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- | Welcome once again as MIT Professor Paul Samuelson | 0:02 |
discusses the current economic scene. | 0:05 | |
This series is produced | 0:07 | |
by Instructional Dynamics Incorporated. | 0:08 | |
This program was recorded July 31st. | 0:11 | |
- | Today I'd like to do two things. | 0:14 |
I'd like to | 0:16 | |
discuss the business cycle outlook, | 0:18 | |
which, I must say, has turned a little bit darker. | 0:22 | |
I mean that the second quarter numbers, | 0:26 | |
which we actually have, were on inspection | 0:30 | |
now that we have them available in detail to us, | 0:33 | |
somewhat dire, | 0:37 | |
but I mean more than that. | 0:40 | |
I'm getting together across my desk now | 0:42 | |
the new forecasts of what's to come | 0:45 | |
in the next year or year and a half, | 0:49 | |
forecasts which have been updated, | 0:52 | |
taking into account the second quarter data, | 0:54 | |
and as a result, | 0:57 | |
as we'll see, | 1:00 | |
the general outlook, both with respect to price inflation | 1:02 | |
and with respect to real output | 1:07 | |
seems a little less rosy, a little more pessimistic | 1:10 | |
than it seemed a month or two ago. | 1:15 | |
Let's put off, however, | 1:20 | |
the sad task of autopsy on what's been happening | 1:22 | |
and discuss a problem that I discussed a long time ago | 1:27 | |
in response to a query from one of the listeners. | 1:32 | |
The stock market is way way down. | 1:38 | |
Down below 800 on the Dow Jones as I'm speaking. | 1:42 | |
There are all sorts of so called bargains | 1:46 | |
that you can pickup. | 1:49 | |
Stocks at price earnings multiples of four and five, | 1:51 | |
and really there have been a case or two | 1:55 | |
of stocks at two and three PE's. | 1:59 | |
When that's the case, the volume tends to be a very low. | 2:05 | |
One of the relationships that I've noticed on volume, | 2:11 | |
is that when people are making money, | 2:14 | |
they act as if they've dedicated | 2:16 | |
a certain amount of that money | 2:18 | |
back to their broker | 2:20 | |
and they do trading. | 2:22 | |
I don't say that when the market is rising, | 2:24 | |
every bit of their implicit and explicit capitol gains, | 2:27 | |
they plow back into the dead weight loss | 2:31 | |
of brokers transactions. | 2:34 | |
But they make an approach toward that. | 2:37 | |
And if almost everybody's been losing money, | 2:41 | |
and of course net on balance, | 2:44 | |
people in the market have to be long | 2:48 | |
of the stocks that are to be held. | 2:50 | |
Then they so to speak, stop | 2:52 | |
feeding their broker's habit. | 2:57 | |
That is his habit of good eating and paying his overhead. | 2:59 | |
And so the volume dries up. | 3:05 | |
As a result, I would suppose | 3:08 | |
that interest in | 3:11 | |
how to play the stock market is | 3:14 | |
at short-term low, among my listeners. | 3:17 | |
Perhaps that interest was never very strong. | 3:22 | |
Nevertheless, I ought to report on the news about | 3:26 | |
as it happens, regardless of what the degree of interest is, | 3:29 | |
and not hoard the items against the day | 3:33 | |
when there will be more in season. | 3:36 | |
So I received this month | 3:38 | |
a paper from a professor, | 3:42 | |
at the Graduate School of Management, | 3:45 | |
University of Rochester. | 3:47 | |
His name is Michael Roseff | 3:48 | |
and it's a very interesting study, indeed, | 3:52 | |
it's an unpublished study, but I'll just give you | 3:54 | |
the highlights of it. | 3:56 | |
The title is Money and Stock Prices: Market Efficiency | 3:58 | |
and the Lag in Effect of Monetary Policy. | 4:03 | |
In brief, what he wants to investigate, | 4:09 | |
is whether you can make a little money for yourself | 4:12 | |
in the stock market by applying the appropriate findings | 4:14 | |
of monitorius therous. | 4:20 | |
So that when the rate of growth to money supply goes up, | 4:23 | |
with a certain lag that one can predict | 4:29 | |
to a worth wild degree, | 4:33 | |
the stock market is later going to go up. | 4:35 | |
