Tape 43 - State of the union
Loading the media player...
Transcript
Transcripts may contain inaccuracies.
- | How will President Nixon achieve the balanced budget? | 0:02 |
Will he recommend cuts to Congress? | 0:04 | |
Will Congress be able to cut down expenditures? | 0:06 | |
Will we have any substantial defense cut backs? | 0:09 | |
President Richard Nixon has delivered | 0:12 | |
his State of the Union Address | 0:13 | |
and several of his main points | 0:15 | |
will have a great effect on the nation's economy. | 0:16 | |
Listen now as Instructional Dynamics | 0:19 | |
presents MIT Professor Paul Samuelson | 0:21 | |
with an in-depth look at the president's speech. | 0:23 | |
- | It has been a long time | 0:27 |
since I made my last recording in this series. | 0:28 | |
I've been out of the country twice | 0:30 | |
and in the intervening time, | 0:33 | |
a great number of rather interesting | 0:35 | |
if not exciting things have been happening to the economy. | 0:37 | |
Let me today try to comment | 0:40 | |
upon a number of the most significant of these happenings. | 0:43 | |
First, on this very day as I speak, | 0:48 | |
President Nixon has just given his State | 0:50 | |
of the Union message. | 0:52 | |
What are its economic implications? | 0:55 | |
At a first hearing it appears | 0:58 | |
that his central theme | 1:01 | |
has been the quality of life | 1:03 | |
as against mere quantitative growth | 1:07 | |
in the GNP or Gross National Product. | 1:11 | |
This involves a very heavy emphasis | 1:15 | |
upon the environment, | 1:17 | |
upon ecology, a word which we will be hearing more about | 1:18 | |
but was absent from sixth grade | 1:22 | |
when I went to school, | 1:25 | |
the balance of nature. | 1:27 | |
And | 1:29 | |
these particular proposals | 1:34 | |
do not by themselves tell us much | 1:38 | |
about what's likely to happen | 1:43 | |
to the macroeconomic totals of government spending. | 1:45 | |
They tell us something about the composition | 1:49 | |
of that spending. | 1:52 | |
The president did in a throwaway sentence | 1:54 | |
which was very much applauded | 1:57 | |
say that he was going to present a balanced budget. | 1:59 | |
I don't think there's anything very surprising | 2:06 | |
in that statement. | 2:08 | |
It's hard to believe that in a time of inflation | 2:10 | |
when this concern over rising prices | 2:13 | |
is very much present in the electorate's mind | 2:16 | |
that any president however profligate his party platform | 2:21 | |
would come forward and admit to an unbalanced budget. | 2:26 | |
Now, how will the president when the budget message arrives | 2:32 | |
succeed in presenting a balanced budget | 2:38 | |
or even a budget with a surplus | 2:41 | |
so that it will resemble in some degree | 2:45 | |
the surplus in the 1969 fiscal year budget | 2:48 | |
and in the recent current 1970 fiscal year budget? | 2:54 | |
Several ways. | 2:59 | |
One, he could can have a genuine surplus | 3:00 | |
because that's the way the ball bounces | 3:02 | |
in the figures that the expenditures | 3:04 | |
that are likely to take place | 3:07 | |
will be less than the tax receipts | 3:09 | |
and they're likely to come in under present programs. | 3:13 | |
It looks there as if Mr. Nixon is not so lucky | 3:17 | |
that all this would happen naturally. | 3:21 | |
There are many uncontrollable items | 3:24 | |
in the expenditure package | 3:26 | |
which are becoming more and more expensive | 3:28 | |
and so, there is a second method | 3:31 | |
by which this can be brought about, | 3:36 | |
namely the president | 3:38 | |
can militantly recommend new legislation | 3:40 | |
which will cause there to be genuine new tax levies, | 3:44 | |
increases in the tax rates on existing taxes | 3:52 | |
and that these will bring in more than enough revenue | 3:56 | |
to over balance the budget. | 4:01 | |
The parallel device to this | 4:03 | |
is that the president can recommend to the Congress | 4:07 | |
cuts in actual expenditure | 4:10 | |
