Tape 160 - Ford's middle road

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-	Welcome once again as MIT Professor Paul Samuelson	0:02
	discusses the current economic scene.	0:05
	This series is produced	0:07
	by Instructional Dynamics Incorporated.	0:08
	This program was recorded August 13th.	0:11
-	This is the day after President Ford	0:14
	addressed the joint sessions of Congress.	0:17
	So of course there's only one thing to talk about today.	0:20
	The new president's speech was well-received.	0:24
	He was returning to the chambers	0:28
	where his career was made.	0:32
	I was unable to recall	0:35
	whether Senator Johnson	0:37
	as was, President Johnson,	0:41
	who became the successor	0:45
	to John F. Kennedy on the assassination date in Dallas.	0:47
	Whether when in his first speech to the joint sessions	0:53
	the reception was any less cordial.	0:58
	But I think it was all that you could ask for in terms	1:02
	of the social amenities, a subject	1:04
	upon which I don't consider myself	1:08
	to be a particular expert.	1:10
	The economic topics were foremost	1:13
	in the new president's text,	1:17
	but there was really very little	1:20
	in the way of exciting news.	1:22
	What did we learn?	1:24
	Well we learned I think what one might have expected	1:26
	from a man whose 25 years in Congress is an open record.	1:30
	A man from a middle class	1:35
	Grand Rapids, Michigan district.	1:40
	As you would guess, he had no startling new ideas	1:44
	on what to do about the economy.	1:47
	If he has any such new startling ideas,	1:49
	they are being kept carefully under wraps.	1:52
	He has taken over	1:55
	from the conventional wisdom.	1:58
	He didn't require taking over any of the, his predecessors'	2:03
	economic advisors in order to do this.	2:09
	But for the conventional wisdom, he took over the notion	2:11
	widely shared that the main cause of inflation	2:15
	is the government.	2:20
	In fact, he quoted what some of you probably noticed	2:22
	in the newspaper that over half the American population,	2:25
	just over half, think that you can't blame the boll weevil,	2:29
	and you can't blame the king's enemies.	2:34
	But you can blame the government	2:38
	for the recent inflation.	2:41
	And so he quoted that with approval.	2:45
	He shared that particular view, and he said	2:48
	he was going to do something about it	2:51
	with respect to government.	2:53
	Now what was it that he was gonna do?	2:54
	His fundamental diagnosis seemed to be	2:56
	that there was somehow too much government spending	2:58
	and that next year	3:02
	(speaking foreign language)	3:05
	we would be balancing the budget.	3:06
	That's the fiscal 76 budget beginning next July 1st	3:09
	and ending on June 30th in 1976.	3:14
	To show however that he is really an even-handed,	3:18
	middle of the road man, he said that the bill,	3:21
	the law on his desk	3:26
	which the outgoing President Nixon	3:30
	did not act on, did not veto,	3:33
	which involves spending	3:38
	for aid to education that he, Ford, was signing that.	3:41
	He was signing it with some evident reluctance.	3:47
	Many of the commentators afterwards said well,	3:52
	he talks in global terms about balancing the budget.	3:54
	But he in fact goes ahead and spends.	3:57
	I would not take quite that interpretation	3:59
	at this stage.	4:05
	It may be right, but you could say	4:06
	that he's giving Congress one bite.	4:08
	After all, he does want to enter	4:10
	into a good marriage with Congress.	4:13
	But that doesn't preclude entering into a good honeymoon.	4:14
	In fact a good honeymoon is often a prelude	4:19
	to a good marriage.	4:21
	And so he's going along with this spending of Congress.	4:23
	But he did say something which really raised the ears	4:26
	of Constitutional lawyers.	4:30
	And namely he wasn't gonna spend the money very fast.	4:33
	And that conjured up in the minds of some people	4:35
	the problem which had been thrown up by the conflict	4:38
	between President Nixon and Congress,	4:43
	in which President Nixon was taking it upon himself	4:46
	to impound funds.	4:49
	That, by the way, is not a new innovation	4:51
	by President Nixon.	4:52
	Earlier presidents have done it.	4:54