And when of course the rate of growth and money supply | 4:38 | |
goes down, then you have a peak into the future | 4:41 | |
as to what's going to happen to the stock market, | 4:44 | |
in the future. | 4:47 | |
And that's a very good time to be out of the market. | 4:49 | |
There've been a number of earlier studies, on this problem. | 4:53 | |
For example, Beryl Sprinkle a very well-known bank economist | 4:58 | |
in Chicago, trained at the Chicago school | 5:05 | |
has written a book, | 5:08 | |
which I seem to recall has gone through a couple of editions | 5:10 | |
on the relationship between money and stock prices. | 5:13 | |
And James Meigs, who used to be at the | 5:18 | |
Federal Reserve Bank of St. Louis also trained at the | 5:22 | |
University of Chicago and who was at the Citi Bank, | 5:25 | |
and now is with the Argos Organization, has also | 5:29 | |
given various arguments. | 5:34 | |
Well, there have been an addition, | 5:37 | |
a number of studies | 5:41 | |
in the journals; | 5:44 | |
1970, 1971, | 5:45 | |
1971, 72, | 5:49 | |
which have examine this thesis. | 5:51 | |
And they seem to come up, by and large, | 5:55 | |
prior to the study that I'm now reporting on, | 5:57 | |
to the conclusion that there was really something in this. | 6:00 | |
Of course, in principle, we can't say | 6:05 | |
that there wouldn't be anything in this. | 6:10 | |
It's known, roughly, that the rate of growth and money | 6:12 | |
supply is a very early leader of general business activity. | 6:16 | |
In fact, it's a leader of the early leaders. | 6:21 | |
And so it would be possible that it's something to watch | 6:24 | |
and I think most of us do watch it. | 6:29 | |
To be able to make money, by analyzing the news | 6:35 | |
that's in the public domain, for everybody to analyze | 6:41 | |
on the rate growth and money supply. | 6:45 | |
As I say, it's not unthinkable. | 6:48 | |
It does run contrary, however, to what is called | 6:50 | |
the efficient market hypothesis. | 6:53 | |
The efficient market hypothesis says, | 6:56 | |
and I vulgarized a little bit for brevity, | 6:59 | |
that all the news that's out is digested | 7:02 | |
and is already discounted in stock prices. | 7:07 | |
So you might as well stay in bed any day, | 7:10 | |
rather than think you can go out | 7:15 | |
and by analyzing merely the pattern of | 7:16 | |
available past stock prices, which is available | 7:22 | |
for all to analyze. | 7:25 | |
That you can buy any technical mystical methods | 7:27 | |
or by analyzing any information, | 7:31 | |
which already out in the marketplace. | 7:33 | |
Hope to do better than chance. | 7:36 | |
In other words, the price is always risen so | 7:40 | |
that there's just as much chance of the price going down, | 7:43 | |
as going up. | 7:46 | |
At least that's to be true on the average. | 7:47 | |
Mind you, we have to control for risk, | 7:52 | |
and so to state the matter more accurately, | 7:56 | |
there should be | 8:00 | |
the same lack of bias | 8:04 | |
in the | 8:08 | |
price change, | 8:12 | |
that one could expect from any other stock | 8:15 | |
that has the same amount of variability as this stock. | 8:18 | |
Of course if you believe in the efficient market hypothesis, | 8:25 | |
as a dogma and not as a hypothesis, | 8:29 | |
then you're lick before you start. | 8:32 | |
You say, ah shucks there's no reason for me to try | 8:35 | |
and be smart, because it's impossible to be smarter | 8:38 | |
than the marketplace at large. | 8:42 | |
This is a self-defeating attitude. | 8:45 | |
I think at a deeper level, but I haven't the time | 8:47 | |
to go into it. | 8:49 | |
It is not a correct necessary deduction, | 8:50 | |
from the efficient market hypothesis. | 8:56 | |
In deed is precisely because a very large number of people, | 8:58 | |
who are very well informed and who are very good analysis | 9:03 | |
do not regard themselves as defeated in the beginning. | 9:07 | |
Who do not think of themselves as having | 9:12 | |
to throw random darts. | 9:14 | |
