Tape 62 - How strikes effect GNP

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-	Can anybody doubt in view of what's been happening	0:02
	to the Consumer Price Index the so-called	0:04
	cost of living?	0:08
	In view of the General Electric settlement,	0:10
	which is behind us	0:14
	that involves the increments of wage costs	0:15
	on an annual basis of something like, 7%.	0:17
	In view of the final General Motors settlement,	0:22
	which I have to believe, will be a fairly generous one.	0:27
	It would be quixotic, I believe at this point,	0:33
	to assume that that final settlement is for less than 7%.	0:37
	In view of all of this, and knowing the temperaments	0:42
	of the steel workers, knowing their strong Union,	0:46
	knowing the militancy of their leader, I. W. Abel.	0:49
	A man elected who was elected to office, on a platform	0:55
	that his predecessor was too passive.	0:59
	That McDonald was not fighting enough for wage increases.	1:03
	The steel issue was getting to where they liked	1:07
	Mr. McDonald, the President	1:10
	of the United Steelworkers Union.	1:12
	How dangerous that is for the head that wears the crown	1:14
	when the employers like you, it's about time to grab	1:17
	your hat because the employees are going to turn you out	1:23
	and that is exactly what happened	1:25
	to Mr. Abel, of course, remembers that.	1:26
	In view of all of this, there is a definite prospect	1:30
	of a steel strike in the middle of 1971.	1:36
	It is not necessary for us, at this point	1:40
	to try to pin point the probabilities,	1:43
	although all the arguments	1:46
	which I'd given earlier about the importance for forecasting	1:47
	of, knowing whether there's going to be auto strike	1:50
	apply to a steel strike.	1:53
	But for my present purpose it's unimportant to know	1:55
	whether there'll be a steel strike or not.	1:58
	All that we need to know is that collective volume	2:00
	will take place at that time.	2:03
	All that we need to know is that every prudent observer,	2:05
	looking into this time period	2:10
	must realize that there's a possibility of a steel strike.	2:14
	And so you will soon begin to get,	2:18
	what you got three years ago,	2:19
	what you got in the collective bargaining period just	2:22
	before that you will soon begin to get a scramble to buy	2:25
	ahead in steel to protect yourself against the possibility	2:29
	of a strike.	2:32
	Whether the strike will eventuate or not, nobody can know	2:34
	between now and next Easter, in fact you won't know	2:38
	for some months after that.	2:40
	But precisely because you can't know	2:42
	that there won't be a strike,	2:45
	if you are in the steel using industry,	2:46
	you will have to begin to add to inventory.	2:48
	And so we will get another temporary thought,	2:51
	to the business situation, in the first	2:54
	and second quarters of next year.	2:57
	This, although the underlying demand for steel	2:59
	domestically in this country has not been very strong.	3:04
	Well for one thing there has been the automobile industry,	3:08
	it's strike, but the underlying weakness	3:11
	that I spoke of.	3:13
	For another, the real physical volume	3:14
	of producing durable goods,	3:17
	the steel consuming part of our economy	3:19
	are definitely in abatement now.	3:23
	The over capacity in the steel industry	3:29
	and the softness of the demand relative	3:33
	to overall supply would reveal itself	3:35
	to us all the more acutely, were it not that until recently	3:39
	there was a worldwide boom in steel.	3:43
	We are living in an age of incipient protectionism.	3:47
	We economists, and to give credit where credit is due,	3:52
	President Nixon has been trying	3:57
	to fight off the extremes of protectionism.	3:58
	Shoes, textiles, many such industries	4:03
	have come in for quotas.	4:07
	The steel industry a couple of years ago,	4:09
	was very keen for those quotas.	4:11
	I do not believe they have given up that cherished goal,	4:14
	but the heat has been off as far as that industry	4:17
	is concerned because with a boom in Western Europe	4:19
	and in Japan for once, there has not been the pressure	4:23
	of steel imports,	4:28
	because those imports have been preempted elsewhere.	4:29
	In fact, the steel companies have been able,	4:31
