Tape 197 - U.S. economy; latest GNP; inflation prospects; interest rates; favorable stock market analysis
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| - | Hello, this is David Francis. | 0:02 |
| Financial Editor of The Christian Science Monitor. | 0:04 | |
| I'd like to welcome you, on behalf of, | 0:07 | |
| Instructional Dynamics Incorporated, to visit once more | 0:09 | |
| with MIT's Nobel Prize winning Economist, Paul Samuelson. | 0:12 | |
| Some days ago, the government announced | 0:17 | |
| the statistics on gross national product | 0:20 | |
| for the first quarter of this year. | 0:23 | |
| Mr. Samuelson how would you say | 0:25 | |
| the economic recovery is progressing? | 0:28 | |
| - | If I can quote the poet, I would have to say | 0:31 |
| that the winter of our discontent is over. | 0:34 | |
| And April is not the cruelest month. | 0:38 | |
| It is rather, a happy month. | 0:43 | |
| The first quarter numbers were pleasing | 0:46 | |
| in almost every respect. | 0:51 | |
| I noticed that in The Monitor, | 0:53 | |
| you ran a survey with the headline, | 0:56 | |
| "Economists elated as everything is coming up roses". | 0:58 | |
| Well, let's look at the garden | 1:04 | |
| and see if we can find some weeds | 1:06 | |
| or some posies to comment on. | 1:09 | |
| Of course, the striking big news | 1:12 | |
| was in the first quarter of the year, | 1:17 | |
| we had real growth in the economy at 7 1/2% annual rate. | 1:20 | |
| I can't say that, that's more than anybody had forecast, | 1:25 | |
| because Dr. Michael Evans of Chase Econometrics, | 1:28 | |
| some time before the news came out, | 1:32 | |
| forecasted exactly that number. | 1:34 | |
| So we have to give the loving cup for this quarter | 1:37 | |
| to Chase Econometrics. | 1:42 | |
| But Dr. Evans is a dedicated scientist, | 1:45 | |
| and he would admit that the 7 1/2% he forecasted | 1:51 | |
| and the 7 1/2% that happened, did have some differences. | 1:58 | |
| For example, he didn't realize, | 2:01 | |
| and nobody did, how much our balance of payments | 2:05 | |
| would deteriorate in the first quarter. | 2:10 | |
| We had a drop from a 22 billion dollar surplus, | 2:12 | |
| to a nine billion dollar annual rate surplus. | 2:15 | |
| And nobody quite foresaw that, | 2:19 | |
| although all the international trading economists I know, | 2:20 | |
| had been predicting that our recovery | 2:24 | |
| would undermine the surprisingly strong surplus | 2:26 | |
| which we were running, just a few months ago. | 2:31 | |
| You lose on the swings, but you win on the roundabouts. | 2:34 | |
| To compensate for the drop in our export surplus, | 2:38 | |
| came the news of a whopping increase | 2:43 | |
| in inventory accumulation. | 2:47 | |
| Most economists thought that we would go | 2:50 | |
| from negative inventory accumulation, | 2:52 | |
| that is is, from the de-cumulation, | 2:54 | |
| which we were having, | 2:56 | |
| to small positive numbers, but nobody guessed | 2:59 | |
| that we would go to plus 14 billion dollars annual rate. | 3:03 | |
| The first little thorn to be found among the roses | 3:08 | |
| is the fact that, although the real growth of the | 3:12 | |
| American economy was strong in the first quarter, | 3:16 | |
| it was strong primarily because of inventory accumulation. | 3:19 | |
| And if you correct foreign inventory accumulation, | 3:22 | |
| as there is good reason to do, | 3:26 | |
| and calculate what's been happening to final sales, | 3:28 | |
| which is the change in the GMP, | 3:31 | |
| without the changes in inventory accumulation in the number, | 3:33 | |
| then you find that the first quarter | 3:38 | |
| was much less strong. | 3:41 | |
| In fact, it wasn't appreciably different | 3:45 | |
| from the fourth quarter. | 3:47 | |
| Therefore, when our enthusiasm tends to get out of bounds, | 3:53 | |
| we should remind us the fact that | 3:57 | |
