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

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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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