Tape 119 - The meaning of phase III
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Transcript
Transcripts may contain inaccuracies.
| - | 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 January 12, 1973. | 0:11 | |
| - | This morning when Bob Bender came in to record | 0:15 |
| my words of wisdom he said, "I suppose there could be | 0:19 | |
| one topic you'll talk about," and of course, | 0:22 | |
| he had reference to the announcement just yesterday | 0:25 | |
| by President Nixon, that price and wage controls | 0:28 | |
| were to be essentially put on a voluntaristic basis | 0:32 | |
| except in the case of health care, food processing | 0:35 | |
| and the construction workers. | 0:39 | |
| This came as a bolt from heaven, | 0:44 | |
| as a complete surprise | 0:49 | |
| to the financial community. | 0:51 | |
| When economic events like this occur, | 0:54 | |
| pundits and academic professors like myself | 0:58 | |
| suddenly find their telephone ringing. | 1:02 | |
| Well, there have been really half 100 calls yesterday | 1:04 | |
| so that I finally took the phone off the hook. | 1:09 | |
| I won't tell a story as indicative of the degree of surprise | 1:12 | |
| and the amount of interest in the phenomenon. | 1:18 | |
| Was I surprised? | 1:22 | |
| Well, of course, I was surprised. | 1:23 | |
| But you will recall from a previous tape | 1:27 | |
| and actually the same note was sounded in my | 1:31 | |
| very last Newsweek column, | 1:37 | |
| that of the current week on the newsstand. | 1:39 | |
| I said that the logic of the situation, | 1:43 | |
| and this is important, | 1:47 | |
| the logic of the situation suggest that from 1973, | 1:48 | |
| President Nixon will have to continue | 1:52 | |
| the wage and price controls more or less, | 1:56 | |
| their phase two form. | 2:00 | |
| By that I meant that each passing day, | 2:03 | |
| each passing week shows the economy | 2:06 | |
| to have more steam in the boiler, | 2:10 | |
| than even the expansionist forecast of the fashionable mob | 2:12 | |
| at the end of the year had thought. | 2:17 | |
| Therefore, as far as market pressures on prices | 2:20 | |
| and non wages are concerned, | 2:23 | |
| there's every reason to think that '73 | 2:25 | |
| is going to be a strong year and not a week year. | 2:27 | |
| And hence, in the absence of wage and price controls, | 2:31 | |
| there is reason to fear, | 2:35 | |
| that there will be upward pressure on prices and wages. | 2:36 | |
| Now, that's the logic of the situation. | 2:41 | |
| But then I went on to say, | 2:43 | |
| that a logic is not always guiding when you come | 2:45 | |
| to try to understand and predict Nixonomics, | 2:49 | |
| and I had a suspicion which I could not substantiate | 2:53 | |
| that we would not have wage and price controls | 2:58 | |
| until the end of the year, | 3:01 | |
| that rather we would try to button down a couple | 3:02 | |
| of important collective bargaining contracts | 3:06 | |
| and the rubber workers contract comes up in April, | 3:09 | |
| that's the first really important one. | 3:14 | |
| The second really important one is a big teamster contract | 3:16 | |
| in the later spring. | 3:20 | |
| And so I was warning my readers and telling myself | 3:22 | |
| that although the logic was against it, | 3:26 | |
| I thought there was a good chance that after those dates | 3:28 | |
| we would see a modification of the wage and price controls. | 3:32 | |
| Well, I hadn't allowed for the boldness of our president. | 3:36 | |
| He grasped the nettle | 3:42 | |
| and made this surprise announcement. | 3:44 | |
| Everybody is now reeling from the impact | 3:49 | |
| of that announcement and trying to find his bearings | 3:52 | |
| and trying to see what it probably means. | 3:55 | |
| Let me try to analyze some of the forces | 4:03 | |
| that I think can work. | 4:07 | |
| I have to warn you and warn myself | 4:09 | |
| that this is just the the second day | 4:13 | |
| we haven't learned the details. | 4:17 | |
| And so we have to improvise and try to guess | 4:20 | |
| what would be a possible form, | 4:25 | |
