Tape 57 - Forecasting the future: ten year economic outlooks

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-	Hello and welcome again as MIT professor Paul Samuelson	0:02
	discusses the current economic scene.	0:04
	This bi-weekly series is recorded by	0:07
	Instructional Dynamics Incorporated	0:09
	and was recorded on August 24, 1970.	0:11
-	Today I'd like to talk about	0:15
	the longer run economic outlook.	0:17
	We spent a good deal of time on these tapes in	0:19
	trying to forecast the short term	0:22
	gross national product and business cycle	0:26
	but what about a longer period such as	0:28
	the whole the whole decade of the 1970s.	0:31
	What's the outlook for so long a period?	0:34
	Indeed, doesn't make any sense at all	0:37
	to try to peer so far ahead.	0:39
	As you may know,	0:41
	there's a whole new industry called the Futurists.	0:42
	These chaps spend all their time in trying to tell us	0:46
	what life is going to be like in 1999 or in 2050.	0:49
	I suppose that in this sense,	0:54
	Jules Verne was the first Futurist.	0:56
	Having correctly predicted the submarine and the airship.	0:59
	And for all I know the I Love Lucy program	1:02
	on network television.	1:04
	However, before we get too enthusiastic	1:07
	about any Futurists, like Jules Verne,	1:09
	we ought to have before us all his predictions.	1:13
	To see whether he really had a good batting average.	1:16
	In other words, we want to compare his misses	1:20
	along with his hits.	1:22
	For someone who predicts everything conceivable	1:24
	would not be very useful to us.	1:27
	I've often been struck by people quoting from say,	1:30
	Henry Adams at the turn of the century.	1:35
	And Henry Adams will with great presence say	1:37
	that in 50 years time Russia will be	1:41
	the great antagonist with the United States	1:44
	and these will be the two major powers.	1:48
	And people all applaud and say	1:49
	what a clever man Henry Adams was.	1:52
	But if you read his letters you realize	1:54
	that Henry Adams was predicting something every day	1:57
	and he was often even predicting the opposite	1:59
	of some of the things which he predicted	2:02
	and so he could hardly help from being right at times	2:04
	if all you did was to consider a subset	2:07
	of his predictions, those lucky predictions.	2:10
	Still, where the Futurists are concerned,	2:15
	I suppose that even the enumerating everything	2:18
	that is conceivable does provide a useful task	2:20
	because it's by no means	2:25
	easy to decide just what all the possibilities are	2:28
	in a situation involving many decades.	2:33
	I might mention the names of some of the Futurists.	2:38
	I suppose one of the most notable	2:42
	is Dr. Herman Khan at the Hudson Institute.	2:44
	Khan as you may know is a very clever physicist	2:47
	at the RAND Corporation in Santa Monica California.	2:52
	But he outgrew mere physics and began to speculate	2:57
	speculate about the outcome of the Nuclear War struggle.	3:02
	And as a matter of fact he alienated lots of people	3:07
	who regarded him as inhuman	3:09
	because he would contemplate the questions such as,	3:11
	is it better to have 75 million people	3:15
	on the Eastern Seaboard of the United States die	3:19
	in an atomic holocaust or is it better	3:22
	to have 65 million people die in a similar holocaust?	3:24
	He supposed to be the prototype	3:29
	for Dr. Strangelove in the movie.	3:31
	He and Henry Kissinger are supposed to have provided	3:33
	the prototype of that, Seller's character.	3:36
	Then you have Bertrand de Jouvenel from Paris	3:42
	who spent a great deal of time as a Futurist.	3:45
	And we even have now I understand in Middletown Connecticut	3:49
	an institute devoted solely to that purpose.	3:53
	Using the so called Delphi Method	3:56
	which was also originated at RAND	3:58
	in which in order to explore the far out possibilities	4:01
	of the future you call in an awful lot of experts	4:05
	and you have them do some brainstorming	4:08
	and think off the top of their minds	4:10
	then you circulate their results	4:12
	to all the experts and they finally narrow it down	4:14