| it's not a great thing to have a recovery | 4:00 | |
| which is depending upon inventory. | 4:02 | |
| Still... | 4:04 | |
| - | What does this mean for the current quarter? | 4:05 |
| - | Well, I think that I have to agree with Citibank, | 4:07 |
| which has said that you're unlikely | 4:12 | |
| to get a repeat of this magnitude. | 4:14 | |
| Therefore, the current quarter, | 4:16 | |
| the quarter in which we're talking, | 4:18 | |
| is not going to show a 7 1/2% annual rate, | 4:19 | |
| but it's going to show something less than that. | 4:24 | |
| Indeed, if inventory accumulation began to accelerate | 4:27 | |
| at this early stage of the business cycle, | 4:31 | |
| the Citibank would look upon that | 4:34 | |
| as too much of a good thing, | 4:36 | |
| and would be quite concerned. | 4:38 | |
| And I would have to concur with that concern. | 4:40 | |
| However, mostly the picture is good. | 4:45 | |
| It was the consumer who led the way, | 4:49 | |
| leaving out the inventory matter. | 4:52 | |
| It was the consumer who led the way | 4:55 | |
| in the first quarter. | 4:57 | |
| And it was the consumer in automobiles, | 5:00 | |
| which is always a very important part | 5:03 | |
| of the American economy. | 5:05 | |
| Also, in non durable goods. | 5:06 | |
| Much, if not most, of the | 5:11 | |
| surprising inventory accumulation was | 5:14 | |
| in that particular sector. | 5:16 | |
| And since that sector got its house in order first, | 5:18 | |
| early last year, it's less ominous | 5:23 | |
| than would otherwise be the case. | 5:25 | |
| However, I've saved the other part | 5:28 | |
| of the good news, for now. | 5:30 | |
| The inflation picture came in, | 5:34 | |
| in a very pleasing way. | 5:37 | |
| In fact, too pleasing to be projected into the future. | 5:38 | |
| We had only a 3.7% annual rate of price increase, | 5:44 | |
| as measured by the overall GMP deflator. | 5:49 | |
| What does that mean for the consumer pricing index? | 5:53 | |
| Which I think most of us, and most of our families, | 5:55 | |
| consider to be the important rate of inflation. | 5:58 | |
| I believe that for the first quarter, | 6:01 | |
| that was an even better rate. | 6:03 | |
| Some optimists, I think prematurely | 6:06 | |
| are saying well, perhaps the Secretary of Treasury | 6:09 | |
| is lucking out and that we're | 6:13 | |
| on our way to 2% price inflation, | 6:14 | |
| as we move towards the end of the 1970's. | 6:18 | |
| And who knows, that as we move into the early 1980's, | 6:20 | |
| one can always dream, one can always hope, | 6:23 | |
| that we'll be on our way to stable prices. | 6:26 | |
| I would not advise you to hold your breath , however, | 6:31 | |
| because we know that the improvement | 6:35 | |
| on the price inflation side, can be associated | 6:39 | |
| with certain volatile food prices. | 6:42 | |
| No new bad news on the fuel front. | 6:46 | |
| OPEC has not hit us again with another whammy. | 6:49 | |
| - | I hear though, they're about | 6:54 |
| to have another meeting in June | 6:55 | |
| that could provide a 10% whammy. (laughs) | 6:56 | |
| - | Yes, and this is a good reason | 7:01 |
| to keep your fingers crossed. | 7:04 | |
| More ominous economists, more particularly | 7:06 | |
| Business economists, can always find | 7:13 | |
| something to worry about. | 7:16 | |
| If you look at industrial raw material prices, | 7:18 | |
| they've been climbing rather steadily, | 7:23 | |
| the many months of this year. | 7:25 | |
| The copper market is stronger, | 7:28 | |
| and a number of other such markets are stronger. | 7:30 | |
| As a result, the prudent thing to forecast, | 7:33 | |
| for the second quarter, for the third quarter, | 7:37 | |
| for the fourth quarter of this year, | 7:39 | |
| is inflation in the ballpark range of 5% or 6%, | 7:40 | |
| not in the ball park range of 4% or 3%. | 7:48 | |
