Tape 73 - Grounding the SST an economic argument

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-	Welcome once again as MIT	0:02
	Professor Paul Samuelson discusses	0:03
	the current economic scene.	0:05
	This biweekly series is produced	0:07
	by Instructional Dynamics Incorporated	0:08
	and was recorded April 5th, 1971.	0:11
	Professor Samuelson, we have a question	0:14
	from one of our subscribers, who's asks,	0:15
	"Why are all the economists against the SST?"	0:18
-	I think it probably is the case	0:21
	that on this particular policy issue,	0:24
	we have found there to be more unanimity	0:28
	among economists than prevails	0:30
	on many policy issues.	0:34
	Economists, as you know,	0:37
	generally speak up in favor of freer trade.	0:40
	On that issue, my profession, by and large,	0:46
	tends to be in considerable agreement.	0:50
	Economists, by and large, are critical	0:53
	of the government's Farm Subsidy Program.	0:56
	We speak, more or less, with one voice.	1:00
	I say this, not on the basis	1:02
	of my casual impressions,	1:05
	but because a few years ago	1:07
	the Chase Manhattan Bank actually sent	1:08
	a questionnaire out to a fairly large	1:11
	sample of economists,	1:13
	and they found 95% of the economists	1:15
	were agreed on this particular issue.	1:17
	Having named those issues,	1:21
	we pretty much used up our agreement,	1:23
	and then you'll find on most issues,	1:25
	economists are rather divided in their opinions.	1:29
	But, the SST turned out to be a subject	1:34
	on which almost all of the prominent economists,	1:41
	and economists, prominent or otherwise,	1:44
	all turned up on one side, namely,	1:48
	against the SST.	1:51
	Now, a non-economist,	1:52
	who is somewhat jaundiced in his view	1:54
	of my profession, might say that's the most	1:57
	powerful argument that he's heard	1:59
	in favor of the SST,	2:01
	that this crowd's against it.	2:04
	But let me try to be responsive	2:06
	to the subscriber's question.	2:07
	Why do economists tend to be against it?	2:10
	First let me drop a few names.	2:14
	Professor Walter Heller	2:19
	of the University of Minnesota testified,	2:20
	and very eloquent testimony, I understand,	2:23
	against the SST.	2:25
	Professor Friedman at least was quoted	2:27
	in written testimony as being against the SST.	2:32
	I, in a written statement,	2:37
	prepared, oh, some months ago, stated	2:40
	economic arguments against the SST,	2:46
	and just before the critical vote in the Senate,	2:48
	I testified against the SST.	2:54
	Now, I don't suppose that all the economists	2:57
	opposed the SST for exactly the same reasons.	3:03
	And I don't suppose exactly the same weights	3:06
	would be given by the different economists	3:10
	who did oppose it.	3:14
	But I think some of the points which I will	3:15
	enumerate will be present in the testimony	3:18
	against the SST of most economists.	3:23
	I ought to say that the vote in the House	3:27
	against the SST was a surprising vote,	3:33
	which really surprised most people.	3:36
	And the vote in the Senate was something	3:39
	of an anti-climax following upon that because	3:42
	you'll remember that once before in the Senate	3:45
	it turned out that a majority	3:50
	was against it, the SST.	3:52
	I'm going to begin, at least,	3:54
	by concentrating on the economic side	3:55
	of the picture.	3:58
	I don't know what a student of public opinion	4:00
	would say was the decisive factor,	4:05
	or what were the decisive factors in the defeat	4:07
	of this particular program.	4:11
	My suspicion is that it may not have been	4:13
	the economic arguments at all.	4:17
	Which were most decisive.	4:19
	It may have been simply hysteria	4:22
	about the environment.	4:24
	Let me make it clear that I, myself,	4:27
	engaged in a certain amount of hysteria	4:31
	about the environment,	4:34
	but I'm rather inclined to doubt that a jury	4:37
	of experts upon the environment,	4:43
	who look back upon this period 10 years from now,	4:47
	will be able to say that every single one	4:50
	of the arguments made by the environmentalists	4:54
	was a coolly considered, well justified argument.	4:58
