Tape 100 - 1972 first quarter figures
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| - | Welcome once again as MIT Professor Paul Samuelson | 0:02 |
| discusses the current economic scene. | 0:05 | |
| This bi-weekly series is produced | 0:07 | |
| by Instructional Dynamics Incorporated, | 0:09 | |
| and was recorded April 20th, 1972. | 0:11 | |
| - | The big news to talk about, right now, | 0:15 |
| is the fact that the first quarter provisional estimates | 0:19 | |
| for the GNP have just come out. | 0:24 | |
| I have to comment on the basis of an incomplete account. | 0:27 | |
| But one has known, for the last week or two, | 0:32 | |
| that the money increase in the GNP | 0:36 | |
| over the fourth quarter was going to be large, | 0:39 | |
| nearer to 30 billion then to 25 billion. | 0:41 | |
| And actually we now have the figure, | 0:45 | |
| and it's a little over thirty billion. | 0:47 | |
| That increase of 30 and 1/3 billion contrasts | 0:50 | |
| with the fourth quarter increased, the last one reported, | 0:55 | |
| which was 19 and 1/2 billion. | 1:00 | |
| So, it looks as if the economy is really picking up, | 1:03 | |
| but wait, this big pick up is in terms of the money numbers. | 1:06 | |
| And so we have to ask, | 1:13 | |
| what's happened to the real rate of growth? | 1:14 | |
| In order to arrive at that, | 1:17 | |
| you have to see what's happened to prices, | 1:18 | |
| and here I'm afraid the news is not so good. | 1:21 | |
| Although prices by the official index of the GNP deflator | 1:25 | |
| in the fourth quarter last year rose only by 1.7%, | 1:29 | |
| an unbelievably good record, | 1:34 | |
| that number has now shot up to 6.2%. | 1:37 | |
| So, although the money increase | 1:41 | |
| now is 11.8% annual rate, | 1:46 | |
| as against 7.6% annual rate | 1:49 | |
| in the fourth quarter of last year, | 1:52 | |
| when we take away the whopping big 6.2% official deflator, | 1:55 | |
| we find that real growth is only at about 5 and 1/3% | 1:59 | |
| as against about 5.8% in the fourth quarter of last year. | 2:04 | |
| Now, 5.3% is not to be sneezed at. | 2:09 | |
| That is more than say the 4 and 1/4% | 2:12 | |
| which we need just to hold our own. | 2:15 | |
| Which we need, if we are to make any | 2:18 | |
| slow dent in the rate of unemployment. | 2:21 | |
| But, it's not 6%, and it's not up to | 2:24 | |
| the targets yet of the administration. | 2:27 | |
| When the secretary of commerce releases these numbers, | 2:33 | |
| he usually can find something cheerful | 2:37 | |
| to comment on them about. | 2:38 | |
| And he's found something here, and I agree, | 2:41 | |
| it is a matter of congratulations. | 2:43 | |
| This 5.3% growth would be higher, | 2:47 | |
| if it weren't for the fact that | 2:49 | |
| inventory growth was so very low, | 2:51 | |
| in fact inventory growth in the first quarter | 2:54 | |
| was at the unbelievably low annual rate of | 2:57 | |
| less than a billion dollars a year, | 3:01 | |
| 600 million dollars per year. | 3:02 | |
| This is in contrast with the rather low rate | 3:04 | |
| of 2.4 billion annual rate in the fourth quarter. | 3:08 | |
| Par for the course is very hard to define. | 3:13 | |
| But, given that we have an economy, which has now, | 3:15 | |
| not a trillion dollar economy, | 3:19 | |
| it's 10% more than a trillion dollar economy. | 3:21 | |
| Given the normal inventory sales ratios, | 3:24 | |
| even making some allowance for the long-term trend, | 3:28 | |
| which is for decline in that ratio. | 3:32 | |
| We still can say that inventories are on the lean side, | 3:34 | |
| and that the rate of growth | 3:38 | |
| in the first quarter was extremely low. | 3:39 | |
| I think that I can agree with the secretary of commerce, | 3:43 | |
| or Secretary Peterson and with | 3:46 | |
| Assistant Secretary Harold Passer, | 3:49 | |
| that this is cause for self-congratulations | 3:51 | |
