Tape 41 - Inflation; youth and economics

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-	Hello again and welcome as Professor Paul Samuelson	0:02
	reports on the current economic scene.	0:04
	This biweekly series is produced and recorded by	0:07
	Instructional Dynamics Incorporated of Chicago.	0:09
	Dr. Samuelson we're now in the final month of	0:13
	1969 what would you like to talk about today?	0:15
-	In a few days I'll be making the more or less	0:18
	formal forecast of economic conditions for the coming year	0:22
	of 1970 so today I'd like to	0:26
	stay away from that subject	0:30
	and discuss some other important issues.	0:32
	First a subscriber has asked me	0:37
	how I stand on	0:42
	the following problem.	0:45
	I've pointed out in some of my earlier tapes that	0:49
	the only way that we seem to know how to moderate	0:54
	the inflation is by engineering some amount of retardation.	0:59
	And the more retardation we	1:05
	contrive presumably the greater	1:10
	will be the moderation of the inflation.	1:12
	In the short run therefore, there is a trade off or seems to	1:16
	be a trade off between say the rate of unemployment	1:19
	and the rate of inflation.	1:23
	But my subscriber says Professor Friedman	1:26
	in commenting on the same matter	1:31
	said and I hope that he is quoting	1:34
	the other tape more or less correctly.	1:38
	That Professor Friedman agreed pretty much with what it was	1:42
	that I had said.	1:47
	But he thought that there were certain implicit things	1:50
	that I should have said.	1:53
	And that if you	1:55
	took those into account that would change the thrust	1:59
	of the observation.	2:02
	Now I gather that the argument went something like	2:03
	the following.	2:07
	Professor Samuelson speaks of a trade off between	2:10
	unemployment and inflation	2:13
	but in fact there is	2:17
	no such trade off between them in the longer run.	2:20
	There really is no alternative choice	2:24
	between more unemployment and more inflation	2:29
	because over the longer run you're going to have	2:32
	about the same amount of unemployment.	2:34
	The only choice is when you're going to have it.	2:37
	Now do I agree with that?	2:40
	Having omitted to make that observation myself	2:43
	would I not want to amend the record and now affirm	2:47
	my agreement with that position?	2:52
	With respect I do not agree.	2:57
	I see some merit in the view that the unemployment	3:02
	at different periods of time	3:06
	the unemployments are related.	3:09
	For example I have long argued in writings and	3:12
	have mentioned on these tapes	3:16
	that in some degree the sluggish 1950s which were more	3:19
	or less contrived or countenance or engineered	3:25
	by the Eisenhower Administration did have something	3:28
	to do with making the problem easier for	3:32
	John F. Kennedy at the beginning of 1961 to	3:35
	have a very long expansion.	3:41
	And so I agree in fact to put it in more technical	3:43
	terms we have in the short run a so called Phillips Curve.	3:47
	This Phillips Curve is a rather superficial concept	3:52
	of description but its a pretty good concept	3:57
	of description I think for the short run on which	4:01
	you are to plot the amount of unemployment	4:05
	against the rate of price or wage increase.	4:09
	Now in the longer run I don't think you stay on the	4:13
	same Phillips Curve.	4:16
	I think that there is what the engineer would call	4:17
	historicist an influence of the past.	4:20
	And any sort of a realistic Phillips Curve would	4:23
	want I think to be some kind of a weighted average.	4:26
	Probably with diminishing weights as you	4:32
	go into the lagged past of past	4:35
	looseness or unemployment in the labor market.	4:39
	And so in the longer run the Phillips Curve tends to twist.	4:44
	I don't suppose that we can be expected to have visual minds	4:48
	and be geometry wizards so I'll simply	4:56
	leave it at the statement that	5:01
	the curve tends to become more vertical.	5:04
	It tends to move in a clockwise direction in the longer run.	5:08
	However this does not mean that I think the evidence	5:14
	is available to	5:19
	support a much stronger view	5:22
	which is that there is a fundamental constant	5:25
	amount of unemployment over time.	5:28
	And this law of conservation of unemployment	5:30
	if it existed ought to be elevated to the dignity	5:33
	not quite of the law of conservation of energy	5:36
	the first law of thermodynamics,	5:39
	but certainly it would be a very powerful uniformity	5:42
	to know about and to take a count of if it did exist.	5:46
	However I do not see how in	5:51
	the evidence one time of	5:56
	history that we have we can have any confidence in	5:57
	asserting that there is a natural rate of unemployment.	6:03
	Before rejecting that view however let me give a	6:07
	bit of evidence in its favor.	6:11