	Nonetheless, it isn't only coolly considered	5:04
	arguments which are decisive in political realm,	5:07
	often it's the other kind.	5:10
	If I can give an example, at the very last moment	5:13
	a panel of scientists, and I suppose,	5:19
	competent and judicious scientists,	5:22
	went on record as saying that there would be	5:25
	a very considerable increase in skin cancer,	5:27
	traceable to a supersonic airplane.	5:31
	I don't remember the exact causal connection,	5:35
	but it went, I think, something like this,	5:37
	that if you have planes flying	5:40
	in the upper atmosphere,	5:42
	this would change the ozone content	5:44
	of that upper atmosphere.	5:46
	That what affect the penetration	5:48
	of ultraviolet radiation,	5:52
	and people who are subjected to different amounts	5:55
	of ultraviolet radiation develop different	6:00
	amounts of skin cancer.	6:03
	Now, I guess it's the case that there's no such	6:05
	thing as a benign form of cancer, by definition.	6:09
	But skin cancer,	6:12
	at least many kinds of skin cancer,	6:14
	are among the most attractable of the cancers.	6:16
	Nonetheless, the very word, cancer,	6:21
	does carry terror into the human heart.	6:25
	And to have a bunch of scientists go on record	6:29
	as saying this will result in more	6:32
	than 10,000 cases of skin cancer	6:34
	must have been a very powerful argument	6:37
	on the side of defeating the SST.	6:41
	Now, no doubt the fact that for the first time	6:46
	on an amendment like this you had to go on record	6:52
	so that in the newspaper, I know exactly,	6:54
	that every congressman in Massachusetts	6:58
	voted against the SST with the exception of two.	7:01
	And I remember what their names are.	7:04
	Every senator in New England voted	7:06
	against the SST,	7:09
	with the exception of one from New Hampshire.	7:10
	The fact that the Congress had to be	7:14
	on the record, I had an influence.	7:16
	But, let me address myself to the truly economic	7:18
	part of the argument.	7:23
	Now, at the very beginning,	7:24
	it's a striking fact that the industry has never	7:27
	been willing to put up a hundred percent	7:31
	of the money to develop	7:33
	a supersonic transport plane.	7:35
	That is a gross understatement.	7:40
	The industry has not been willing	7:42
	to put up 80% of the money,	7:44
	or 60% of the money, or 50% of the money,	7:47
	and you can work that fraction down.	7:50
	Most economists, I believe,	7:56
	would consider that by itself	7:59
	as prima facie evidence	8:02
	against the wisdom of the SST.	8:05
	That is only prima facie evidence,	8:08
	but I have spent many, many years testifying	8:13
	before Congress in favor of programs	8:17
	which could not pay their own way,	8:20
	which lost money for the government.	8:22
	It is a dictum, I believe,	8:25
	that the government is in business	8:27
	in order to lose money.	8:29
	Unlike business, which is in business	8:30
	in order to make money,	8:32
	or at least in order to break even.	8:34
	So, although this was, to my mind,	8:36
	a suspicious fact,	8:41
	it was not a conclusive fact.	8:44
	In all governmental decisions, I believe,	8:48
	we have to have a cost-benefit analysis.	8:50
	And we must strike the balance	8:54
	as to whether all of the advantages in comparison	8:56
	with the costs and disadvantages are in net	8:59
	plus or not.	9:02
	I don't for a moment mean to suggest that all	9:05
	of these advantages and disadvantages in costs	9:07
	are to be reckoned purely in commercial terms,	9:10
	purely in dollar terms.	9:14
	But some of them are and when you reckon	9:16
	this in terms of the dollar aspects	9:20
	of the problem, the project will not, I believe,	9:23
	and in this, many economists concur,	9:29
	will not be able to stand on its feet.	9:31
	This is not something new.	9:34
	As long ago as in 1962 Vice President Johnson	9:36
	was chairman of a committee inside	9:40
	the Kennedy Administration	9:42
	to look at the merits of this.	9:44
	And I very well recall	9:47
	that all the experts were skeptical.	9:50
	I'd like to emphasize that back in 1962	9:55
	there was no talk that I can remember	9:59
