Tape 212 - Economy picks up; OPEC price boost; Carter's economic appointees

Download
- Rights
- Limited Re-Use
  CC BY-NC 4.0
  More Rights Info
- Files (1)
- MP3
- Please be patient with media downloads. They are often large files.
Share

Embed Code
<iframe src='https://idn.duke.edu/ark:/87924/r4n29pp7p?embed=true' height='125px' width='100%' frameborder='0' marginwidth='0' marginheight='0' scrolling='no' loading='lazy' allowfullscreen></iframe>
Permalink

https://idn.duke.edu/ark:/87924/r4n29pp7p
Skip to Item Info

Loading the media player...

Files for this Item

Transcript

Transcripts may contain inaccuracies.

-	Hello, this is David Francis,	0:02
	Financial Editor of the Christian Science Monitor.	0:04
	I'd like to welcome you once more	0:07
	on behalf of Instructional Dynamics Incorporated	0:09
	to a visit with MIT's Nobel prize-winning economist	0:12
	Paul Samuelson, well, the New Year will shortly be upon us,	0:16
	Professor Samuelson, how is it going to begin	0:20
	from an economic standpoint?	0:23
-	The 12th month of 1976	0:27
	seems to be an upbeat.	0:31
	Perhaps we should begin the talk about Carter luck,	0:35
	because the election was held at the beginning of November	0:38
	and so powerful is the influence	0:41
	of the new president then, of the new team,	0:43
	that even before the new president's taken office,	0:47
	and before the new team was even selected,	0:50
	the economy seemed to	0:55
	begin to show some	0:58
	second wind from the lull	1:00
	which had been characterizing the economy	1:03
	in the second, third, and the first part	1:06
	of the last quarter of the year.	1:09
	My guess is that	1:13
	with the Christmas season looking to be pretty good	1:15
	in terms of dollar increase over last year,	1:20
	maybe something a little bit more	1:24
	than increase in the price level, which is about 5%,	1:26
	and with automobile sales surprising us a bit,	1:31
	and with housing starts	1:35
	behaving not too badly,	1:38
	with the inevitable revisions in the figures	1:41
	which are now beginning to come in, and which were coming in	1:44
	in the slightly more favorable direction,	1:47
	I would say that the last quarter of the year	1:50
	is probably showing the growth of the economy	1:54
	no worse than the third quarter of the year,	1:58
	about 4% per year, which is a,	2:02
	an improvement over the descending staircase pattern	2:06
	which had been characterizing	2:11
	the earlier quarters of the year.	2:12
	Plenty to do, plenty of inadequacies in the recovery.	2:16
	But really,	2:22
	no avalanche downward, no	2:24
	dominoes falling, no	2:27
	gloomy forecast in these	2:32
	10th, 11th, 12th days after Christmas.	2:37
-	Do you think the two-tier boost in oil prices	2:40
	by the Organization of Petroleum Exporting Countries,	2:43
	or OPEC as we all call it, will add much to inflation?	2:46
-	Well, let's pause on what actually happened	2:51
	as a result of the OPEC meeting	2:54
	because it's an interesting pattern,	2:57
	interesting to analyze and perhaps important	3:00
	for what it means for the future.	3:04
	You recall that	3:08
	people were speaking about increases in the price of oil	3:11
	of 10% to 15% range, those were the leaks.	3:15
	Those represented what the OPEC countries wanted,	3:20
	but when the meters,	3:25
	the leaders actually came together to meet,	3:27
	it turned out that Saudi Arabia	3:30
	wanted to hold the price increase down to 5%.	3:32
	And actually the representative from that country	3:36
	left the meetings early, not agreeing to go above 5%.	3:40
	Most of the crowd, with only two exceptions I believe,	3:45
	asked for a 10% increase.	3:51
	Saudi Arabia not only raised its price by only 5%,	3:54
	but more important, the announcement came from Saudis,	3:58
	from the Saudis that they would expand	4:02
	their production ceilings	4:05
	and meet all the business that they could at a 5% increase.	4:07
	The result is more favorable	4:12
	than the pessimists had feared.	4:16
	The result is about as favorable	4:21
	as the most realistic of the optimists had hoped for.	4:24
	Now, 5% is obviously better than 10.	4:29