	I must say that this bit of evidence carries some	6:13
	weight with me.	6:16
	It doesn't convert me to the position but it tends	6:17
	to explain to me something about the long run	6:21
	shifts in the Phillips Curve.	6:24
	According to the argument that I now wanna make	6:27
	we should think of an existing amount of inflation	6:31
	as being more or less anticipated.	6:36
	If the inflation has been going on for a very long time	6:39
	at about the same percentage rate we can suppose that	6:42
	it has been well anticipated and if it's a very	6:46
	new inflation we can suppose that only the cannyist	6:50
	and most sensitive people are alert to it.	6:54
	And a lot of other people are asleep at the switch	6:58
	and just haven't noticed it.	7:00
	Now according to this view the behavior of unemployment	7:01
	and prices should be related to the discrepancy between	7:08
	the actual amount of inflation going on and the	7:12
	amount which has been commonly anticipated.	7:15
	Now if the inflation were completely anticipated.	7:19
	So goes the argument then the inflation doesn't do anything	7:23
	for you, with respect to lowering unemployment.	7:28
	I think here a new argument has been brought in and	7:32
	I do not go along with that.	7:38
	I cannot myself develop a model which seems to me to be	7:42
	a realistic which operates solely on the difference	7:48
	between some kind of anticipated rate of inflation.	7:52
	As measured let's say operationally by some	7:56
	kind of a distributed lag of past price increases	8:00
	and the actual rate.	8:05
	And so I don't believe	8:08
	that anyone can believe that there was	8:13
	a certain amount of unemployment which we were destined	8:17
	to have in the 1950s and the 1960s.	8:19
	I'd like to know what that number was by the way.	8:22
	And that because Eisenhower chose not to have	8:25
	it in the 1950s not to have the high employment	8:28
	and took the high unemployment.	8:33
	Then Kennedy was allowed to have just that amount	8:35
	that was left over in the 1960s without creating	8:39
	inflation and by 1965 it wasn't his luck that had run	8:44
	out but his overdraft on the bank	8:49
	had run out.	8:53
	Well now I don't know what that	8:54
	average rate of unemployment is	8:57
	I think that its gratuitous to look back	8:58
	in history measure as you certainly can ex post after	9:02
	the fact how much unemployment there was in 1950 and 1960.	9:05
	But I think it is an act of scientific arrogance to	9:10
	extrapolate from that and say that that	9:14
	was pretty much what had to be.	9:16
	It need ant be that the law of conservation of unemployment	9:19
	if somebody is rash enough to hold that view holds	9:22
	precisely on a decade basis.	9:26
	But I would remake my argument if somebody says that you	9:27
	should use dozens of years as your couple dozen years	9:31
	for example as your units.	9:35
	So I sympathize with the problem that current	9:39
	administration has which is to moderate the rate of	9:43
	inflation, to pick the proper dosage between how	9:47
	much unemployment, how severe a national bureau recession	9:52
	they wish to have.	9:56
	But I don't think I want to amend my earlier remarks	9:59
	and say that there is no choice.	10:04
	That there always is the same	10:05
	amount of unemployment over time.	10:06
	However in leaving this topic let me say this.	10:09
	Suppose the theory that I have been criticizing	10:13
	and rejecting were true.	10:16
	What follows from that?	10:20
	I think that you find in social events in	10:22
	political behavior in the	10:28
	economic calculus of	10:31
	democratic voters something like	10:34
	a time preference.	10:39
	We all hate war but we would prefer to have any war	10:41
	that has to be in the future rather than in the present.	10:46
	So just as a hamburger on Tuesday, is not worth	10:49
	as much as a hamburger on hand today Friday say.	10:54
	So future good things	10:57
	aren't worth quite as much as present good things.	11:00
	If that's the case and there were over the longer	11:04
	run a certain average amount of unemployment	11:08
	that has to be enjoyed or endured	11:12
	depending upon which verb you want to use.	11:15
	I think one could set up a model which would represent	11:18
	pretty well the behavior of electorates in which	11:21
	you tried to maximize	11:25
	a sum	11:28
	averaged out over	11:32
	a long period of time of well being as measured	11:33
	by the rate of growth and the rate of unemployment.	11:37
	But with a systematic preference for the good things	11:41
	to happen early and the bad things other things being	11:45
	equal to happen a little bit late.	11:49
	In that case accepting the notion of an inevitable	11:51
	average amount of unemployment the rational	11:55
	solution to the maximum problem that I have just discussed	11:59
	would be for us to always have a little more steam in the	12:04