	of environmental damage in the upper atmosphere.	10:04
	There was, of course, from the very beginning	10:10
	the problem of supersonic boom.	10:12
	As you go through the speed of sound, Mach 1,	10:15
	on your way to Mach 2.8, 2.5,	10:17
	you do create the acoustical boom.	10:23
	And we had lots of experimentation	10:28
	by the government,	10:31
	I think Oklahoma City preps was Tulsa,	10:32
	was used as an experimental city	10:36
	to see what the effects were.	10:40
	The effects were not good.	10:42
	The people in Oklahoma did not like being	10:44
	subjected to that.	10:46
	It's interesting that in order to get knowledge	10:49
	we do have some times to subject a sample	10:51
	of our population to experimentation which goes	10:55
	under the heading of destructive experimentation.	10:59
	You hurt the guinea pigs when you operate on them	11:02
	and it's no joke to be in an Oklahoma City	11:05
	that is subject to the testing	11:09
	out of the supersonic boom.	11:11
	The full extent	11:14
	of that particular acoustical problem,	11:17
	that particular acoustical problem,	11:19
	I believe, nobody could predict in advance	11:21
	before the Concorde was built,	11:25
	that's the Concorde, I remind you,	11:28
	is the British French version,	11:30
	or before the Russian supersonic plane was built.	11:33
	But all the scientific evidence,	11:37
	and this kind of evidence can be very strong,	11:40
	it's only presumptive evidence,	11:42
	was that no slick little difference in design	11:44
	was going to be able to get	11:48
	around that supersonic boom.	11:50
	So, I've taken for granted,	11:52
	from the very beginning,	11:54
	that if we're just talking about democracies,	11:57
	the supersonic transport is not going to fly	12:00
	over tax-paying, voter property.	12:03
	It's one thing for the Russians	12:07
	with the fairly centralized government to decide	12:08
	that they're going to run their supersonic	12:11
	transport to Calcutta, Moscow to Calcutta.	12:13
	The Russians in between are in no position	12:17
	to prevent that from happening.	12:21
	I do not believe that our society	12:26
	is so oppressive,	12:28
	so unresponsive to voter complaint that the same	12:29
	thing could be said about the United States.	12:34
	And so it was taken for granted by almost all	12:37
	the committees from the very beginning,	12:40
	that we're now talking about flights	12:41
	over the ocean.	12:45
	I'll leave out flights over Siberia	12:48
	and sparsely populated continents,	12:49
	but flights over the ocean, uh,	12:52
	are the prime use of this,	12:57
	of this particular plane.	13:00
	Well now, on that basis,	13:01
	all the informed opinion was that the Concorde	13:04
	was a disaster.	13:09
	The Concorde is an aluminum plane.	13:11
	That means it cannot be subjected	13:16
	to really high temperatures.	13:17
	It's supersonic but it's slower	13:21
	than our SST design.	13:25
	It can barely carry a payload	13:29
	from London to New York.	13:33
	That's the prime channel.	13:36
	I mentioned the Concorde because, of course,	13:40
	it's always used as the boogeyman	13:42
	to encourage the SST.	13:45
	If we don't do it the Concorde will do it.	13:49
	It's no secret that the Concorde has been	13:51
	a disaster, it has cost several times	13:55
	all the estimates.	13:59
	When the Wilson government came into power	14:01
	a few years ago,	14:03
	they wanted to cut their losses	14:04
	and break away from the joint	14:06
	French English effort.	14:08
	But General de Gaulle, who was then alive,	14:11
	and then in power, threatened to sue	14:14
	at the Court of International Justice	14:16
	in the Hague.	14:18
	Just in dollar terms,	14:19
	this did not seem a marginal close decision,	14:21
	it seemed a clear-cut decision against this.	14:24
	The question then is whether there are certain	14:28
	non-dollar considerations,	14:31
	which ought to be binding.	14:33
	I would, for example,	14:34
	believe that the federal government should lose	14:35
	a lot of money in connection	14:38
	with railroad transportation,	14:39
	in connection with commuter transportation,	14:41
	a subsidy is worthwhile.	14:45
