Tape 215 - Cold weather and the economy; independence of the Federal Reserve System
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Transcript
Transcripts may contain inaccuracies.
David | Hello, this is David Francis, | 0:02 |
financial editor of the Christian Science Monitor. | 0:03 | |
I'd like to welcome you once more on behalf | 0:06 | |
of Instructional Dynamics Incorporated | 0:08 | |
to a visit with MIT's Nobel Prize-winning economist, | 0:11 | |
Paul Samuelson. | 0:14 | |
It is mid-February here in Boston | 0:16 | |
and today is positively balmy by comparison | 0:18 | |
with the weather in recent months, | 0:21 | |
or recent weeks I should say. | 0:23 | |
It is above freezing. | 0:25 | |
Will the cold winter do much damage | 0:27 | |
to the economic recovery, Dr. Samuelson? | 0:30 | |
Paul | Well let me say a word | 0:33 |
about weather economics. | 0:35 | |
I wrote on this subject just recently | 0:37 | |
for my usual Newsweek column. | 0:40 | |
But I ought to expand upon the | 0:43 | |
brief remarks made there. | 0:47 | |
All the people who do forecasting | 0:51 | |
for the first quarter and for the year, | 0:55 | |
have agreed that the extraordinarily harsh winter | 0:58 | |
east of the Rockies and a reaching all the way down | 1:05 | |
south to Atlanta and Plains and beyond, | 1:09 | |
will take off something from the first quarter's | 1:13 | |
reported GNP growth. | 1:19 | |
The snapback from the fourth quarter | 1:21 | |
of last year's 3% annual rate of real GNP growth | 1:24 | |
to, well, twice that according to the prediction | 1:30 | |
of the outgoing chairman of the | 1:35 | |
council of economic advisors, Alan Greenspan, | 1:36 | |
is not going to occur and the weather is | 1:39 | |
going to properly get the blame for some of the shortfall. | 1:42 | |
Maybe 4% GNP rather than 5%, 6%, | 1:48 | |
is a fair appraisal of the effect of the very bad | 1:55 | |
January weather. | 1:59 | |
Now of course as you and I are talking, | 2:00 | |
the first quarter is only half over | 2:02 | |
and just because the weather was bad | 2:05 | |
in the first part of the first quarter, | 2:07 | |
doesn't mean it's going to continue | 2:09 | |
to be bad in the second part, or worse than normal. | 2:10 | |
But the weather is not a series of independent events | 2:14 | |
and there tends to be persistence. | 2:21 | |
The same condition that produced a harsh December | 2:23 | |
produced a harsh January. | 2:28 | |
The air patterns, the high pressure over the Rockies, | 2:32 | |
which has been sending the balmy Pacific air to Alaska, | 2:36 | |
so that on many occasion Anchorage has reported a higher | 2:42 | |
temperature even then Jacksonville, Florida, | 2:45 | |
that sort of condition is likely to dissipate | 2:48 | |
only very slowly. | 2:51 | |
So I think it would be only prudent for us to assume | 2:52 | |
not as bad weather as occurred in December and January | 2:55 | |
in terms of the season, but a little worse than usually | 2:59 | |
occurs in the season. | 3:03 | |
Now, it's always easy for an economist who just sticks | 3:04 | |
with the arithmetic of the problem to show that this | 3:11 | |
is not a very important factor. | 3:14 | |
You lose something while the weather is bad. | 3:17 | |
Of course, you're losing it primarily because of the | 3:20 | |
shortage of natural gas, which has caused people | 3:23 | |
to be sent home from work. | 3:27 | |
So, that at one time it was reported with, I think, | 3:29 | |
slight exaggeration, that about 2 million people were | 3:32 | |
unemployed, maybe a-million-and-a-half, | 3:35 | |
a-million-and-a-third would be a more realistic number. | 3:37 | |
That is exactly like a strike- | 3:42 | |
a strike in a major industry, in the way it affects | 3:47 | |
all of the different barometers of economic activity. | 3:51 | |
However, it's a relatively short period of time. | 3:57 | |
Spring usual becomes and, I think, David, it will come | 4:01 | |