| for the new phase to take. | 4:27 | |
| Let's build on what it is that we do know. | 4:34 | |
| Why we're, food processing | 4:39 | |
| and healthcare and the construction workers | 4:45 | |
| not put over to a voluntary basis like everybody else? | 4:51 | |
| Doesn't seem a bit discriminatory? | 4:56 | |
| Perhaps to people in those lines of activities | 4:59 | |
| in equitable and unfair. | 5:02 | |
| There, I guess we have to say | 5:06 | |
| that in the case of health care, | 5:07 | |
| this is one of the few places where it appears | 5:09 | |
| that the pricing wage controls | 5:13 | |
| were almost certainly terribly effective. | 5:15 | |
| All of you know who buy automobile insurance, | 5:20 | |
| or health insurance. | 5:24 | |
| I say automobile insurance because | 5:25 | |
| your premiums in automobile insurance are related, | 5:27 | |
| if we're talking about liability, | 5:31 | |
| medical liability for damage you do to a person, | 5:34 | |
| to jury awards and jury awards are based upon hospital | 5:37 | |
| and doctor costs. | 5:42 | |
| Well, you all know that in the cost of living index, | 5:44 | |
| the component which has risen fastest | 5:47 | |
| and most steadily has been that of the cost of health care. | 5:50 | |
| The wives of physicians know this | 5:55 | |
| in their monthly income statements | 5:57 | |
| that their husbands bring home. | 6:03 | |
| The medical profession before the war, | 6:06 | |
| well, no, I shouldn't say even before the war, | 6:09 | |
| as recently as when the first edition | 6:12 | |
| of my textbook came out 1948, | 6:14 | |
| the medical profession was about on a par | 6:17 | |
| with the legal profession as far as earnings were concerned. | 6:20 | |
| Lawyers and physicians had about the same mean | 6:23 | |
| or median earnings. | 6:27 | |
| That is no longer the case. | 6:30 | |
| The median earnings for a physician today | 6:32 | |
| is according to my new ninth edition is coming out, | 6:34 | |
| estimated to be at $50,000 or more. | 6:38 | |
| In the legal profession, although there are a few prizes | 6:43 | |
| for very lucky and very able successful corporate lawyers, | 6:48 | |
| the median is a good deal below that, | 6:53 | |
| as a matter of fact, we're building up to a tremendous | 6:55 | |
| oversupply because all of our young people | 6:57 | |
| wanna go to law school these days, | 6:59 | |
| they also want to go to medical school, | 7:01 | |
| but they aren't able to get in because of the limitation | 7:03 | |
| of places and medical schools, | 7:06 | |
| but law schools pay their way by tuition. | 7:07 | |
| So you can always get into one law school or another. | 7:11 | |
| Hospital costs. | 7:16 | |
| If you had a baby, | 7:18 | |
| as recently as a quarter of a century ago, 25 years ago, | 7:20 | |
| you paid for a private room in the best hospitals, | 7:26 | |
| in a major American city, something like $10 a day. | 7:29 | |
| If you had a baby five years later, | 7:34 | |
| you paid something like $20 a day. | 7:36 | |
| If you had a baby five years later, | 7:38 | |
| you paid something like $30 a day, | 7:39 | |
| and the comparable figure today is $100 a day. | 7:42 | |
| This is not for a luxurious private room, | 7:47 | |
| just for an ordinary private room. | 7:50 | |
| The health industry is now I guess, | 7:53 | |
| our number one industry. | 7:56 | |
| We used to have agriculture as our number one industry, | 7:59 | |
| and I suppose the health industry has to compete | 8:02 | |
| for this dubious title of distinction, | 8:04 | |
| with the construction industry, | 8:07 | |
| with the defense industry, if you wanna to call | 8:08 | |
| that a single industry. | 8:11 | |
| I guess healthcare in the broadest is probably | 8:14 | |
| our number one industry. | 8:17 | |
| It's not spiked out I think for control however, | 8:19 | |
| because it's our number one industry in size it's because | 8:23 | |
| these are administered prices. | 8:27 | |
| These are not supply and demand prices. | 8:29 | |
| They are by the way not a large corporation prices, | 8:31 | |