It's because they act in purposive fashion | 9:16 | |
that the majority of clauds. | 9:21 | |
I'm speaking of people like me and like you, | 9:27 | |
can just relax and more or less throw our random darts. | 9:31 | |
The efficient market or random walk or white noise or | 9:39 | |
white spectrum or zero autocorrelation | 9:45 | |
pattern of price changes is not an act of God | 9:49 | |
or the king's enemies. | 9:52 | |
It's the result of very intelligent speculation, | 9:54 | |
by people who do make money beating the rest of the people | 9:58 | |
in the market. | 10:02 | |
The only thing is it's very hard to become such a person. | 10:03 | |
Failing you're being able to become such a person, | 10:08 | |
it's very hard for you to identity such a person, | 10:12 | |
and buy his services. | 10:15 | |
However if you have a lot of money | 10:18 | |
and if you're very good at identifying, | 10:20 | |
and that's almost as hard a job to pick good stocks. | 10:21 | |
Then you can buy those services, | 10:25 | |
and the rent of that extraordinary ability to | 10:27 | |
or flare to pierce the veil of uncertainty. | 10:33 | |
Those rents can be very high, in deed, for very good analyst | 10:37 | |
and you as a very good selector and backer, | 10:40 | |
a very good analyst will get your share of rent. | 10:44 | |
I call it rent, but it's also a return for very hard work | 10:48 | |
and it's not all that easy on the nerves. | 10:51 | |
So it has in it, an element of high wages. | 10:54 | |
Wages not unlike the high wages that go to plastic surgeons | 10:59 | |
or to skilled people. | 11:03 | |
I'm thinking at the moment, of plumbers, of any craft. | 11:07 | |
Well let me say that I was interested in this particular | 11:13 | |
paper because it confirmed my own experience. | 11:18 | |
I'm not monitorius, but I am interested | 11:23 | |
in not losing my family's money. | 11:27 | |
So I would take help from anyone who could show me | 11:30 | |
how to invest and make an extra buck with the same safety. | 11:33 | |
So over the years, having read this literature, | 11:39 | |
I've tried to see whether it's consonant with my experience. | 11:42 | |
I've even done Maonte Carlo runs with | 11:47 | |
parts of my portfolio in which, I would say to myself, | 11:52 | |
now suppose I were a monitorius. | 11:57 | |
Suppose I was applying the best techniques, | 12:00 | |
which they recommend, | 12:02 | |
what would I be doing now? | 12:03 | |
And then I would instruct my secretary on paper | 12:05 | |
to make a purchase or a sale according to | 12:08 | |
what I interpreted. | 12:12 | |
People like Sprinkle, Miegs and others to be saved. | 12:14 | |
And I never had very good luck on paper with that portfolio. | 12:21 | |
I reported once in an earlier tape here, | 12:28 | |
that I was called in as a consultant by a group | 12:30 | |
which did use these methods and which was having | 12:34 | |
very miserable luck or results, let's say more neutrally. | 12:37 | |
And I analyze, at their request, their own experience. | 12:45 | |
And it rather confirmed my hypothesis, | 12:50 | |
which by this time of course, was beginning to harden | 12:56 | |
into a prejudice or a dogma, that their wasn't much | 12:58 | |
in that way of playing the stock market. | 13:03 | |
Probably being human, and imperfect, | 13:09 | |
that tended to make me a little more | 13:15 | |
critical of monitors than I previously was. | 13:19 | |
But on reflection, | 13:22 | |
you'll agree that monitorius could be a very good way | 13:24 | |
of analyzing policy | 13:28 | |
and what is happening to the GMP | 13:30 | |
and what ought to be done about it. | 13:34 | |
And still be a very bad way, or very neutral way | 13:39 | |
of making money in the stock market. | 13:45 | |
There is no real connection between money having | 13:49 | |
a real influence on the economy but not having | 13:53 | |
and you're being able to predict the prices, | 13:58 | |
better than somebody else | 14:02 | |
on the basis of your knowledge, about that. | 14:04 | |
A knowledge with is also available to him and to everybody. | 14:07 | |