	even though they are high cost, relatively	4:34
	inefficient producers in terms of the money, cost of	4:37
	at which they can deliver goods abroad, they've been able	4:39
	to do some recovering of export industries.	4:42
	Well, despite that underlying weakness	4:47
	in the domestic steel demand situation	4:52
	there will be an artificial demand,	4:55
	of course it's a borrowing against the future.	4:57
	If this does come to pass, what I'm saying in the first	5:00
	and second quarter of next year, we shall pay	5:03
	for it in the following quarter.	5:06
	We shall pay for it during the period of the strike itself,	5:09
	if there is a strike and if there's not a strike, we shall	5:12
	pay for it in the form of a polly up of inventories	5:15
	or in the hands of the producers and a depleting	5:22
	of the accumulate inventories against the contingencies	5:27
	of the strike in the pipeline and in the hands	5:29
	of the users of steel.	5:33
	In any case, the overall demand,	5:36
	in the first and perhaps second quarter of next year,	5:42
	will be a little bit artificially stimulated	5:45
	by the weakness traceable to the strike.	5:48
	We have to ask ourself this question, does this,	5:52
	does this amount to anything,	5:56
	is it just a question of moving through time some	5:57
	of the demand from one period into the next period	6:00
	and to a first approximation the answer of that has to be	6:03
	it's mostly a substitution in time of the same total.	6:07
	But the art of economics always consists	6:15
	of the second approximations	6:17
	and there I think there will be some business	6:19
	permanently lost to General Motors,	6:22
	there will be some competitive in roads from Japanese	6:25
	and foreign European automobile imports, primarily German,	6:29
	Volkswagen, that sort of thing.	6:35
	we'll never make that up but more than that,	6:38
	as I look at macroeconomic pictures, if so dire a result	6:40
	would come to pass as having an almost flat money GMP	6:46
	for the fourth quarter and I do not want to be construed	6:52
	as really buying that most pessimistic forecast	6:55
	that's one of the bombs I think of the problem	7:01
	and I would be have some grain of probability discount,	7:04
	that kind of salt, in appraising the situation.	7:10
	But nevertheless, if that should eventuate,	7:14
	it's hard for me to see us being back at the middle	7:18
	of next year, to the same number	7:22
	that the fashionable forecasts, a month or two ago,	7:25
	or giving for the middle of next year.	7:30
	Let me just review what those were.	7:33
	Very few analysts in private industry, that I know of,	7:38
	will buy the notion that, I quoted from the old testimony	7:43
	of Governor Burns, that we would be back	7:48
	to full employment some time in 1971.	7:52
	I don't suppose that if Dr. Arthur Burns were testifying	7:56
	before the Joint Economic Committee today he would repeat	8:00
	that particular forecast.	8:03
	As a matter of fact, a couple of weeks ago,	8:06
	a speech was made by Dr. Arthur Okun	8:10
	of the Brooklyn's Institution,	8:13
	but this was a speech made on his own responsibility	8:15
	and not as a Brooklyn staff member.	8:17
	Dr. Okun, you will recall, was the last Chairman of Council	8:21
	of Economic Advisors in the previous administration	8:24
	of President Johnson.	8:27
	Okun asked this question, of himself and his audience,	8:29
	is it possible for there to be a return to full employment	8:33
	during the first Nixon term?	8:37
	By November of 1972, can we be back	8:41
	to 4% unemployment in the data?	8:46
	And Dr. Okun's answer, perhaps we should apply some discount	8:51
	because this is an election year and Dr. Okun is a democrat,	8:55
	he's in the opposition.	9:01
	Nevertheless, I believe this is his professional opinion.	9:02
	His answer was no, there will not be unemployment	9:07
	as low as 4% by November of 1972.	9:11
	He said this can not happen just	9:16
	by virtue of the arithmetic of the problem.	9:17
	For it to happen he said	9:20
	and I suppose this is fairly uncontroversial,	9:22
	the real goal for the GMP, will have to be something	9:25
	like 6% between now and a year from now.	9:29
	This is in order to catch up for where we are,	9:35
	the short fall from full employment.	9:39
	And I'm using it as my definition of full employment	9:42
