Tape 146 - On the state of the union address

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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 by	0:07
	Instructional Dynamics Incorporated.	0:08
	This program was recorded January 31.	0:10
-	Last night, President Nixon gave his	0:13
	State of the Union address to Congress.	0:15
	It's natural, therefore, this morning	0:18
	to try to analyze what it was that was proposed there,	0:20
	but all we can go on	0:24
	is this morning's selections of his program	0:26
	as summarized in the public press.	0:29
	It's true that The New York Times that I'm now looking at	0:32
	gives a fairly complete summary,	0:34
	but I do not have the text of the message at hand.	0:37
	Moreover, we've all been warned on the pitfalls	0:42
	of instant analysis.	0:45
	But let us look at the broad picture.	0:47
	There are numerous goals expressed in that message,	0:53
	but President Nixon lists 10 most important ones.	0:57
	You could guess what some of them would be.	1:03
	One, improving the energy supply,	1:06
	and I quote, while assuring reasonable prices	1:09
	with the adequate environmental protections.	1:11
	This, of course, is a very tall order.	1:15
	Two, another giant stride to our lasting peace.	1:18
	This includes a continuation and amplification of detente	1:23
	and also working with the powers of the Middle East.	1:28
	We're to have a check in rise in prices,	1:34
	but without administering the harsh medicine of a recession.	1:38
	In fact, the president said blankly, boldly,	1:43
	there will not be a recession.	1:47
	We have new health insurance.	1:50
	We're to have more of revenue sharing.	1:53
	We're to have a crucial breakthrough	1:57
	in public transportation.	2:00
	We're to have reforms in federal aid to education.	2:02
	We're to have, I'm now at eight, an historic beginning	2:05
	in legislation to protect privacy.	2:10
	Nine, a new road toward welfare,	2:12
	toward reform of the welfare system.	2:15
	And 10, new initiatives in world trade,	2:18
	with more access by Americans to markets and supplies.	2:20
	There is, to be expected I suppose in any state document	2:26
	and particularly at a time	2:29
	when you have a president under considerable pressure,	2:31
	a certain depreciation of the currency of rhetoric.	2:34
	We have perhaps more than the usual dose of giant strides,	2:40
	historic beginnings, new programs,	2:47
	but let's try to summarize what this can mean.	2:55
	I would say that to listeners interested	2:56
	primarily in economics and primarily in the overall	3:00
	future of the general business situation,	3:05
	I took it to be an important statement by the president	3:09
	that there will be no recession.	3:13
	Now of course, people say King Canute said	3:17
	the tides shall not come into my throne.	3:22
	He did this actually, as I remember, to demonstrate to his	3:26
	members of the court the limitations of government power.	3:32
	President Nixon is not in a position to tell	3:38
	the real world of events, the GNP inflation,	3:42
	what it shall do and what it shall not do,	3:46
	but I take it to mean	3:49
	when he said there will be no recession,	3:50
	one, that when the economic report comes out next week,	3:53
	his technical advisors, Dr. Stein, Dr. Fellner,	3:58
	and others are of the opinion	4:04
	that the odds favor our not having	4:07
	as much as two quarters' decline in real output	4:12
	or certainly not three quarters' decline in real output.	4:16
	But something more, I think, is being said,	4:21
	namely that the president is telling the American people	4:22
	that he's going to do the things that may become necessary	4:27
	if they do to prevent a recession from developing.	4:31
	And it's that implicit assurance of activist policy	4:37
	which I think is an important signal to us.	4:43
	As I recall the words of the president,	4:48
	and I'm now speaking from loose memory,	4:50
	he said that he would not listen to the prophets of gloom.	4:56
	The prophets of gloom, by the way,	5:03
	are people who are always outside	5:06
	any existing administration	5:08
	and who say there's going to be a recession.	5:10
	Now, there are some prophets of gloom who are	5:13
	people of very poor track records,	5:19
	who are saying in season and out of season	5:21
	there's going to be a stock market crash	5:24
	and the oceans are going to warm up	5:26
	and we're going to run out of	5:29
	chicken feet and everything else.	5:30
	They make their living at that.	5:33
	There also are people in the opposition of every government	5:34
	who would like to magnify and make things look worse	5:38
