Tape 88 - Review of 1971 3rd quarter statistics

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='//idn.duke.edu/ark:/87924/r46w96r71?embed=true' height='125px' width='100%' frameborder='0' marginwidth='0' marginheight='0' scrolling='no' allowfullscreen></iframe>
Permalink

https://idn.duke.edu/ark:/87924/r46w96r71
Skip to Item Info

Loading the media player...

Files for this Item

Transcript

Transcripts may contain inaccuracies.

Man	Welcome once again as MIT professor Paul Samuelson	0:03
	discusses the current economic scene.	0:06
	His biweekly series is produced	0:08
	by Instructional Dynamics Incorporated and was recorded	0:10
	November 1st, 1971.	0:13
-	[Professor Samuelson] I'm just from a trip to Japan.	0:18
	This is a very exciting time to have visited Japan	0:20
	because there really is a crisis in American,	0:24
	Japanese relations.	0:29
	This takes place at the political level.	0:31
	Has to do with the return of Okinawa to the Japanese.	0:33
	It has to do with whether we will keep military basis	0:38
	on Okinawa and voice of America like	0:42
	voice transmitters there.	0:47
	It has to do with the crisis over negotiations	0:50
	for voluntary quotas in the textual industry.	0:54
	It has to do with the slap in the face which	0:57
	many of the Japanese think President Nixon	1:02
	administered to his best friend in Japan,	1:05
	Prime minister Sato, in connection with the announced visit	1:08
	to China.	1:13
	That is Sato was not informed of it and was left	1:15
	in somewhat of an embarrassing position	1:19
	because it is pro Taiwan anti mainland China policy.	1:22
	Japan also feels it was led down the garden path	1:28
	with respect to it's strong support of Taiwan,	1:32
	that is non communist China in the United Nations.	1:37
	While all these political matters which are not of	1:43
	primary interest to me as an economist,	1:46
	more or less by coincidence happened at the same time	1:51
	and unfortunately at the same time as something	1:55
	which very much does concern economists here in America	1:58
	and economists in Japan.	2:02
	Namely the suspension of convertibility of the dollar	2:03
	and the need for a sizeable appreciation of the yin.	2:07
	These of the dollar.	2:13
	However, rather than discuss Japan today,	2:17
	since I ought to do so in some detail,	2:23
	I would like to discuss a matter that has been	2:26
	a little bit neglected in my tapes of most recent dates.	2:28
	Namely, what is happening to the American economy,	2:32
	what's happening to the business situation.	2:36
	It's appropriate that I do so because we now have	2:39
	the third quarter GMP numbers.	2:42
	We now can see how the end of the year is going to behave.	2:45
	Furthermore, this is a subject of very great interest.	2:49
	My phone has been ringing ever since I came back,	2:53
	newspaper reporters and other people asking about	2:56
	the stock market.	2:59
	The stock market, a professor of economics hears from,	3:00
	when it's acting up or when it's acting down.	3:05
	Well recently it's been acting down.	3:08
	Actually, the dow Jones averages and I think other averages	3:10
	would probably confirm that, went down for 11 days in a row.	3:15
	My memory's a little bit hazy, but I think that	3:19
	either 11 or 12 days in a row is the absolute record.	3:22
	So I was rather anticipating with some small amount of	3:26
	boyish glee, that we would establish a new record.	3:32
	Once you've got 10 or 11 in a row down movements	3:39
	under your belt so to speak, since I believe	3:44
	that the law of averages operates in such a way	3:48
	that each day is somewhat of a new random event,	3:50
	I thought there was a very good chance we might run up	3:54
	a record of 14 dow in a row.	3:56
	But that rather childish sweepstakes was	3:59
	brought to an end by a slight rise on the 12th day.	4:06
	I may say that I think nobody should attach any	4:12
	importance to whether our even establishing a record	4:15
	of 18 in a row, in a matter like this, what counts	4:20
	even for the person who is in the market	4:24
	on borrowed money, and who is very anxious there	4:28
	to have the market not to drop, is where the market stands,	4:30
	how far it's dropped and not the particular path	4:37
	by which it's got there.	4:39
	I sight the behavior of the stock market	4:43
	not because it's the most dramatic behavior	4:46
	that the market has shown us in recent times,	4:49
	but because I know many listeners of this tape	4:52
	are interested in it and because I know that	4:55
	it is both the reflector and the cause of concern	5:00
	by people as to whether all the different GMP forecasts	5:05
	that I and other economists talk about	5:11
	are in for a very considerable change.	5:15
	Let me begin by answering your question which a subscriber	5:22
	has just sent me.	5:25