Well not to spring up the story, | 14:11 | |
the findings of professor Roseff are fairly devastating | 14:15 | |
to that particular method. | 14:23 | |
I guess the simplest thing for me to do, | 14:27 | |
since I don't want to spend too much time | 14:30 | |
on so many exciting things that are breaking all the time, | 14:32 | |
in the American economy right now, | 14:35 | |
is to read his abstract | 14:37 | |
which is a fair summary of what his findings are. | 14:41 | |
I'm now reading. | 14:45 | |
This paper examines stock market efficient | 14:47 | |
with respect to money supply data. | 14:50 | |
By testing one regression models of stock returns | 14:53 | |
on monetary variables. | 14:57 | |
That is you feed in your knowledge | 14:59 | |
about what's been happening to money supply into your system | 15:03 | |
and then workout that predicted price change. | 15:09 | |
And then you compare your predicted price change | 15:12 | |
with the actual price change that followed. | 15:15 | |
And second, he's testing the trading rules | 15:19 | |
based upon what you've learned. | 15:23 | |
The trading rules based on money supply data. | 15:27 | |
The evidence indicates no meaningful lag in the | 15:30 | |
effect of monetary policy on the stock market. | 15:34 | |
And that no profitable security trading rules, | 15:37 | |
using past values of money supply exist. | 15:41 | |
He means past and present, but see the present | 15:45 | |
has already passed if you're able to know it. | 15:48 | |
Today's newspaper is already part of history. | 15:51 | |
Therefore this evidence... | 15:56 | |
The evidence of his findings, is | 15:58 | |
consistent with efficient market model. | 16:00 | |
Current security returns that's price dividend, etcetera, | 16:03 | |
incorporate all information contained | 16:08 | |
in past money supply data. | 16:11 | |
That is all relevant information. | 16:13 | |
And in addition appear to anticipate | 16:15 | |
future changes in the money supply. | 16:18 | |
A number of previous studies... | 16:22 | |
And he goes through these very carefully | 16:24 | |
to see whether their results are different from his. | 16:27 | |
Have concluded that lags exist | 16:31 | |
and can be used in profitable trading rules. | 16:34 | |
Analysis of these studies demonstrates | 16:36 | |
that for a variety of reasons | 16:39 | |
the evidence in these past studies | 16:41 | |
is not sustained such conclusions. | 16:42 | |
It's remarkable if somebody believes in something he can | 16:45 | |
look at the evidence and think that it bears out | 16:49 | |
his pre-conceptions. | 16:53 | |
When on an objective way of analyzing that evidence, | 16:55 | |
and of course we have very elaborate statistical techniques | 16:59 | |
worked out and agreed upon | 17:02 | |
for finding out the relationships, | 17:04 | |
may well show and in this case it did show. | 17:06 | |
That even in their own sample data | 17:10 | |
there was where none of the effects which they hoped for. | 17:14 | |
Welp three cheers for the efficient market and | 17:19 | |
one sad hymn of regret | 17:24 | |
that way to get rich quickly | 17:29 | |
apparently is not available to most of us. | 17:31 | |
I can put off no longer, looking at the blue meter pattern | 17:40 | |
that seems to be indicated by most of the analyst | 17:47 | |
with a good batting average. | 17:53 | |
I have new forecast now, from Chase Econometrics. | 17:55 | |
I have a new up-to-date forecast, | 18:02 | |
based on the second quarter data | 18:05 | |
by Albert Summers | 18:10 | |
of the Conference Board whose results I've been | 18:11 | |
calling to your attention. | 18:14 | |
I also have a set of forecast | 18:17 | |
not from the Wharton School model | 18:23 | |
of Dr. Klein | 18:30 | |
which we're all familiar with. | 18:31 | |
I'll get that no doubt, | 18:35 | |
the moment after this recording is made, | 18:36 | |
the mailman will come in with the new forecast. | 18:40 | |
It's too late for me to comment on it. | 18:43 | |
I don't have Auto Extends Data Resources forecast. | 18:46 | |