to the Northeast even this year as in other years. | 4:06 | |
Moreover, there will be a make-up period. | 4:11 | |
The inventories are depleted; people will work overtime. | 4:14 | |
So, it could be argued that all you have to take off from | 4:18 | |
your rational estimate for 1977's growth is something like | 4:24 | |
a half a percent. | 4:31 | |
If you thought that in the four quarters of 1977 | 4:32 | |
the GNP rate of growth was going to be 6%, | 4:37 | |
the President's goal, the one that Arthur Burns agreed with, | 4:41 | |
then you probably would say about 5.5%. | 4:48 | |
Now, that doesn't sound so bad, but I think that | 4:52 | |
that same kind of reasoning misled certain economists | 4:55 | |
at the time of the oil boycott. | 5:00 | |
Because they were able to show that the | 5:03 | |
total importance of oil in the GNP is only | 5:05 | |
the order magnitude of 1% or 2%. | 5:09 | |
Yet, we got a recession induced by a complicated series | 5:12 | |
of events triggered off by the oil boycott, | 5:17 | |
which cost much more than 1% or 2% of the GNP, | 5:20 | |
which added up over two or three years | 5:24 | |
into the most serious recession of the | 5:30 | |
post-World War II period. | 5:32 | |
So, we must take into account the indirect effects. | 5:33 | |
Now, I think the worst indirect effects are two-fold. | 5:37 | |
Not most important, least of the two, is the fact that | 5:43 | |
for a time we're gonna be flying blind. | 5:48 | |
We're going to be flying by dead reckoning. | 5:50 | |
A very bad strike, aside from what it does to the economy, | 5:53 | |
completely screws up all the indicators of the | 5:58 | |
current health of the economy. | 6:02 | |
I can illustrate it only by a homely example. | 6:04 | |
I was driving along Memorial Drive on the Charles River | 6:09 | |
and, suddenly, a truck opposite me kicked up | 6:13 | |
a tremendous glob of snow on my windshield. | 6:17 | |
And for a few seconds, which of course seemed | 6:20 | |
like a few hours, I was driving completely blind, | 6:23 | |
and anything could have happened. | 6:26 | |
Well, something like that happens to the economy | 6:27 | |
when you're unable to tell how we're doing. | 6:32 | |
We're always asking ourselves how are we doing, | 6:35 | |
because that's the way we know what to expect ahead. | 6:37 | |
In 1959, we had a steel strike. | 6:41 | |
Before the steel strike, the economy looked very strong. | 6:44 | |
And, as we now know, by the end of the year, | 6:47 | |
when that long steel strike- | 6:52 | |
lasted longer than anybody thought- | 6:54 | |
we went into the recession of 1960. | 6:55 | |
The recession of 1960, which Richard Nixon thinks | 6:58 | |
was the main reason that John F. Kennedy | 7:01 | |
won by a nose against Nixon in the 1960 election. | 7:07 | |
Now, we didn't know, any of us, that | 7:11 | |
we were going to go into that recession at Thanksgiving time | 7:15 | |
because the strike had perverted | 7:20 | |
every one of the indicators. | 7:25 | |
Now, the same thing is going to happen | 7:26 | |
in the couple of months ahead. | 7:29 | |
The people who think the economy is weak | 7:31 | |
are going to be able to say any strength in the economy | 7:34 | |
is due to the overtime, the snapback from the strike. | 7:38 | |
The people who think that the economy is definitely strong | 7:42 | |
are not gonna be able to make their case | 7:46 | |
because there's no way of knowing. | 7:50 | |
The adjustment that should be made for the strike | 7:52 | |
is so much bigger and so much more uncertain | 7:55 | |
than the effects that we're talking about, | 7:59 | |
that it's going to pervert all sensible discussion | 8:02 | |
and all rational policy action. | 8:06 | |
Now, you might say, well in that case | 8:10 | |
we ought to go into neutral, as I should have done | 8:12 | |
in my car. | 8:15 | |
But it's very hard to define what neutral is in this case. | 8:16 | |