| 'cause it means that there is good news ahead. | 3:55 | |
| Final demand, which is the behavior | 3:57 | |
| of the GNP with inventory removed. | 4:01 | |
| It's something which you never hear about | 4:05 | |
| when inventories do well, | 4:07 | |
| but you always hear about from government sources | 4:08 | |
| when inventory accumulation is laggard. | 4:11 | |
| Final demands is, nevertheless, a meaningful figure, | 4:15 | |
| and that has improved. | 4:18 | |
| We've gone ahead in final demand. | 4:20 | |
| We left out the effect of inventory at a 6.3% annual rate, | 4:24 | |
| and this actually is in excess of the 4.2% increase | 4:29 | |
| in final demand annual rates | 4:35 | |
| in the fourth quarter of last year. | 4:37 | |
| So, our 5 and 1/3%, as against the 5.8% | 4:39 | |
| of the previous quarter rate of real growth, | 4:43 | |
| looks better if it, and not been in inventories, | 4:45 | |
| then if inventories had not slowed down. | 4:49 | |
| Then the other components of final growth, | 4:52 | |
| were actually stronger than in the fourth quarter. | 4:54 | |
| Well, you all know that housing has been very strong, | 4:59 | |
| two and a half million starts who would have thought that. | 5:01 | |
| Plant and equipment expenditure has been very strong, | 5:06 | |
| it went up by five million dollars | 5:09 | |
| over the previous quarter to 78 billion. | 5:10 | |
| That means it's something like 6 or 7% | 5:13 | |
| increase in a single quarter. | 5:17 | |
| That suggests to me that the more | 5:20 | |
| optimistic surveys are going to be realized, | 5:22 | |
| and that we're gonna have good news there. | 5:27 | |
| Course, government expenditure is up. | 5:28 | |
| It's not up as much as in that rather surprising | 5:30 | |
| and almost farcical budget estimate | 5:34 | |
| of almost 40 billion deficit, | 5:38 | |
| in the year that's ending just at July 1st, | 5:40 | |
| that the government put out for some strange reason. | 5:44 | |
| There's going to be a shortfall | 5:47 | |
| from that of some eight million. | 5:49 | |
| But it is up, and it's up even in the defense component | 5:52 | |
| as well as in state and locally. | 5:56 | |
| Well, where is the bad news? | 5:58 | |
| The modest growth in inventory, | 6:01 | |
| if you can call that bad news. | 6:03 | |
| I don't think I really do. | 6:05 | |
| The relative flatness of retail sales. | 6:07 | |
| They were better in March, | 6:14 | |
| but they had been on the disappointing side | 6:16 | |
| in the first two months of the quarter. | 6:18 | |
| I may say, that the rather substantial strength in March, | 6:20 | |
| has not, apparently, been followed up | 6:25 | |
| in the first two thirds of April. | 6:30 | |
| by commensurate strength. | 6:32 | |
| Nevertheless, let's look at the savings ratio. | 6:35 | |
| Something that people watch so much, | 6:38 | |
| put undue importance on it in my view, | 6:43 | |
| and I speak as a Keynesian and a post-Keynesian. | 6:45 | |
| The rate of personal savings has dropped to 7.4% from 7.8%. | 6:52 | |
| I'll remind you that in the middle of last year, | 7:00 | |
| say second quarter of last year, it was the whopping 8.6%, | 7:03 | |
| and many people have been counting on it to drop. | 7:07 | |
| I've not been one of them. | 7:10 | |
| I have not had any strong expectation | 7:12 | |
| that there was something terribly abnormal about 8.6%. | 7:16 | |
| And, as a matter of fact, there is a partial explanation | 7:22 | |
| for the drop in the 7 point to 7.4%. | 7:25 | |
| I don't mean that it's not a legitimate drop, | 7:29 | |
| but you must understand that against the background | 7:31 | |
| of the following qualification. | 7:34 | |
| For some reason which I do not understand, | 7:37 | |
| there's been a little bit of a boo-boo | 7:39 | |
| in the Treasury Department and Internal Revenue Service, | 7:41 | |
| and there's been overwithholding. | 7:45 | |
| The result is that disposable income, | 7:48 | |