	But I would arrive at this conclusion	14:47
	by supplementing the purely dollar calculus	14:50
	with the social overhead benefits of a railroad,	14:54
	with the relief of congestion in the city,	14:58
	with the relief of pollution in the city	15:02
	that would come	15:04
	from subsidized commuter transport.	15:05
	The same thing could be said, in some degree,	15:09
	with respect to over land passenger transport,	15:12
	and certainly with respect to, in my judgment,	15:16
	with respect to freight.	15:19
	The human advantages and disadvantages	15:21
	net out in that field of transportation,	15:25
	then, I believe, very favorable.	15:28
	And so we'd have to supplement	15:31
	the dollar calculation.	15:33
	In the case of the SST,	15:35
	it's very hard to make out such a case,	15:38
	although I'll discuss some of the arguments	15:41
	which have been used.	15:43
	In the first place,	15:45
	you're much increasing the speed,	15:47
	let's grant that,	15:50
	of an over the ocean trip.	15:51
	The trip from New York to London,	15:55
	once you're free of the airports,	15:58
	you do cut that time down.	16:00
	Let's say to a couple of hours,	16:01
	let's even say two, less than that.	16:03
	How important is that?	16:08
	Well, those of us who used to go to Europe	16:09
	in 14 hours and 15 hours are indeed grateful	16:11
	for the six hour trip,	16:16
	which we now make in the 707 and in the 747.	16:18
	I don't think that anyone ought to stand	16:24
	in the way of progress and just	16:26
	poo poo every amenity.	16:27
	This is a realistic improvement.	16:31
	But how important is it?	16:34
	How much of a premium fare	16:36
	can you actually charge?	16:38
	And we're now back to the fact	16:40
	that the Chase Bank,	16:43
	a consortium of (mumbles)	16:46
	and Morgan Investment Bankers, Merrill Lynch,	16:49
	wouldn't remotely dream of financing this thing	16:54
	in the present state of technology	16:57
	because you couldn't get in premium fares,	16:59
	the amount needed.	17:03
	So I don't judge that the fallout from this,	17:04
	I'm not speaking of environmental fallout,	17:07
	but the fallout of externality in advantage	17:09
	to the economy is very considerable.	17:14
	Probably somebody like myself,	17:17
	not subject to a tight budget equation	17:20
	and very busy, would benefit.	17:22
	I would benefit from a faster trip to London.	17:24
	It could be used in the Pacific.	17:29
	But let's not forget that its range is not great.	17:31
	The senator from Hawaii, very interestingly,	17:34
	was against it in the previous vote.	17:37
	But this time he was one of the rare senators	17:41
	who went in the direction of being for it.	17:44
	I can see why he might be for it.	17:47
	Because the SST is so poor a technical animal,	17:50
	that you can't go to Tokyo in it.	17:56
	It's gotta stop for refueling.	17:58
	It has a limited range.	17:59
	Moreover, we've been reassured, you remember,	18:02
	that, uh, the other acoustical problem,	18:05
	not that of the sonic boom,	18:08
	but the problem noise at the airport.	18:10
	That, that can be improved upon.	18:14
	True, it can.	18:18
	But it costs you 50 miles of range	18:19
	for every decibel of noise reduction	18:22
	at the airport.	18:25
	I remember that Lockheed and Boeing	18:28
	were competing with alternative models.	18:31
	I don't know which to feel more sorry for.	18:34
	The one that won the contract,	18:37
	or the one that lost the contract.	18:38
	Lockheed, however, has been in such bad shape	18:40
	that I guess it wishes history had been run	18:42
	in any way different from the way	18:46
	history has actually been run.	18:49
	But one of the big advantages of the Boeing	18:50
	design was it had a variable wing.	18:53
	The wing could actually be moved	18:57
	so that you could reduce,	18:59
	you have two modes of operation,	19:02
	the supersonic mode of operation,	19:03
	which is away from tax-paying	19:05
	airports and voters,	19:07
	and the way it would fly near our shores.	19:10
	Well it turned out that that variable wing	19:14
	was not a good design.	19:16
	Boeing, you might say,	19:19