Well, that's a major effect, but not the most important | 8:20 | |
effect in my judgment. | 8:24 | |
The second effect, which is more important in my judgment, | 8:25 | |
is that the strike- I'm sorry, the weather- | 8:29 | |
is going to exacerbate the problem of inflation. | 8:36 | |
If you're an optimist about inflation, | 8:42 | |
say like the city bank with its quasi-moderatist model | 8:45 | |
or like Gary Shillings at White Weld & Co., | 8:50 | |
you're going to be- have some of your hopes frustrated. | 8:53 | |
If you're a pessimist, you're gonna get more fuel | 8:58 | |
for your pessimism. | 9:01 | |
We're gonna get this from the direct effects of the weather, | 9:05 | |
already the destruction of 90% of the vegetable crop | 9:08 | |
in Florida. | 9:13 | |
My wife has called to my attention that | 9:15 | |
a really rotten little cauliflower cost her a dollar, | 9:18 | |
a bit of cabbage was in the same ballpark. | 9:23 | |
Now, I don't quote this because these are | 9:26 | |
authoritative data that listeners should feed into | 9:30 | |
their econometric models. | 9:33 | |
I record this fact because we all exaggerate, | 9:35 | |
beyond the true weight in the consumer's price index, | 9:41 | |
the dramatic price increases that are noticeable. | 9:44 | |
The ones in meat, the ones in vegetables. | 9:47 | |
The citrus crop, the damage has been exaggerated, | 9:51 | |
but that's my point. | 9:54 | |
A lot of the inflationary talk will be made the worse | 9:56 | |
rationally or irrationally because of the weather. | 10:03 | |
David | Yeah, I see that the citrus crop was even- | 10:06 |
will still be a record despite the- | 10:08 | |
Paul | Yes, it turns out to be down only 11% | 10:10 |
because of the weather, but that's 3% above | 10:13 | |
last year's record crop. | 10:16 | |
But now to go on, you and I have been | 10:20 | |
concentrating on the cold. | 10:23 | |
But one man's cold is another man's warmth. | 10:25 | |
Because there really is a certain amount of sunshine | 10:30 | |
that lands on the globe. | 10:32 | |
And we mentioned Alaska, but we should | 10:34 | |
also mention California. | 10:37 | |
There has been a drought, particularly | 10:39 | |
in Northern California. | 10:41 | |
And this is gonna cause- cost something in terms of crops. | 10:43 | |
And the under-soil moisture level in certain | 10:50 | |
marginal grain areas is not in good shape. | 10:55 | |
Well, my point now is that what holds up vigorous, healthy | 10:59 | |
growth in this economy, what holds up consensus, | 11:09 | |
sensible policy that all men of good will can agree on, | 11:14 | |
is the stagflation problem. | 11:20 | |
The inflation versus unemployment problem. | 11:25 | |
And if the devil wanted to play a mixed economy, | 11:30 | |
like ours in the United States, | 11:35 | |
there is nothing he could do better than to send us | 11:37 | |
carbuncles in the form of inflation worries. | 11:41 | |
This is, so to speak, a last straw, | 11:46 | |
an unnecessary extra thing like the mother who says | 11:48 | |
that when a child misbehaves, | 11:53 | |
"Today, I do not need one more source of aggravation." | 11:54 | |
We don't need, with our long-run trade-off problem, | 11:59 | |
our long-run dilemma on how to run macro-economic policy, | 12:03 | |
the fortuitous wounds of fate in the form of bad weather. | 12:09 | |
But this is what we have received. | 12:16 | |
The result is that, I think, I'm finding | 12:21 | |
more and more of the forecasters who are taking off | 12:26 | |
for their estimates of real growth | 12:32 | |
in the four quarters of 1977. | 12:34 | |
More than the weather itself has a weight to create, | 12:37 | |
the secondary effects are, on the whole, slightly adverse. | 12:44 | |
Now, I've commented, I think, on these tapes before | 12:49 | |
about luck is just a figure of speech, | 12:52 | |
and I've said that President-elect Carter looked | 12:55 | |
rather lucky, and President Carter looked rather lucky. | 12:58 | |