which the Congress will make | 4:14 | |
and the president can reinforce these | 4:17 | |
with certain discretionary expenditure, | 4:19 | |
cuts within his own executive department | 4:22 | |
and on his own volition | 4:26 | |
and thereby as a result of discretionary policy | 4:28 | |
we will have an over balanced budget | 4:32 | |
with a needed surplus to fight inflation. | 4:35 | |
This, however, is also not an easy | 4:40 | |
or perhaps not even a feasible program | 4:44 | |
for Mr. Nixon. | 4:46 | |
To look only at the tax picture, | 4:49 | |
the people today | 4:52 | |
at the same time that they are conscious of inflation | 4:55 | |
are feeling very poor, | 4:58 | |
they are feeling very put upon. | 4:59 | |
I'd like to comment later | 5:01 | |
on this in my travels around the country, | 5:03 | |
I've noticed this to have risen | 5:06 | |
I believe to a new crescendo. | 5:09 | |
That being the case, | 5:12 | |
the electorate is not in the mood | 5:12 | |
to look with great favor upon extra tax levies, | 5:15 | |
new kinds of taxes, | 5:19 | |
higher rates on old taxes, | 5:21 | |
extensions of the surtax. | 5:24 | |
And this mood which I believe | 5:27 | |
is in among the rank and file | 5:29 | |
on Main Street I think is also reflected | 5:33 | |
on Capitol Hill. | 5:35 | |
Congressmen at this time | 5:36 | |
sensing how the people feel | 5:40 | |
and themselves being samples | 5:42 | |
of the American people | 5:44 | |
are in no eager mood | 5:46 | |
to give the president new tax legislation | 5:49 | |
that will cut in deeper | 5:54 | |
and produce extra revenues. | 5:56 | |
It will not be easy | 5:58 | |
to cut many programs | 6:00 | |
because the nation is crying out | 6:03 | |
for help from Washington, | 6:06 | |
this at the state and local level | 6:10 | |
under the new federalism, | 6:12 | |
a word and expression which Mr. Nixon again emphasized | 6:14 | |
in his State of the Union message, | 6:18 | |
crying out for help from Washington | 6:19 | |
because of tangible, ever-present problems, | 6:22 | |
increasing responsibilities | 6:27 | |
of government at all level, | 6:29 | |
to improve the quality of life | 6:31 | |
as I shall comment on in a moment, | 6:32 | |
here too new resources provided | 6:36 | |
and funneled through government | 6:40 | |
will be necessary | 6:42 | |
and so, it will not be easy outside | 6:44 | |
of the defense budget to count upon Congress | 6:48 | |
as cutting expenditures. | 6:53 | |
This leaves us among other things | 6:56 | |
with the defense budget. | 6:58 | |
Here I would suppose | 7:00 | |
that the president has sensed | 7:02 | |
that it is very popular with the American people | 7:05 | |
to cut down on the size of the armed forces | 7:08 | |
to limit the manpower aspects of our commitment | 7:10 | |
in Vietnam and overseas. | 7:15 | |
And so, I suspect | 7:18 | |
that we will have some very substantial recommendations | 7:21 | |
of defense cuts by the Secretary of Defense, | 7:24 | |
Melvin Laird and by the president | 7:28 | |
and this will result in some real economies. | 7:31 | |
On the other hand, | 7:34 | |
there are some increasing security needs | 7:36 | |
of the United States in the field of hardware. | 7:39 | |
The president has emphasized | 7:42 | |
and re-emphasized again recently | 7:45 | |
the importance of the ABM | 7:48 | |
which will involve a new round of expenditures. | 7:51 | |
There is a B1 manned bomber | 7:54 | |
which McNamara had been too beastly | 7:58 | |
to give to the Air Forces | 8:02 | |
which is said now to have a considerable measure | 8:03 | |
of support and so, I predict | 8:06 | |
that you will see some substitution | 8:09 | |
in the defense budget | 8:12 | |
of hardware for very soft mother sons | 8:14 | |
so that part of what you save | 8:19 | |
in reduction of the size of the armed forces | 8:21 | |
will go to an increase to some of these programs. | 8:25 | |
Still I believe there is enough waste | 8:28 | |
and inefficiency and over broadness of scope, | 8:32 | |
even the hardware part of the Federal budget | 8:36 | |