	than they actually are and who for political reasons	5:40
	exaggerate any threat to an expansion in the economy	5:44
	or to high employment.	5:51
	But I think most important is	5:53
	that on occasion after occasion,	5:57
	and I can say this in a non-partisan spirit	6:00
	because the governments of both political parties	6:02
	have earned this matter,	6:05
	there have been well-informed people	6:06
	who call the shots exactly as the best jury could call them	6:09
	and who have told the American people the bad news,	6:15
	the sad news that things were not going to continue to go up	6:18
	and it's those prophets of gloom	6:23
	who are periodically denounced by Washington	6:25
	but who are worth listening to.	6:28
	Now, the fact is that any informed jury	6:32
	knows that 1974 is going to go down	6:35
	as a year of economic travail	6:39
	not only on the side of inflation	6:43
	but in terms of increasing unemployment,	6:45
	and you are not a discredited prophet of gloom	6:49
	if you do say that.	6:52
	But there was another group whom the president linked	6:55
	with the prophets of gloom in the same sentence	6:59
	as I recall it,	7:01
	and he said he would not listen to those	7:02
	who say we ought to have a slowdown,	7:07
	we ought to have a recession in order to fight inflation.	7:10
	Now, any intelligent person who has followed the discussion	7:16
	of economic policies in the last two years	7:19
	knows that it is a respectable viewpoint	7:22
	that there is a natural rate of unemployment,	7:27
	and at the peril of continuing and accelerating inflation	7:31
	does a government contrive its fiscal and monetary policies	7:36
	to push the real economy below	7:39
	that natural rate of unemployment.	7:42
	And therefore, people who are of this persuasion,	7:44
	happens not to be my own	7:47
	but it is a respectable scientific viewpoint,	7:49
	people who are of this persuasion say,	7:52
	and not because they are cruel people	7:55
	and not because they are sadists	7:57
	but say it out of conviction,	7:59
	that this is the right therapy for the long run.	8:03
	They say that you should engineer	8:06
	deliberately a slowdown in the economy,	8:11
	including perhaps a recession not a depression,	8:15
	in order to check inflation.	8:19
	And what it is that they are arguing	8:21
	is that over the longer run,	8:23
	you will average out to a higher level of human welfare,	8:25
	to a lower level of unemployment,	8:28
	and I think the more enthusiastic members of this camp	8:30
	would say that this remark could also be made	8:33
	about the unemployment and the welfare of	8:36
	unprivileged minority groups in the ghetto.	8:40
	Now, what I understand the president to be saying,	8:44
	at least his rhetoric is saying that,	8:48
	in his important State of the Union message,	8:51
	is that he has rejected the counsel of such people.	8:53
	Now, I don't think that a statement to this effect by itself	9:00
	means anything, but I think that a lack of such a statement	9:05
	or a statement to the opposite effect,	9:10
	namely that I bring you blood, sweat, and tears	9:12
	and this is now the year in which we ought to	9:14
	take some temporary sacrifice of our prosperity,	9:17
	the fact that he has made that	9:25
	I think is of some significance.	9:27
	Well, fourth, and here now,	9:33
	we're getting into some important new initiatives,	9:33
	we've known for a long time	9:37
	that some form of health insurance	9:38
	was in the offing because the political pressures	9:40
	for it from the rank and file of both parties	9:45
	make it impossible	9:48
	for those within the administration who wouldn't care for	9:51
	an expansion of health insurance	9:54
	or who have rational apprehensions,	9:56
	that given our limited supply of hospitals	9:59
	and given our limited supply of medical people,	10:02
	that some new money poured into the health field	10:04
	is only going to bid up rents	10:08
	and actually is going to reduce	10:09
	the supply of effort by physicians	10:11
	and is not going to improve the allocation of physicians	10:14
	as between, let's say, upper Manhattan	10:19
	and counties of Virginia and Wisconsin	10:23
	which don't have a single physician there.	10:26
	The counsel of such people inside the administration,	10:29
	however, it has been regarded as having merit	10:33
	on the logical situation has had to go	10:36
	in terms of the realistic political pressure.	10:41
	We come to five.	10:46
	We're to continue, in fact, to have an intensification	10:47
	of what can be called revenue sharing,	10:51
	the federal government giving to the states	10:56
