Tape 107 - European Fear of Inflation, US Monetary Developments, Flood Relief, Gold

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-	J, K, L, M, N, O, P, Q, R, S, T, U, V, W, X, Y, Z.	0:02
	Okay now, question one on this confidential reference form,	0:07
	how long have you known the applicant and in what capacity?	0:11
	Almost a decade now, comma, since he came	0:15
	as a distinguished graduate from Swarthmore	0:18
	to the MIT graduate school, period.	0:22
	I knew him as a crack graduate student, comma,	0:25
	and as an assistant and associate professor at Yale, period.	0:39
	More recently, MIT invited him to a chair here,	0:50
	comma, so I see a good deal of him	0:58
	as an esteemed colleague, period.	1:01
	Now two, the answer is yes.	1:05
	Three, Dr. Weitzman is undoubtedly one	1:09
	of the world prominent economists	1:18
	in the age group around 35, period.	1:30
	He would rank well in any top group	1:41
	of economists anywhere in the world.	1:50
	Four, A, would you seek him as a colleague?	2:01
	The answer is yes, period.	2:07
	Obviously, period.	2:10
	We have, period.	2:12
	Five, A, excellent, B, not known to me,	2:20
	C, excellent, D, excellent.	2:30
	Six, I believe that, aside from his excellence	2:35
	and potential as an economics scholar, comma,	2:47
	Dr. Weitzman has already enjoyed unique opportunities	2:53
	to spend a year in Moscow as an advanced student, period.	3:04
	Consequently, he has already met many of the young and able,	3:11
	mathematical economists, comma,	3:17
	the sort of people whom distinguished professors	3:23
	in the West, like me, (coughs) never get a chance to meet	3:29
	since the people we meet are essentially top bureaucrats.	3:36
	Seven A, check that.	3:45
	Definitely.	3:50
	Eight, (coughs) I think I've already elaborated sufficiently	3:53
	on Dr. Weitzman's strengths, period.	4:00
	I think of no specific weaknesses	4:08
	from the standpoint of this application, colon:	4:22
	he has a no-nonsense quality about him	4:29
	that, comma, I should think, comma,	4:35
	would actually serve as an advantage, period.	4:39
	Nine, in view of the fact that Dr. Weitzman	4:45
	has spent much more time in the Soviet Union	4:52
	under the difficult conditions of being a student	4:55
	and looks back with pleasure on the experience, comma,	4:58
	I do not think that this trip would be at all taxing	5:03
	on him from the personality viewpoint.	5:11
	Ten, I think that what Dr. Weitzman wants to do	5:21
	is very much worth doing, comma,	5:29
	and that there are very few economists	5:32
	in the country who have the combination	5:39
	of mathematics and economics that he does	5:46
	and the previous acquaintanceship,	5:51
	which ought to be helpful in his research project, period.	5:55
	Therefore, comma, I am enthusiastic about it, period.	6:02
	I have known Professor Weitzman for almost a decade now,	6:07
	comma, since he came, since he was one	6:12
	of the most distinguished PhDs in economics	6:21
	turned out by our select department, period.	6:30
	I followed his work when he was an assistant	6:39
	and associate professor at Yale, period.	6:45
	Subsequent to his accepting a call to an academic chair	6:52
	at MIT, comma, I have had a chance to talk with him often	6:56
	and read his published and unpublished works, period.	7:08
	I guess all that was one.	7:13
	Two, Weitzman earned an international reputation	7:16
	as a fruitful economist of great future potential	7:36
	even at a young age, period.	7:48
	He has continued to live up to that early promise, period.	7:52
	I can think of few in the whole world	8:00
	of any age who posses his combination of mathematics,	8:03
	comma, economics, comma, and developmental	8:10
	and comparative-, hyphen, systems interests, period.	8:14
	His is a refreshing, comma, no-nonsense,	8:21
	hyphenate that, personality, period.	8:25
	He is much liked, as well as admired,	8:30
	by his colleagues and students, period.	8:34
	Three, much of Soviet economics	8:40
	has for a long time been of low quality, period.	8:43
	There are many specialists in this country who follow	8:46
	the work of these typical Soviet economists, period.	8:53
	However, comma, in comparatively recent years,	8:58