| Nevertheless, let's rejoice while it's in season to rejoice. | 7:53 | |
| The first quarter numbers were very pleasing indeed, | 7:58 | |
| and Wall Street took due notice of them. | 8:03 | |
| - | What do you think this means for the Political scene? | 8:07 |
| - | For the political scene, I've been saying | 8:12 |
| on these recordings, that the incumbent president | 8:15 | |
| looks in pretty good shape, if the only factor | 8:20 | |
| you have to look at is econometrics. | 8:24 | |
| The poly metrics of econometrics | 8:28 | |
| are very favorable, for the president. | 8:30 | |
| I noticed that when the Business economists | 8:34 | |
| came together to vote on their consensus, | 8:39 | |
| that 79% of them, think that President Ford is a shoe in. | 8:43 | |
| Only a very small percent of them, | 8:50 | |
| think that Humphrey is the man who will be president. | 8:53 | |
| An even smaller percentage, think that | 8:56 | |
| Carter is the man to win. | 8:59 | |
| I have to conclude that I shouldn't over sale | 9:03 | |
| my own subject, which is Economics. | 9:06 | |
| I keep reminding myself that poly metrics | 9:09 | |
| is even less reliable than econometrics. | 9:12 | |
| The economy is doing very nicely, | 9:16 | |
| and I think that Mr. Allen Greenspan, | 9:19 | |
| the advisor to the President, | 9:23 | |
| is taking a little quiet satisfaction | 9:26 | |
| that things have worked out as he hoped they would do. | 9:31 | |
| - | You mentioned the stock market. | 9:37 |
| What will this situation mean for the stock market? | 9:39 | |
| - | It's never vouchsafe to an economist | 9:42 |
| what's going to happen in the future, | 9:47 | |
| with respect to the stock market. | 9:49 | |
| The stock market, which has climbed | 9:52 | |
| again and again into the astronomic heights | 9:57 | |
| of 1000 on the Dow Jones, took a little spill | 10:02 | |
| sometime back because one of the technicians, | 10:08 | |
| like the poor whom we always have with us. | 10:12 | |
| The technical chartists we always have with us. | 10:15 | |
| And I think it was Edson Gould, this time, | 10:17 | |
| who gave a speech in which he expected | 10:21 | |
| the sizable, short-term drop in the stock market, | 10:24 | |
| and the stock market obligingly followed. | 10:28 | |
| But it was just a few day wonder, | 10:31 | |
| because when this good news on the economy came in, | 10:34 | |
| with some quite good news on the profile of profits. | 10:37 | |
| One of things which makes the stock market | 10:44 | |
| go up if it's rational is the profile of earnings. | 10:46 | |
| And earnings have been pretty good. | 10:52 | |
| In fact, let me pause a moment | 10:55 | |
| on what the trend of profits is. | 10:58 | |
| In the first place, the earnings have | 11:03 | |
| a better quality to them, because there is | 11:05 | |
| less paper inflation in these earnings, | 11:08 | |
| because there's less inflation in the American economy. | 11:12 | |
| In the second place, I've been commenting | 11:16 | |
| in these recordings for a long time, | 11:19 | |
| on the downward trend in the yield on capital, | 11:22 | |
| before taxes and after taxes, | 11:27 | |
| that seems to be discernible all over | 11:30 | |
| the advanced economies of the world. | 11:32 | |
| In Western Europe, in Japan, in the United States. | 11:36 | |
| However, there have been some new calculations, | 11:40 | |
| which suggest that if you correct for the business cycle, | 11:43 | |
| and just calculate the yield on American capital | 11:46 | |
| at 85% of capacity, so you standardize the 1975 performance | 11:50 | |
| which was below that par of capacity, | 11:57 | |
| that we have been witnessing a increase in the yield | 12:02 | |
| before taxes, of American capital assets | 12:10 | |
| since some time in the early 1970's. | 12:15 | |
| So one should always keep an open mind | 12:20 | |
| on a big issue such as, is whether there | 12:23 | |