	boiler than would be optimal in the steady state	12:10
	because we are so to speak borrowing high employment	12:14
	now against the future and we have to pay	12:20
	back for it and pay back for it in perpetuity	12:25
	for our systematic time preference by enduring	12:28
	a more unemployment on the average in the future.	12:33
	And this would be a rational solution to the problem	12:37
	under present behavior.	12:40
	I mean under the present assumption about systematic	12:43
	time preference.	12:46
	Now let me stand back a little and see what that	12:47
	rather high falutin' quasi mathematical	12:51
	consideration leads to.	12:54
	I think it leads to a notion something like the following.	12:56
	We're in a state of flux in our democracy.	13:02
	We don't know what the future brings.	13:05
	We are I hope winding up one rather difficult	13:08
	and not completely popular war.	13:14
	We may find ourselves in a new war in the future.	13:16
	I hope not but one cannot guard against that.	13:21
	But life is very uncertain between now and 10	13:25
	years from now and 15 years from now and 20 years from now.	13:28
	And therefore perhaps one should put off to the day	13:32
	the evil thereof and live more in the present.	13:36
	Should one for example invite because by anybody's theory	13:43
	this is a possibility.	13:50
	Should one invite violence in the ghetto as	13:52
	retardation and recession causes there to be more and	13:56
	more unemployment?	14:01
	Now it may be that its buying something for us in the	14:03
	future but by the time the future comes all bets may be off.	14:05
	We may be in a quite different situation and therefore	14:10
	the very uncertainty of modern life and here I	14:14
	mean modern political life.	14:18
	Seems to me to justify in a sense this systematic	14:20
	preference for the present over the future.	14:26
	After all its always been considered one of the rational	14:29
	reasons for time systematic time preference.	14:32
	Preference for the present as against the future	14:37
	that you're going to not live forever.	14:39
	You remember the parable I suppose its from Esop that	14:44
	we're all brought up on as children	14:49
	about the ant and the bee.	14:51
	No its not the ant and the bee,	14:54
	its the grasshopper and either the ant or the bee.	14:56
	The grasshopper is a lazy fellow who plays all	15:01
	summer long and the bee is the industrious fellow	15:04
	who gathers honey and stores it away in honeycombs	15:08
	against the vicissitudes of winter.	15:12
	And we as children are supposed to learn what	15:15
	poor Richard's almanac would teach or what the	15:20
	Puritan ethic tended to stress the virtues of thrift.	15:24
	Now in this context I'm not going to speak out against	15:28
	thrift but I just want to mention the	15:31
	answer given by the naturalist to this problem.	15:35
	He says very sensible for grasshoppers to do what	15:37
	they are doing because they're all	15:40
	going to be dead in the winter.	15:41
	And it would be like piling up treasures in heaven	15:43
	for them to pile up things and by the same	15:48
	definition of what survives	15:53
	and how evolution has	15:56
	made this species accommodate itself to its	15:59
	ecological niche its sensible for the bee in its case	16:02
	to be doing what it's doing.	16:06
	Well we are a little bit in the modern world alas and lack	16:08
	like that grasshopper.	16:12
	Its not certain that we won't be here.	16:15
	Its not certain that the future won't be serene.	16:17
	But there's a good chance of it.	16:22
	And so in these uncertain times I think a case	16:25
	could be made, and any case I believe the listeners	16:30
	of this tape will understand better the intellectual	16:32
	case of those with whom perhaps they disagree.	16:36
	I have mind at this time the young people who	16:39
	increasingly in our universities show an impatience	16:44
	about the speed of reform if you take	16:48
	this matter into consideration.	16:51
	Well now I've given myself the cue for the second	16:55
	topic that I wanted to speak about today.	16:58
	That cue was in the mention of	17:01
	young people in our universities.	17:04
	I participated a couple of weeks	17:08
	ago at an American Bankers Symposium.	17:11
	This symposium by the American Bankers Association	17:16
	was held in Washington at the Mayflower hotel.	17:19
	Its one of a number that annually	17:23
	or at perotic intervals	17:27
	they hold and it was I think regarded by those	17:30
	who attended as one of the more interesting ones.	17:34
	Now let me tell you about it.	17:36
	The general topic of the meeting was economic	17:38
	understanding for the future.	17:42
	And in particular my assignment was to talk about that.	17:45
	I was asked I suppose as a textbook writer in economics.	17:49
	As a teacher of undergraduates and graduates.	17:52
	But I probably wasn't asked there as a teacher of graduate	17:56