	But like so many things in American Constitutional law,	4:55
	the unwritten law is very clear.	5:00
	And there is no written law in many points.	5:02
	Well, what we'll assume	5:06
	is that the middle of the road man	5:09
	from Grand Rapids, Michigan will take	5:11
	a middle of the road approach	5:13
	to the impounding of funds.	5:15
	Then to show himself,	5:20
	and I don't really mean to be ironical,	5:22
	but to show himself a man of action, he said yes.	5:26
	He will take up Senator Mansfield's suggestion	5:29
	that there be a summit meeting, a meeting well aware	5:33
	perhaps in the highest skyscraper in Washington	5:39
	of the best economists in the country.	5:45
	But more important, the representatives of labor,	5:50
	agriculture and industry.	5:54
	I suppose he doesn't really mean	5:57
	to exclude transportation and commerce.	5:59
	And he was going to have it meet	6:02
	not in the distant future	6:05
	like six months but within six weeks time.	6:08
	More than that to emphasize the importance	6:11
	which he attached to this meeting.	6:14
	He, the new president, was going to take time	6:17
	out of his busy schedule himself to preside	6:20
	over this meeting.	6:23
	So that any pearls of wisdom thrown up by that crew	6:25
	would immediately be pressed into the service of the nation	6:31
	in the important cause	6:36
	of lowering the rate of inflation.	6:39
	I think that pretty much sums up what he said.	6:43
	I guess I should have mentioned that the new president	6:47
	emphasized the continuity of his foreign policy.	6:52
	And in that connection,	6:54
	emphasized the importance in his mind,	6:56
	of not cutting defense expenditure.	6:59
	What I presume that means is that defense expenditure	7:02
	is going to be cut.	7:06
	There is a very considerable movement in that direction.	7:07
	But that the new president is going to resist that.	7:11
	So we're gonna have a moderate cut at best	7:14
	in defense expenditures.	7:18
	What do we do with think of this?	7:23
	What does it augur	7:26
	for the economic future	7:30
	or for the probabilities with respect	7:32
	to the economic future?	7:34
	I guess I'd have to say that another bit of news	7:37
	that came up yesterday in the afternoon	7:41
	was the release by the agriculture department	7:46
	of the state of the crop and the outlook for the harvest	7:50
	as of August 1st.	7:54
	Now I'm talking in the last part of August,	7:57
	middle of August, and we're now talking about how the crop	8:04
	was up to the end of July and August 1st.	8:08
	And as you know, there have been some rains	8:12
	finally at long last to relieve the situation a little bit	8:15
	in Iowa, Nebraska and the prime grain territory.	8:20
	The August 1st numbers, which were announced,	8:26
	which by the way were of course very discouraging,	8:29
	did not take into account that slight improvement.	8:32
	What did they show, well, what they showed	8:36
	was that the corn crop was not only going to be less	8:38
	than the earlier more optimistic estimates.	8:43
	But it actually was going to be down in all likelihood	8:46
	in comparison with last year.	8:49
	The same thing was true for the soy bean crop,	8:52
	and I believe that wheat,	8:57
	much of which is already in the barn,	9:00
	is not going to be down in comparison to last year.	9:03
	This does mean, however, that around the corner	9:09
	in 1975, the meat, the poultry, the eggs	9:13
	that are made out of these grains,	9:18
	they are going to be scarce, and their price is gonna rise.	9:21
	So the agriculture department had to change its earlier	9:25
	more sanguine forecast in the direction	9:30
	of higher food prices ahead.	9:34
	And I guess that as a observer	9:36
	of the passing economic scene	9:42
	and as a would-be appraiser of probabilities	9:45
	with respect to future scenarios of this economic scene,	9:48
	I would have to consider the disappointing crop news	9:51
	as a bigger bit of information for me as an investor	9:57
	to digest than anything that I was able to hear	10:02
	in the halls of Congress last night.	10:06
	What about the summit conference meeting?	10:13
	Certainly we can all benefit from the injunction	10:16
	in the Book of Isaiah of the scriptures	10:22