Things seemed to, on the whole, go his way | 13:00 | |
and the situation he'd inherited was a pretty good situation | 13:05 | |
to inherit, and that's an easy act to follow. | 13:08 | |
I think calling the shots very objectively ought to say that | 13:11 | |
he's had one little bit of bad luck, | 13:16 | |
the weather has been an adverse factor. | 13:19 | |
David | You were in Washington testifying before | 13:24 |
a congressional group. | 13:25 | |
What was that all about, Dr. Samuelson? | 13:27 | |
Paul | Well, this was the House Committee on Banking. | 13:28 |
It's the Henry Royce Committee. | 13:34 | |
And I was asked to testify with three other economists | 13:37 | |
on a Friday following the Thursday testimony | 13:42 | |
of Arthur Burns, the governor of the- the chairman of the | 13:47 | |
Federal Reserve Board. | 13:52 | |
And it was a very interesting session. | 13:53 | |
Interesting, because it was an interesting time, | 13:56 | |
and a more than usual number of congressmen | 13:58 | |
were actually present, the congressmen of | 14:03 | |
both political parties. | 14:06 | |
The panel was a representative panel, | 14:11 | |
because on my left sat James Tobin, | 14:15 | |
the Sterling Professor of economics from Yale, | 14:20 | |
who is one of our most esteemed macro-economists, | 14:23 | |
who is one of the inheritors of the mantle of Keynes, | 14:30 | |
and who is known as the conscience of the profession | 14:34 | |
with respect to his concern for the problem | 14:38 | |
of unemployment and lost production | 14:41 | |
due to ineffective demand. | 14:45 | |
So, I think it's fair to characterize him as one | 14:47 | |
who would be prepared to take some risks on the side | 14:51 | |
of accelerating inflation. | 14:54 | |
If in his judgment those risks were necessary, | 14:56 | |
in order to get some improvements in the parade ahead | 14:59 | |
of job opportunity, for the people who bear | 15:05 | |
the burden the most of a modern mixed economy unemployment. | 15:08 | |
Now, on my right was Darryl Francis, | 15:14 | |
the retired chairman of the Federal Reserve Bank | 15:17 | |
of St. Louis. | 15:21 | |
And I don't think I have to remind my listeners | 15:22 | |
that the Federal Reserve Bank of St. Louis is | 15:24 | |
the one of the 12 which is most nearly moderatist | 15:27 | |
in its general mode of analyzing what's happening | 15:32 | |
to the economy. | 15:37 | |
And although Darryl Francis is now emeritus, | 15:38 | |
he's now retired, he has not | 15:42 | |
changed his spots in retirement, and he gave a | 15:44 | |
forceful statement of his position. | 15:46 | |
On his right was Karl Brunner, | 15:50 | |
who is a member of the Shadow Committee. | 15:54 | |
This informal group- Shadow Open Market Committee | 15:57 | |
I should have said- | 16:03 | |
who meet periodically, I think on a | 16:04 | |
foundation grant, and not quite as often as the actual | 16:08 | |
Open Market Committee Meet, to decide what the | 16:11 | |
non-shadow Open Market Committee ought to be deciding. | 16:16 | |
Karl Brunner is a professor at the business school | 16:21 | |
at the University of Rochester and is an | 16:25 | |
esteemed expert of moderatist persuasion. | 16:27 | |
He and Alan Meltzer, along with professor Milton Freedman, | 16:33 | |
and a number of other moderatists, | 16:40 | |
are looked up to as leaders. | 16:45 | |
So you had a fair difference of opinion. | 16:47 | |
But now what was interesting about this committee is that | 16:50 | |
what came up for discussion is the problem of the | 16:56 | |
independence of the Federal Reserve. | 17:02 | |
And sometimes one feels that, out of a sense of duty, | 17:04 | |
if asked, it's necessary to testify before | 17:09 | |
congressional committees, but it's a tiring process | 17:16 | |
of having to go down the night before, | 17:21 | |
and hurry back for your class and you wonder, | 17:24 | |
is it all worthwhile. | 17:28 | |