	there has appeared in the Soviet Union	9:02
	a very fruitful school of mathematical economists	9:05
	and programmers, period.	9:09
	Because Weitzman spent the whole year as a student	9:12
	in Moscow, comma, he got to know many of the young	9:15
	and able Soviet mathematicians and mathematical economists,	9:19
	whom distinguished scholars in the West	9:33
	like me never get a chance to meet, period.	9:47
	Usually, it is successful bureaucrats, comma,	9:50
	often little more than stuffed shirts, comma,	9:56
	who get the traveling assignments	9:59
	from the Soviet Union to American universities	10:01
	and to international conferences, period.	10:07
	Weitzman assures me, comma, and I have reason to believe	10:11
	that he is correct, comma, that there is a whole,	10:15
	other world of able young people	10:19
	not yet observable to the likes of me, period.	10:26
	The fact that Weitzman already has	10:31
	a considerable acquaintanceship among this group	10:35
	should be of great aid to him in his project, period.	10:39
	Paragraph, I ought to add that his project	10:44
	is a very interesting one in its own right	10:48
	as well as being of considerable importance	10:52
	for anyone who wishes to be well informed	10:56
	on the future of the Soviet economic system, period.	10:59
	On the basis of a perusal of his research plans,	11:04
	comma, I would judge this to be a very well worthwhile,	11:10
	comma, and a well thought out, comma, project, period.	11:16
	New paragraph, in short, comma,	11:26
	I strongly endorse Professor Weitzman's application	11:31
	and, comma, although I have tried hard	11:41
	to find some qualifications for this endorsement,	11:50
	comma, I did not really come up with any, period.	11:57
-	Messiahs usually don't have John the Baptists	12:04
	running ahead of them and announcing them,	12:06
	but what they say is that the forecasters	12:10
	have been doing more poorly recently,	12:13
	and they show six or eight prime forecasters.	12:16
	What their forecast was for the four quarters	12:20
	of 1974 at the end of 73 and what they are now,	12:22
	and they have written up their inflation expectations.	12:28
	They've written down their real growth expectations,	12:32
	and the amount of those revisions is fairly dramatic,	12:35
	and this is used to illustrate the, what should I say,	12:40
	mean that economics as a science has played out.	12:46
	Well, that makes good journalism,	12:51
	but I don't think that if one studies it.	12:53
	First place, you can't be disillusioned	12:58
	unless you're first illusioned,	13:02
	and if anybody thought that economists	13:05
	could forecast accurately in the sense of 100% accuracy	13:08
	or 80% accuracy as against the batting averages of 50%,	13:15
	although a layman doesn't know what 50% means as against 60	13:22
	or 40, then he just was ill-informed previously.	13:27
	It still is the case that economists,	13:33
	and there's no exception to this empirical statement,	13:36
	that economists forecast better,	13:40
	imperfectly as they forecast, than any other group,	13:43
	whether it's businessmen who become Secretaries of Treasury	13:50
	from Wall Street or whether it's businessmen	13:55
	who become Secretaries of the Treasury	13:58
	from some other calling in life	13:59
	or astrologers or gypsy or brokers	14:02
	or anybody whom you could name.	14:07
	If you will examine their mean squared error	14:11
	of estimate of forecast, the general economist,	14:16
	and I mean people like Chase Econometrics	14:22
	with the Wharton model, the DRI,	14:25
	Otto Eckstein's model, or throw in a monetarist	14:31
	as one of the half dozen, although they happen	14:37
	to have the worst forecasts recently, last three years,	14:39
	if you take them as a collective,	14:43
	or it'll serve the purpose, take all the business economists	14:45
	who report to the national bureau every quarter	14:49
	on what they think's gonna happen,	14:52
	they have imperfect records, but they're better	14:54
	than that of any other group.	14:56
	They're better than they used to be,	15:00
	but I don't think they're converging on accuracy.	15:02
	They're converging on a certain,	15:06
	irreducible amount of uncertainty.	15:10