	He said, how did the 1065 sweepstakes turn out	5:27
	now that the end of the year is in sight?	5:31
	I think the end of the year is in sight.	5:34
	It's not possible to pinpoint what the 1971 GMP numbers	5:35
	will finally be, but I think it's a pretty good bet	5:41
	for you to make, that the final calendar year at GMP	5:44
	will be in the neighborhood of 1051,	5:48
	or 1052 billion dollars.	5:54
	This means that the fashionable forecast	5:58
	which was the 1045 to 1050 based upon	6:01
	price expectations, price behavior, budget numbers,	6:07
	likely adjustment to the budget numbers of last January	6:14
	has turned out to be unbelievably close to the true mark,	6:19
	almost exactly on the nose.	6:22
	And it means of course, that the 1065 billion	6:25
	official forecast in which almost nobody believed	6:30
	outside of Washington, has been very far off the nose.	6:35
	It also means that the real output that corresponds	6:39
	to that 1065 billion number is even more off the nose.	6:42
	Now let me turn in detail to where we stand	6:50
	and where we're likely to be by the end of the year.	6:55
	Obviously, when I gave the number like 1052,	7:00
	I was assuming something about the fourth quarter increase	7:03
	in GMP, and we have no idea yet	7:07
	what that actual number will be.	7:11
	All we can do is make a forecast.	7:15
	I should point out however, that it takes	7:17
	a four billion dollar change in your fourth quarter GMP	7:20
	to make a one billion change in the calendar year figure.	7:25
	And that's why with more than my usual confidence	7:32
	I name a number like 1052.	7:35
	Now I wouldn't be a bit surprised if it was 1051	7:39
	nor if it was 1053, but I must confess	7:42
	that I would be somewhat surprised,	7:46
	and you ought to be very much interested	7:49
	because it would show that something very dramatic	7:52
	was happening in the fourth quarter if it is	7:53
	very much outside of that range.	7:56
	The third quarter numbers are in.	8:00
	The GMP as pretty much expected by most GMP forecasters,	8:03
	the sort of people who build up the total	8:11
	from its components, the eclectic post change	8:12
	in forecasters,	8:17
	they had expected it to be a weak fourth quarter	8:17
	and it has lived up to its billing.	8:21
	In money terms, it represented only	8:25
	a 16 billion dollar increase in GMP which would be	8:28
	extremely low indeed, were not for the fact that	8:33
	this third quarter is the quarter in which	8:40
	the president introduced his August 15th wage freeze.	8:44
	That comes right at the middle of the third quarter.	8:48
	We have had its benefits so to speak, for the last half	8:52
	of the quarter only	8:57
	and those benefits showed themselves in a reduction	9:00
	in the official deflator price index from more than	9:04
	a four percent rate of increase to	9:10
	very little more than a three percent rate of increase.	9:15
	Between three and three and a half percent	9:18
	as I remember the numbers.	9:19
	So the real output increase for the fourth, third quarter	9:22
	is not quite as depressed in its increment	9:27
	as the money number suggests.	9:31
	On the other hand, it is also quite low	9:34
	and definitely below that level which is needed	9:38
	just to hold our own with respect to the overall level	9:42
	of unemployment as affected by the increase	9:46
	in labor force, that's increase in population	9:52
	due to demography and increase in productivity.	9:55
	It's not surprising that the third quarter	10:01
	should of been weak because	10:04
	it is obvious that the first and second quarters	10:06
	borrowed some strength from the third quarter	10:10
	in terms of strike adjustments and anticipation	10:13
	of strike adjustments.	10:19
	This takes me back to a little exchange	10:21
	of correspondence I had with one of our subscribers	10:25
	on the second quarter.	10:27
	He asked me what benefit I get from monitoring this forecast	10:30
	and I said, I get the great deal of benefit because	10:34
	I always modify my own views	10:39
	that are based upon no consideration of what's happening	10:44
	to money market conditions and money supply	10:50
	by the indications, the best indications	10:53
	as I can interpret them of what's happening	10:57
	in the money market.	10:59
	And this is one of several factors that I put together	11:00
	in making my view of the current situation	11:03
	and what's likely to happen.	11:06
	But I wrote to him roughly, I was a little bit misled	11:08
	by my eclecticism in this case because I wrote up	11:12
	my GMP numbers mentally by two or three billion dollars	11:16
	because of the very rapid rate of growth	11:21
	of the money supply.	11:23
	In other words, the struggle message had got through to me	11:24
	and unfortunately that constituted almost the totality	11:27