Well, in this particular case, I was assured by | 17:28 | |
members of the committee that it had been | 17:33 | |
an important occasion and I was made to feel | 17:36 | |
that it was indeed worthwhile. | 17:40 | |
Now, what I emphasized- and this seemed to agree | 17:41 | |
with certain tendencies within the committee and | 17:48 | |
on the part of the chairman, and tendencies | 17:52 | |
about which you may hear more in the future, | 17:54 | |
what I emphasized was the following, | 17:56 | |
that ours is a pluralistic system of government. | 17:59 | |
It's a system of three main branches: | 18:03 | |
the Executive Branch, the President; | 18:07 | |
the Legislative Branch, that is the Congress; | 18:09 | |
and the Judicial Branch, the Supreme and lower courts. | 18:12 | |
But it is not a system of four branches of government. | 18:17 | |
The central bank, the Federal Reserve, does not by itself | 18:22 | |
consist of a coordinate branch of government. | 18:28 | |
I traced the history of central banks | 18:31 | |
that began typically as the Bank of England did. | 18:33 | |
A group of merchants accommodated the crown | 18:36 | |
when the crown was in trouble, and in return for this | 18:39 | |
accommodation received certain privileges. | 18:42 | |
And for a couple of centuries, the Bank of England thought | 18:44 | |
of itself as a for-profit organization. | 18:48 | |
Long after, it was no longer a for-profit organization, | 18:52 | |
it didn't realize that fact, but gradually | 18:57 | |
both its practice and its realization came to pass | 19:00 | |
namely that it was a bank for bankers | 19:04 | |
and a bank for the government and it was vested | 19:07 | |
with public interest, and it was therefore part of the | 19:10 | |
state apparatus. | 19:14 | |
Still later, much later, at the end of World War II, | 19:16 | |
the unwritten English Constitution was clarified | 19:20 | |
and the Bank of England is parked in last analysis | 19:24 | |
in the Executive Branch of the government. | 19:26 | |
The ruling ministry under their system of | 19:31 | |
parliamentary responsibility can, | 19:35 | |
if there is a dispute between the prime minister | 19:39 | |
and the chancellor of exchequer and the governor | 19:41 | |
of the Bank of England, | 19:44 | |
then the governor of the Bank of England must in the end | 19:46 | |
bow and perhaps bow out. | 19:49 | |
His finest moment can be, first he can delay, he can nag- | 19:53 | |
that's an occupational opportunity- | 19:59 | |
but his finest moment is to resign with a blast. | 20:02 | |
About the time of World War II, it was thought, | 20:07 | |
in this country by most authorities, | 20:11 | |
that the Federal Reserve, | 20:14 | |
which had started out independent in 1913, | 20:17 | |
as I said in my testimony, President Wilson would not even | 20:20 | |
invite the governors of the Washington Board to | 20:25 | |
White House receptions for fear that he might be | 20:30 | |
construed to be putting undue pressure on them. | 20:34 | |
Well, it was thought around 1940 that the Federal Reserve | 20:37 | |
was in fact subservient- | 20:42 | |
subordinate, I should say, not subservient- | 20:46 | |
to the presidency. | 20:48 | |
If Marriner Eccles, who had been | 20:51 | |
picked by Franklin Roosevelt, | 20:53 | |
had come into a dispute with Franklin Roosevelt, | 20:55 | |
it was thought that Marriner Eccles would have to go. | 20:57 | |
I recall that Emanuel Goldenweiser, | 21:01 | |
the longtime advisor of the Federal Reserve Board | 21:03 | |
and director of research, | 21:08 | |
wrote in print that that was the fact of the situation. | 21:11 | |
However, after the war when President Truman wanted | 21:17 | |
the Federal Reserve to finance any deficits | 21:19 | |
which were currently being created at pegged | 21:23 | |
wartime rates of interest. | 21:26 | |
The Federal Reserve had a confrontation with the Executive | 21:30 | |
