines, | 28:51 | |
I think we're moving very slowly | 28:53 | |
a little closer towards peace. | 28:55 | |
I think it's very slow, but the most important signal | 28:58 | |
to my mind is that it looks to me | 29:03 | |
as if the new Nixon team has got the message | 29:05 | |
that the country doesn't like the war, | 29:09 | |
and that they are prepared to make some sacrifices | 29:11 | |
of face in order to get out of the war. | 29:16 | |
And this is in the Nixon style of moving slowly, | 29:20 | |
but I think a little progress is being made, | 29:23 | |
so I wouldn't go out and buy stocks | 29:25 | |
on the basis of what's happening | 29:28 | |
or sell sell stocks when the thing moves | 29:30 | |
a little bit the other way, | 29:33 | |
but in making my forecasts of the GNP | 29:35 | |
for the last quarters of the year | 29:39 | |
and into the next year, I think | 29:40 | |
you should take into account the significant probability | 29:42 | |
that some lessening of pressure | 29:46 | |
on the balance of payments and on expenditures, | 29:49 | |
onshore and offshore, may come from these movements, | 29:53 | |
and for a analyst who keeps his eye | 29:58 | |
on the middle vision vista, I think | 30:03 | |
that is extremely important. | 30:08 | |
- | Thank you very much Professor Paul Samuelson of MIT. | 30:11 |
Instructional Dynamics Incorporated welcomes | 30:15 | |
your questions or comments. | 30:17 | |
Write IDI, 166 East Superior Street, Chicago, 60611. | 30:18 |
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