on defense and on space | 8:41 | |
so that there can be some sizeable cuts | 8:43 | |
in those programs | 8:44 | |
which the president feels are of lower priority, | 8:47 | |
so there'll be some genuine savings there. | 8:50 | |
But all said and done, | 8:52 | |
it looks to be nip and tuck | 8:54 | |
that the president could by these measures alone | 8:57 | |
show a budget with a balance | 9:00 | |
or certainly with a surplus of any size. | 9:05 | |
At this point we come into the fine art | 9:10 | |
of phony budgets. | 9:12 | |
And in what I'm talking about now, | 9:14 | |
I'm only talking about what every person knows | 9:16 | |
has been the pattern of governments | 9:20 | |
in the last couple of decades | 9:23 | |
of either political party. | 9:27 | |
What I'm saying is true of the Eisenhower years | 9:29 | |
as of the Truman years | 9:31 | |
and of the Kennedy-Johnson years. | 9:34 | |
If you find it difficult | 9:37 | |
or even impossible to balance the budget genuinely, | 9:39 | |
you always have window dressing, | 9:44 | |
phony ways of balancing the budget, | 9:46 | |
namely ask for tax increases which you know | 9:48 | |
you won't get even though you know you won't get them, | 9:51 | |
the Congress won't give them to you, | 9:54 | |
the people won't vote them, | 9:56 | |
ask for expenditure cuts | 9:57 | |
which you are quite sure Congress will not give you | 10:00 | |
and which you cannot afford unilaterally | 10:05 | |
within the Executive Office to put through yourself. | 10:07 | |
Indeed one way of keeping up expenditures | 10:11 | |
of the Federal Government sometimes | 10:14 | |
is to cut down very hard, overly hard you might say | 10:16 | |
on a vital perceived to be important public service | 10:19 | |
like say we'll have no mail on Monday, | 10:24 | |
Wednesdays and Fridays. | 10:27 | |
Saying that will save a lot of money in the budget, | 10:29 | |
will show a surplus on the post office accounts and so forth | 10:33 | |
but saying it, the tongue also knows precisely | 10:36 | |
that will never happen, | 10:41 | |
that the American people who be so incensed not | 10:42 | |
to get their publications and messages on time | 10:44 | |
that they will put pressure on Congress | 10:49 | |
to restore the service | 10:51 | |
and maybe even to enhance spending in that direction. | 10:52 | |
I don't think there's any point in my speculating | 10:56 | |
at this time on just what the size | 10:58 | |
of the president's budget will be, | 11:03 | |
just how phony some of the phony items | 11:05 | |
that may be. | 11:08 | |
Let me turn | 11:11 | |
to the other aspects | 11:14 | |
of the State of the Union message | 11:17 | |
which might have some bearing | 11:19 | |
upon the state of the economy, | 11:20 | |
upon the macroeconomic magnitudes. | 11:24 | |
First, I'd like to say | 11:27 | |
that I am no great admirer in general | 11:28 | |
of the Republican Party, | 11:34 | |
I salute Mr. Nixon's determination | 11:37 | |
to have a big push against pollution of the environment. | 11:42 | |
Indeed, as I listen to Mr. Nixon's speech | 11:47 | |
and I thought it was a well-delivered speech, | 11:52 | |
I thought it was a speech | 11:54 | |
which in its rhetoric, in its mode of expression | 11:56 | |
would appeal to a broad spectrum of America. | 12:00 | |
It would appeal specifically to Middle America, | 12:05 | |
that interesting expression coined | 12:10 | |
by Joseph Kraft, the columnist of I think | 12:13 | |
of The Washington Post Syndicate | 12:16 | |
really to represent that great silent majority | 12:19 | |
who are as square as President Nixon | 12:23 | |
and Pat Nixon tried to appear to be. | 12:27 | |
The president in his choice of words and language | 12:32 | |
would appeal to this rather conservative group. | 12:36 | |
This group, by the way, includes working men | 12:40 | |
who have moved out of poverty | 12:43 | |
and are in a position | 12:47 | |
where they feel threatened | 12:52 | |
by some of the reform movements of the current age | 12:54 | |