	God Almighty doesn't know what investment	15:16
	is gonna be two years from now.	15:18
	He hasn't made up his mind, or mid East wars and so forth.	15:20
	I don't wanna be complacent or disillusioned.	15:26
	We can do better than we are now doing,	15:30
	but if you see how much better we've been doing,	15:32
	the signs don't suggest that without some new breakthrough,	15:36
	that we will converge to complete,	15:39
	actually looks as if your law of diminishing returns	15:41
	is applying, and now, I said mainstream economics	15:44
	is under attack.	15:53
	The article is liberalism at bay.	15:57
	Is there some new, up and coming group	16:01
	which hasn't yet been recognized	16:05
	but which is the wave of the future?	16:07
	Well, usually these things don't come out of the blue.	16:10
	It turns out that there're signs that they're doing better.	16:13
	I think one has to say that the radical economists,	16:18
	one had to say, it's a new movement.	16:23
	You can't expect a baby to do that which an adult will do.	16:26
	You have to give a movement time,	16:32
	and many people, myself included,	16:34
	and in the Wall Street Journal	16:38
	with direct quotes, somewhat embarrassing,	16:39
	have said that there's gonna be fruit from the movement.	16:42
	One has to say with equal objectivity	16:47
	that that fruit has been a little disappointing	16:49
	and slow in coming.	16:51
	I don't know how old, a dog at three is pretty old, 30,	16:52
	how old a movement should be that,	16:59
	that breakthroughs, and certainly no breakthroughs	17:02
	on the topics that have disillusioned the public	17:05
	with economists.	17:09
	The public is disillusioned with economists	17:11
	because of the inflation.	17:13
	Now, there's no Galbraithian theory of inflation.	17:16
	There's no Marxian theory of inflation	17:19
	which has any fruit at all.	17:22
	If you think of what, let's say,	17:25
	the Democratic opposition oughta do,	17:28
	they've got the biggest opportunity they've ever had	17:30
	in all captivity, so here's the president in trouble,	17:32
	and they're, I don't want to be quoted on this,	17:36
	but they're pretty much bereft of ideas.	17:41
	There's no research, moreover, you don't get it	17:42
	from monetarism although monetarists believe	17:45
	that they have it, have the theory,	17:47
	but the actual forecasting record of monetarism,	17:48
	if you use something so prosaic	17:53
	as a squared error, has been about two or three times	17:55
	as much as the other forecasters in this period,	17:59
	and I'm speaking of the best monetarist forecast,	18:02
	which is by the Federal Reserve Bank of St. Louis.	18:04
	The, as against the, well, let's take that New York bank,	18:08
	which will be nameless, which sent the market up	18:12
	for three days on the prime rate, gonna be down	18:14
	to 6% by the end of the summer.	18:17
	That's a monetarist outfit.	18:21
	Whether it's a fellow in Chicago in a bank,	18:24
	who shall be nameless, who thinks he can make money	18:27
	in the stock market by examining	18:29
	the rate of growth of the money supply, the Sprinkle Book.	18:32
	I'll just look at a study here, University of Rochester,	18:36
	by certainly not an anti-Chicago type,	18:41
	and it turns out that there's nothing in that at all.	18:45
	It's already in the.	18:48
	(tapping)	18:55
	Well, so that the, you see, what is the case?	19:03
	The simple case is this.	19:07
	That no mixed economy, and we've got a dozen mixed economies	19:09
	in the world, and they're all pretty similar	19:14
	in this respect, whether it's the United States	19:15
	and Canada, or Sweden and Switzerland,	19:20
	or Germany and Japan, or France and Italy,	19:24
	or Holland and Belgium, this is a lot of territory	19:28
	that I've just talked about.	19:37
	There isn't any one of these mixed economies	19:38
	that knows how to have full employment and price stability.	19:40
	Now, this is bothering--	19:46
	(beeping)	19:49
	This is bothering the hell out of the public	19:52
	because the public is really concerned about inflation.	19:55
	Now, the sad truth is that you can't get a jury	19:58
	of economists who will agree on what's a good incomes policy	20:03
	to handle this dilemma.	20:08