| and not Galbraith giant prices, | 8:35 | |
| but there're prices which you name by Blue Cross, | 8:38 | |
| by various medical associations, | 8:43 | |
| by hospital organizations and by private hospitals. | 8:47 | |
| I guess they thought this works so well, | 8:51 | |
| and we just continue to put the pressure on them. | 8:54 | |
| That explanation can't hold in exactly the same form | 8:58 | |
| for food processing, | 9:01 | |
| which is a quite different kind of industry. | 9:02 | |
| The housewife, when beef becomes expensive, | 9:05 | |
| becomes desperate and frantic and like any human being, | 9:09 | |
| she lashes out to blame some scapegoat. | 9:14 | |
| The food processing industry is a natural scapegoat, | 9:17 | |
| particularly since everybody loves a farmer | 9:20 | |
| and doesn't want to blame a farmer | 9:23 | |
| for increases in farm prices. | 9:25 | |
| But the sober truth is that the food processing industry | 9:28 | |
| is a very competitive industry. | 9:32 | |
| The margins are low. | 9:34 | |
| As a matter of fact, most of you will know | 9:35 | |
| and you'll know it very acutely, | 9:39 | |
| if you have any investments in supermarkets | 9:40 | |
| that the A&P as it began to lose market share, | 9:43 | |
| just in recent months, has tried to come back | 9:47 | |
| by a strong discounting program. | 9:51 | |
| This has decimated profits throughout that industry. | 9:57 | |
| Nevertheless, when you go to buy your Thanksgiving dinner, | 10:00 | |
| your Easter dinner, your daily dinner, | 10:05 | |
| you find the cost of living is up. | 10:09 | |
| I'm sure that this was a sensible political move | 10:12 | |
| by the president, because people are so concerned | 10:18 | |
| with food processing, he wants to make sure | 10:21 | |
| that you don't get any add-ons in this particular area. | 10:24 | |
| I don't think by the way that his keeping this particular | 10:28 | |
| area under controls, is gonna have much effect | 10:31 | |
| upon your wife's weekly food bill, | 10:34 | |
| but it's a sap to a public opinion. | 10:39 | |
| When we come to the construction workers, | 10:43 | |
| who allegedly are kept | 10:46 | |
| on more than a voluntary basis | 10:48 | |
| There I think we have to invoke to explanations. | 10:51 | |
| The first is out of homonym, | 10:55 | |
| namely John T. Dunlop, | 10:57 | |
| Who is going to be the new price, wage control tzar. | 11:00 | |
| John Dunlop is the Dean of the Faculty at Harvard, | 11:07 | |
| that means he's the second in command there, to Derek Bach. | 11:10 | |
| He's a very well known labor economist. | 11:14 | |
| He's a distinguished scholar in his own right, | 11:16 | |
| and he's a tremendously energetic and effective | 11:22 | |
| wheeler and dealer. | 11:25 | |
| He happens to be a very old friend of mine. | 11:28 | |
| On that basis, I think you have to discount some | 11:32 | |
| of the use of praises that I may give | 11:39 | |
| as being not completely disinterested. | 11:43 | |
| When George Schultz was a graduate student | 11:49 | |
| at MIT Tech news PhD, he of course came into intimate | 11:53 | |
| contact with John Dunlap, | 11:58 | |
| who teaches labor economics, | 12:01 | |
| right a mile and a half up the river at Harvard University. | 12:05 | |
| When George Schultz was the Dean | 12:10 | |
| of the Graduate School of Business, | 12:12 | |
| and himself a labor economist, he, of course, | 12:14 | |
| still had a lot of contact with John Dunlop. | 12:16 | |
| It's no coincidence that when the president | 12:18 | |
| asked George Schultz, who should be added to the team | 12:23 | |
| and this at an earlier stage, John Dunlap's name came up. | 12:31 | |
| Now, John Dunlop is not particularly known as a Republican, | 12:34 | |
| bu he is not purely known as a Democrat. | 12:40 | |
| He is a neuter, he is in every party. | 12:46 | |
| If a prohibition party came into power in Washington, | 12:49 | |
| John would still continue I think, | 12:52 | |
| to commute down to Washington two or three days a week. | 12:54 | |
| When he was still much younger man, | 12:59 | |