	until you get some kind of an agreement	4:18
	and then it turns out surprisingly, apparently	4:21
	that very often the experts end up on agreeing	4:23
	on a common core	4:28
	of ideas	4:29
	which are often right and which they might not have	4:32
	come upon in the very first pass at the subject.	4:37
	It's a disputable discipline.	4:40
	I can recall once reading a lecture by Dr. Lawrence Klein,	4:43
	this is the professor at the Wharton School of Economics	4:48
	at the University of Pennsylvania	4:53
	who is the leading spirit in	4:55
	their Econometric Macro Model forecaster.	4:59
	And Lawrence Klein who I may say, as my listeners know,	5:03
	has a great deal of trouble in accurately predicting	5:08
	what's going to happen a year ahead.	5:11
	He's no exception of course in this.	5:14
	But the Wharton School Model until recently	5:16
	was not should I say completely accurate.	5:18
	Well Lawrence Klein says that up to a decade ahead	5:22
	you can make useful scientific predictions.	5:26
	But in his view it is a waste of time	5:30
	to speculate about the further future.	5:33
	Perhaps I put that too strongly when I say a waste of time.	5:35
	At least Klein would insist that such speculations	5:39
	had very little to do with science	5:43
	in usual sense of the word science.	5:45
	Let me say here in the beginning that I do think	5:49
	there's a useful purpose to be served by decade forecasts.	5:51
	Those made in the past have turned out not to be accurate.	5:55
	That would be much too much to expect.	5:58
	But they have turned out often to be suggestive	6:01
	and recent reasonably approximative.	6:04
	As a matter of fact I've had reasonably good luck myself	6:07
	in forecasting as long as five years ahead	6:10
	as I may have mentioned in one of my earlier tapes	6:13
	and to which I may return.	6:15
	But let's get down to brass tacks first	6:19
	about the decade ahead.	6:22
	I have in front of me a detailed set of estimates	6:25
	that were commented on recently	6:28
	by the Chase Manhattan Bank	6:31
	in their publication Business in Brief.	6:33
	This is a publication that comes out four times a year.	6:36
	I'm sure you can get on their mailing list for it	6:38
	if you are not already.	6:41
	And it's an informative	6:43
	publication rather like that of the First National City Bank	6:47
	or the Morgan Guaranty Bank	6:51
	which come out in more frequent intervals.	6:56
	Now I don't know whether the Chase Bank hired	7:00
	the Wharton School group to prepare these estimates	7:03
	especially for them or whether they're simply quoting	7:06
	in this publication from some standard	7:10
	University of Pennsylvania publication	7:12
	that I can't personally remember having seen.	7:14
	But in any case, there are actually	7:17
	numerical projections given.	7:20
	However, before going into these numbers	7:24
	for the future let's	7:27
	look 10 years back	7:30
	as the Chase Bank has done	7:32
	and see whether there was anything useful about the	7:36
	predictions that were made in 1960, 10 years ago	7:40
	for 1970 which is now the present date.	7:44
	Well, as the Chase Bank points out through doing research,	7:50
	you'll be surprised to learn that the standard forecast	7:55
	of Gross National Product was for a 50% increase	7:58
	in real Gross National Product for the United States	8:01
	between 1960 and 1970.	8:05
	And you'll be more surprised to learn	8:09
	that right now we appear to be almost exactly on the nose.	8:11
	I say the economists, the standard economists,	8:17
	did pretty well then, back in 1960.	8:20
	As a matter of fact,	8:24
	they did better than the demographers,	8:25
	that is the population experts.	8:28
	Because in 1960 the generally predicted	8:31
	population	8:36
	growth over 1970 was for 28 million more Americans.	8:38
	Bringing us to something over 200 million.	8:44
	But as a matter of brute fact,	8:46
	we now know that the decade of 1960s only added	8:49
	somewhere between 25 and 26 million Americans	8:54
	depending upon how the census turns out.	8:57
	The shortfall shows I suppose that demography	9:00