| the amount that people have left after their taxes | 7:51 | |
| as estimated by the government, | 7:53 | |
| is down by the amount at overwithholding. | 7:55 | |
| And most of the drop from 7.8% to 7.4%, | 7:57 | |
| represents not an upswing in consumption, | 8:01 | |
| that the consumer's spending more fully of his dollars. | 8:04 | |
| But just that his disposable income | 8:08 | |
| as measured by the Department of Commerce, | 8:10 | |
| has been lowered by the overwithholding. | 8:13 | |
| You can hear the screams of anguish | 8:17 | |
| in the White House about this, | 8:18 | |
| because operation steam-up the economy | 8:20 | |
| as much as you can right now. | 8:27 | |
| And you have a November election, is supposedly underway. | 8:30 | |
| And to have overwithholding now, | 8:33 | |
| with juicy refunds after the election, | 8:35 | |
| first quarter of next year, | 8:39 | |
| when you don't really need for political reasons | 8:40 | |
| any such stimulus, is not a good idea. | 8:43 | |
| I'm not sure it's a good idea anyway, | 8:46 | |
| from the standpoint of rational fiscal policy. | 8:48 | |
| Because if any of the forecasts, | 8:53 | |
| that seem to be turning out right, continue to be right, | 8:57 | |
| the stimulus is needed more now than it is next year. | 9:03 | |
| I suppose we should stop for a moment, | 9:10 | |
| and look at the surprising price index number performances. | 9:12 | |
| The 1.7% of the fourth quarter of the year, | 9:21 | |
| that was revised upward actually | 9:25 | |
| from 1.5% in the initial estimate. | 9:26 | |
| And that's a warning I want to remind us all, | 9:29 | |
| that one month from now | 9:31 | |
| we'll get the revisions of these data. | 9:33 | |
| And we mustn't lean too hard on the present data, | 9:35 | |
| and formulate explanations that are too esoteric. | 9:40 | |
| Because it'll be wasted energy, | 9:44 | |
| if it turns out that there isn't any to explain | 9:46 | |
| because of data revision. | 9:49 | |
| Obviously, it was the price freeze phase one, | 9:56 | |
| which lasted right into the middle of the fourth quarter, | 10:01 | |
| which gave you the 1.7%. | 10:04 | |
| Obviously, that couldn't be maintained. | 10:08 | |
| Less obviously, | 10:11 | |
| precisely because the price freeze worked so well, | 10:14 | |
| you were gonna have relief afterwards. | 10:16 | |
| And so we expected in this quarter to pay something | 10:19 | |
| for the lowness of that 1.7% number. | 10:23 | |
| I don't think we expected to pay as much as | 10:28 | |
| 6.2% annual rate of increase. | 10:31 | |
| The government in announcing these numbers said that | 10:36 | |
| it was due to the bulge, | 10:41 | |
| and they hoped to do better in subsequent quarters. | 10:41 | |
| I think that Assistant Secretary Passer forecast, | 10:46 | |
| that in this second quarter, | 10:50 | |
| we're going to do about 4% rather than 6.2%. | 10:51 | |
| Nobody I think expects the 6.2% | 10:58 | |
| to continue at that high a rate, | 11:00 | |
| but it's not clear exactly how much of that is bones. | 11:03 | |
| So, let's try to analyze the figures | 11:06 | |
| in a more meaningful way. | 11:08 | |
| In the first place, it is said and is true, | 11:11 | |
| 1% of the 6.2% is due to a government pay raise. | 11:13 | |
| However, having said that, | 11:19 | |
| you must face up to the fact that, | 11:21 | |
| that's one of the reasons why | 11:22 | |
| the overall price deflator has been growing. | 11:23 | |
| Because the way we measure government output, | 11:27 | |
| we make no allowance for increases in productivity. | 11:32 | |
| And every time there is an increase | 11:35 | |
| in wages in the private sector, | 11:38 | |
| and even if in the government sector there's only | 11:40 | |
| a matching increase in terms of percentage trend, | 11:42 | |
| you have to expect it to be the normal condition. | 11:48 | |