	which says let us sit down and reason together.	10:27
	But I think we have enough knowledge	10:30
	on what previous such conferences and sitting downs together	10:35
	have produced to be a little bit skeptical	10:40
	that somehow the synergism of that movement	10:43
	is going to create new, fresh, useful ideas	10:47
	for handling the present inflation.	10:53
	Out west, when the rains don't come,	10:57
	and you see your crops shriveling,	11:01
	and the ground dry, you are desperate.	11:06
	You become so desperate	11:11
	that you will actually go through the ceremony	11:13
	of getting a rain expert, who will beat his drums	11:16
	and call down on the heavens to send down the rain.	11:20
	And sometimes the heavens respond to that call.	11:25
	You even, if there's a local Indian tribe,	11:29
	will use the oldest residents	11:33
	of that territory	11:38
	in this very understandable human ritual.	11:39
	I suppose that we're to think of this summit conference	11:45
	realistically as a ceremonial rain dance.	11:49
	It shows our good faith.	11:55
	It shows that we have a genuine concern about inflation.	11:57
	It shows that it is a number one topic in our minds	12:01
	and that the government is not callous to it.	12:05
	However, whether the heavens	12:08
	will send down the rains	12:11
	in the form of inflation abatement,	12:16
	or failing that will send down some good ideas	12:20
	to the assembled people there,	12:24
	I'm inclined to doubt.	12:28
	In fact, not knowing	12:29
	about the president's projected summit meeting	12:32
	of an economics Congress,	12:37
	a soviet of concerned citizens about economics.	12:39
	I had to write at the request of Newsweek a column	12:46
	on what we might expect in economics	12:53
	from the transition to President Ford	12:56
	from President Nixon.	13:00
	And I predicted there,	13:03
	I was just going by a priori reasoning	13:08
	and Mr. Ford's previous record.	13:11
	I predicted that he would be pretty much following	13:15
	the counsel of people like Arthur Burns.	13:18
	And as a matter of fact, I hit the target on the nose.	13:23
	I say I hit the target on the nose	13:30
	because there was one element in the speech	13:32
	which I forgot to mention.	13:34
	It's fairly significant that I did forget to mention it.	13:37
	Namely that the new president's asked Congress	13:41
	within the next two weeks	13:45
	to reactivate the cost of living council.	13:47
	He assured them it was not for the purpose	13:50
	of controlling wages and prices	13:53
	but for the purposes of monitoring price and wage decisions.	13:55
	In other words, we're going to go swimming,	14:00
	but we're not to go near the water.	14:05
	Or rather, we're not quite get in the water.	14:07
	Well, and this is in line,	14:09
	and I don't mean to cast any scorn upon the suggestion.	14:11
	This is in line with the suggestions that have been made	14:15
	by almost all economists	14:19
	of both political parties	14:23
	who are not 100 percent	14:27
	free market men, persons,	14:31
	namely that although price and wage controls	14:34
	are not a good thing or won't wash politically	14:38
	or won't be effective.	14:40
	That nevertheless a hands-off policy	14:42
	is not the optimal alternative	14:45
	to direct price and wage controls.	14:48
	And what you do need is presidential leadership.	14:51
	What you do need is job boning.	14:53
	What you do need is informed job boning.	14:54
	What you need is informed job boning with the sanctions	14:58
	of government behind it.	15:02
	And I ought to mention that it's action like this	15:05
	which is likely to cause some consternation	15:10
	in the hearts of those who are against	15:14
	price and wage controls in any form.	15:19
	They will begin to realize what it is that they are missing	15:22
	with the going out of office of President Nixon.	15:27
	Because this is one of the things	15:31
	which he did on very rare occasions.	15:32
	Whereas the new president on really the first occasion,	15:34
	there was so much economic news yesterday	15:39
	that I didn't have a chance	15:41
	to mention this third bit of news.	15:42
	But the new president, in the morning,	15:45
	as one of his first acts,	15:47