	is not an exact science, something that we've always known.	9:04
	The demographers were very wrong in 1939	9:08
	and the years after 1939	9:11
	in not forecasting the baby boom	9:13
	associated with World War II and it's aftermath.	9:18
	A baby boom which has been with us up until	9:21
	really the last decade.	9:25
	I shouldn't poke fun at another discipline	9:28
	because God knows we economists	9:30
	also make gross errors in forecasting	9:33
	but I'll say this, we economists are very cagey.	9:35
	Most of us.	9:39
	And we cut our losses whereas	9:40
	the demographers year after year	9:41
	went on insisting that what was happening	9:44
	under their noses could not be happening.	9:46
	Or if indeed it was stubbornly happening,	9:49
	it couldn't last very long and was just a flash in the pan.	9:52
	And they attributed the increase in births to	9:55
	General Hershey and the draft.	9:59
	Which of course was in some degree responsible.	10:01
	They attributed it to prosperity	10:04
	after the Great Depression.	10:06
	Which of course was in some degree responsible.	10:07
	They attributed it to all kinds of temporary factors	10:11
	but the brute fact which they were late in recognizing	10:15
	was that there was a change in fashion	10:18
	among the middle classes.	10:21
	So that what had been the most popular family size,	10:23
	two children, two to three children,	10:28
	was succeeded by a pattern of having	10:31
	during the complete lifetime of a married woman	10:37
	quite a number of third children and fourth children.	10:41
	It's interesting that the children of these larger families	10:45
	are themselves apparently reacting back	10:48
	towards the earlier patterns.	10:52
	And our net birthrate now is down very considerably.	10:53
	Well, let's go on now to the forecasts	11:01
	that were made in 1960.	11:04
	Lest we think that the economists were right	11:07
	in all the details of the forecast.	11:09
	The Chase Bank points out that generally speaking,	11:11
	construction employment was predicted	11:15
	to be up by 30% in the decade.	11:17
	And in fact, production was up by only 13%.	11:20
	That is construction employment.	11:25
	We all know that the last part of 1960s	11:27
	because of the Vietnam War and the inflation	11:29
	were not good years for housing.	11:33
	I don't know whether you think the difference	11:37
	between 1.13 and 1.30 is small.	11:38
	If you just concentrate upon the gain itself	11:43
	then there was something like a 50% or 100% error	11:46
	in the rate of change made in these predictions.	11:51
	Of course if construction employment was less	11:55
	than had been predicted,	11:57
	we know that government employment and service employment,	11:59
	employment in the services grew more than was predicted.	12:02
	Actually too, agricultural workers were down	12:06
	more than it had been predicted.	12:09
	This raises a very interesting question.	12:12
	You notice that there were some compensating errors	12:14
	made in these predictions and one could ask,	12:16
	is there a law of conservation of the total of employment	12:19
	which is easier to predict, that is the total	12:25
	being easier to predict than its components?	12:27
	Well of course that's true.	12:31
	The total is easier to predict than its components	12:32
	because you may get some accidentally canceling errors	12:34
	among your components.	12:39
	But the deeper question is whether these	12:41
	canceling errors are really accidental	12:46
	or whether they're isn't some law in economics	12:48
	which says that employment will be almost full	12:51
	and you can be sure that if there's a shortfall	12:54
	of employment in one area that it will be made up	12:56
	by a long fall of employment in another area.	13:00
	I don't want to go into that issue but of course,	13:03
	the classic economists and now I	13:06
	exaggerate a little bit, I vulgarize, I caricature them.	13:10
	The classic economists tended to believe that	13:15
	there was such a law of the conservation of the total.	13:17
	Let's go on though to	13:22
	the common predictions made in the 1960s.	13:24
	Newsweek in a roundup story predicted	13:27