| I expect it to be for every year, remaining part of my life, | 11:50 | |
| that I shall be reading that there is an increase | 11:54 | |
| in the wages of government employees' wage rates, | 11:57 | |
| and that this will be in the deflator. | 12:00 | |
| So, although it's crowded into the first quarter, | 12:03 | |
| I presume that some seasonal adjustment has been made | 12:07 | |
| in parts for that, perhaps inadequately. | 12:10 | |
| It is said, that a more meaningful comparison | 12:14 | |
| is to take the private GNP deflator | 12:18 | |
| leave out the government sector. | 12:20 | |
| Well, it certainly is interesting to look at that, | 12:23 | |
| so let's do that. | 12:24 | |
| And also, it is said, that it's more meaningful, | 12:26 | |
| I'm not sure whether it really is, to use fixed weights. | 12:29 | |
| Because when the automobile industry | 12:33 | |
| becomes a more important weight in the total economy, | 12:36 | |
| because auto sales are running ahead | 12:40 | |
| and auto production is running ahead. | 12:41 | |
| If the trend of auto prices is more moderate | 12:43 | |
| than the trend of all prices, | 12:48 | |
| then even though everybody's trend stays the same, | 12:50 | |
| the weight shifts will make the situation look better. | 12:53 | |
| To get around this, an index number of fixed weight | 12:57 | |
| private GNP deflator prices is often | 13:02 | |
| computed and is often referred to. | 13:07 | |
| And, let's see how that behaved. | 13:10 | |
| If it was 1.7%, by coincidence the same as | 13:13 | |
| the official index of 1.7 in the fourth quarter, | 13:16 | |
| in this quarter, first quarter of the year, | 13:21 | |
| that index grew by 4.6%. | 13:25 | |
| Definitely more than 1.7%, | 13:29 | |
| but not insignificantly less than 6.2%. | 13:31 | |
| I suppose then, that we can sum up | 13:37 | |
| the overall price behavior as something | 13:40 | |
| like the following. | 13:44 | |
| Averaging, but not with equal weights, | 13:48 | |
| the fourth quarter and the first quarter, | 13:50 | |
| we come around the vicinity of 4%. | 13:54 | |
| And so, I'd say, that prices arising now at about a 4% rate. | 13:57 | |
| I should mention, although I've seen no commentary | 14:06 | |
| in connection with release of the new data, | 14:08 | |
| that food does play a role in this situation. | 14:10 | |
| Food prices, and meat prices in particular, | 14:16 | |
| play a much greater role than their intrinsic weight, | 14:18 | |
| because it's the one thing which the housewives, | 14:24 | |
| the man in the street, which we're all acutely aware of. | 14:29 | |
| And I'm sure that politically, this has the most umpf. | 14:33 | |
| This afternoon, I'm going to a regional, a private briefing, | 14:37 | |
| by Mr. Grayson of the price commission. | 14:42 | |
| We should prepare to write to some | 14:47 | |
| public hearings tomorrow here in Boston. | 14:48 | |
| And you can see, that there's a | 14:52 | |
| tremendous soul-searching going on, | 14:54 | |
| a tremendous fence repairing operation going on, | 14:56 | |
| because the price commission | 15:00 | |
| is under very, very heavy pressure. | 15:02 | |
| I will, in a moment, mention to you, and elaborate on, | 15:06 | |
| a prediction which Pierre Rinfret made in New York | 15:11 | |
| a couple days ago when he and I were on the same panel. | 15:15 | |
| Also, with some other authorities, | 15:18 | |
| whose views I will mention in a moment. | 15:19 | |
| Pierre Rinfret said, that profits are so good, | 15:22 | |
| and prices are being controlled so badly, | 15:26 | |
| and wages are being controlled so well, | 15:29 | |
| that there must necessarily be, | 15:32 | |
| on the part of the Democrats, a tremendous outcry, | 15:34 | |
| which will put effective pressure on the price commission. | 15:38 | |
| And so, the price commission is going to have to get | 15:41 | |
| very, very tough indeed even, | 15:44 | |