I don't have what may be the final private forecast | 18:51 | |
of Allen Greenspan for Townsend-Greenspan. | 18:56 | |
I'm afraid that the nation's gain is my loss and your loss, | 19:00 | |
because Townsend-Greenspan will now not have | 19:04 | |
it's mainspring. | 19:08 | |
Let's hope that there exist a little Allen Greenspan prime | 19:09 | |
that'll be back home mining the shop | 19:16 | |
and he'll give us as good forecast | 19:20 | |
as we will be lucky enough to get from that organization. | 19:22 | |
But I do have something which is extremely interesting. | 19:28 | |
I have from Wharton, from University Of Pennsylvania, | 19:31 | |
a set of forecast based upon the MPS model. | 19:37 | |
I'll have to explain what that is, | 19:42 | |
that's what used to be the | 19:45 | |
federal reserve or FRB MIT model. | 19:51 | |
Then it became the FRB MIT Penn Model. | 19:55 | |
Well the federal reserve I think is bowing out. | 19:59 | |
The staff at the federal reserve, it is rumored | 20:03 | |
has a version of a model not unlike this, | 20:06 | |
that it uses for short-term forecasting purposes. | 20:10 | |
But its very important to emphasize | 20:14 | |
that this forecast is the... | 20:16 | |
Has nothing to do with the official federal reserve | 20:20 | |
system anymore. | 20:24 | |
It is a combination of MIT, | 20:29 | |
University of Pennsylvania | 20:33 | |
and Social Science Reserch council. | 20:34 | |
So its called MPS MIT Penn Social Science Research. | 20:37 | |
The MPS model is of interest to an economist, | 20:42 | |
not because its been one of the prime contenders | 20:46 | |
in the short-term forecasting field, in recent years. | 20:51 | |
But because it's a model which takes seriously | 20:56 | |
trying to elaborate on monetary and financial relationships, | 21:01 | |
like those in the real world. | 21:09 | |
Since all economist think, well | 21:12 | |
virtually all economist think that money matters. | 21:15 | |
Although only a sub-set of them think that | 21:19 | |
money, alone, matters where it counts. | 21:22 | |
You would think there'd be more models like the MPS model | 21:28 | |
which would try to work out in considerably detail | 21:32 | |
exactly how money matters. | 21:36 | |
So the MPS model is a one which tracks the economy | 21:40 | |
and which tries to duplicate the economy | 21:46 | |
as far as the policy variables are concerned. | 21:50 | |
It has in it a place to have | 21:58 | |
federal reserve policy and changes in monetary policy | 22:02 | |
or changes in intrastate policy. | 22:05 | |
In particular it puts a very considerable emphasis | 22:08 | |
and some of my older readers, I think will | 22:12 | |
feel nostalgic when I tell them this. | 22:15 | |
It puts considerable emphasis on what's | 22:19 | |
happening to the stock market, | 22:21 | |
as a cause all variables to what's happening in the economy. | 22:23 | |
It's no simple theory that the economy | 22:26 | |
follows the stock market, but it has a common sense | 22:29 | |
pattern of behavior that if your net worth | 22:33 | |
is going down on paper by billions of dollars, | 22:38 | |
you the American public will find that that effects the way | 22:44 | |
you spend out of your current income. | 22:48 | |
So the stock market decline has a | 22:51 | |
direct effect downward on consumption. | 22:53 | |
Furthermore, the stock market represents one of the avenues | 22:56 | |
by which firms finance their new capital formation. | 23:01 | |
So the cost of capital is effected | 23:05 | |
by what's happening to dividend rates and | 23:07 | |
what's happening to stock market prices. | 23:10 | |
And this is built into the investment equation of the model. | 23:15 | |
Well what is the upshot? | 23:21 | |
The upshot is that Albert Summers still has | 23:24 | |
a pessimistic model looking ahead. | 23:30 | |
He's, I guess, the most pessimistic fellow in town | 23:36 | |
and he's a little bit more pessimistic | 23:39 | |
than he was at earlier reports. | 23:41 | |
It's true he does not have the GMP going down | 23:47 | |