	money for the states and localities to spend.	10:59
	Nothing new there I think,	11:03
	just a continuation of earlier thinking	11:06
	by the administration	11:09
	and by some people who aren't in the administration.	11:11
	Six, we're to have a crucial	11:14
	breakthrough in public transportation.	11:16
	One of the things the energy crisis has done	11:19
	is to make people realize how expensive in terms of smog	11:21
	and in terms of oil is the internal combustion engine	11:27
	of the auto.	11:32
	And commuting one man to a car into town	11:33
	is realized to cause traffic congestion and smog	11:38
	and to use up oil resources very rapidly.	11:41
	And so, the case for public transportation	11:44
	has received new publicity.	11:48
	And in the urban centers, the federal government is now	11:52
	preparing to provide some money.	11:55
	Well, there are to be reforms to federal aid to education.	11:57
	We're to have an historic beginning	12:04
	in legislation to protect privacy.	12:07
	This presumably will have to do with the problem	12:10
	which has incensed the Republican governor of Massachusetts,	12:12
	namely he's unwilling to give routine computer data	12:17
	to the federal computers,	12:21
	which might show that a particular citizen,	12:24
	for a brief time, was an outpatient in a mental hospital	12:28
	and that information might be used against that person	12:33
	for the purpose of credit ratings,	12:36
	for the purpose of job investigations and so forth.	12:38
	Well, there is plenty in the field of credit investigation	12:42
	which bothers thinking people	12:46
	who are concerned with privacy.	12:49
	We're to have a new road toward	12:53
	reform of the welfare system.	12:54
	It can be as important what is not in a message	12:57
	as what is in a message	13:00
	because the advanced notices	13:01
	given by the president's associates,	13:05
	either explicitly or through leaks and through hints,	13:09
	was that something was to be proposed	13:12
	with respect to the negative income tax again.	13:15
	And in the actual message as it was delivered,	13:19
	there was a bit of an anti-climax	13:23
	because there was no mention	13:24
	of the negative income tax as such.	13:26
	Let me see if I can find	13:30
	the brief words used by the newspapers in summarizing	13:32
	what it was that the president did say.	13:38
	I now quote the president,	13:42
	I do not intend to resubmit a new version	13:45
	of the family assistance plan,	13:48
	that is of the negative income tax	13:50
	as proposed on a family basis earlier by President Nixon	13:52
	under the stimulus of Mr. Finch and Mr. Moynahan.	13:57
	I now go on quoting.	14:03
	In the development of my proposal,	14:04
	I will be guided by five principles.	14:06
	He doesn't tell us what the proposal is,	14:07
	although no doubt we will hear soon.	14:10
	All Americans who are able to work	14:13
	should find it more rewarding to work than to go on welfare.	14:15
	That means there is to be	14:18
	what is the principal feature of the negative income tax	14:20
	some kind of incentive schedule	14:22
	aid-rate setting	14:26
	so that if you get an extra dollar of income,	14:28
	you are allowed to keep some fraction of that dollar.	14:31
	Two, cash assistance is what low-income people need most	14:35
	from the federal government.	14:39
	I take this to mean that income in kind,	14:40
	such as food stamps, are, other things being equal,	14:43
	to be frowned upon or healthcare at free clinics,	14:46
	you're to give people cash and let them decide	14:50
	whether they're to spend that money	14:53
	on nutritious food for their children	14:54
	or on what they think is most essential.	14:57
	Three, we need to focus federal help	15:02
	on those who need it most.	15:04
	That, of course, would mean that some kind of a means test	15:06
	would be relevant, size of family would be relevant,	15:10
	degree of objective handicaps, such as being blind	15:14
	and so forth would be relevant.	15:17
	The new system should be as simple as possible	15:20
	to administer with rules that are clear and understandable.	15:22
	I think that sounds inane	15:25
	but to me it points in the direction of cash,	15:30
	perhaps cash administered by the IRS	15:35
	on a plus and minus basis	15:38
	rather than a complicated set of rules	15:41
	such as a social service welfare worker would	15:45
	be needed to administer.	15:50
	And finally, and who'd be against this,	15:53
	this new approach should not require	15:54
	an increased tax burden for any of us.	15:56
	Well, on that particular point,	16:00