	4% unemployment or 3.8%, whatever the administration uses.	9:44
	Not the three and 1/3% unemployment	9:48
	which prevailed about a year and a half ago.	9:52
	It it is arguable that that three and 1/3%	9:58
	was over full employment,	10:01
	let's stick to 3.84% and if we take 6% real growth	10:03
	between now and then, to get back to that situation,	10:08
	then said Dr. Okun, it's not so much that it can't happen,	10:11
	although it's extremely unlikely that it would happen	10:16
	spontaneously or under any of the policies which we envisage	10:18
	from the present administration.	10:21
	But for it to happen there would have to be such a degree	10:24
	of price pressure, that in his judgment	10:28
	would be deemed to be intolerable.	10:31
	And so, according to the fashionable forecast, we can look	10:34
	forward to oh, perhaps, 3% real growth in the 12 months	10:38
	ahead from what I'm now speaking in terms of real output.	10:46
	Now, there seems to me, to begin to be a little pessimism,	10:54
	that we won't do that well.	11:01
	I sometimes think that, I learn more if I read	11:05
	between the lines of what is said	11:07
	by administration economists, than in their lines	11:09
	and I should alert my subscribers to a sense	11:14
	that I have, I feel like a criminologist,	11:18
	you know the experts who are,	11:21
	like Delphic oracles, listening to what comes out	11:24
	of the Soviet Union and then making judgment	11:28
	as to whether Khrushchev	11:30
	is about to be deposed for something.	11:31
	In a way you have to do this with respect	11:34
	to the Washington scene	11:36
	that there is a little more pessimism	11:40
	about the unemployment outlook.	11:43
	If this leads to a redetermination,	11:46
	by the Nixon administration	11:49
	to be a bit more forceful in its fiscal policy,	11:51
	I think that that will be a good thing	11:55
	because I don't have the time to argue with here	11:58
	but I have been arguing,	12:01
	in fact I'm a little over exposed at the moment.	12:03
	One of the troubles is when you get an award,	12:06
	people extraneously ask your opinion,	12:08
	now I'm not going to give my opinion on the chemistry	12:11
	of the eye, in retaliation	12:13
	against experts on the chemistry of the eye	12:16
	who have opinions on economics,	12:18
	but I can't forebear from giving my general opinion	12:21
	about the state of the economy,	12:27
	when for fortuitous reasons I'm asked	12:28
	for that opinion more frequently	12:32
	than is usually the case and so I've said again	12:33
	and again that we're at a very crucial time	12:35
	with respect to the amount of unemployment	12:38
	and that the first priority	12:40
	should be to have a more forceful fiscal policy.	12:43
	It's also the reasons that I've given	12:46
	why the federal reserve	12:48
	can afford at this time to be more above,	12:49
	say a 5% rate of growth of money supplies	12:55
	which is above what they are aiming for	12:58
	and a been achieving, than at other times.	13:00
	And so I would not consider it a bad thing	13:04
	if we began to move up to a 6% or 7% increase	13:05
	in the money supply through the rest of this year,	13:10
	then when we get this false fever,	13:13
	next year, pull in some line then be prepared later,	13:15
	once again to change tact.	13:21
	But our time is up, we'll go into those problems	13:24
	more the next time I hope.	13:27
-	If you have any questions or comments	13:29
	for Professor Samuelson,	13:30
	address them to Instructional Dynamics Incorporated,	13:32
	166 East Superior Street, Chicago, Illinois 60611.	13:35

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Title:

Tape 62 - How strikes effect GNP

Date:

circa 1970 to circa 1971

Contributor:

Samuelson, Paul A. (Paul Anthony), 1915-2009

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English

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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: Paul Samuelson

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samuelsonpaul
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ark:/87924/r44b2xm93
398b6ee9-b9c5-4278-af0c-5254163970b6

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Tape 62 - How strikes effect GNP

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