| he was a very effective part of the Truman Steelman team | 13:01 | |
| in connection with labor relations. | 13:07 | |
| Back when $50,000 a year was a high salary, | 13:09 | |
| he received that amount of money as a part time tzar | 13:13 | |
| of jurisdictional disputes in the construction industry. | 13:18 | |
| As somebody said in the Boston Globe this morning, | 13:21 | |
| suddenly, of course, there's a great interest | 13:23 | |
| in John Dunlap, | 13:25 | |
| "John is the sort of fella who gives the impression | 13:28 | |
| of being more at home at a plumber's convention | 13:31 | |
| than in the sedate Harvard faculty." | 13:34 | |
| Well, when I took the first few calls yesterday | 13:40 | |
| before I had to take the phone off the hook, | 13:43 | |
| I was asked what about this fellow, | 13:46 | |
| and I had to answer, | 13:48 | |
| it was a joke but it was a joke well meant, | 13:49 | |
| that if anybody can do it, keep the cost of living donwn, | 13:52 | |
| John Dunlop can do it. | 13:58 | |
| There's no single man who has the potentiality | 13:59 | |
| for being as effective. | 14:04 | |
| But notice the if in my sentence, | 14:06 | |
| I don't believe that anybody can do it, I just think | 14:10 | |
| that John Dunlop will do the best he can | 14:13 | |
| and will be effective. | 14:16 | |
| Now the reason he was tapped for this job undoubtedly, | 14:17 | |
| is that for the last year and a half, | 14:20 | |
| at least since August 1971 when the President announced | 14:25 | |
| phase one and prospectively phase two, | 14:29 | |
| John Dunlop has been the chairman of the committee | 14:32 | |
| that's been holding down wages in the construction industry. | 14:36 | |
| I have commented in earlier tapes | 14:39 | |
| on the remarkable success of this operation. | 14:41 | |
| You know lots of the remarkable successes | 14:45 | |
| of the wage and price control, | 14:48 | |
| are really misidentifications. | 14:49 | |
| Wages and prices which we're going to come down anyway, | 14:53 | |
| at least in their rate of increase, | 14:56 | |
| did come down after the controls we're put in, | 14:58 | |
| and so the people who wheeled the controls | 15:01 | |
| are given the credit. | 15:04 | |
| I don't think anybody believes | 15:06 | |
| that in the construction industry, | 15:08 | |
| you can quite give that explanation, | 15:10 | |
| Because when this program that Dunlop spearheaded, | 15:12 | |
| I say he spearheaded it, but just as Louis XIV said | 15:16 | |
| the state, it is I, like I say more, | 15:19 | |
| We could say the Construction Council Committee is Dunlop. | 15:24 | |
| Well before they got going in a big way, | 15:29 | |
| the settlements were 20% per year. | 15:32 | |
| These were settlements everywhere. | 15:37 | |
| Even though construction firms are small firms, | 15:39 | |
| these are again not Galbraith and giants. | 15:43 | |
| It shows how superficial any analysis is, | 15:45 | |
| which thinks that the whole market power problem | 15:48 | |
| is tied up with a couple of hundred large corporations. | 15:53 | |
| No doubt a couple hundred large corporations | 15:57 | |
| have a kind of market power, which is different from that | 15:59 | |
| of a million adamistic farmers, | 16:03 | |
| who compete in a competitive weak market. | 16:07 | |
| But there is plenty of local monopoly | 16:10 | |
| in the field of construction. | 16:13 | |
| Now, why were those wages going up so much, | 16:15 | |
| and why were they able to bring them down? | 16:17 | |
| It's easier to answer the first question then the second. | 16:19 | |
| The reason they were going up so much, | 16:22 | |
| was that we had full employment, | 16:24 | |
| and every time there was a strike, | 16:26 | |
| and every time some construction firm | 16:28 | |
| was emboldened to take a strike | 16:32 | |
| and resist the wage increases of the Union, | 16:35 | |
| the workers simply got jobs elsewhere. | 16:39 | |
| A construction worker is a very mobile fellow, | 16:43 | |
| he can jump in his automobile and get a job 40 miles away. | 16:46 | |
| Moreover, sometimes every one who strikes by the way, | 16:51 | |