	and don't read anything malicious into my words,	19:20
	got the contract under false pretenses.	19:25
	I knew aeronautical engineers at MIT	19:28
	who thought the Boeing model was better,	19:30
	but the reason they thought it was better	19:32
	was because of the variable wing design.	19:33
	Well it turned out that that variable wing design	19:37
	wasn't feasible, and this too,	19:39
	cut into the profitability.	19:41
	You know, profits are always on the top.	19:44
	They say in the growing of sheep,	19:47
	raising of sheep, that you make all your profit	19:50
	on the twins.	19:52
	Every time you're cutting off the top	19:55
	in order to meet noise requirements,	19:57
	safety requirements, you're lopping off	20:00
	the number of passengers you can carry,	20:02
	and you're lopping off the savings in time,	20:05
	and you're lopping off the fuel economies,	20:07
	and you are lopping off the range.	20:11
	So, this is very much a compromise of a animal.	20:14
	I wanna say something about the economic brief	20:20
	which was put forward by the government.	20:24
	Mr. Magruder prepared a brief,	20:27
	this would be for Secretary of Transportation	20:30
	Volpe for President Nixon,	20:32
	and I had to say in my testimony before Congress	20:36
	that if a private prospectus came out using	20:39
	the uncritical methods and language of this brief	20:43
	the SCC would put them into jail.	20:48
	You've got to say a thing is speculative	20:51
	if it is speculative.	20:54
	The SCC, of course, doesn't underwrite	20:55
	the correctness of all claims made.	20:57
	The SCC, when it approves of a prospectus	21:02
	for an underwriting does not say that this means	21:06
	that people won't lose their money.	21:09
	But it does make you label as speculative,	21:10
	things that are speculative.	21:13
	In the Magruder brief,	21:14
	there was a pregnant sentence which said,	21:17
	"The environmentalists take every possibility	21:20
	"and treat them as if they were probabilities."	21:25
	An economist would feel that exactly	21:30
	that pregnant sentence could be applied	21:33
	to the economic arguments made in the official	21:36
	government brief in favor of the SST.	21:41
	Every possibility was treated as if it was	21:44
	a significant probability.	21:46
	For example, calculations were made showing	21:49
	how much the government would earn if we sold	21:53
	over 500 of the SSTs.	21:57
	How many jobs there would be	22:01
	with the secondary multiplier re-spendings,	22:02
	150,000 jobs, 200,000 jobs,	22:05
	as if a prudent jury looking at all the evidence	22:08
	would really a form the opinion that there would	22:14
	be likely to be sold 501 or 700 models.	22:19
	Interest was treated as if it's no cost at all.	22:26
	Something which is gonna have a payoff	22:30
	only in 1984.	22:32
	Well, I don't want to continue on the different	22:35
	economic arguments, let me simply say,	22:39
	that the argument of the AFL-CIO,	22:41
	and it was a very powerful lobby, in fact,	22:45
	the arm-twisting may have been	22:48
	a little too extreme,	22:49
	and it may have backfired,	22:50
	that this would create jobs in Seattle.	22:53
	That, of course, is true.	22:56
	There would be less jobs in Seattle	22:59
	if we don't have the SST.	23:01
	That this will net create jobs is not true,	23:04
	in this sense.	23:11
	Of course, the expenditure of a billion dollars	23:14
	on a prototype or 800 million or 600 million	23:15
	will create jobs commensurate	23:18
	with a billion dollars spent.	23:20
	But there's nothing more powerful	23:23
	in the way of primary expenditure,	23:24
	or secondary multipliers on SST-like programs	23:26
	than on a great number of other programs.	23:33
	A million dollars, a billion dollars, excuse me,	23:35
	spent on improving our railroads would create	23:38
	as many jobs.	23:40
	In fact, to a first approximation,	23:41
	one ought to assume that the same number of jobs	23:43
	is created per dollar.	23:47
	And the same amount of secondary lease spending	23:48
	on any government project	23:51
	to a second approximation you can take (mumbles)	23:54
	input, output analysis,	23:57