	students but as a teacher of undergraduates.	17:59
	To talk on the problem of economic understanding	18:02
	for the future.	18:06
	And as happens in the American Bankers Association	18:07
	because they work out the agenda very carefully for this.	18:10
	Quite a number of questions were put to me about which	18:14
	problems are solved or unsolved that	18:18
	are coming up in the future.	18:21
	Now I was extremely happy to talk about those problems.	18:24
	But in fact I found myself being carried away	18:29
	for the bulk of my written remarks and	18:33
	my oral remarks by a related topic.	18:36
	President John Coleman of Havorford College was the	18:42
	person given charge of preparing the program.	18:48
	He was the one who actually invited me to speak.	18:53
	Now Jack Coleman is an old friend of mine.	18:55
	Actually a former colleague here at MIT.	18:58
	He went on from there from here to Carnegie Tech where	19:01
	he was a professor in industrial relations.	19:06
	Became a Dean and then he went on from there to	19:08
	the Ford Foundation where he was concerned with	19:10
	minority problems, particularly problems of	19:13
	the black handicapped community.	19:15
	And then received a call to the	19:18
	presidency of Haverford College.	19:20
	And I think he's found this an	19:22
	extremely interesting occupation.	19:23
	Now you know people are not universally keen these	19:27
	days to be presidents of colleges because its a pretty	19:31
	tough firing line that you're on there.	19:34
	Students are so to speak off the reservation.	19:38
	They're very obstreperous we have sit-ins.	19:42
	We have non violent and violent confrontations.	19:45
	And so a good deal of my paper turned out to	19:50
	talk about this problem of student frame of mind	19:55
	and its bearing upon economic understanding for the	19:59
	future and teaching.	20:03
	And all of Jack Coleman's paper was on	20:04
	this particular subject.	20:08
	His was a very eloquent paper.	20:10
	If anyone is interested these proceedings in due course	20:13
	become published and	20:18
	by writing to the American	20:21
	Bankers Association in New York I'm	20:22
	sure that you can get copies.	20:24
	In Coleman's speech which as I say was very eloquently	20:29
	written and very eloquently delivered.	20:35
	He said that a modern youth is really great.	20:38
	They're in a sense greater than we are because	20:43
	they are very honest and they will not stand	20:47
	for hypocrisy where as we of the older generation	20:50
	talk about certain things but in fact we	20:54
	condone a state of affairs which is contrary	20:58
	to high ideals that we talk about.	21:01
	And President Coleman more or less said	21:05
	that the problem is really for us.	21:08
	They don't have the problem so much as we	21:12
	because they are in a sense solving their problem.	21:15
	Now I shan't try to quote his paper.	21:18
	I council you to get hold of it and read it	21:22
	for its intrinsic interest.	21:25
	But let me tell you what I talked about.	21:28
	I mentioned that there are certain unsolved	21:32
	problems of the future.	21:35
	Certain problems where as a textbook writer	21:37
	and as a communicator I wanna educate the public	21:39
	on one of them as an example as a nicely solved problem	21:42
	by in large is	21:47
	the need to get some flexibility	21:50
	in our foreign exchange rate mechanism.	21:52
	All my listeners know this aspect of the problem.	21:55
	Then I simply said that the academics	22:00
	have for a long time thanks in good part to	22:02
	Professor Milton Friedman have been ahead of the	22:06
	men of affairs.	22:08
	But the men of affairs have been moving over	22:09
	in that direction and there remains a task	22:11
	of education for the men in the street.	22:14
	Then as a second problem which is far from	22:18
	being solved, I mentioned that of the need for a so	22:21
	called quote incomes policy, end of quote.	22:24
	This isn't a very good name but its a name	22:29
	for a problem namely how can a modern mixed	22:32
	economy like ours or like those all over the world	22:35
	simultaneously enjoy high employment, full employment	22:40
	and reasonable price ability?	22:43
	Almost no economy mixed economy in the world	22:46
	seems to have been able to work	22:49
	out a solution to that problem.	22:52
	And here I said a quite different kind of communication	22:54
	problem comes up.	22:57
	Its not so much that we know something	22:58
	and we have to package it and teach	23:00
	it properly but how can you communicate	23:02
	what you yourself don't know?	23:05
	And we do not yet have at the frontier	23:07
	of scientific research a body of agreed upon findings	23:09
	which enables us to say the direction	23:15
	in which this problem is to be solved.	23:19
	I've just been editing a set of readings	23:23
	for elementary students and I found	23:26