	that the inflation would be a problem	13:32
	in the decade of the 1960s.	13:36
	I suppose we can give them a fairly good score.	13:38
	Although, the first half of the decade	13:41
	had rather less inflation than most of	13:44
	the experts had predicted.	13:47
	This shows something about predictions and economics.	13:49
	If you just wait long enough, you may be right.	13:51
	Which of course makes any prediction itself less useful.	13:54
	US News and World Report predicted that we would have	13:59
	lots of urban problems and that taxes would be a problem.	14:02
	How do we score a forecast like that?	14:05
	Well of course we have plenty of urban problems	14:07
	but I think these forecasts are more a reflection	14:10
	about what it is that bugs US News and World Report	14:13
	than an active forecast of the future.	14:17
	Because take problem of taxes,	14:20
	they're a perennial problem, debt and taxes.	14:22
	I can't say that by any by any objective scoring device	14:26
	that I can think of, we can say,	14:29
	that taxes have been more of a problem	14:31
	in the last part of the 1960s and earlier.	14:34
	In fact, in terms of burden,	14:37
	in terms of genuine problems connected with taxation,	14:39
	I would say they'd been rather less than a usual problem	14:43
	and maybe in the future they'll be even less	14:49
	just because we've become more affluent.	14:51
	Fortune Magazine is quoted by the Chase Bank	14:54
	on some of its predictions.	14:57
	How did Fortune do?	14:59
	I tend to find the short run forecasts of	15:01
	roundup in Fortune extremely interesting to read	15:05
	but I take them with a grain of salt	15:08
	because it seems to me that Sanford Parker	15:10
	is a big swinger and that they make some rather large,	15:12
	squared errors of estimate.	15:17
	I should say though, that Victor Zarnowitz	15:21
	of the National Bureau of Economic Research	15:24
	in a comprehensive roundup about how	15:26
	different forecasters do for one base period	15:28
	found Fortune to be one of the more accurate predictors.	15:33
	Well, let me report that they did predict	15:35
	GNP on the nose for the decade.	15:39
	They also had some very good predictions	15:42
	on qualitive matters such as,	15:45
	communication by satellites.	15:49
	This Telstar company's activity.	15:51
	They were right in their prediction.	15:55
	They predicted, and here I don't think	15:58
	we can give them too much credit	15:59
	that there would be nuclear energy.	16:02
	Economical nuclear energy I suppose the prediction was.	16:07
	After all in 1960, that was no	16:10
	early date to be making such a prediction.	16:13
	They predicted we'd have a man on the Moon by this decade.	16:16
	And of course we did.	16:20
	But again, we have a case here	16:23
	of having to look at everything that was predicted.	16:26
	Fortune predicted at that time that there would be	16:29
	electronic safety devices for handling cars on a highway.	16:31
	And there is no sign that that prediction has been realized.	16:36
	As a whole though I have to say	16:41
	that economists did pretty well.	16:42
	The bulk of the economists, I'm now referring	16:45
	to particular panels of forecasters,	16:49
	predicted that there would be no	16:52
	worldwide major recessions in the decade.	16:53
	And this remarkable fact of economic history,	16:58
	of modern economic history, of history of the mixed economy,	17:01
	that although we have had	17:04
	minor recessions in different countries,	17:07
	we have not had serious recessions.	17:09
	And we have not had in the 1960s	17:12
	worldwide simultaneous recessions.	17:15
	The economists predicted there would be no major war,	17:18
	well either you're right or you're wrong	17:21
	on a prediction like that.	17:22
	The Vietnam War I suppose does not qualify as a major war.	17:25
	The economists predicted that there would be	17:30
	a narrowing of the gap in real per capita product	17:33
	between the United States and	17:38
	the leading industrialized nations of the World.	17:39
	Most notably Western Europe and Japan.	17:42
	And they were right in this prediction.	17:46