	and see whether this particular program involves	23:59
	more jobs per buck,	24:01
	I think you'll find that the number of jobs	24:04
	per dollar is rather low out in the SST.	24:06
	And in any case, the prototype,	24:09
	which was all that was being discussed,	24:10
	is thought to involve 5,000 jobs or 8,000 jobs,	24:12
	or 13,000 jobs, depending exactly upon how you,	24:16
	how you make your calculation.	24:21
	So, there was no special significance	24:24
	as pump priming from this particular project	24:28
	except for somebody who has a very	24:31
	deep sectoral interest.	24:32
	Of course, Senator Magnuson,	24:35
	Senator Jackson from Washington,	24:36
	everybody understood their problem.	24:38
	They had to be in favor of this.	24:39
	But the question I asked to myself as I testified	24:41
	that is why was the senator from Utah	24:44
	in favor of it?	24:46
	Why was the senator from North Dakota	24:48
	in favor of it?	24:50
	I can only see that these were good God-fearing	24:51
	republicans who went	24:54
	along with the Administration policy,	24:55
	and I will not ask, here at least I won't	24:58
	linger for an answer as to why the Administration	25:00
	was in favor of it.	25:02
	Well so much	25:07
	for that particular, particular question.	25:08
	Let's, we have a few minutes left.	25:12
	Let's talk about the business situation.	25:14
	Is there anything new developing	25:19
	in the business situation?	25:21
	No, we're just at the end of the first quarter.	25:23
	We haven't got the official figures.	25:27
	One thing is becoming very clear,	25:30
	the Department of Commerce has estimated	25:32
	that 20 billion of the increase	25:34
	in the first quarter,	25:36
	we don't know how big that'll be,	25:38
	has come from automobiles alone.	25:39
	And this, despite the fact that for the year	25:43
	the automobile outlook is not,	25:46
	is not very great.	25:49
	I suppose we ought to go along with the notion	25:51
	that when we get the first quarter figures,	25:54
	it'll turn out that the increase is in the range	25:56
	25 billion to 35 billion, as predicted,	26:00
	but it's not at the upper part of that range,	26:03
	but is rather on the disappointing side,	26:05
	let's say 27, 28 billion dollars,	26:08
	and most of that thrust coming	26:11
	from the automobiles.	26:13
	We're marking time, therefore,	26:16
	with respect to whether there'll be	26:18
	a spring pick up, which is at all in line	26:20
	with the more optimistic estimates	26:25
	that have been made by the government.	26:27
	I mentioned in a previous tape that one should	26:31
	be prepared for some rather rapid increases	26:35
	in the rate of the money supply growth,	26:37
	because of the government deposit situation.	26:39
	That has now taken place.	26:45
	We find that in February we had some	26:46
	rather colossal rates,	26:48
	and so the growth even of the narrow money supply	26:50
	is rather strong and if those people are right,	26:55
	who think that this has an instantaneous effect	27:03
	upon the economy,	27:05
	we should, very soon, begin to have	27:06
	a very strong boom in the American economy,	27:08
	but skeptics say there's no sign of that,	27:10
	and one should not expect monetary policy	27:13
	to operate except with a lag.	27:16
-	If you have any questions or comments	27:20
	for Professor Samuelson, address them to:	27:22
	Instructional Dynamics Incorporated,	27:24
	166 East Superior Street,	27:26
	Chicago, Illinois 60611.	27:28

Item Info

Title:

Tape 73 - Grounding the SST an economic argument

Date:

circa 1970 to circa 1971

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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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-0073
ref2285_kyo
samuelsonpaul
duke:325096
pstau001073
ark:/87924/r4639kn2w
a233cea0-86ad-4658-b7da-1c417232c58b

Permalink:

https://idn.duke.edu/ark:/87924/r4639kn2w

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Tape 73 - Grounding the SST an economic argument

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Item Info

Economists' Papers Archive

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