	did take the occasion to deplore	15:48
	what seemed to be a rather massive increase in prices	15:50
	by General Motors.	15:54
	I believe that averaged out to be nine and a half percent.	15:56
	Let's call it 10 percent.	15:59
	And when you realize	16:01
	that the average car and truck these days	16:02
	has to be thought of as costing in the neighborhood	16:04
	of $5,000, not $2,000, not $3,000, not even $4,000.	16:06
	That means an average increase in price of about $500.	16:11
	Now General Motors has by repute	16:16
	long been the low cost producer.	16:20
	And if ever there is to be moderation	16:23
	in administered pricing,	16:27
	it's always to be expected from General Motors.	16:29
	Chrysler is one of the more leveraged, higher cost producers	16:31
	and they always want General Motors	16:36
	to be as high as possible so that they, Chrysler,	16:37
	can be as high as possible.	16:40
	And General Motors often does not accommodate them.	16:43
	Well this time they are accommodating	16:46
	to the two and a tenth percent.	16:49
	But that may just indicate that for Ford and Chrysler	16:50
	a 10 percent, $500 per car, per truck increase	16:53
	may not seem adequate to compensate	16:59
	for the cost of their raw materials.	17:02
	Since I talked on these tapes last,	17:05
	we did get the bad news we expect to wholesale prices	17:08
	for July and that was a monthly increase	17:12
	of more than three percent.	17:15
	I think it worked out to 44 percent on an annual basis,	17:16
	which was reported to be the highest	17:20
	single monthly increase since 1946.	17:23
	In consequence, we find that many raw materials	17:30
	are going up.	17:34
	So far, oil, a very important raw material,	17:36
	has not joined in the latest upswing.	17:41
	And there had been some hope that an oversupply	17:45
	of oil provided by the cartel was going to make the cartels'	17:48
	administered, posted price structure non-operative	17:53
	and bring down somewhat the price of oil.	17:58
	But that aside, there has been a increase	18:02
	in the price of raw materials.	18:05
	Moreover, as you know, the catch up after April 30th	18:09
	by the industry once out of price controls,	18:14
	which some economists	18:19
	thought would be a rather short, live thing,	18:21
	turns out to be going full blast.	18:26
	And then of course finally, the cost-push inflation	18:30
	which had been pretty much an advance,	18:34
	at least submerged by other even larger factors	18:37
	in 1973 and back in 1972.	18:41
	That cost-push inflation is now very much on us	18:46
	and any prudent observer	18:51
	of the industrial collective bargaining scene	18:53
	must be expecting a continuation of this.	18:58
	Electricians have been getting	19:03
	and asking for large wage increases.	19:07
	Carpenters and the end is not yet in sight.	19:10
	Well, how are we to appraise	19:17
	the relative merits	19:21
	of what it is that different presidents inherited?	19:24
	I don't think that President Ford	19:27
	is one of the luckier presidents	19:29
	in what the state of the economy is, what he inherits.	19:32
	President Eisenhower in 1953	19:40
	inherited the nearest thing	19:44
	to a full employment with stable prices economy	19:46
	that we've seen in, I was gonna say	19:50
	in the post-World War II period.	19:53
	But I think I could almost make it	19:55
	in the period	19:57
	since 1929.	20:00
	If it however paradoxically	20:08
	was right in the last year	20:10
	of the Korean War that that was the case.	20:14
	And of course it contrasted with what went before it,	20:17
	the 1950 period at the outbreak of the Korean War.	20:21
	President Eisenhower, when he was re-elected in 1956,	20:27
	really had an economy that was poised to go into recession.	20:33
	And when I made a little calculation on election economics	20:38
	or election arithmetic,	20:44
	I found that in some ways the toughest thing	20:45
	is to be re-elected, either a Republican or a Democrat.	20:48
	Roosevelt in 1932 was lucky because the economy	20:52
	was so far down	20:56
	that it could hardly do anything but go up.	20:57
	In 1936, he was poised for the 1937 recession.	21:01
	Well, President Kennedy	21:06
	was fairly lucky in this sense	21:11