| is a capital shortage or not. | 12:25 | |
| This is certainly one of the ways | 12:27 | |
| that a capital shortage would short sale. | 12:29 | |
| In a gradual improvement in profit margins, | 12:32 | |
| because this stuff is scarce, it's short | 12:37 | |
| and I think that, in a degree, | 12:40 | |
| this would tend to be good news for the stock market. | 12:44 | |
| Now, we don't want to get mired down | 12:48 | |
| in the pleasant contemplation | 12:51 | |
| of the stock market, but let's tick off | 12:55 | |
| a few of the forces, which seem to be important | 12:59 | |
| for anyone who wants to make his own judgment | 13:04 | |
| about whether stocks have already had it, | 13:07 | |
| and or now high, so it's too late to get in, | 13:09 | |
| or whether this recovery still has some life ahead. | 13:12 | |
| And it's not too late to add | 13:18 | |
| to one's stock market portfolio. | 13:22 | |
| My suggestion would be, that one should concentrate | 13:26 | |
| on at least two elements in the picture. | 13:30 | |
| One is what's gonna happen to earnings? | 13:33 | |
| Because what will happen to dividends | 13:36 | |
| can be predicted fairly accurately, | 13:39 | |
| if you know what's going to happen to earnings. | 13:42 | |
| But of course, in order to know the price of a stock, | 13:46 | |
| you have to know what kind of a price earnings multiple, | 13:49 | |
| what P/E, is put on those earnings. | 13:52 | |
| In order to think about that matter, | 13:55 | |
| one should concentrate on | 13:58 | |
| what's gonna happen to interest rates. | 14:01 | |
| There is no magic formula, in my opinion. | 14:08 | |
| I know I've said this here before, | 14:12 | |
| I know people who have the simple rule of thumb. | 14:16 | |
| When interest rates go down, buy stocks. | 14:21 | |
| When interest rates go up, lighten up on stocks. | 14:25 | |
| Because the P/E ratio, they think, | 14:29 | |
| will move in about the way, that bond prices move. | 14:33 | |
| If bond prices move down, | 14:39 | |
| because interest rates are going up, | 14:40 | |
| they think the P/E ratio for stocks will move down. | 14:42 | |
| High interest rates would be, | 14:48 | |
| other things equal, bad for the market. | 14:51 | |
| Now, other things aren't equal. | 14:53 | |
| One of the things that might push interest rates up | 14:56 | |
| is if the economy is doing so well and earning so well. | 14:59 | |
| I think you have to have at least a two-factor analysis, | 15:03 | |
| and that one factor is not enough. | 15:07 | |
| However, perhaps we ought to turn | 15:10 | |
| to what all this means, this strength in the economy. | 15:13 | |
| This rather cheerier picture, | 15:16 | |
| with respect to the next three quarters of the year | 15:19 | |
| for interest rates. | 15:22 | |
| You've heard me say, for a long time now, | 15:28 | |
| that I'm expecting short-term interest rates | 15:32 | |
| to go up anytime now. | 15:35 | |
| By and large, I've been wrong. | 15:39 | |
| I've been good company, because | 15:42 | |
| an awful lot of economists have | 15:45 | |
| thought the same thing that I have. | 15:49 | |
| On the other hand, there are some | 15:51 | |
| very good economist, I think of Henry Kaufman, | 15:52 | |
| whom I've quoted repeatedly, | 15:54 | |
| of Salomon Brothers, who has been | 15:56 | |
| putting early right in saying, not yet. | 16:01 | |
| That a sharp increase in interest rates | 16:06 | |
| is not in the cards, in this last winter that we've had. | 16:11 | |
| I think even now, he holds to that position. | 16:17 | |
| There probably was a little time, back in February | 16:25 | |
| when it looked as if the Federal Reserve | 16:29 | |
| was changing it's mind, and was beginning to tighten up. | 16:32 | |
| It was becoming less friendly, | 16:35 | |
| and less permissive of the expansion. | 16:36 | |
| Something happened on one of the Thursdays and Fridays | 16:40 | |