| and now I'm quoting Dr. Rinfret not expressing my own view, | 15:47 | |
| even to the point of another complete price freeze. | 15:52 | |
| Well, I'll believe that when I see it, | 15:57 | |
| but there is concern in Washington on this particular issue. | 15:59 | |
| Now, where does this leave us on the overall picture? | 16:07 | |
| It seems to me that if you divide all the economists | 16:13 | |
| into optimists and pessimists, | 16:18 | |
| and by optimists you mean those | 16:21 | |
| with high real growth estimates, | 16:22 | |
| with high money growth estimates, | 16:26 | |
| and, of course, to be really optimistic, | 16:31 | |
| you should have low price estimates, | 16:33 | |
| but let's leave that out of the picture for the moment, | 16:35 | |
| that the news is moving in the direction of the optimists. | 16:38 | |
| This means that those people, | 16:44 | |
| who have been engaged ever since the turn | 16:46 | |
| of the year when the GNP numbers got revised downward, | 16:51 | |
| have engaged in revising downward, very significantly, | 16:54 | |
| their own increases for 72 itself. | 16:58 | |
| That they're now beginning to reverse themselves. | 17:03 | |
| They're raising their estimates. | 17:07 | |
| I get quite a number of estimates all the time, | 17:09 | |
| and I can see them rising for the year | 17:11 | |
| by three billion, by five billion. | 17:13 | |
| Actually, and now let me turn to the meeting | 17:16 | |
| that I was at a couple of days ago in New York. | 17:19 | |
| This was the annual conference | 17:23 | |
| of the institutional investors. | 17:26 | |
| It's attended by a couple of thousand leading | 17:27 | |
| money men for all over the country. | 17:31 | |
| Always gets a pretty good play in the press. | 17:34 | |
| It's a fairly sophisticated audience, and if I may say so, | 17:38 | |
| that audience usually gets good value for its money | 17:43 | |
| in its economist speakers, because there's a panel. | 17:47 | |
| I've been on this, I guess, about three times. | 17:52 | |
| It's been held five or six times, | 17:54 | |
| and you get some really spirited debate, | 17:58 | |
| with no holds barred, and candid opinions do come out. | 18:00 | |
| This was an especially interesting meeting to me, | 18:07 | |
| because all the previous speakers | 18:09 | |
| on those panels were invited back. | 18:12 | |
| So you could say, this was an all star performance. | 18:14 | |
| Professor Milton Friedman who had been on, | 18:17 | |
| I guess a year or two ago with Dr. Okun, | 18:21 | |
| was unable to attend, | 18:24 | |
| because he's been in Hawaii and is traveling. | 18:27 | |
| This is his sabbatical year. | 18:30 | |
| But, he was very much there in spirit. | 18:32 | |
| We always think of Professor Friedman, | 18:35 | |
| whether he's with us or whether he's away, | 18:38 | |
| because he does challenge the conventional wisdoms. | 18:42 | |
| Who was there? | 18:49 | |
| Walter Heller started off. | 18:50 | |
| He had been the first speaker. | 18:52 | |
| Second was Arthur Okun. | 18:55 | |
| Then myself, Paul Samuelson, | 18:57 | |
| then Alan Greenspan, of Townsend-Greenspan, | 19:00 | |
| who is an informal adviser to the republican administration, | 19:04 | |
| and was an adviser during the campaign. | 19:09 | |
| You've heard me, on these tapes, | 19:12 | |
| speak very highly of his various forecasting services, | 19:13 | |
| which he kindly supplies me with. | 19:19 | |
| I don't always agree with | 19:22 | |
| the political philosophy of Alan Greenspan, | 19:24 | |
| but I always listen very carefully | 19:28 | |
| both to it and even more carefully to his pulse taking | 19:30 | |
| of where we are and where we're going. | 19:35 | |
| And finally, the irrepressible buoyant | 19:38 | |
| Pierre Rinfret of Rinfret-Boston. | 19:45 | |
| To get things going was proposed that we each talk about | 19:51 | |
| slightly different topics of our choice, | 19:54 | |