	Some mean between 5% and 10% is obviously	4:33
	better from the standpoint of the consuming nations	4:37
	than the 15 that was talked about,	4:41
	but even more important, even more hopeful,	4:45
	from the standpoint of consuming countries,	4:49
	which I shall assume for the sake of this argument	4:51
	have an interest in a low price of oil,	4:54
	as low as it can be, now, we can't	4:58
	push that too far, I don't believe	5:02
	it's in the interest of the consuming countries	5:05
	to have a two-dollar price of oil right now,	5:07
	if that two-dollar price of oil	5:09
	is based upon a mistake in appraisal	5:12
	of how much the demand will be over future years	5:14
	and how much oil there is in the ground, known,	5:17
	and to be discovered.	5:21
	But still from the standpoint of Western Europe,	5:24
	North America, and the most of the Third World countries	5:27
	who do not themselves export oil,	5:31
	the lower the price in the neighborhood	5:35
	of 11, 12 dollars a barrel,	5:37
	the better it is for those countries.	5:41
	Now what is interesting is two-tiered system	5:44
	because there now is a strain on the consensus of OPEC.	5:49
	T.S. Eliot wrote How The World Ends	5:54
	and Robert Frost gave an alternative scenario,	5:57
	students of oligopoly are always very interested	6:01
	in the way oligopolies topple,	6:03
	the way they come apart at the seams.	6:06
	One of the ways that they topple	6:09
	is because the people inside the club can't agree	6:13
	explicitly on a common price.	6:20
	Another way, more important,	6:24
	is although they've agreed for the record on a common price,	6:26
	they in fact under-the-table disagree,	6:29
	and each member of the cartel cannot sell all he wants to	6:32
	at the rigged, too-high price	6:36
	and they begin to discount under the table.	6:39
	I don't think we have that yet,	6:44
	but we do have a little discord in Eden.	6:46
	I say Eden because I believe that	6:49
	it was that part of the world where	6:52
	life began at its most pleasant,	6:56
	although here was a little discord there.	6:59
	I know there are a number of people	7:03
	who are beginning to hope that OPEC,	7:05
	as an effective monopoly,	7:10
	as an effective oligopoly or cartel,	7:13
	is now in serious danger of breaking up.	7:17
	I do not see the evidence for that view.	7:20
	Oil is still pretty scarce.	7:24
	The countries that are consuming it and importing it	7:26
	are not carrying through	7:30
	on their first thrust of conservation.	7:34
	And what is most important of all, in breaking down cartels,	7:37
	alternative sources of supply	7:42
	have not yet been found in abundance.	7:45
	We have North Sea oil coming onstream; Norway, the UK,	7:49
	the Holland are the beneficiaries of that,	7:55
	and so are the rest of us.	7:57
	We have the Northern Slope oil coming from Alaska.	7:59
	We have an expansion in Mexico.	8:04
	We do not have a NEPT expansion of old or new oil	8:07
	in the inside of continental United States.	8:11
	The fact that a tanker,	8:14
	poorly run,	8:18
	under the jungle of non-regulation,	8:20
	probably owned by owners	8:25
	whose faces we may never be able to identify,	8:28
	not in a position to be sued	8:33
	for the over 100 million dollars which the fishing industry	8:36
	is now pressing in a suit because	8:40
	a straw nominee in a Liberian Registry,	8:43
	how do you get behind that and see whether any assets	8:48
	you can fasten upon?	8:51
	Well, the fact that that ecological disaster happened	8:53
	will I suppose tend to slow down the rate at which	8:57
	the Georgia Banks expiration of oil	9:03
	off the Atlantic Coast comes into being.	9:07
	Nuclear energy is stymied,	9:11
	stymied by the very real and perhaps some imaginary dangers	9:13
	with respect to safety.	9:19
	All of the American public utilities find themselves	9:23
	behind schedule in their nuclear installations.	9:28
	The expense of those installations,	9:32
	what they bring down to the bottom line,	9:35
	is turning out to be very disappointing.	9:37
	Coal and oil, oil shale, are jokes	9:41