	of my error.	11:33
	Well your correspondence is never finished because of course	11:34
	the numbers were revised later and it turned out	11:38
	that that little supson of adjustment which I had made	11:40
	was exactly what was needed to put my error,	11:45
	my estimate on the nose and get rid of the	11:49
	over, underestimate which I would have had in terms of	11:54
	the revised figures.	11:58
	Nonetheless, I didn't make too much of that	12:02
	because I thought and the third quarter data now	12:04
	tend to confirm this, that the little bit	12:08
	greater strength in the second quarter	12:13
	was quite possibly borrowed from the third quarter	12:16
	and was due to inventory behavior in steel.	12:19
	And we would pay for in the third quarter	12:23
	and that has been indeed the case in the third quarter.	12:26
	The savings ratio dropped a little.	12:30
	That perhaps is reassuring to some economists.	12:36
	But I must say that I do not think that there's a narrow ban	12:42
	based upon history within which you can project	12:47
	saving a ratios.	12:51
	In other words, I don't believe in either the invariance	12:53
	through time of Cajun average propensities to consume	12:57
	making them very reliable for a prediction	13:01
	nor do I believe in longer periods of time	13:05
	that there are strong invariance with respect to	13:09
	the ratio of permanent incomes that are permanently saved	13:14
	on the average.	13:19
	I expect economic magnitudes like these to drift,	13:21
	to be subject to trans to wander.	13:26
	At this point, I perhaps should mention a name.	13:30
	While I was out of the country, the very good news came that	13:34
	Professor Simon Kusnits, now Professor of merits	13:37
	from the University, from Harvard University	13:40
	but who did much of his great work	13:44
	when he was still at the John Hopkins University	13:47
	and at the University of Pennsylvania,	13:50
	in affiliation with the National Bureau of Economic Search,	13:52
	that Simon Kusnitz received the Nobel Award in economics	13:56
	for 1971.	14:00
	I heard of this news in Hawaii.	14:03
	I was talking there to some bank economists	14:05
	and academic economists, and that particular information	14:08
	was received with the greatest of approbation.	14:13
	The same act was repeated when I went to Japan.	14:17
	Professor Simon Kusnitz is very popular	14:19
	within the profession and he is recognized	14:22
	as an economist economist	14:25
	and as extremely deserving of this award.	14:27
	And I suppose that the bookmakers in Las Vegas	14:32
	were really not at all surprised because he must certainly	14:36
	have been one of the favorites in the sweepstakes.	14:39
	Now I mentioned his name at this point	14:42
	because back as long ago as 1940 at the University	14:44
	of Pennsylvania convocation, Simon Kusnitz	14:51
	gave us historical material on the saving rate	14:54
	and he stated what I could call Kusnitz' law.	15:00
	It's perhaps more often called Dennison's Law	15:04
	after Ed Dennison, namely that the American economy,	15:07
	tends over the long period of time,	15:12
	to have about a constant rate of saving	15:14
	out of full employment income,	15:18
	that you expect some temporary changes	15:20
	in the average rate of saving, related to the business cycle	15:22
	but if you use decade averages or semi decade averages,	15:26
	if you allow separately for the influence	15:30
	of the business cycle, then there is a fundamental constant	15:32
	I can't remember what the number is, it depends	15:36
	upon whether you use the personal savings	15:38
	or whether you're using total savings, exclusive of	15:41
	or inclusive of government.	15:44
	Let's say 12 percent of this GMP or the NNP,	15:46
	national product that goes to savings.	15:50
	That particular rule of thumb holds well	15:53
	in American history.	15:57
	It has been confirmed by the massive researches of	15:59
	Doctor Raymond Goldsmith for the National Bureau	16:02
	of Economic Research.	16:06
	Raymond Goldsmith is now at Yale.	16:08
	It's been confirmed by various studies that	16:10
	Dennison and others have made.	16:13
	But I want you to know that as I have	16:15
	reviewed economic history and as I have formed	16:19
	my judgment of the causal forces that are at work here,	16:22
	that I don't believe in variances in economics.	16:27
	I think that's interesting and lucky phenomenon.	16:30
	But I see no reason why it should not drift	16:34
	through time and I base this view upon experience.	16:36
	I've just been looking at some German data	16:40
	and if you look at the percentage of personal savings	16:43
	that the Germans did in 1950 and what they did	16:48
	in 1960 and what they did in 1970,	16:51
	you will find a very strong upward drift in those numbers.	16:55
	Perfectly to be understood, perfectly natural.	16:58