although that was the case | 12:58 | |
as I listened to the president, | 12:59 | |
I found myself reformulating in my own mind | 13:01 | |
exactly the same goals that he was saying. | 13:06 | |
In the language let us say of an activist president | 13:10 | |
like Franklin Delano Roosevelt | 13:14 | |
and I thought that just by changing the rhetoric, | 13:16 | |
I could make this rather reassuring conservative speech | 13:19 | |
sound like an ominous call for action | 13:24 | |
for planning by a rabble-rousing new deal type of president. | 13:28 | |
I think that's inescapable | 13:37 | |
because if you examine the problem | 13:40 | |
of the quality of life, | 13:43 | |
the quality of life involves problems | 13:45 | |
where we cannot count upon individual initiative | 13:48 | |
and laissez-faire by themselves to solve them. | 13:52 | |
Now, to be sure, | 13:56 | |
there are certain cases | 13:58 | |
where bad government incentive programs | 13:59 | |
and rules of the game | 14:03 | |
have contributed towards the deterioration | 14:06 | |
of the environment | 14:09 | |
but by and large | 14:10 | |
and here we can I think just take pollution | 14:12 | |
of the atmosphere by smoke, | 14:16 | |
by sulfur dioxide, by carbon monoxide, | 14:19 | |
by carbon dioxide | 14:22 | |
by soft coal precipitants | 14:26 | |
and the pollution of our rivers | 14:29 | |
by phosphates, by detergents, | 14:33 | |
by farm fertilizers, | 14:38 | |
by industrial waste, | 14:42 | |
by the thermal pollution | 14:44 | |
of large electric generating stations, | 14:48 | |
if you take every one of these particular problems | 14:53 | |
which have become oh so important | 14:56 | |
just in our brief lifetimes, | 14:59 | |
there isn't one of them | 15:02 | |
where you can depend upon enlightened self-interest | 15:05 | |
to solve the problem. | 15:08 | |
These all fall under the category | 15:10 | |
of what we in economics call neighborhood effects, | 15:13 | |
what we in economics | 15:16 | |
call external diseconomies, externalities. | 15:17 | |
We can count upon a businessman | 15:23 | |
who's running his own business | 15:25 | |
within his factory | 15:27 | |
to balance costs against revenues | 15:29 | |
and to make a pretty good decision | 15:33 | |
because he doesn't make a pretty good decision, | 15:35 | |
ruthless competition will eliminate him. | 15:37 | |
If he does make a good decision, | 15:40 | |
he will be the beneficiary of that. | 15:43 | |
He, his stockholders, his workers and so forth. | 15:45 | |
But if I produce more cheaply electric power | 15:49 | |
by virtue of using sour petroleum | 15:55 | |
which I can buy at a lower rate, | 16:00 | |
say from Venezuela in one particular case, | 16:04 | |
I am motivated to do that. | 16:10 | |
And yet who pays the hidden cost of that? | 16:12 | |
Obviously it's not the electric company, | 16:15 | |
it is not my balance sheet which shows that, | 16:21 | |
it is the nostrils of the citizenry at large | 16:24 | |
and it's very hard to point the finger | 16:28 | |
at my particular plant | 16:30 | |
as the pollutant or to take a different case, | 16:31 | |
it's a very obvious one, | 16:34 | |
the prime villain of the scenario | 16:37 | |
of our time in many, many, many cases | 16:41 | |
is the automobile and when I say the automobile, | 16:43 | |
it's we automobile owners. | 16:46 | |
Time and again it has been shown | 16:49 | |
we insist upon driving to work alone, | 16:51 | |
we move a huge pool of air | 16:54 | |
surrounding us through space, | 16:59 | |
just post yourself at a highway or a freeway leading | 17:03 | |
into the city where commuting traffic passes | 17:07 | |
and examine how many single occupants of cars there are | 17:11 | |
and time again, universities and business firms | 17:16 | |
have tried to introduce carpooling | 17:19 | |
and so forth but that extra little bit | 17:23 | |
of flexibility, the independence which we have | 17:26 | |
in driving our own automobiles | 17:28 | |
is so important to us | 17:30 | |