	as far as being of practical importance to	9:45
	scare a goose,	9:50
	or a Mideast chieftain, oil chieftain.	9:52
	We...	9:57
	Have the opiate of the	10:01
	conservationists, the dream	10:05
	that wind power will become important,	10:09
	maybe tide power will become important,	10:13
	and that solar power will become important.	10:15
	Now, it's not impossible	10:20
	that we will get some marginal help	10:22
	from dedicated people, people who care	10:26
	and who go out of their way to take the risks	10:32
	with respect to solar heating of homes,	10:35
	solar heating of water supply.	10:39
	Maybe a little bit more could come from windmills.	10:43
	It's not impossible that	10:47
	the tides under a superhuman effort	10:50
	and with little bit of luck	10:53
	could contribute one or two percent	10:54
	of the total energy load.	10:56
	We've had in France some success, the Bay of Biscayne.	10:58
	But by and large, there is nothing realistically	11:04
	in sight which would make the OPEC	11:09
	monopoly shiver in its boots	11:13
	because its day of monopoly is over.	11:15
	So I think that we've been reasonably lucky	11:19
	that the 5% increase will hurt.	11:24
	A lot of oil's gonna be sold at 10%, not 5%.	11:30
	A lot of the oil that's sold at 5%	11:35
	is going to have tacked onto products,	11:37
	one way or the other,	11:42
	a part of the economic rent,	11:44
	part of the difference between the 5% increase	11:47
	and the 10% increase.	11:49
	So I think that it still is probably the case	11:51
	that the Saudis talk a slightly better game	11:54
	than they in fact deliver.	11:57
	There's an effective increase in the price of oil	12:01
	therefore, which the consuming world will face	12:06
	of something between 10 and 15 percent.	12:11
	Maybe it's nearer to 15 percent than to 10 percent.	12:16
	We can live with it, we in the world,	12:22
	we in the United States,	12:26
	we in the affluent part of the world,	12:28
	but it will hurt.	12:31
	It will mean a balance-of-payments problem.	12:36
	It will hurt for the countries	12:39
	which are just on the margin of subsistence.	12:40
	And it'll not only hurt them,	12:45
	but it'll hurt them in such a way	12:47
	that it will be felt by us because	12:49
	you probably have noticed, David,	12:53
	that 1976 was a record year for international loans.	12:55
	Many of those rather on the soft side.	13:02
	So the bell tolls not just for India and Pakistan	13:05
	and Southeast Asia,	13:10
	and the countries of Central America, South America,	13:11
	and Africa who can ill afford	13:16
	any increase in their energy bill,	13:18
	but when it tolls for them, it tolls for us because	13:20
	we and the other leading countries do	13:24
	de facto find ourselves having to supply	13:29
	some of the financing for their deficits.	13:32
-	I see that Mr. Yamani, the Saudi Arabian Oil Minister,	13:38
	indicated after the talks that the increase	13:43
	in Saudi production may not be as great	13:46
	as he first spoke of.	13:48
-	Well, yes, even if he were to remove all	13:51
	ostensible ceilings, you have to bring into being	13:57
	something which has not been in being.	14:01
	And one of the important laws	14:04
	that one learns in economics is that the long-run elasticity	14:06
	of supply of products, of wheat, of oil, of copper,	14:12
	tends to be rather great.	14:16
	If you raise the price over a long period of time,	14:18
	you will elicit a very considerable	14:21
	response of quantity supplied.	14:24
	But in the short run,	14:28
	that elasticity of supply tends to be very narrow.	14:30
	Often, it leads in the short run to perverse affects.	14:34
	Balance of payments get worse rather than better	14:37
	when the therapy of exchange depreciation is applied.	14:39
	And here, we must reckon with	14:43
	the short-run inelasticities	14:47
	that have nothing to do with the volition	14:49
	of the heads of state in that part of the world.	14:51
-	Would you like to comment briefly	14:55
	about the boost in certain steel product prices	14:57
	before we go on to Mr. Carter's economic team?	15:00
-	Yes.	15:05
	It used to be sound economic doctrine	15:07