and an accord, and agreement, was reached. | 21:38 | |
The Accord of 1951. | 21:40 | |
It's interesting that the democrats, | 21:42 | |
liberal democrats like Paul Douglas, were among the leaders | 21:46 | |
who forced this quasi-independence to the Federal Reserve. | 21:50 | |
And the Accord said that the Federal Reserve did not have to | 21:55 | |
knuckle down to the ruling president and his | 21:59 | |
secretary of the treasury. | 22:03 | |
Well, my testimony was to the effect that, increasingly, | 22:05 | |
if the Federal Reserve was not to be | 22:10 | |
subordinated to the Executive- | 22:15 | |
and I said I will leave moot the question | 22:17 | |
of whether it would be better for the Federal Reserve | 22:19 | |
to be subordinated to the executive or to the legislature. | 22:20 | |
But, nature of war is a vacuum; it cannot solve these | 22:27 | |
matters of political importance according to | 22:31 | |
the private conscience of the appointed members | 22:36 | |
of the Federal Reserve. | 22:41 | |
That's not simply my opinion, and that is defacto, | 22:44 | |
the way the present democratic setup | 22:46 | |
of the United States works. | 22:51 | |
That's how our republic runs. | 22:53 | |
And so, the Fed has been increasingly | 22:55 | |
responsive to the Congress. | 23:00 | |
And one of the watchdog committees | 23:01 | |
to which it must periodically report | 23:04 | |
is this House Banking Committee. | 23:06 | |
The general tenor of my testimony was that there are no | 23:10 | |
agreed-upon, neutral, manifestly sound principles of | 23:17 | |
behavior by the Fed and a conscience so that you can | 23:25 | |
leave it to just to the discretion and conscience | 23:30 | |
of these particular individuals. | 23:34 | |
Now, I gave examples, that Arthur Burns may well be right, | 23:35 | |
that the economy needs no stimulus, | 23:40 | |
but it's not up to him to decide just what the trade-offs | 23:43 | |
between unemployment today and | 23:48 | |
unemployment tomorrow will be. | 23:51 | |
What the trade-offs between price growth now | 23:52 | |
and price growth later will be. | 23:56 | |
And the trade-offs between acceleration of price inflation | 23:58 | |
and the level of unemployment shall be. | 24:02 | |
That must be decided by the political process, | 24:05 | |
by not ward politics but by Congress. | 24:07 | |
And, therefore, the Congress should keep | 24:12 | |
the Federal Reserve on a shorter string. | 24:14 | |
Now, this doesn't mean their day-to-day activities | 24:16 | |
or the week-to-week meetings of the | 24:19 | |
Open Market Committee have to be | 24:21 | |
a matter of public record, | 24:23 | |
and that Congress has to intervene with all of those. | 24:25 | |
Nor does it mean that the patronage in the sense of | 24:28 | |
crude politics should or has to be at all involved. | 24:30 | |
But it does mean that the Federal Reserve must | 24:36 | |
walk in fear and trembling of the displeasure of Congress. | 24:41 | |
And I don't mean now the displeasure of one chairman | 24:47 | |
or of one small group, or even one committee, | 24:50 | |
but of the general pleasure of the House. | 24:53 | |
And, the crucial moment came when Chairman Royce asked me | 24:57 | |
whether I thought it would be a good idea or a bad idea | 25:04 | |
if a friendly letter was sent by the committee. | 25:07 | |
He said, not a confrontation, not rambunctious in tone, | 25:10 | |
but indicating to the Federal Reserve Board | 25:16 | |
how it ought properly in the view of its | 25:22 | |
congressional authorities, if the velocity of circulation | 25:28 | |
does not show the step-up which | 25:36 | |
Dr. Burns may think now it will do. | 25:41 | |
And what to do if, because of the weather or | 25:43 | |
exterior exogenous events so-called, | 25:47 | |
the price index behaves a little bit worse, | 25:51 | |
how they should react in their policy to that. | 25:53 | |
Well, it turned out that the committee seems to have decided | 25:57 | |