	Now, I know that Galbraith thinks	20:10
	that permanent wage, price controls are worth,	20:11
	but the rest of the jury won't agree with him.	20:13
	Friedman thinks if you only control the money supply,	20:16
	that on a cost-benefit analysis,	20:19
	you get a lot of cure for inflation	20:21
	with the, well, the little human suffering.	20:24
	Although, if there's some suffering,	20:29
	you say you can't make omelets without breaking egg shells,	20:30
	but the jury cannot agree.	20:34
	Now, that's a defect of the mixed economy,	20:36
	and the honest economist brings that message.	20:42
	Now, you know that there are Greek kings	20:48
	who used to slay the messengers	20:53
	who brought bad news, or the saying in the saloon,	20:54
	the don't shoot the piano player.	21:00
	He's doing the best he can.	21:01
	Economists aren't the economy.	21:04
	You have to keep those separate.	21:09
	However, if part of your prestige	21:14
	with the community is as a shaman and medicine man,	21:18
	and you take credit when you get the economy moving again	21:22
	as in the 1960s.	21:25
	He who takes credit for the sun has to prepare to be blamed	21:27
	for the rain, so if I give you an exact analogy.	21:30
	If certain types of malignancy are brought	21:35
	to the best, a jury of the best of the medical profession,	21:38
	the only honest thing that they can say to each other,	21:43
	whether they say it to that patient is a different problem,	21:46
	is in the present state of medical,	21:50
	scientific knowledge, we cannot cure this.	21:52
	Now, you wouldn't shoot a jury of doctors	21:57
	for telling the truth, but on the other hand,	22:01
	you wouldn't adore them in the same way	22:04
	as if they were a group of jury who could cure cancer,	22:06
	so I think part of this difficulty you see	22:10
	is that the unsatisfactoriness of the mixed economy	22:13
	rubs off on the economists.	22:20
-	Now, do you think that's gonna be translated	22:25
	into the class I'm teaching?	22:26
	Are you, for example, I know that people have told me	22:28
	that you revised your textbook	22:30
	to account for changes in emphasis and so on,	22:31
	and I don't know if you're planning any further--	22:36
-	I would say yes, that, well, let me put it this way.	22:38
	My concern in each revision is to,	22:44
	I try to think of the next half dozen years,	22:49
	what are going to be the salient issues	22:53
	and dilemmas for policy, and then I try	22:59
	to anticipate them and speak to them.	23:03
	Well now, I do this pretty well	23:08
	but, not being given omniscience, imperfectly.	23:11
	I very much discuss, have you looked at my ninth addition?	23:17
-	Uh uh.	23:21
-	And I don't know if you've looked at it	23:22
	and compared it with earlier additions.	23:23
	You'll see, for example, net economic welfare.	23:25
	Instead of the numbers game, by growth	23:28
	with respect to Russia, that doesn't interest	23:30
	the present generation, but on the other hand,	23:34
	zero population growth, zero economic growth,	23:40
	the pros and cons of that, that is relevant.	23:42
	I did not anticipate, I had not way of doing it,	23:46
	the mid East war.	23:51
	The strengthening of the energy monopoly.	23:53
	Therefore, energy doesn't have as big a role	23:57
	in the addition written in 1972-73	24:01
	as it would have if I were revising it today.	24:06
	On the other hand, I tried to open up,	24:12
	get rid of the complacency in mainstream economics,	24:14
	and there's a chapter for the first time	24:16
	on alternative doctrines.	24:19
	There's even a Marxian section.	24:22
	I don't think you can have a conspiracy	24:25
	of silence about Marxian economics.	24:26
	People think that you're refusing to divulge them	24:29
	something which is very powerful,	24:32
	and let's look at it and see what the power there is in it.	24:35
	There hasn't been very much power in Marxian economics	24:42
	in understanding the dynamics of the mixed economy.	24:45
	If somebody'd been a well trained Marxist in 1950,	24:48
	he would not be in a good position	24:50
	to understand the 1955 to 1975 world,	24:52
	so I think that there're changes.	25:02
	Now, I would think, for example,	25:08
	that the average economist, do you understand statistics?	25:12