	that cost of production has nothing to do with supply.	15:11
	I'm sorry, cost of production had nothing to do with price	15:15
	except as it affects supply.	15:18
	Now, if demand is weak, under the old fashioned economics,	15:22
	supply being what it typically is,	15:29
	that will result in a softening of price.	15:32
	Today, we live in a somewhat different world.	15:36
	People keep books, they know what their costs are,	15:40
	and when steel is sold by,	15:43
	I can't say one monopolist, I can't say two duopolists,	15:49
	but by a dozen important sellers,	15:55
	each with some regional pricing power,	16:01
	then cost of production	16:06
	can have an influence on the prices charged.	16:08
	And so we've had the paradox that at a time	16:11
	even when demand was weak and weakening,	16:14
	the steel producers have asked for a higher price increase.	16:17
	Now, to some degree,	16:21
	it's been laughed off as simply being	16:23
	their fear of price controls under the new administration.	16:27
	For the record, so it is argued,	16:32
	they're asking for a higher price.	16:34
	That higher price has absolutely no meaning	16:36
	because if the demand isn't there,	16:38
	they will just discount under the table.	16:40
	But in case they're caught with their ceilings down,	16:43
	lest they be caught with their ceilings down,	16:48
	they're raising the price.	16:50
	I don't think it's that simple, because	16:51
	there is some discounting.	16:53
	But I think that the price, although it's shaded,	16:55
	sticks at a higher effective average level.	16:59
	Moreover, we do not have a competitive free market in steel.	17:03
	Right now, we are full of de facto quotas	17:06
	which regulate the amount of steel	17:12
	which comes into the United States.	17:13
	As we know, Western Europe has even softer recoveries	17:15
	than we do; the same is true in Japan.	17:20
	Under the normal laws of supply and demand,	17:23
	that would mean that the excess capacity	17:26
	of Japanese steel mills and of Belgian steel mills,	17:29
	just to take two examples,	17:33
	would be available to depress the price	17:34
	and hold down the price within the United States.	17:37
	But right now,	17:39
	the Japanese are meeting	17:42
	to discuss how they can limit their sales of steel	17:46
	in the United States and in Western Europe because	17:49
	for sensible political reasons,	17:53
	they realize their vulnerability	17:57
	if they let supply and demand operate in the normal manner.	17:59
	Now, my point is that this is not lost upon Pittsburgh.	18:02
	Pittsburgh knows	18:07
	what it can do with respect to	18:09
	increasing the list price and the,	18:11
	the price after discount and get away with it	18:15
	because they know they will not lose their market	18:18
	in great degree	18:21
	to marauders from abroad.	18:24
	So I think that	18:27
	it's a, it's a	18:31
	sad thing if that is happening because	18:33
	of nothing more than a stiffening	18:39
	of the effective degree of oligopoly power of the industry.	18:41
	On the other hand, one mustn't rush to conclusions.	18:46
	You know, in economic history and in real life,	18:50
	events do not identify themselves and say,	18:53
	I'm an increase in price due to	18:56
	an increase in monopoly power.	18:59
	I, on the contrast, by contrast, am an increase in price	19:01
	due to legitimate increase in demand relative to supply.	19:05
	That's not the way the time series come in.	19:08
	And it may be that we're beginning to see	19:11
	some competitive increases in the yield	19:16
	or profit return in the steel industry	19:21
	and that's why the industry is able	19:23
	to make these price increases stick.	19:24
	Now, to the consumer, the blow is just as serious by	19:27
	any hand, whether it's one or the other,	19:32
	but it makes quite a difference to the economist because	19:35
	how we ought to judge it and how we ought to	19:38
	make our predictions about the future	19:41
	and what we think ought to be done about it	19:43
	does depend very sensitively	19:47
	to what identification you make.	19:50
	As far as I can see now,	19:52