| was successful on the part of labor | 16:54 | |
| and unsuccessful on the part of employers. | 16:56 | |
| Now, how long does it take you to get the message? | 16:58 | |
| If you add the pressure that's behind the employers, | 17:02 | |
| if John Hancock is building a high rise building in Boston, | 17:07 | |
| and the contractor has a certain date of completion, | 17:11 | |
| he has very heavy penalties. | 17:15 | |
| And the John Hancock insurance company | 17:17 | |
| suffers very great penalties for each day of delay. | 17:19 | |
| So, some electrician can easily get $20 an hour. | 17:22 | |
| Indeed, we have to ask yourself why doesn't get $500 an hour | 17:27 | |
| if he has strategic bottleneck power, | 17:31 | |
| at an important juncture in the the process. | 17:34 | |
| Well, to make a long story short, | 17:38 | |
| those 18% settlements were brought down to 11% . | 17:41 | |
| That seemed disappointing some unsophisticated people, | 17:44 | |
| but those of us who knew that they'd been 18 and 20, | 17:46 | |
| had to be grateful. | 17:50 | |
| But miracle of miracles, | 17:51 | |
| I just got a release in yesterday's mail, | 17:55 | |
| showing that those settlements have been brought | 17:57 | |
| down five or 6%. | 17:59 | |
| Now, I don't think that miracles of this sort | 18:02 | |
| can be attributed even to miracle man like John Dunlop. | 18:05 | |
| We have another factored work | 18:09 | |
| that's been commented on. | 18:12 | |
| Increasingly non union contractors are beginning | 18:13 | |
| to take away business from union contractors. | 18:17 | |
| And I now don't mean in the suburbs, | 18:21 | |
| and I now do not mean | 18:24 | |
| in small scale residential construction. | 18:25 | |
| I'm now beginning to talk about large scale construction. | 18:28 | |
| A couple of our largest construction firms, | 18:31 | |
| are non union firms and they're picking off the market. | 18:33 | |
| There are some market forces here | 18:37 | |
| which Dunlop has been able to utilize. | 18:38 | |
| After all these pins of praise, | 18:43 | |
| let me know give the antidote. | 18:45 | |
| Now warning, I don't think that any amount of skill | 18:48 | |
| on his part, any amount of famous Dunlop blustering | 18:52 | |
| in the background, any amount of versatile compromise, | 18:55 | |
| can perform the same kind of miracle on the national stage. | 19:00 | |
| Let me now try to wrap up and summarize | 19:05 | |
| what seems to be indicated. | 19:08 | |
| First, I just cannot believe that the price goals | 19:11 | |
| which have not yet been announced, | 19:18 | |
| but which one could smell in the air, | 19:21 | |
| of two to 3% for 1973, | 19:23 | |
| can be realized. | 19:28 | |
| I don't think they could have been realized | 19:30 | |
| on the old non voluntary basis. | 19:31 | |
| And I know they won't be realized on the voluntary basis. | 19:33 | |
| Don't be misled by comparisons of calendar year 1973 | 19:38 | |
| with calendar year 1972. | 19:43 | |
| Those comparisons will look better | 19:45 | |
| than the situation in 1973 because, | 19:47 | |
| half the weight in them is how well prices | 19:51 | |
| were behaving under the controls | 19:54 | |
| in all of 1972, here we're comparing two years, | 19:59 | |
| and the '72 moderation will be in those numbers. | 20:02 | |
| The correct thing for you to ask yourself is this: | 20:05 | |
| Starting January 1973 and ending January 1974, | 20:08 | |
| from New Year's Day to New Year's Eve in 1973, | 20:14 | |
| what's going to happen to consumers prices? | 20:17 | |
| And there all the Smart Money | 20:19 | |
| is saying that that's | 20:24 | |
| going to be an increase of more than 4%. | 20:25 | |
| Indeed, a lot of that is already on the way, | 20:27 | |
| you've seen what's happened in the case of food prices. | 20:30 | |
| It shows By the way, the boldness of our president. | 20:33 | |
| He got terrible news | 20:36 | |
| on the behavior of food prices. | 20:38 | |
| For last month was something like | 20:42 | |
| 6% in one month. | 20:46 | |
| It makes no sense to multiply a number like that by 12, | 20:49 | |