-	Somewhat.	25:18
-	There's a bigger standard deviation, bigger spread	25:19
	among the economists than was true 10 years ago,	25:23
	and there are more people, but they're still	25:27
	very much a minority on the left,	25:29
	but that the center of gravity has shifted	25:32
	a little bit rightward, and certainly a little bit rightward	25:34
	compared to Congress.	25:37
	Say, don't choose a fixed base,	25:39
	but use where the center of the country is.	25:42
	That economists are more conservative	25:47
	than they were 10 years ago because they've seen	25:49
	interferences into the market system	25:51
	that have fulfilled their worst foreboding.	25:54
-	Now that's conservative in theory,	25:58
	not conservative in political orientation, isn't it, or no?	25:59
-	I think, for example, which you didn't have the zest,	26:03
	anything like the zest from a govern	26:07
	in the university community that you had for Kennedy.	26:09
-	That's interesting.	26:14
	Okay, fair enough.	26:16
	Has it been a course finding shift academically	26:17
	towards the Chicago school?	26:21
-	If you identify the Chicago School as the,	26:23
	I think, by the way, the important designation	26:31
	of the Chicago School is not monetarism,	26:33
	which is just a special crochet,	26:35
	but it is an emphasis upon the merits of the market,	26:38
	and I would say that, I think that there's been a,	26:41
	within the 15,000 to 20,000 members	26:46
	of the American Economic Association,	26:52
	which would include practically all the teachers,	26:54
	but it would also include others,	26:55
	that you would find an increased allegiance to the market.	26:58
	Now, that doesn't mean that most of them are laissez-faire,	27:05
	or they have no concern about strip mining	27:08
	or something like that but that,	27:10
	I was just at the Western Economic Association meeting.	27:12
	There were 2,000 people there at Las Vegas,	27:14
	and I think that I was really surprised at the--	27:18
	(phone rings)	27:25
	Conservatism that seemed to be--	27:27
	(drowned out by ringing phone)	27:29
	Hello?	27:33
	Fine, how are you?	27:37
	Let's see, Joan?	27:40
-	She's not here.	27:42
-	I'll give you Kate, hold on.	27:44
	Kate.	27:46
	But now, let's, if you look at the text books,	27:49
	I would say that, since I'm an interested party,	27:51
	I don't really want to be quoted on this.	27:56
	You ought to check anything I say	27:58
	and get an authoritative estimate elsewhere,	28:00
	but lemme give you my impression.	28:04
	My impression is that there are about two radical,	28:06
	economics textbooks, plainly radical.	28:09
	Sherman and Hunt and Fusfeld, and that they've gone nowhere.	28:11
	That their publishers have not made very much money.	28:24
	Now, there's an iconoclastic textbook.	28:31
	Roger Miller, have you heard of this one?	28:34
-	No, I haven't.	28:36
-	Roger Miller is a, he's really a member	28:37
	of the Chicago School, but he's a hippie	28:38
	whose hair is down to his shoulders,	28:44
	and he writes well, and half the time,	28:45
	anything he's writing about involves pot.	28:50
	He's got pot on the brain and so forth.	28:52
	His textbook starts out, it's with too shocking.	28:57
	Besides solving the economics of prostitution,	29:00
	marijuana, and something else and so forth,	29:03
	it's had modest use, but generally,	29:07
	the books that are selling the biggest	29:12
	are McConnell, that's a McGraw-Hill book,	29:14
	that's the poor man's Samuelson, as it's called.	29:20
	It's just, you know, a.	29:22

Item Info

Title:

Tape 107 - European Fear of Inflation, US Monetary Developments, Flood Relief, Gold

Date:

September 20, 1972

Contributor:

Friedman, Milton, 1912-2006

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Paul A. Samuelson papers, 1933-2010 and undated

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Paul A. Samuelson papers, 1933-2010

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Economics Cassette Series: Milton Friedman

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Tape 107 - European Fear of Inflation, US Monetary Developments, Flood Relief, Gold

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