by overwhelming vote to do just that. | 26:06 | |
David | Oh. | 26:10 |
Paul | And such a letter, I understand, has been prepared. | 26:11 |
Whether it has been transmitted or not, | 26:16 | |
and what its perception will be, I don't know. | 26:18 | |
So, we are having an interesting experiment in the | 26:21 | |
evolution of the American central bank, | 26:26 | |
the Federal Reserve, in its relationship to the | 26:30 | |
American system of government. | 26:33 | |
And I regard these as rather interesting | 26:35 | |
and exciting times to be living in. | 26:37 | |
David | Does it look to you like the Fed will be | 26:39 |
more responsible or more governed by Congress | 26:43 | |
than it has been? | 26:46 | |
It has somewhat prided itself in its independence. | 26:47 | |
Paul | I think that this is just the last- | 26:51 |
well, I shouldn't say the last nail- | 26:57 | |
but one more nail in, if you will, the coffin | 26:59 | |
of the notion of a independent Federal Reserve. | 27:04 | |
A bit like the independent Supreme Court sitting | 27:10 | |
in its respective Valhalla. | 27:15 | |
As you know, there was a concurrent resolution, | 27:19 | |
which has instructed the Fed to name its monetary targets. | 27:21 | |
I should say, by the way, I think this letter says | 27:26 | |
something about being in the upper range, | 27:28 | |
rather than the lower range, of the targets that are named. | 27:32 | |
So I think that the Federal Reserve already is | 27:41 | |
walking humbly and realizes that we're in a new ball game. | 27:45 | |
I said, Dave, I left moot the question | 27:54 | |
of which they ought to be under, | 27:57 | |
but I did say it might be a Pyrrhic victory | 27:59 | |
for the Federal Reserve authorities who, | 28:02 | |
generally speaking, have favored if anything, | 28:05 | |
being under Congress to being under the Executive. | 28:09 | |
That may turn out to be a Pyrrhic victory. | 28:11 | |
One of these days, we're gonna get a populous Congress. | 28:14 | |
I don't think that the Federal Reserve decided | 28:18 | |
this issue on the basis of carefully thought-out analysis | 28:20 | |
of which was really best for itself and for the country. | 28:24 | |
But I think they thought they had a suspicion, | 28:28 | |
and I would concur with this, | 28:31 | |
that they've been on a longer string with the Congress | 28:33 | |
than with the Executive Branch. | 28:39 | |
But that can be very deceiving, 'cause you can pull | 28:41 | |
very hard and quickly on a long string | 28:44 | |
as well as on a short string. | 28:48 | |
So, I may say that- we don't have time here | 28:50 | |
in our discussion today to discuss the pros and cons | 28:55 | |
of just where the locus of coordination ought to be- | 28:59 | |
but it's by no means clear that the Congress | 29:04 | |
is the ideal organization to have this responsibility. | 29:12 | |
And I think actually, to be candid, the defacto, | 29:18 | |
there is a split responsibility. | 29:22 | |
There is already a duty and obligation, | 29:24 | |
whether it's written in blood | 29:28 | |
or in the ink of the Constitution, | 29:31 | |
for the Federal Reserve Board to confer with the | 29:35 | |
President of the United States and his team. | 29:40 | |
Now, I think of this as a meeting of | 29:46 | |
rational men of good will. | 29:51 | |
Not equals in all directions, but it's not like | 29:54 | |
the case of a meeting of a sergeant | 29:58 | |
with a lieutenant general where the lines of authority | 30:00 | |
are all in one direction. | 30:05 | |
David | Well, that's interesting. | 30:08 |
Thank you very much. | 30:09 | |
If you subscribers would like to ask questions of | 30:10 | |
Professor Paul Samuelson, or suggest subjects | 30:13 | |
for him to discuss, | 30:16 | |
please write to Instructional Dynamics Incorporated, | 30:18 | |
450 E. Ohio Street, Chicago, IL, 60611. | 30:21 |
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