| when everybody's watching the Federal Reserve reports. | 16:43 | |
| - | Yeah, a lot of people on Wall Street | 16:48 |
| got fooled at that time. | 16:49 | |
| - | Yes, and then it seemed that maybe that wasn't happening. | 16:50 |
| Then the explanation was, the Fed | 16:53 | |
| is accommodating Italy and the U.K., | 16:55 | |
| which are in trouble. | 16:59 | |
| And as apart of its Good Neighbor policy, | 17:00 | |
| and its responsibilities, its having | 17:04 | |
| a little bit easier money in the US than it really wants | 17:07 | |
| because it has to accommodate this avalanche | 17:11 | |
| that's taking place in the pound market, and in lira. | 17:14 | |
| So much for apparent fact, so much | 17:21 | |
| for clever penetrating explanation of apparent fact. | 17:24 | |
| We now have had the requisite number of days | 17:29 | |
| have gone by, of secrecy. | 17:33 | |
| Now, we know the true fact because | 17:36 | |
| they now tell us what they were thinking about. | 17:39 | |
| What they were aiming for during this period. | 17:42 | |
| And it turns out, that the clever explanation | 17:44 | |
| is not needed because neither before | 17:47 | |
| the international crisis were they | 17:51 | |
| intentionally tightening up, at that time. | 17:53 | |
| Nor, after the international crisis, | 17:56 | |
| were they modifying their tightening up behavior. | 17:59 | |
| They apparently were still rather steady as you go easy, | 18:04 | |
| according to all of the instructions | 18:10 | |
| to the Open Market Committee. | 18:12 | |
| Nonetheless, the people who think that there's | 18:15 | |
| gonna be an increase in interest rates, | 18:18 | |
| are like stopped clock that are | 18:21 | |
| eventually going to be showing the right time. | 18:25 | |
| It could be that, just about a week ago, | 18:28 | |
| when the money supply numbers, at the end of one week | 18:32 | |
| seemed to show a uplift. | 18:36 | |
| That was duly noted by the Market, | 18:39 | |
| and it was thought that the Fed was a little slow | 18:43 | |
| in resisting it, that historians will date the | 18:46 | |
| beginning of tightness from this time on. | 18:53 | |
| - | I see that Wall Street and the money market | 19:00 |
| are still split as to whether the Federal reserve system | 19:02 | |
| is actually tightening up or not. | 19:04 | |
| - | Right ??? Every turning point, | 19:06 |
| that's why it is a turning point, | 19:08 | |
| you're gonna have a division of opinion. | 19:10 | |
| And if you look at all the straws in the wind, | 19:12 | |
| half the straws are gonna look to be in one direction, | 19:14 | |
| and half in the other direction. | 19:17 | |
| What I try to do, in trying to guess what the Fed will do, | 19:19 | |
| is think, what would I want them to do. | 19:23 | |
| It's not the case, alas, that | 19:33 | |
| the Federal Reserve always does | 19:36 | |
| exactly what I want them to do. | 19:37 | |
| - | What would you want them to do? (laughs) | 19:39 |
| - | I try to think, what should be | 19:41 |
| the responsible posture of the Fed, at this time. | 19:43 | |
| And it seems to me, that whatever | 19:46 | |
| was responsible posture, three months ago, | 19:51 | |
| when the strength in this recovery | 19:56 | |
| was less apparent and less assured, | 20:00 | |
| that the Fed should now be tighter. | 20:04 | |
| I would suppose that Governor Burns | 20:10 | |
| and his associates on the Open Market Committee, | 20:14 | |
| are a little bit concerned as to whether | 20:17 | |
| this inventory accumulation is | 20:20 | |
| a premature blowing of the top, of the recovery. | 20:23 | |
| Which will shorten its useful and effective life. | 20:27 | |
| Even though they have this difficult problem | 20:34 | |
| that they've stated their targets, | 20:36 | |
| in terms of monetary aggregates, and the M1 aggregate. | 20:38 | |
| Ignoring the upward blip that I just spoke about, | 20:45 | |