| which give you 70% per year, | 20:53 | |
| but people interested in volatile staple commodities know, | 20:56 | |
| that a comprehensive index of those | 21:01 | |
| would probably be 27% higher at this moment than a year ago. | 21:04 | |
| So some of that is going to pay us down the line. | 21:08 | |
| When I was asked to comment on that at an earlier stage, | 21:13 | |
| I for once turned out to be a friendly commentator | 21:17 | |
| for the administration. | 21:22 | |
| I said, "I didn't think that you could blame President Nixon | 21:23 | |
| for that, and I don't think there's very much | 21:27 | |
| he can do about it. | 21:28 | |
| And I don't think that, I didn't think | 21:29 | |
| that putting wage and price controls on raw foods." | 21:32 | |
| Remember, we've been talking about food processing, | 21:36 | |
| but now let's go back to the source to raw foods. | 21:38 | |
| I don't think that that would help very much | 21:41 | |
| because what it would be likely to do, | 21:43 | |
| and this is something that Herbert Stein and George Schultz | 21:45 | |
| are very familiar with, | 21:48 | |
| and what would be likely to do, | 21:51 | |
| would be to dry up the supplies. | 21:52 | |
| And that will really drive the housewife frantic. | 21:55 | |
| If she can't get beef at any price, | 22:01 | |
| is bad to have to pay $1 and 80 cents | 22:03 | |
| for a rather course piece of beef. | 22:06 | |
| But at least she can keep her family getting a little meat. | 22:08 | |
| But if suddenly there's no meat in the market, | 22:11 | |
| because the price in one place has been frozen | 22:13 | |
| and the price and other price has been frozen, | 22:17 | |
| but the costs and profit calculations | 22:19 | |
| make all the beef go to one place and not the other, | 22:24 | |
| then politically, that's real dynamite. | 22:26 | |
| That's actually some of you will remember, | 22:29 | |
| what ended the OPA prematurely, | 22:31 | |
| as some people thought right after the cessation | 22:35 | |
| of hostilities in World War II. | 22:38 | |
| So, we're going to not realize the administration's goal. | 22:41 | |
| There's going to be a lot flack. | 22:46 | |
| I'm not a great believer | 22:49 | |
| in voluntary wage and price controls. | 22:50 | |
| I think that at times you have to rely on them, | 22:56 | |
| but they certainly don't have the potency | 22:59 | |
| of mandatory ones and anyone, for example, | 23:01 | |
| who owned automobile company stocks, | 23:05 | |
| let's say a volatile leverage item like Chrysler | 23:08 | |
| was not surprised that on the wake | 23:12 | |
| of the President's announcement, you got a big leap, | 23:14 | |
| you probably got an increase in one day of two to 5% | 23:18 | |
| of the price of of Chrysler. | 23:22 | |
| Because the auto automobile industry is hurting | 23:25 | |
| under the control program. | 23:27 | |
| And although they still have to justify | 23:29 | |
| any increase in prices, they feel that they can | 23:31 | |
| more than justify in terms of the cost of pollution | 23:36 | |
| control et cetera, et cetera. | 23:40 | |
| Increases, add-ons and I expect the 1973 myrtles | 23:42 | |
| from now on to begin to cost a little bit more. | 23:47 | |
| Why then, did the President do it? | 23:53 | |
| I think the answer has to be found | 23:57 | |
| by asking the following question. | 23:59 | |
| When's a better time to do it? | 24:04 | |
| How do you get off a tiger? | 24:08 | |
| It's always uncomfortable getting off a tiger, | 24:10 | |
| and the president decided that he would take | 24:14 | |
| his lumps now, there are no elections coming up. | 24:17 | |
| I will suppose that figures in his mind. | 24:21 | |
| So, I would say that's the main reason. | 24:24 | |
| People speak of a reentry problem, | 24:28 | |
| meaning how to get to full employment | 24:30 | |
| without hitting a ceiling, | 24:32 | |
| I think there's an equally interesting re-entry problem, | 24:33 | |
| how to get rid of the controls. | 24:37 | |
| I would suppose the President has picked a rather | 24:41 | |