	The Germans came out of a disastrous war	17:01
	desperate for real things and naturally	17:04
	their saving propensities were extremely low.	17:08
	After no less than two decades of miracle,	17:11
	they are fairly saturated in their needs	17:14
	for consumers durables and consumer services	17:17
	and non durables.	17:20
	And they're in a position to have a more	17:21
	ample margin for discretionary savings.	17:23
	I bring this up not because the United States will	17:29
	apishly follow Germany, but because what can happen	17:31
	in one economic millia, generally speaking,	17:37
	can happen in another.	17:41
	The third quarter numbers were helped enormously	17:43
	by the good behavior of automobile sales.	17:50
	That is the one area in which the president's	17:54
	August 15th bomb shell is programmed	17:58
	to remove the excess tax which will be confirmed	18:01
	no doubt by economists, has worked.	18:05
	This has been a good time to buy a car,	18:08
	both a domestic car and a foreign car.	18:11
	It's been a good time because the price is	18:15
	more or less frozen and one suspects the price will go up.	18:18
	And secondly, the excise tax has been removed.	18:23
	On the foreign cars, there are still some imports around,	18:27
	not very many left I suppose, which have been so to speak	18:30
	in transit which were not subject	18:34
	to the 10 percent surcharge.	18:36
	People do respond to inter temporal	18:38
	substitution possibilities of this type.	18:43
	Of course, there is some supposition that	18:47
	we will pay for this, that this is borrowing	18:50
	against the future.	18:52
	In terms of overall demand, it's hardly likely	18:53
	that the percentage increase in the whole model year	18:56
	of the new 1972 model cars, will be increased as much	19:01
	by a suspension reduction of the seven percent surcharge	19:05
	as the first months.	19:12
	And I noticed that in the year to year comparisons	19:14
	that although General Motors of course is doing	19:17
	extremely well in comparison with last year	19:20
	when it was on strike, and although Ford interestingly	19:21
	is doing very well, Chrysler is doing quite badly	19:25
	in comparison with a year ago.	19:32
	I don't know whether this means an absolute weakness	19:34
	in Chrysler sales.	19:36
	It does that relative to, it does suggest that	19:39
	relative to Ford.	19:41
	But remember, there must of been some swollen Chrysler sales	19:43
	because of the unavailability of General Motor cars	19:46
	a year ago.	19:49
	And therefore, one should rectify the comparison	19:50
	for more normal conditions.	19:55
	Since I mentioned earlier monetarism and since I do	19:58
	pay serious attention to whatever extra insights	20:05
	I can receive from monetarists projections,	20:09
	I might just keep us current with the federal reserve bank	20:14
	of St. Louis forecasts.	20:20
	The Federal Reserve Bank of St. Louis forecast	20:24
	that I make from their last	20:27
	issued set of equations would have suggested that	20:33
	the third quarter would increase by about	20:38
	28 odd billion, which is a fairly considerable error.	20:43
	Now you might say that they were unaware of the wage	20:52
	price freeze and that's true and I will make	20:55
	whatever adjustment seems appropriate for that.	20:59
	But as I understand their methodology,	21:03
	their causal relationship is such that they believe	21:05
	that that would affect their estimate of real output	21:10
	and not their estimate of money output	21:13
	because nominal GMP or money GMP is what it is	21:16
	that is closely related to the previous behavior	21:21
	of the rated change of the money supply.	21:26
	If you write the money GMP, nominal GMP	21:29
	as price times quantity, average price level	21:33
	times average quantity level, PQ,	21:38
	as I understand the methodology, it's the product PQ	21:39
	and not the separate factors which is in that	21:43
	invariant relationship to their independent variables	21:47
	the rate of change at the money supply.	21:50
	So this has to go down as an error.	21:52
	Now, we know that the most recent behavior	21:56
	of the rate of increase of the money supply	22:00
	has shown change.	22:03
	After very rapid rates of increase of the money supply	22:04
	in the first part of the year.	22:07
	In this last quarter, since August, we've had some	22:09
	very considerable reduction of the rate of increase	22:13
	of the money supply.	22:15
	Now, I've taken that into account in my use	22:19
	of their equations because there's very	22:24
	relatively small weight, there is positive weight	22:26
	given to the most recent behavior of the money supply	22:31
	but it's modest in comparison with the whole four quarter	22:34
	pattern of lag rates.	22:40
	So even if I had not made appropriate adjustment for this,	22:42