	in that he inherited an economy	21:14
	which was in recession at the time of the election	21:18
	and prior to inauguration in January.	21:22
	But in a sense, he inherited at the trough of business	21:27
	and so conditions looked to improve.	21:32
	President Johnson, who was catapulted	21:35
	into office accidentally, tragically in 1963,	21:37
	inherited an economy that was nicely approaching	21:43
	the high employment level.	21:49
	Of course, in a modern mixed economy	21:50
	that tends to be a dangerous level.	21:52
	Finally President Nixon inherited an inflation	21:56
	in being with a fairly strong demand poll elements,	22:01
	which was an inflation bequeathed to him	22:06
	by President Johnson	22:08
	and President Johnson's fiscal policies,	22:09
	particularly President Johnson's crucial error	22:13
	in not increasing taxes in 1965	22:18
	when he accelerated the Indochina War.	22:22
	Well what is it that President Ford has inherited?	22:25
	What has he inherited, stagflation.	22:30
	I think that's the toughest ailment	22:31
	for the medicine men	22:34
	to prescribe for in the modern mixed economy.	22:37
	The downward impetus of real growth is just behind us,	22:41
	and actually the economy will be doing very badly indeed	22:48
	if for the first four quarters	22:53
	of President Ford's term	22:56
	we do not show growth.	23:00
	But I think all the signs are	23:05
	that it will be at best anemic growth.	23:07
	By that I mean growth that averages for those four quarters	23:11
	in the neighborhood of zero to two percent,	23:16
	two and a half percent,	23:20
	definitely below the three to four percent	23:21
	that's needed in order to keep up	23:25
	with the growing labor force	23:28
	and with the increases in productivity.	23:30
	But as far as the inflation is concerned,	23:34
	the inflation is as bad	23:38
	in this third quarter right now apparently	23:41
	as it was at the worst of the first quarter of the year.	23:45
	We are in two digit inflation,	23:49
	low two digit inflation to be sure.	23:52
	But there are no great signs	23:55
	that the natural force of the system	23:57
	will act powerfully	24:01
	to bring low two digit inflation	24:04
	down to the five or six percent rate of price inflation,	24:07
	which just a little while ago,	24:12
	the majority of the economists,	24:15
	whether they were non-monetarists or monetarists,	24:17
	were thinking was in the ballpark for the turn of the year	24:19
	into 1975 or at least in 1975.	24:23
	I notice as I read the various forecasters	24:27
	that they've been trading down their rates of year growth	24:30
	and trading up their rates of inflation.	24:34
	Although they have not abandoned the hope	24:39
	that as we move into 1975, we will be in one digit inflation	24:44
	but alas, it would be high one digit inflation.	24:49
	It may seem that in my description	24:57
	of the non-sensational middle of the road	25:00
	instincts and utterances of the new president	25:07
	that I'm being critical.	25:11
	I don't intend to be an (audio muffled) here	25:14
	looking at a Calvin Coolidge	25:17
	and laughing derisively at him as	25:18
	(speaking in foreign language)	25:24
	Quite the contrary, it seems to me that this is a good time	25:26
	for moderation, for non-sensational	25:31
	ideas and procedures.	25:38
	This is a time to proceed very cautiously.	25:40
	And I think it's a time to proceed	25:46
	on a unifying theme.	25:50
	I was struck with the fact,	25:53
	and I'm sure that many of you have too,	25:56
	that we're seeing something in the way around the world	25:59
	of some counter-movements to fascist governments.	26:05
	We have seen, for example,	26:11
	or totalitarian governments of the left.	26:14
	We've seen the restoration of a measure	26:17
	of Constitutional democracy to Greece.	26:22
	You recall that one set of colonels took over,	26:26
	but they were replaced, not for long though,	26:30
	by another set of officers, generals.	26:33
	And this last set seems to have been so inept	26:37
	that they got themselves into a wrangle over oil with Turkey	26:41
	and then of all things, they got themselves	26:45
	into a real shooting situation	26:48
	with respect to Cyprus.	26:52