| poor time get rid of the controls | 24:45 | |
| in terms of what's going to happen to prices | 24:47 | |
| because of the amount of steam. | 24:49 | |
| But remember two things. | 24:51 | |
| First, his advisors never wanted | 24:53 | |
| the price and wage controls. | 24:55 | |
| Herbert Stein was not an advocate | 24:58 | |
| of the price and wage controls. | 24:59 | |
| It was done over his live body. | 25:01 | |
| George Schultz was not a proponent of those, | 25:03 | |
| it was done over his live body. | 25:06 | |
| Those are his advisors now, and who knows where | 25:08 | |
| Mr. Connolly is now, he's a private citizen | 25:10 | |
| back somewhere in Texas. | 25:14 | |
| So, that would predispose the president | 25:17 | |
| toward that particular act. | 25:20 | |
| Enough of trying to understand the present | 25:24 | |
| and explain the past, let's look to the future. | 25:27 | |
| What is ahead? | 25:31 | |
| Without this move, one could have expected profits | 25:34 | |
| to increase in the year ahead, | 25:38 | |
| somewhere in the 10 to 20% range. | 25:41 | |
| I guess the bulk of the forecasters a month ago | 25:46 | |
| would have been in the lower part of that range, | 25:50 | |
| it seems to me that you must now move your forecast | 25:53 | |
| into the upper part of that range, | 25:57 | |
| because of the cessation of controls, | 25:59 | |
| but also because of the increased steam in the boiler | 26:01 | |
| that is revealing itself to us in the last month. | 26:06 | |
| It looks as if profits will be up, | 26:11 | |
| I think that the wage settlements will be less moderate | 26:14 | |
| than they otherwise would have been. | 26:19 | |
| I expect a big concern about inflation. | 26:21 | |
| This means and I'm sure the president had this completely | 26:25 | |
| in mind when he made the decision, | 26:28 | |
| it means that the president very soon now | 26:29 | |
| is going to come in very hard, | 26:32 | |
| if he was a Keynesian in 1972, | 26:34 | |
| in that election year, he's gonna be a different | 26:39 | |
| kind of Keynesians. | 26:41 | |
| Some people would call him anti Keynesian, | 26:43 | |
| but Keynesianism is a two way street. | 26:45 | |
| He's going to be a contractionary Keynesian in 1973. | 26:47 | |
| This means he's going to encourage the Federal Reserve | 26:52 | |
| to clamp down on the money supply. | 26:55 | |
| It means that | 26:57 | |
| monetary squeeze is ahead, | 27:00 | |
| that doesn't mean it has to be like the 1966 squeeze. | 27:05 | |
| It means that the president is going to come out very strong | 27:09 | |
| for expenditure control. | 27:12 | |
| I think he's going to get his 250 billion pretty easily | 27:14 | |
| for this fiscal year. | 27:18 | |
| But the real fight the real issue, is not about spending | 27:20 | |
| between now and July, that's practically here, | 27:24 | |
| it's about the next fiscal year. | 27:27 | |
| And I think there's going to be strong pressure, | 27:28 | |
| not to spend appropriate money in the next fiscal year | 27:30 | |
| and strong pressure on the Congress with lots of vetoes | 27:33 | |
| against new spending programs. | 27:36 | |
| Now, that's a kettle of fish which the president | 27:40 | |
| had an interest in without regard to business cycle reasons. | 27:43 | |
| I've to leave you with the question of whether | 27:48 | |
| this steam in the boiler is going to blow its top in 1973, | 27:52 | |
| and whether the happy prosperity | 27:59 | |
| is going to be brought to an end with the new round | 28:02 | |
| of stagflation, the second Nixon stagflation. | 28:05 | |
| It's too early to state the odds with any precision | 28:12 | |
| upon that, but that's the issue | 28:16 | |
| which we will be talking about, | 28:19 | |
| and we will be facing in the months to come. | 28:22 | |
| - | If you have any comments or questions | 28:25 |
| for Professor Samuelson, | 28:27 | |
| address them to Instructional Dynamics Incorporated, | 28:29 | |
| 166 East superior Street, Chicago, Illinois | 28:32 | |
| six, O, six, one, one. | 28:35 |
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