	And they were right alas, in their prediction	17:47
	that this might well create a balance of payments problem	17:51
	for the US dollar which indeed,	17:56
	in my judgment it has done.	17:58
	I don't wish to hurry	18:01
	beyond the discussion of	18:05
	predictions of the last decade because in many ways,	18:07
	those predictions are more interesting	18:10
	than the rather speculative predictions about the future.	18:13
	And I can hope in another tape to return to	18:17
	the detailed speculations,	18:21
	informed speculations, about the future.	18:24
	I want therefore to utilize some of my remaining time	18:27
	to discussing a speech by Arthur Burns,	18:31
	Arthur F. Burns, the chairman of	18:36
	the Board of Governors of the Federal Reserve System.	18:38
	This is a speech which he made in Tokyo on July 2, 1970.	18:42
	It's right on the topic that I'm talking about.	18:46
	And the title of the speech is,	18:48
	The Triumph of Free Enterprise.	18:51
	Burns tells the Japanese something	18:55
	which they are very glad to hear.	18:58
	He very properly congratulates them on their	19:01
	performance in the decade of the 1960s.	19:06
	He compares the plans	19:10
	of Prime Minster Ikeda's	19:12
	government made in 1961,	19:17
	for the period of 1960 to 1970	19:20
	with what had actually happened.	19:23
	And the story as you know is a very cheerful one.	19:26
	Mr. Ikeda's planners	19:31
	had suggested that the real Gross National Product,	19:34
	national output,	19:39
	would go up, would double.	19:40
	But actually the Japanese instead of having	19:44
	the real output grow in the decade by only 100%	19:46
	it now appears that it grew by 180%.	19:50
	That means it almost tripled.	19:53
	Very good performance indeed.	19:56
	In fact remarkable.	19:59
	We should really own up.	20:00
	Then he mentions that exports were predicted	20:02
	by the Japanese to vastly increase	20:06
	to go to 9.3 billion dollars per year.	20:09
	But in fact, they're up to 20 billion dollars per year.	20:12
	They more than doubled the planned rate of growth.	20:15
	Similarly with imports.	20:22
	They'd been predicted to grow by 9.9 billion in the decade.	20:23
	But in fact, they grew almost 19 billion.	20:27
	Notice, that these two errors of prediction	20:31
	are very highly correlated.	20:35
	As they ought to be if you believe in any kind	20:36
	of equilibrium in international trade,	20:39
	or some kind of mechanism of adjustment.	20:41
	If exports have vastly increased than	20:44
	that could not be possible unless imports had also done so.	20:47
	On specific items like steel construction,	20:51
	the planners had called for 45 million tons of steel	20:55
	consumption in Japan by 1970.	21:00
	But in fact, the number is more like 80 million.	21:03
	On cars, and trucks and buses,	21:07
	the planners had called in the decade	21:10
	to end up with 2.2 million units.	21:13
	But in fact, it looks as if there'll be more	21:18
	than 4 million units.	21:20
	And Burns very properly congratulates the Japanese on this.	21:23
	Burns seems to attribute this to the free enterprise system	21:29
	because he introduces into his speech for contrast	21:32
	what has happened in the Soviet Union.	21:37
	This is an economy even more characterized by planning.	21:41
	And Burns quotes	21:46
	Mr. Krushchev who had singled out	21:50
	the year 1970 as the date by which	21:53
	the Russian economy would surpass	21:55
	the United States in production per capita	21:58
	and in the standard of living.	22:01
	I don't recall just what the date	22:03
	that Mr. Krushchev's speech was	22:06
	but it seems to date around 1957 I would say.	22:08
	1956 or '57.	22:14
	And let me quote Mr. Krushchev's precise words.	22:15
	Many of us heard those words.	22:19
	Quote, "The superiority of the USSR	22:22
	in the speed of growth in production	22:26
	will create a real basis for ensuring	22:28
	that within a period of say five years following 1965."	22:30
	I make this to be 1970.	22:35
	"The level of US production per capita	22:37
	should be equal and over taken.	22:39
	Thus by that time, perhaps even sooner,	22:41