| because one swallow doesn't make a spring, | 20:48 | |
| and it's too soon to judge how important that is. | 20:51 | |
| The M1 is still not within the range which | 20:56 | |
| they have been announcing and reaffirming each quarter | 21:00 | |
| for where it should be growing in the year ahead. | 21:05 | |
| The M2 is, rather comfortably, inside the range. | 21:08 | |
| In my judgment, there is room for the Fed | 21:14 | |
| to do a little tentative tightening up. | 21:18 | |
| My own counsel to them would be, | 21:23 | |
| don't be afraid to tighten up a little bit prematurely, | 21:25 | |
| because you can always reverse yourself, | 21:28 | |
| and you should reverse yourself. | 21:31 | |
| The proper Federal Reserve policy is not to, | 21:33 | |
| for a long time go on one tack, | 21:36 | |
| like sailors heading into the wind, | 21:39 | |
| and then for a long time shifting over to another tack. | 21:45 | |
| The proper policy, any student of Optimal Control | 21:48 | |
| or Servomechanisms at | 21:53 | |
| the MIT Electrical Engineering Department | 21:56 | |
| could tell you, would be lots of corrections | 21:58 | |
| as you get more information. | 22:02 | |
| This is not fine-tuning. | 22:04 | |
| This is anything but fine-tuning. | 22:06 | |
| You do it this way, because you don't have | 22:07 | |
| exact knowledge about the probabilities. | 22:10 | |
| I don't think that it should ever be knowable | 22:13 | |
| to the Market, that the Fed is on a long, easing swing, | 22:16 | |
| regardless of how the economy responds to that. | 22:22 | |
| Nor, should it be in a position ever to know, | 22:26 | |
| that the Fed is on a long, tightening syndrome | 22:28 | |
| regardless of what happens. | 22:32 | |
| What the market should be able to know, | 22:34 | |
| is have some confidence that the Federal Reserve, | 22:37 | |
| looking at all the data that there are, | 22:41 | |
| using the best methods of analysis | 22:45 | |
| that experience has shown is available for understanding | 22:47 | |
| the passing economic scene, is always looking | 22:51 | |
| at the next six months, the next nine months | 22:54 | |
| and forming the best judgment possible, | 22:56 | |
| As to whether the economy is gonna be | 22:58 | |
| too strong or too weak in that period. | 23:00 | |
| Because we know that there are long, variable lags | 23:03 | |
| between what they do now and when | 23:06 | |
| the effects of their policies begin to show up. | 23:09 | |
| Therefore, if it's pretty clear | 23:15 | |
| to the forecasters with the best batting average, | 23:18 | |
| that the economy is heating up | 23:22 | |
| and come next Thanksgiving, after the election, | 23:24 | |
| we're gonna be in an over-exuberant economy. | 23:27 | |
| And we're gonna begin to get some | 23:31 | |
| shortages of capacity in certain lines of industry. | 23:36 | |
| Now is the time, to begin, on the part of | 23:41 | |
| the Federal Reserve, to prepare for some tightening up. | 23:45 | |
| What's appropriate policy, for the first year | 23:51 | |
| of the recovery, from last April Fools' Day, | 23:54 | |
| when you couldn't know, month after month, | 23:58 | |
| whether the economy had really turned the corner, | 24:01 | |
| and you couldn't know that it | 24:04 | |
| was performing at the bottom as now. | 24:07 | |
| I think the historian can say, | 24:11 | |
| with some confidence, whatever was appropriate policy | 24:13 | |
| then, is not necessarily the appropriate policy now. | 24:16 | |
| My own preferred goal, weighing the evils on both sides, | 24:21 | |
| has been for a 7% increase in real output, | 24:28 | |
| in this first year of recovery. | 24:32 | |
| I have to admit on what has taken place. | 24:36 | |
| I also have to admit, that I thought | 24:44 | |
| nine months ago that it would take | 24:47 | |
| a little more increase in the monetary aggregate. | 24:49 | |