	say, you want to put in 25 billion,	22:48
	you will still have a very considerable	22:51
	increased error from this method of prediction.	22:54
	Actually, a couple of equations that I have been	23:00
	working with in my one workshop,	23:05
	has been the Federal Reserve Bank of St. Louis	23:08
	methodology applied to not M1,	23:12
	demand, deposits and currency which is what	23:17
	the Federal Reserve Bank of St. Louis	23:21
	publishes regularly, but to what I understand	23:23
	a considerable number of monetarists think is even better	23:26
	which is M2.	23:29
	This with savings banks included.	23:30
	And on the basis of that particular methodology,	23:34
	we've had some rather colossal errors in	23:40
	the third quarter numbers.	23:46
	Well, we may pick up	23:49
	at a tone for some of those errors in the	23:52
	fourth quarter.	23:55
	How much of an increase in GMP seems to be indicated	23:58
	for the fourth quarter?	24:02
	When we we're a little bit farther away from it,	24:04
	most of the GMP forecast which I have seen	24:07
	show a rather sharp upswing in the fourth quarter.	24:11
	Let's say more than 25 billion dollar increase.	24:17
	We go from 16 billion then to more than 25.	24:21
	But as we are now in the fourth quarter	24:23
	and as the strength of the economy is revealing itself,	24:26
	I notice a tendency for the forecasters to	24:29
	run to cover and I think you would get a more popular	24:31
	consensus around New York in the banking world,	24:36
	and in the corporation world, if you were to bet	24:41
	that the current fourth quarter increase in money GMP	24:44
	will be of the order of magnitude in	24:49
	of 21 billion, 22 billion, 20 billion, 23 billion	24:54
	and on the base of those numbers,	24:59
	that I announced the likelihood of a 1051 or 1052	25:02
	yearly figure.	25:09
	The leading indicators in September,	25:12
	again showed a decline.	25:17
	This is the second decline.	25:20
	I think that the leading indicator method	25:22
	is not terribly valuable but it's not something	25:26
	that as an eclectic forecaster I would disregard.	25:29
	It's telling us that the boom,	25:32
	the recovery is still a fairly anemic one,	25:37
	that things have not taken off as a result	25:41
	of the August 15th bombshell by President Nixon.	25:45
	Profits are now discernible for the third quarter.	25:51
	They are running about level with the fairly good profits	25:58
	of the second quarter and that means they're running ahead	26:03
	of profits a year ago.	26:05
	This of course is one of the things that has perplexed	26:08
	Wall Street.	26:12
	With interest rates down and interest rates have been down,	26:13
	it has been one of the beneficiaries of	26:17
	the President's wage price freeze,	26:19
	presumably because inflation or expectations have been	26:22
	lessened although there are some floor fund reasons	26:25
	for it as well.	26:28
	And with earnings maintained and the outlook	26:29
	for earnings to go up, many people had hoped	26:33
	that the stock market would show an increase.	26:36
	It almost makes one a superstitious chartist.	26:40
	You know that on August 16th, the day after	26:43
	the President's message, the market took a big jump,	26:48
	left what the chartists call a gap.	26:51
	And just as a murderer always returns to the scene	26:53
	of his crime, so the stock market is always	26:56
	suppose to return to fill that gap.	26:59
	I laughed when I read this.	27:01
	But the people at whom I laughed may think	27:04
	that the laugh is on the wrong side of my face	27:08
	because we are now down below where we were	27:09
	when the President made his announcement	27:15
	on the stock market and we've gone their continuously	27:16
	so we have nicely filled that gap.	27:19
	This means among the optimists in the stock market	27:22
	and they seem not to be the little fellow,	27:24
	they seem to be the institutions that	27:26
	the gap having been closed may be the base is laid	27:29
	for an advance.	27:32
	But that's something upon which your commentator	27:34
	will now comment.	27:36
Man	You're questions and comments	27:38
	for Professor Samuelson should be addressed	27:39
	to Instructional Dynamics Incorporated,	27:41
	166 East Superior Street, Chicago, Illinois, 60611.	27:44

Item Info

Title:

Tape 88 - Review of 1971 3rd quarter statistics

Date:

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

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-0088
ref2315_bed
samuelsonpaul
duke:325111
pstau001088
ark:/87924/r46w96r71
8f45b054-651a-4afd-992f-68a5aea2fd11

Permalink:

https://idn.duke.edu/ark:/87924/r46w96r71

Sponsor:

Sponsor this Digital Collection

Tape 88 - Review of 1971 3rd quarter statistics

Transcript

Item Info

Economists' Papers Archive

More Info & Options