	the USSR will have captured first place in the World	22:44
	both in absolute volume of production	22:48
	and per capita production which will ensure	22:50
	the World's highest standard of living."	22:52
	Of course we all know that Mr. Krushchev is gone	22:54
	and that his words showed him to have been prophet.	22:57
	Far from the USSR having overtaken the United States	23:02
	still remains very far behind.	23:07
	Indeed,	23:09
	we still have about double the real GNP	23:12
	of the Soviet Union depending upon how you	23:18
	calculate legal purchasing power of parity	23:23
	and dollar purchasing power of parity.	23:25
	The experts I think would say that,	23:27
	the Soviet Union has	23:31
	1/3 to 2/3 depending upon which calculation you make	23:33
	and if we split the difference that means about 1/2.	23:36
	Now it is true that the Soviet Union	23:40
	showed a percentage rate of growth of its real GNP	23:44
	a little more than ours but the remarkable thing is	23:47
	how little that was.	23:50
	I just made a little calculation and it looks as if	23:51
	that they had about 18/17 our growth in the decade.	23:54
	And as Dr. Burns points out,	23:59
	that if they were to show the same trivial superiority	24:01
	in rate of growth until the end of this century,	24:07
	they still would end up at the end of the century,	24:12
	in the year 2000, with scarcely more	24:15
	than 1/2 of our real GNP.	24:19
	Now my time is getting very short.	24:22
	I want to make a comment upon these comparisons.	24:25
	First, I would not conclude quite as Burns has.	24:30
	That we have here a controlled experiment	24:35
	between collective socialism	24:38
	and free enterprise, laissez-faire.	24:40
	On the contrary, to me,	24:43
	the triumph of Japan,	24:45
	the good behavior of the United States in the 1960s	24:47
	is to be attributed very much to the mixed economy.	24:51
	The Japanese have anything but a laissez-faire economy.	24:54
	They have much more intervention,	24:58
	at many crucial and pivotal sectors of the economy	25:00
	and important decisions than we have in the United States.	25:05
	Nevertheless, Burns has a good point and that is,	25:09
	that the mixed economy which	25:13
	has an important role for government	25:17
	in shaping the environment	25:19
	but which puts most of the burden upon private markets	25:22
	and upon the market system and upon the price system.	25:27
	That mixed economy is a marvelous engine for progress.	25:31
	Now in a future tape, I want to go into	25:36
	the best outlook into 1980	25:41
	and whether there'll be any new problems	25:45
	for this mixed economy.	25:47
	But I certainly think as we look back to the 1960s	25:50
	that we can have a certain measure of satisfaction.	25:54
	I won't say complacency	25:59
	on the performance of the	26:00
	Western advanced World in that period of time.	26:04
	Indeed, one wishes that the developing countries	26:07
	of the World had been as successful in percentage terms	26:11
	because if that had happened,	26:16
	you would not have witnessed the sad widening	26:18
	of the differential between the poor developing nations,	26:22
	I have in mind the nations of	26:27
	Southeast Asia, India, Pakistan,	26:31
	and the Latin American countries and the African countries	26:35
	in comparison with Western Europe, Japan,	26:40
	and the United States.	26:43
-	Thank you Professor Samuelson.	26:45
	If you have any questions or comments,	26:47
	address them to Professor Samuelson at	26:49
	Instructional Dynamics Incorporated	26:51
	166 East Superior Street Chicago.	26:54

Item Info

Title:

Tape 57 - Forecasting the future: ten year economic outlooks

Date:

circa 1970 to circa 1971

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

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samuelsonpaul
duke:325080
pstau001057
ark:/87924/r4bz61r0c
d02d1c38-a408-42ca-9f87-031992258ed7

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Tape 57 - Forecasting the future: ten year economic outlooks

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Economists' Papers Archive

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