	This is a time when they had to realize that Turkey	26:55
	was a military force equal or superior to theirs.	26:59
	They also had to realize, or they soon learned,	27:03
	that the Greek civilian population	27:06
	is not very good cannon fodder	27:10
	in its present state of mind	27:12
	and to mobilize them and to fight an enemy.	27:13
	And think they'd be an efficient army	27:17
	is of course very dubious.	27:19
	The Greek pattern gives you the problem	27:26
	that I'm talking about.	27:31
	If having had a restoration of Constitutional democracy	27:33
	in a measure, and by the way, the generals are still there	27:37
	behind the scenes.	27:40
	You immediately have a society which becomes polarized.	27:41
	With let's say,	27:45
	I would mention their names.	27:50
	Let's suppose that the left won't cooperate	27:51
	with the right of center government now.	27:54
	Then what you can do is bring upon that situation in return	27:58
	as a fascist rule.	28:03
	The same problem with respect to Portugal.	28:04
	Portugal after many, many years finally has had	28:07
	a measure of freedom, a measure of freedom of the press.	28:10
	And a long overdue decision	28:15
	to let her colonies go.	28:19
	But if the different classes	28:22
	engage in the class struggle,	28:26
	each seeking to get a bigger share	28:27
	of a rather limited social pie.	28:30
	Then you invite the disorder, the lack of law and order,	28:34
	which the citizenry really want.	28:38
	I'm not talking about larceny,	28:40
	but I'm talking about the ability to go about	28:42
	doing the business of the gross national product	28:45
	and earning a rising standard of living.	28:48
	Then you throw all that away.	28:52
	But now the question I'm asking	28:54
	is can we have all over the world, in Canada under Trudeau,	28:55
	in the United States under President Ford,	29:01
	hopefully in Spain and Portugal and perhaps in Greece	29:05
	and with implications for Brazil and Chile and Peru	29:09
	and other countries where ordinary forms of democracy	29:15
	have at least temporarily been suspended.	29:20
	Can we begin to have some popular fronts	29:23
	around a middle position?	29:26
	Now that means give and take.	29:29
	It means a lot of give.	29:32
	It means that people on the right	29:34
	have to sacrifice some of their most cherished notions	29:36
	with respect to business freedoms, market autonomy.	29:41
	On the left it means that the unions,	29:47
	the organized groups	29:52
	cannot roundly disrupt the economy	29:54
	for the purpose of increasing their share.	30:00
	I must confess that I am not overly optimistic	30:04
	that there exists the rationality and the consensus	30:09
	and the cohesion in modern nations	30:14
	to make this pattern of democracy work.	30:18
	But if I could say a prayer for the world,	30:22
	it seems to me that my prayers would be directed	30:26
	towards increasing the probability	30:30
	of some such movements being successful.	30:32
	And that I think is the real importance	30:35
	of having President Ford in the White House.	30:38
-	If you have any comments or questions	30:41
	for Professor Samuelson, address them	30:43
	to Instructional Dynamics Incorporated.	30:45
	450 East Ohio Street Chicago, Illinois 60611.	30:48

Item Info

Title:

Tape 160 - Ford's middle road

Date:

1974

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

CC BY-NC 4.0

Rights Note:

This material is made available for research, scholarship, and private study. Copyright in this material has not been transferred to Duke University. For reuses of this material beyond those permitted by fair use or otherwise allowed under the Copyright Act, please see our page on copyright and citations: https://library.duke.edu/rubenstein/research/citations-and-permissions.

Identifier:

RL10082-CS-0146
ref2431_7ji
samuelsonpaul
duke:325169
pstau001146
ark:/87924/r4d21s14r
0eb1b027-cd6e-41e6-a11f-a555c00f016c

Permalink:

https://idn.duke.edu/ark:/87924/r4d21s14r

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Tape 160 - Ford's middle road

Transcript

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Economists' Papers Archive

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