| and then we each pick on each other, | 19:56 | |
| and then we separated into different rooms | 19:58 | |
| for questions and answers discussion. | 20:01 | |
| I may say that, I enjoyed this very much, | 20:04 | |
| and let me describe what it is that I learned there. | 20:07 | |
| First, and most important of what I learned, | 20:11 | |
| was we were each asked to make estimates | 20:13 | |
| of certain key macro forecasts. | 20:17 | |
| We were each asked to give our numbers | 20:23 | |
| for the money GNP for 1972. | 20:24 | |
| We were asked to give our estimate of where the rate | 20:31 | |
| of price increase will be at the end of the year. | 20:34 | |
| We were asked to give our estimates | 20:39 | |
| of the percent real growth for the year. | 20:40 | |
| That is 72 in comparison with 71. | 20:43 | |
| Where unemployment would be at the end of the year? | 20:46 | |
| What profits would do in the year in comparison with 1971? | 20:51 | |
| And, finally, where short term bill rates | 20:55 | |
| will be at the end of the year. | 20:58 | |
| Now, I'd sure like to know the answers | 21:02 | |
| to all of those questions. | 21:05 | |
| As a matter fact, to any of those questions. | 21:07 | |
| And I don't suppose, | 21:08 | |
| you could have a more sophisticated panel | 21:10 | |
| from which to get estimates than this. | 21:14 | |
| The one exception, | 21:17 | |
| that I'll have to try to make good on that, | 21:18 | |
| was that there wasn't a proper monetarist there | 21:21 | |
| to give his forecast. | 21:26 | |
| In the absence of Professor Milton Friedman, | 21:29 | |
| I wish they had gotten Beryl Sprinkel or Jim Meigs, | 21:32 | |
| or if they could have somebody from | 21:37 | |
| the Federal Reserve Bank for St. Louis. | 21:39 | |
| Fortunately, the March issue of the monthly letter | 21:40 | |
| of the Federal Reserve Bank of St. Louis has just come out, | 21:45 | |
| and I can report to you on what presumably would have been | 21:48 | |
| their general slant with respect to these numbers. | 21:52 | |
| Well now first, on money GNP the highest was, | 21:56 | |
| I was surprised to learn myself. | 22:03 | |
| As a result of the strong March data, | 22:06 | |
| and just the feeling in my bones, | 22:08 | |
| I've been revising up my numbers, | 22:10 | |
| and I think perhaps I threw away my usual caution. | 22:13 | |
| I try to resist the temptation ever to be interesting | 22:17 | |
| at the expense of being right, | 22:21 | |
| but remembering the scientific studies | 22:24 | |
| of Professor Hans Theile, | 22:26 | |
| formerly of Rotterdam now of the University of Chicago, | 22:31 | |
| with his finding that the economists | 22:34 | |
| are generally in the right direction. | 22:36 | |
| But when things are moving pretty considerably, | 22:39 | |
| they tend to be afraid to forecast as much as reality, | 22:41 | |
| and so shade their forecast down. | 22:46 | |
| I gave the number 1,148. | 22:48 | |
| It's a number I'm probably going to rue, | 22:51 | |
| because it represents an increase | 22:53 | |
| of 101 billion dollars in the money GNP. | 22:56 | |
| That means that, within 1972 itself, | 23:00 | |
| you're gonna have to have an increase in money GNP | 23:05 | |
| of more like 110 billion dollars. | 23:08 | |
| You're gonna need to realize this forecast | 23:12 | |
| something not necessarily over 30 billion every quarter, | 23:16 | |
| but you're gonna have to average | 23:19 | |
| not very much under 30 billion in money terms. | 23:20 | |
| I was high, but I was just above Walter Heller. | 23:24 | |
| If we're right, Walter Heller will get the POM this year, | 23:28 | |
| because, as long ago as 12 months ago, | 23:31 | |
| he gave the 100 billion dollar number. | 23:35 | |
| NABE was a trial balloon in his mind, | 23:39 | |
| and he certainly wasn't sanctified by | 23:41 | |
| his long-term associate with numbers George Perry. | 23:44 | |
| But, I'm sure he's feeling better | 23:48 | |