	part of the increase in the price of steel is because	19:55
	of an attempt to recover cost increases,	19:59
	an attempt which would not be successful	20:04
	under really competitive conditions.	20:06
-	Okay, now let's have a look at	20:09
	the president-elect's new economic team.	20:12
	What is your judgment of these appointees?	20:17
-	Well, first, my own judgment is rather favorable.	20:20
	But I think what's more important,	20:26
	let's try to gauge what the judgment has been	20:28
	of the different important groups in the community.	20:33
	I think the business community	20:37
	has been rather pleasantly surprised	20:38
	by President-Elect Carter's demeanor	20:40
	since taking office--	20:45
-	You mean--
-	His press conferences--	20:46
-	Since being elected.
-	I'm sorry, since being elected, yes.	20:49
	And I think that on the whole,	20:52
	they've been rather pleasantly surprised	20:55
	by his appointments.	21:00
	The people who have been least happy	21:02
	on his appointments have been	21:06
	those who do not typically represent the conservative	21:09
	end of the political spectrum.	21:14
	I believe that blacks have been somewhat disappointed	21:16
	by the number of blacks	21:21
	who have been appointed to the cabinet or the high office	21:25
	and by the composition of the blacks who have been appointed	21:29
	and they've been somewhat	21:33
	disappointed by some particular blacks	21:37
	who have not been named to the cabinet.	21:39
	The same is true in a degree I believe, of women,	21:43
	particularly the more active, liberated women,	21:46
	not all of whom perhaps regard	21:51
	let's say, one of the people who,	21:55
	who I think will make a very good cabinet officer,	21:58
	Juanita Kreps, Professor from Duke University,	22:00
	Vice-President there, she would be considered by many women	22:03
	as an establishment token woman.	22:08
	She's on the board of the New York Stock Exchange.	22:12
	She's on JC Penney board, perhaps for all I know	22:17
	on the U.S. Steel or IBM board.	22:21
	At least three members of the cabinet	22:23
	are from the IBM Board.	22:25
-	Yeah.
-	Now, of course, you don't get on the IBM board	22:27
	unless you represent the same constituencies	22:31
	whom Carter wants to represent.	22:35
	The IBM board is a political board.	22:39
	They are looking for women, they are looking for blacks,	22:42
	they are looking for liberals who will not rock the boat,	22:44
	they are looking for outside prudent businessmen	22:49
	as well as for the people picked on the board	22:53
	because they are rising officers in the IBM organization	22:58
	or because, to go back to the traditional constituency,	23:03
	which I almost neglected to mention,	23:08
	the people who own stock in IBM.	23:10
	Well, the most controversial appointment	23:14
	which I will, which I would suppose will still be	23:19
	confirmed by the Senate	23:23
	is that of Judge Bell for Attorney General.	23:25
	He's a Southerner and being a Southerner, he is	23:30
	burdened with the record	23:37
	in judicial decisions that one expects from even	23:41
	the more liberal Southern judges	23:46
	in comparison with Northern judges.	23:48
	He belongs to clubs	23:52
	which in Atlanta,	23:56
	do not in fact	24:00
	elect blacks to their membership,	24:04
	do not in fact elect Jews or very many, if any,	24:08
	and this	24:14
	is known and has been held against him	24:17
	and I don't think he was particularly astute in	24:19
	anticipating the outcry.	24:22
	You and I know that there are clubs in Boston	24:26
	and in Chicago and in Washington D.C.	24:31
	which do not have,	24:35
	quote, a representation of every ethnic group	24:39
	in the community and every group by gender,	24:44
	by race.	24:48
	But Southerners, I think, have an extra	24:53
	burden in this matter.	24:56
	Now I'm looking at this from standpoint of the,	24:58
	of the people from the South,	25:02
	but looked at from people who say	25:05
	that the Attorney General's office	25:08
	is most sensitive office in the land	25:09
	and what you need there is somebody who is outstanding	25:11