| And little more ease, with respect to interest rates, | 24:52 | |
| than the Federal Reserve seemed to be performing. | 24:56 | |
| Since I really only want the 7%, | 25:02 | |
| I would have been upset, if the first quarter numbers | 25:05 | |
| had come in 8 1/2% and had | 25:10 | |
| that much stronger inventory accumulation. | 25:15 | |
| - | What about the budget? | 25:18 |
| Do you think the administration and Congress | 25:20 | |
| are spending about the right amounts now-a-days? | 25:22 | |
| - | Well, the same logic, which makes me now | 25:26 |
| prepared to countenance, a little more | 25:30 | |
| tightness in monetary policy, | 25:33 | |
| however you measure tightness, | 25:34 | |
| by interest rates or by the monetary aggregates, | 25:36 | |
| must, by consistency, make me be less anxious | 25:40 | |
| to second guess the President's numbers. | 25:47 | |
| By an add-on of some 10's of billions of dollars. | 25:50 | |
| I think that The Treasury is gonna find itself | 25:55 | |
| with better tax receipts. | 25:58 | |
| I think that the states and localities | 26:01 | |
| are gonna find themselves, because the economy is stronger, | 26:04 | |
| with better tax receipts than they thought. | 26:07 | |
| I think that the rather pleasing performance, | 26:14 | |
| with respect to employment increase, | 26:17 | |
| which we hadn't commented on | 26:19 | |
| but is apart of the same picture that we've been discussing, | 26:20 | |
| will mean that some of the aid programs, | 26:25 | |
| which were appropriate when the economy was bogged down, | 26:31 | |
| are not so appropriate. | 26:41 | |
| I would, for example, look with skepticism | 26:42 | |
| on any big Public Works program started as late as now. | 26:45 | |
| - | It wouldn't get into effect in time. | 26:50 |
| - | It would get in effect only in time | 26:52 |
| to overheat the economy when this boom | 26:55 | |
| is beginning to show some raggedy signs of old age, | 26:57 | |
| so I think we would have trouble. | 27:02 | |
| - | One last, final question, would you say | 27:05 |
| this has been an ordinary recession and recovery, | 27:08 | |
| and an ordinary business cycle, | 27:10 | |
| or is there something unusual | 27:11 | |
| about this business cycle we're coming through? | 27:12 | |
| - | I would say, one must realize that the recession, | 27:15 |
| which preceded this recovery, | 27:24 | |
| was, by post- World War II standards, | 27:26 | |
| a recession of considerable virulence, | 27:28 | |
| considerable amplitude and duration. | 27:32 | |
| And, it was one that was, by and large, | 27:35 | |
| not naturally created, but created to fight inflation. | 27:38 | |
| Given the length of duration, | 27:44 | |
| and the amplitude of the recession, | 27:47 | |
| I have to go along with Geoffrey Moore, | 27:49 | |
| who says you could expect a more serious rebound | 27:51 | |
| from a more serious recession. | 27:53 | |
| I would say the rebound has been extremely healthy. | 27:58 | |
| It's not been a natural recovery, | 28:01 | |
| because it was helped by fiscal policy | 28:03 | |
| and responsible Federal Reserve policy. | 28:06 | |
| I'm using all the ways you can measure | 28:12 | |
| Federal Reserve policy, not just the monetary aggregates. | 28:14 | |
| I think the problem, from now on, is to make this | 28:18 | |
| a long, sustained, lasting recovery, | 28:25 | |
| like that of the 1960's, from 1961-1966; | 28:29 | |
| rather than the short, choppy recoveries | 28:36 | |
| like that of the 1950's. | 28:40 | |
| - | Thank you very much, Dr. Samuelson. | 28:44 |
| If you subscribers would like to ask questions | 28:46 | |
| of Professor Paul Samuelson, or suggest subjects | 28:49 | |
| for him to discuss, please write to | 28:52 | |
| Instructional Dynamics Incorporated, | 28:55 | |
| 450 East Ohio Street, Chicago, Illinois 60611. | 28:58 |
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