| about that particular number. | 23:50 | |
| That was the high number. | 23:51 | |
| The low number was Pierre Rinfret | 23:52 | |
| who was 1,140 billion. | 23:58 | |
| But, even that you see, represents | 24:01 | |
| an increase of 93 billion for the year. | 24:04 | |
| Not like so many shaded down forecasts | 24:07 | |
| that I was seeing, just until recently, of about 85 billion. | 24:10 | |
| Then came Alan Greenspan at 1,143. | 24:15 | |
| Probably, the most valuable number | 24:20 | |
| you should remember there in terms of his record. | 24:21 | |
| But it's interesting that he shaded that up, | 24:24 | |
| I think I've seen numbers from him | 24:25 | |
| quite recently as low as 1,137, 1,140. | 24:27 | |
| And, Arthur Okun at 1,141. | 24:31 | |
| Well, what about the rate of price increase? | 24:36 | |
| Here you learn why I gave such high numbers. | 24:39 | |
| I was the most pessimistic. | 24:44 | |
| 4.1% rate of price increase by the end | 24:46 | |
| of the year in my belief. | 24:49 | |
| I'm skeptical that the controls | 24:52 | |
| can keep things down less than that, | 24:54 | |
| and I think that as the economy develops | 24:56 | |
| and spreads that that's likely to happen. | 24:59 | |
| But, we needn't make a big fuss about it | 25:02 | |
| because 3.5% was Heller's forecast, | 25:04 | |
| 3.5% essentially Okun's, I guess. | 25:09 | |
| Pierre Rinfret was 3.9% like me. | 25:19 | |
| I don't vouch by the way. | 25:23 | |
| I'm taking this from my notes, | 25:24 | |
| and so what's more accurate is where the five stood. | 25:26 | |
| But I might have the wrong name on a particular number, | 25:30 | |
| but I don't want to be sued | 25:33 | |
| by any of these very good friends of mine. | 25:34 | |
| Now in real growth, that works out pretty much | 25:38 | |
| from what we've already had. | 25:42 | |
| But not as a matter of arithmetic, | 25:43 | |
| 'cause the prices was the end of the year. | 25:44 | |
| Real growth, Heller was the highest man, he was 6%. | 25:46 | |
| And although I had the highest money numbers, | 25:50 | |
| I was below him I was 5.9%. | 25:52 | |
| One of the writers, one of the experts was 5%, | 25:55 | |
| the others were 5.5%, 5.7%, 5.6%. | 26:01 | |
| On unemployment there was a great amount of agreement. | 26:05 | |
| 5.4% was Heller's at the end of the year, | 26:08 | |
| 5.2% to 3% was mine, | 26:12 | |
| everybody is in that range. | 26:18 | |
| On prophets the unanimity is unbelievable. | 26:22 | |
| 15% increase in profits said Heller. | 26:26 | |
| 15 to 16 said another man, think of that precision, | 26:30 | |
| 15 still another. | 26:35 | |
| Pierre Rinfret, the buoyant Pierre Rinfret was 20%. | 26:37 | |
| I was the high man 20 to 25%. | 26:44 | |
| The reason I was high is just what was mentioned earlier. | 26:48 | |
| It looks as if, the price board | 26:53 | |
| is not being able to hold down | 26:56 | |
| under the phase two program profit margins | 26:58 | |
| to any crushing extent. | 27:01 | |
| And given this ebullience in economy, | 27:02 | |
| it seems to me that profits are a very volatile item. | 27:05 | |
| Now, what about short-term interest rates | 27:10 | |
| at the end of the year, bill rates? | 27:14 | |
| 5.2% said Heller. | 27:16 | |
| That's pretty high. | 27:19 | |
| 4.9%, 5 to 5.5%, 5.2%, | 27:20 | |
| again I was the high man 5.75 to 6.25%. | 27:25 | |
| I may say that this part of my forecast | 27:31 | |
| falls from the other. | 27:34 | |
| If I'm pessimistic on the rate of inflation, | 27:34 | |
| then I put that in some, in some degree, | 27:37 | |
| in the interest rates. | 27:40 | |
| Well, how does this shape up from the standpoint | 27:44 | |
| of the number one question of the election? | 27:50 | |
| I don't know the answer that, but I would say that | 27:53 | |
| the economic factor is not strongly working | 27:56 | |
| for the Democrats. | 27:59 | |
| The situation will not be full employment, | 28:01 | |