that we insist upon it | 17:31 | |
and the atmosphere shows the effects. | 17:34 | |
Now, we cannot blame anybody for that. | 17:37 | |
Nobody in the private enterprise system | 17:40 | |
can be said to be the villain. | 17:43 | |
Nobody has behaved maliciously | 17:45 | |
so that a court of law | 17:48 | |
could sentence him. | 17:50 | |
The automobile manufacturers | 17:53 | |
cannot load their car with expensive anti-pollutants | 17:56 | |
which will make their cars competitively not sell | 18:02 | |
unless the people are willing to pay extra for that. | 18:05 | |
But the big thing about pollution of course is | 18:08 | |
that you want the other fellow | 18:10 | |
to have an anti-pollutant device on his car, | 18:12 | |
there's very little point in letting him go Scott free | 18:16 | |
and not have it and you have it | 18:20 | |
because you are then simply being an altruist | 18:22 | |
and having very little benefit to yourself. | 18:26 | |
So, this whole theme of quality of life leads inevitably | 18:30 | |
and I'm not criticizing, | 18:36 | |
I'm actually applauding this | 18:37 | |
toward greater coercion, greater common rules of the road, | 18:39 | |
greater government interference | 18:44 | |
and I find it extremely interesting | 18:47 | |
that of our two parties, political parties, | 18:50 | |
the more conservative one | 18:53 | |
has arrived on the scene | 18:55 | |
and has found that scene in such a state | 18:58 | |
that it must carry this particular ball. | 19:00 | |
Now, in the time that's left to me right now, | 19:05 | |
let me comment on the progressing state of the economy. | 19:10 | |
First, the most striking news | 19:15 | |
was that there was no real growth in the GNP | 19:18 | |
in the fourth quarter. | 19:21 | |
By a narrow hair's width, | 19:23 | |
there was actually a 1/10 of $1 billion decline | 19:28 | |
in the real GNP in the fourth quarter. | 19:35 | |
Now, I don't think there's any importance | 19:39 | |
to 1/10 of a billion | 19:41 | |
except in one respect. | 19:44 | |
We've been speculating on these tapes | 19:46 | |
and economists everywhere in their writings | 19:48 | |
on whether the National Bureau | 19:51 | |
will deem there to be a recession | 19:54 | |
in the period 1969 to 1970 | 19:58 | |
and the operational test of that | 20:02 | |
which Las Vegas might use | 20:04 | |
would be for two consecutive quarters | 20:05 | |
will there be a sustained decline | 20:08 | |
in the real GNP? | 20:13 | |
You know my opinion. | 20:15 | |
As against those who have regarded this | 20:17 | |
as practically inevitable, | 20:19 | |
I said several weeks ago | 20:21 | |
that I thought it was a 60/40 or a 65/35 bet | 20:26 | |
against their being a recession | 20:32 | |
as measured by this particular criterion | 20:35 | |
and of course I thought the odds were greater | 20:37 | |
against there being a very serious depression | 20:39 | |
or a recession. | 20:44 | |
Well, I think that as far | 20:47 | |
as the first unrevised figures are concerned | 20:49 | |
and as far as the bet is concerned, | 20:53 | |
we have one quarter behind us | 20:56 | |
in which there was a small but actual decline | 20:57 | |
and so, the odds changed completely | 21:03 | |
on this particular bet | 21:05 | |
because now you need only one more quarter | 21:07 | |
of decline in order to be able | 21:09 | |
to say by the definition I've used | 21:14 | |
that there will be a recession | 21:16 | |
and I change my opinions when my information pattern changes | 21:18 | |
and so, now I would say | 21:24 | |
that there is better than a 50% chance | 21:26 | |
or about a 50% chance | 21:31 | |
that the first quarter of the year | 21:34 | |
will also show a trifling decline | 21:36 | |
in the real GNP | 21:41 | |
and in that case, there will be a recession. | 21:43 | |
Now, I don't know that I particularly mind losing | 21:46 | |
that bet but leaving personal vanity aside completely, | 21:51 | |
I think this is rather a good thing | 21:56 | |