in the third quarter of the year, the current quarter. | 23:51 | |
But he does have it absolutely flat, | 23:55 | |
0.0 in the third quarter, 0.0 in the forth quarter. | 23:57 | |
That averages out to about as flat as 0.0 | 24:01 | |
for the last half of the year as you could find. | 24:04 | |
That's for a real GMP. | 24:10 | |
He has a very slow recovery | 24:13 | |
in the beginning of 1975 but | 24:17 | |
Dr summers has a little cheer for you the end of 1975 | 24:21 | |
because by the end of '75 you are | 24:26 | |
witnessing according to his best guesses, | 24:30 | |
6% rate of real growth. | 24:33 | |
So it's just a year from now | 24:37 | |
that the system begins to return to par. | 24:40 | |
On the price index, Dr. Summers is a bit more optimistic. | 24:45 | |
You know we had a drop from 12.3% in the | 24:53 | |
deflator for the first quarter, | 24:57 | |
to 8.8% in the second quarter. | 25:00 | |
Probably if you're like most of us, | 25:05 | |
you didn't notice much of a drop | 25:07 | |
in the rate of inflation in the second quarter. | 25:09 | |
But the Department of Commerce did in the | 25:12 | |
national income accounts. | 25:15 | |
There's reason to think that most of that is fictitious. | 25:18 | |
If we pay more for oil abroad, | 25:22 | |
that increases the consumers price index | 25:25 | |
and we feel it. | 25:29 | |
And it's proper because the consumers price index | 25:30 | |
should reflect that, but unfortunately when you examine how | 25:32 | |
the GMP price deflator is constructed | 25:35 | |
that increase in price does not enter at all | 25:40 | |
because this is a measure of | 25:44 | |
our own prices on our own domestic products. | 25:45 | |
For technical reasons, which I don't have time now | 25:48 | |
to go into, it actually reduces the rate of GMP deflator. | 25:52 | |
So I believe that a more informed view | 25:58 | |
would be if you were to think, | 26:01 | |
not at 12.3 in the first quarter, | 26:04 | |
but of 11 in the first quarter. | 26:06 | |
And if you were to think of not 8.8 or 9 | 26:09 | |
in the second quarter but of ten and a half, | 26:13 | |
you'd be nearer to what's actually happening | 26:17 | |
to the trend of price inflation | 26:20 | |
as it relevantly effects our discussion. | 26:23 | |
But still he's very optimistic because he has prices, | 26:29 | |
according to this deflator, | 26:33 | |
going down very gradually for the second half of the year. | 26:35 | |
8.0 down from 8.8 you see, 7.2, | 26:40 | |
alas his optimism is very short lived | 26:45 | |
because in 1975 the rate of price inflation | 26:51 | |
is again beginning to climb. | 26:56 | |
8% in the first quarter, 8% in the second quarter, | 26:58 | |
9.2 in the third quarter, 9.2 in the forth quarter. | 27:01 | |
So in the last half of next year, | 27:07 | |
we're at a higher rate using this particular index | 27:11 | |
than we were reported to be for the second quarter. | 27:15 | |
So I think we have to say | 27:20 | |
that his is not a very optimistic outlook. | 27:21 | |
You may want to discount that though, because you'll say | 27:27 | |
it's Dr. Summers whose been one of the most pessimistic. | 27:29 | |
One of those who was a pre-mature caller | 27:33 | |
of a real genuine recession. | 27:37 | |
He's coming up, by the way, smelling like a rose apparently | 27:40 | |
compared to some of the more optimistic forecasters. | 27:43 | |
But let's turn and | 27:50 | |
I'll have to report very briefly, to the Chase forecast. | 27:53 | |
Mike Levin, you remember, | 27:59 | |
has been having a very good batting average. | 28:00 | |
And he has... | 28:03 | |
Had turned pessimistic a quarter ago or so, | 28:06 | |
and it looks as if he's turning even more pessimistic now. | 28:11 | |
Because he believes that the third quarter, | 28:17 | |
although he once had a negative number for third quarter, | 28:21 | |
now has a positive. | 28:24 | |
It's so minuscule, a positive number, | 28:25 | |
for the third quarter of the year on real growth | 28:27 | |
and for the forth quarter that there's not much to choose | 28:30 | |