	as representing even-handedness,	25:16
	this is a disappointing appointment.	25:18
	Nevertheless, I think that I have to reserve judgment	25:21
	because from the little I know about his judicial decisions,	25:23
	it is not at all clear that he will not be	25:28
	an excellent liberal	25:34
	and effective Attorney General.	25:36
	Justice Butler,	25:40
	no, Black of the Supreme Court	25:44
	who was one of the most liberal justices	25:48
	in my lifetime on that court had a much	25:51
	worse-looking record	25:56
	at the time that he was appointed to the Supreme Court.	25:58
	You probably, David, are too young to remember,	26:02
	but he had been a member of the Ku Klux Klan in the 1920s	26:04
	and this didn't come out until the eve of his appointment	26:09
	and he had to go on radio and explain and eat some	26:13
	humble pie about that.	26:17
	Well now, apparently	26:20
	in a small Alabama town in the 1920s,	26:22
	to have been a member of the Ku Klux Klan	26:26
	did not mean that you were necessarily	26:29
	on the lunatic right fringe with respect to	26:32
	hatred of Catholics, Jews, Negroes.	26:37
	It was part of the way of life at that time	26:40
	for any rising politician,	26:43
	Attorney General of a county, district attorney.	26:46
	And Black, you might say, was caught in	26:50
	the more race and folkways of his time	26:54
	and of his, of his place, but let's	26:58
	go from that position, which is not within my	27:02
	specialization in any case,	27:08
	the Secretary of General, the Secretary of Treasury	27:11
	Blumenthal is well-thought-of in the business community.	27:14
	He apparently was a very successful businessman at Bendix.	27:19
	He rose very rapidly in that area.	27:23
	But he also has been something of the candidate	27:27
	of the Liberals in the Carter Camp	27:31
	because they know him, we know him,	27:35
	from his participation in the Kennedy and Johnson period.	27:38
	He is the Most Blessed of All People;	27:43
	he has a PhD in economics, I believe,	27:46
	from Princeton University.	27:48
	He was part of the Kennedy Round negotiating team	27:52
	back in 1963, '64, '65;	27:55
	and he's considered to be a much less conservative person	28:00
	than say, his predecessor, William Simon.	28:05
	So I think that's a very good appointment	28:10
	by my lights, from all I know about his expert abilities	28:12
	and his viewpoints.	28:16
	Charlie Schultz is, I think, an excellent choice	28:19
	for chairman of the Council of Economic Advisers.	28:22
	He graces the job rather than the job gracing him.	28:26
	I think it shows that he was willing to pitch in	28:29
	at that level,	28:32
	which he needn't	28:34
	necessarily have done.	28:37
	I know less about the new Budget Director,	28:40
	Lance, but he has conducted himself well, and,	28:45
	I would say that by and large,	28:51
	these are	28:55
	excellent appointments.	28:57
	Schlesinger at Energy is a little controversial	29:00
	because he was considered a hawk in the Defense department,	29:02
	but I think that he will take seriously	29:05
	the number one task which is the task of conserving energy.	29:08
	Carter has a good team and I think	29:14
	we're all now waiting in the wings to see what it is that,	29:17
	that he's going to do for us.	29:21
-	Thank you very much.	29:24
	If you subscribers would like to	29:26
	ask questions of Professor Paul Samuelson,	29:27
	or suggest subjects for him to discuss,	29:30
	please write to Instructional Dynamics Incorporated	29:33
	450 East Ohio Street	29:37
	Chicago, Illinois 60611.	29:40
	Okay.	29:46

Item Info

Title:

Tape 212 - Economy picks up; OPEC price boost; Carter's economic appointees

Date:

December 1976

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-0188
ref2515_jce
samuelsonpaul
duke:325211
pstau001188
ark:/87924/r4n29pp7p
17ad3bab-5cb8-4859-a8da-8a07b3ea9d6a

Permalink:

https://idn.duke.edu/ark:/87924/r4n29pp7p

Sponsor:

Sponsor this Digital Collection

Tape 212 - Economy picks up; OPEC price boost; Carter's economic appointees

Transcript

Item Info

Economists' Papers Archive

More Info & Options