| there'll be plenty of problems, | 28:03 | |
| but the people in Washington must be | 28:05 | |
| breathing a greater sigh of relief. | 28:08 | |
| Now, one last qualification, | 28:10 | |
| I promised that I won't, no monetarist present, | 28:12 | |
| that I would report on the monetarist's position. | 28:15 | |
| And in the March letter of the | 28:19 | |
| Federal Reserve Bank of St. Louis, | 28:23 | |
| I say March but it might have been April, | 28:26 | |
| like I'm not sure just how they date the. | 28:27 | |
| It's the one that came recently though, | 28:29 | |
| the last one that I saw. | 28:31 | |
| Our fore forecast for the year, | 28:33 | |
| based upon different fiscal policy assumptions | 28:35 | |
| and different rates of money growth assumptions, | 28:38 | |
| they're all very long. | 28:42 | |
| So therefore, I took the highest, | 28:44 | |
| and this was based upon an 8% increase | 28:46 | |
| in the rate of growth in money supply. | 28:48 | |
| And upon a strong trend in government spending, | 28:50 | |
| commensurate, I guess, with the trend as projected | 28:57 | |
| by the administration and by knowing people. | 29:01 | |
| And they still cannot get their increase up to 90 billion, | 29:05 | |
| It's something that I ought to worry about, | 29:10 | |
| in going out on a limb, | 29:13 | |
| as high as I did, and I do. | 29:14 | |
| And probably, in a more sober moment, | 29:16 | |
| it'd cause me to shave my numbers down some. | 29:19 | |
| Nevertheless, I would not like to be stuck | 29:22 | |
| this year with the monetarist's forecast. | 29:26 | |
| The feel is not that they're gonna have a good year. | 29:29 | |
| Unless as I think is likely, | 29:34 | |
| they're going to start changing their opinions. | 29:35 | |
| In this regard, our time is up. | 29:40 | |
| Let me say, that I suggest that you read that same | 29:43 | |
| Federal Reserve Bank of St. Louis, | 29:48 | |
| because there's a defense of their record. | 29:49 | |
| And, if I remember correctly, that's the issue | 29:51 | |
| in which some criticisms of mine are quoted adversely, | 29:54 | |
| and I think that a fair show requires | 29:59 | |
| that every criticism be answered. | 30:03 | |
| And, they actually show how good their record has been. | 30:07 | |
| My own publications on this subject have said, | 30:11 | |
| that monitors can't forecast very well. | 30:15 | |
| Quoting some chapter and verse in different publications, | 30:18 | |
| but I've always said that the best of them has been | 30:21 | |
| the Federal Reserve Bank of St. Louis. | 30:23 | |
| And I've actually looked at their numbers, | 30:26 | |
| and they're not bad. | 30:29 | |
| On the other hand, as a control, | 30:30 | |
| I looked at one of my favorite forecasters. | 30:32 | |
| This is George Perry. | 30:35 | |
| I often quote him. | 30:36 | |
| He's the fellow who does the numbers for Walter Heller, | 30:37 | |
| when Walter Heller is really serious about getting | 30:40 | |
| his best numbers for the National City Bank of Minneapolis. | 30:42 | |
| And I've looked at his forecasting record for six years, | 30:46 | |
| and he, of course, isn't a monetarist. | 30:51 | |
| He is a judgmental forecaster using a GNP model. | 30:54 | |
| And my time is up, so I can't give you the numbers. | 30:58 | |
| But, let me say that, he has nothing to apologize for. | 31:01 | |
| In comparison with monetarism or the very large computers | 31:06 | |
| which do use a post-condition, | 31:12 | |
| he's had a pretty good season. | 31:13 | |
| Like everything else, | 31:16 | |
| I don't suppose it's really gonna last George, you hear me? | 31:17 | |
| - | If you have any comments or questions | 31:20 |
| for Professor Samuelson, | 31:22 | |
| address them to Instructional Dynamics Incorporated, | 31:23 | |
| 166 East Superior Street, Chicago, Illinois, 60611. | 31:26 |
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