from between his forecast and that of Dr. Summers | 28:33 | |
for that period of time. | 28:37 | |
Moreover, he does not come out | 28:39 | |
with roaring 6% rates of increase. | 28:40 | |
A year ahead down the pike, | 28:44 | |
he really looks for a good deal of trouble | 28:48 | |
in the American economy. | 28:52 | |
We have to add to that | 28:53 | |
the fact that | 28:55 | |
he does not think we're leaving two digits | 28:57 | |
of price inflation behind us, but on a contrary | 29:01 | |
thinks that the second quarter reported number is a sport. | 29:05 | |
He notes with, | 29:10 | |
I suppose, a certain amount of satisfaction | 29:14 | |
that his continued feeling | 29:16 | |
that inventories are being under reported | 29:18 | |
by the Department of Commerce, | 29:20 | |
have now been vindicated. | 29:22 | |
And looks as if, after we've now had a good | 29:23 | |
shot at the revised data that there's been | 29:27 | |
a lot of inventory accumulation | 29:31 | |
and inventory sales ratios must be up. | 29:32 | |
So there's very little other than blood sweat and tears | 29:38 | |
to be read in the Chase Econometrics forecast. | 29:41 | |
However, I saved the worst for the last. | 29:46 | |
The reason that the MPA model came out | 29:50 | |
with a kind of a flash July set of model forecast, | 29:54 | |
was that they want to convey a message of warning | 29:59 | |
of recessionary relapse in the present modern recovery | 30:05 | |
unless the money supply is allowed to grow faster | 30:09 | |
and bring interest rates down to more familiar levels. | 30:12 | |
They've run off forecasts based upon existing | 30:15 | |
monetary policies, apparently what the | 30:21 | |
federal reserve is aiming for. | 30:25 | |
Continued into the future and then with | 30:27 | |
certain variations from those and | 30:30 | |
as a result they get some really discouraging numbers. | 30:33 | |
Although the Chase unemployment rate never gets as high, | 30:40 | |
even as a 6%. | 30:44 | |
That's not the case for the MPA model. | 30:46 | |
Now let me see if I can find | 30:50 | |
some of the discouraging numbers. | 30:52 | |
I'm just going to stick with the unemployment number. | 30:55 | |
And since my time is really running out, | 31:00 | |
I'm going to give you the unemployment which will result | 31:03 | |
from a 6% growth rate of M1 rule adhere to, | 31:07 | |
and they show unemployment | 31:14 | |
which was 5.3% in the second quarter. | 31:16 | |
That may have been before the second quarter | 31:21 | |
numbers were actually in. | 31:23 | |
Rising to 5.6%, 5.7 by the end of the year. | 31:26 | |
And then hold your hats, 6.4%, | 31:31 | |
7%, seven and half percent, and 8%. | 31:35 | |
And by the first quarter of 1976 | 31:38 | |
when they mercifully desist | 31:40 | |
they have unemployment up, by that model, to 8.6%. | 31:42 | |
Now mind you that's not a forecast | 31:46 | |
because they don't believe that | 31:48 | |
the 6% rate of growth of M1 rule will be maintained | 31:49 | |
under this scenario, but its a warning | 31:53 | |
what will happen if you do try to maintain it. | 31:57 | |
I think that that's an excessively dire forecast, | 31:59 | |
but it indicates what based upon | 32:04 | |
one way of reading past experience, | 32:07 | |
the results could be. | 32:09 | |
I may also say | 32:11 | |
that you don't buy very much | 32:13 | |
in the way of inflation and batement | 32:15 | |
by this particular policy, | 32:18 | |
but you do of course buy something. | 32:20 | |
And they've got the rate of growth in prices | 32:22 | |
down to about 6% by the first quarter of 1976. | 32:25 | |
Well rarely with so little accomplished | 32:30 | |
for so very much sacrificed in the way of unemployment | 32:33 | |
and they regard this as a very serious warning. | 32:38 | |
- | If you have any comments or questions | 32:42 |
for Professor Samuelson, | 32:44 | |
address them to Instructional Dynamics Incorporated, | 32:45 | |
450 East Ohio Street, Chicago, Illinois 60611 | 32:48 |
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