for the country because the administration | 21:58 | |
has been able to drive home the public message | 22:00 | |
that the anti-inflation | 22:05 | |
is really working, that we have now stopped | 22:07 | |
the real growth. | 22:11 | |
Indeed, maybe the best situation in the world | 22:15 | |
would be a recession which is hardly a recession | 22:19 | |
but which could definitely be called a recession | 22:22 | |
because that would have some | 22:26 | |
pleasing effects upon inflation. | 22:26 | |
Meantime, however, that this is happening | 22:29 | |
and automobiles sales are weak | 22:32 | |
and the leading indicators continue to show a decline, | 22:35 | |
the Federal Reserve Board Index shows a decline, | 22:39 | |
the unemployment it's true | 22:42 | |
has not yet showed an increase | 22:43 | |
but we have ways of explaining that away. | 22:46 | |
Meantime, we have not had in the consumer's price index | 22:49 | |
any particular pay-off | 22:55 | |
on the pace of inflationary growth. | 22:57 | |
Indeed, the last two months of the year | 23:01 | |
will show a higher average than the first 10 months | 23:03 | |
of the year in the rate of inflation | 23:06 | |
because of an unfortunate behavior | 23:09 | |
of the series in November and December. | 23:11 | |
Nevertheless, the prerequisite | 23:15 | |
for making some progress on the consumer's price index | 23:20 | |
will have to be through some form of retardation | 23:24 | |
and so, I think that one can regard | 23:28 | |
the fourth quarter figures really as good news. | 23:32 | |
Part of it is of course due to the GE strike | 23:36 | |
and I think, however, | 23:39 | |
that one should not exaggerate | 23:41 | |
the importance of anything new | 23:44 | |
that we have learned in the fourth quarter. | 23:47 | |
It's a continuation of trends | 23:50 | |
that have been expected | 23:53 | |
and there has not been any great deceleration | 23:55 | |
in the economy. | 24:00 | |
Indeed, from a standpoint | 24:01 | |
of the growth ahead of the economy, | 24:03 | |
I would call your attention | 24:07 | |
to the fact that the reason that the fourth quarter, | 24:09 | |
a reason that the fourth quarter actually went downhill | 24:14 | |
was that inventory accumulation | 24:17 | |
was lower in the fourth quarter | 24:20 | |
than in the third quarter. | 24:22 | |
If you had had in the fourth quarter | 24:23 | |
the inventory accumulation of the third quarter, | 24:28 | |
then there would not have been this decline | 24:31 | |
and moderation in inventory accumulation | 24:35 | |
in the past behind us | 24:39 | |
is not a factor which suggests weakness ahead | 24:41 | |
but rather it is a factor | 24:45 | |
which suggests strength. | 24:47 | |
The most distressing thing from a standpoint | 24:51 | |
of strength and weakness in the period ahead | 24:53 | |
would have been if the fourth quarter figures | 24:55 | |
had shown what happened in 1966 | 24:58 | |
in the fourth quarter just before that mini recession, | 25:02 | |
namely a tremendous upswing in inventory accumulation. | 25:06 | |
I believe if my memory is correct to $20 billion. | 25:11 | |
Well, instead of it having gone up | 25:16 | |
and casting a shadow over future progress | 25:18 | |
to a significant degree, | 25:22 | |
not a great degree, inventory accumulation went down, | 25:26 | |
so next time I would like to continue the story | 25:29 | |
of what if any the changed outlook is | 25:34 | |
for interest rates for the quarterly profile | 25:37 | |
of the GNP in the year ahead | 25:42 | |
and for profits and macroeconomics generally. | 25:44 | |
- | Thank you, Professor Paul Samuelson. | 25:49 |
If there's a topic you'd like discussed, | 25:51 | |
drop your suggestions on a postcard | 25:53 | |
to Instructional Dynamics Incorporated, | 25:56 | |
166 East Superior Street, Chicago, 60611. | 25:58 |
Item Info
The preservation of the Duke University Libraries Digital Collections and the Duke Digital Repository programs are supported in part by the Lowell and Eileen Aptman Digital Preservation Fund