	it very hard I may tell you to find a spokesman	23:28
	for the view for direct wage and price controls.	23:31
	I finally had to settle for Professor John Kenneth Galbreth.	23:34
	Because he had	23:37
	years ago actually in 1951	23:41
	testified in favor of price and wage controls.	23:43
	And that was the best that I could do.	23:46
	Well now in all of this I was responsive	23:50
	to the particular questions put to me on the agenda.	23:53
	But I said I must go on and talk about what concerns	23:57
	me as a teacher of economics in 1969,	24:02
	1970 looking at the current scene.	24:07
	And that is my fear that a substantial fraction	24:10
	of the finest minds of the younger generation	24:14
	will simply tune out of economics.	24:18
	And I gave a specific example.	24:21
	Its an example that is only	24:24
	one of many instances.	24:27
	There is at Harvard University a course given in	24:30
	quote radical economics.	24:34
	It is not given with the economics department	24:37
	label because the economics department	24:39
	I think feels that it isn't quite up to their	24:41
	particular standard.	24:44
	So it has a social science sox ai label.	24:46
	But its quite a popular course.	24:50
	I have looked at the reading list for it.	24:52
	It obviously unlike perhaps some such courses	24:55
	has been prepared with great care.	24:59
	The reading list is long, its carefully compiled.	25:01
	And the committee that worked on it	25:05
	shows a reasonable amount of input	25:10
	and yet I expressed my concern.	25:13
	Now why?	25:14
	I said its my understanding in order to take this course	25:15
	you do not have to have had an elementary course	25:19
	in standard economics.	25:23
	There's no prerequisite for the course.	25:24
	And I think that's a shame I said because I think	25:27
	you'd understand the criticisms made and be able	25:31
	to evaluate them better if you had come already	25:33
	prepared with such a elementary understanding.	25:37
	But beyond that I thought there was a sad issue here.	25:41
	Sad in my viewpoint.	25:46
	To quote more or less what I said it was this.	25:50
	My private nightmare is that	25:53
	college in the field	25:57
	of economics might become a cafeteria.	25:58
	And at the counter there would be a broad spectrum of	26:01
	offering if and this is a bit fanciful, you come	26:04
	to college already imbued with fascist economics	26:06
	but lets say very conservative short sleeves economics.	26:10
	Then there exists a course for you to take which	26:15
	will consolidate and confirm the views	26:17
	that you had when you came to college.	26:20
	If on the contrary you come with notions leading	26:22
	towards radical economics then there is a course which	26:26
	will confirm you in this particular view and if	26:30
	by chance you happen to be a middle of the road	26:32
	economist, then there will be a middle of the road	26:35
	course and you can confirm that particular eclectic	26:37
	position and I thought this was a sad thing.	26:41
	Now my time is up.	26:43
	I'm only posing a problem as I pointed out to those bankers.	26:46
	The last in the world that was called for was for those	26:49
	who are trustees of universities to begin to cut	26:53
	the universities out of their wills or try to	26:56
	use their unilateral power to change courses like this.	26:58
	I don't even think that a shift away from the	27:03
	elective system is in the cards.	27:06
	I certainly don't think that trustees in universities	27:09
	at this time are the people that Deans and Professors and	27:11
	Presidents primarily worry about.	27:16
	Its actually student power and I don't believe	27:18
	in countervailing power.	27:22
	I think from that you only get friction.	27:24
	But I pose what I consider to be a very	27:27
	real problem and one that perhaps transcends an importance	27:32
	specific problems	27:36
	like flexible exchange rates and	27:41
	the need for an incomes policy.	27:45
-	Thank you Professor Paul Samuelson.	27:47
	Here's a reminder to our subscribers on our next	27:49
	tape Professor Samuelson and Professor Friedman	27:51
	will offer their economic forecasts for the coming year.	27:54
	If you have questions or comments write	27:57
	Instructional Dynamics Incorporated.	27:59
	166 East Superior Street Chicago 60611.	28:01

Item Info

Title:

Tape 41 - Inflation; youth and economics

Date:

circa 1969

Contributor:

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

Subject:

Format:

audiocassettes

Language:

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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ref2221_ak7
samuelsonpaul
duke:325064
pstau001041
ark:/87924/r4c24r431
4f3fa9f5-d80a-46b8-82c8-006c025658b2

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Tape 41 - Inflation; youth and economics

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