	obviously we're going to have to wait.	16:04
	And then, 10, we're to have new initiatives in world trade	16:06
	with more access by Americans to markets and supplies.	16:10
	I think that as stated in this direction,	16:14
	very few people could be against it,	16:18
	but it isn't clear just exactly what that means	16:21
	in terms of new initiatives.	16:24
	Actually, the part of his speech	16:30
	which received the most immediate attention	16:34
	was his announcement that he had been assured by	16:41
	his advisors who are dealing with the Near East governments,	16:44
	I presume would read Dr. Henry Kissinger for that,	16:49
	that there is about to be a meeting	16:54
	which will end the oil boycott,	16:56
	and it's quite obvious to anyone	16:58
	who has seen what's been going on	17:01
	in American cities this last week	17:03
	that it's the gasoline shortage	17:06
	which is in the minds of everybody.	17:08
	It happens to be more acute on the eastern seaboard	17:10
	where people are literally burning up gas,	17:13
	waiting in long queues for the limited amounts of gas	17:16
	which may or may not be available for limited hours	17:21
	at particular service stations.	17:26
	The other part of the speech of course	17:31
	which received great attention came as an aftermath,	17:33
	namely when the president had said	17:41
	that he had been elected to do a job	17:42
	and that he was not going to walk away from that	17:44
	particular responsibility, which was serving notice	17:47
	that he was not about to throw in the sponge	17:51
	under the Watergate pressures.	17:55
	Well, let me return to an analysis	17:59
	of the general economic policy	18:03
	as it has been indicated by this brief message.	18:05
	Of course, we will get to budget messages,	18:11
	we will get to the economic report of the president.	18:12
	But I would have to say that what is being stressed	18:15
	is the middle road.	18:17
	We're not going to go all out in the way of expansion	18:19
	because that would intensify inflation.	18:23
	We are not, on the other hand,	18:26
	going to engineer deliberately a softness	18:29
	in order to have natural market forces	18:32
	check the inflation and lay the base for a more stable	18:36
	price later expansion.	18:42
	We are not going to have outright rejection	18:45
	of all presidential leadership	18:49
	in the realm of incomes policy.	18:51
	That is, not all price and wage controls	18:54
	are to be dramatically abandoned,	18:56
	but we are to have gradual decontrol on a watchdog basis.	18:59
	We are not to have,	19:09
	on the basis of the present energy situation,	19:12
	outright rationing	19:14
	but neither are we to have outright laissez-faire	19:17
	increases in the price of energy	19:24
	to whatever the market will bear.	19:25
	Instead, the president applauds the fact	19:27
	that we are moving away from the bargain prices	19:30
	at which energy has been bought and squandered in the past	19:35
	and he's giving his blessing to some increase in that.	19:38
	But he is suggesting that he would like to use	19:42
	what economists would have to call monopsony power,	19:44
	he would like to get the consuming nations together,	19:49
	and you know of course he's issued an invitation	19:51
	for a future conference,	19:54
	so that the monopoly of the Near East will be checked,	19:57
	at least in part, by concerted monopsony counterpressure	20:02
	by the consuming countries.	20:07
	The president has stated that he has an ambitious program	20:10
	for self-sufficiency, operation self-sufficiency by 1980,	20:14
	but he recognizes in his message	20:19
	that there will have to be a dependence on foreign oil	20:22
	for some time.	20:25
	There were no surprises on his budget numbers.	20:28
	The expenditure budget, of course, is to go up.	20:33
	We are to have a deficit,	20:38
	but it's not a deficit on a full employment basis.	20:39
	The amount of the increase is 29.7 billion.	20:44
	It's like buying a two dollar item for $1.99,	20:50
	That's 30 billion, let's call it, over the previous year.	20:53
	But as the president points out,	20:58
	it's not his discretion which has caused that	20:59
	because about 90% of the increase	21:04
	is under nondiscretionary items	21:06
	which have been voted in the past by Congress.	21:08
	The president would like to have Congress	21:10
	somehow chain together its expenditure decisions as a whole	21:13
	with the tax capacity of the tax structure	21:20
	which it has voted,	21:23
	but he is bothered by the fact that every time	21:24
	such legislation is proposed,	21:27
	there are rather embarrassing	21:29
	riders and amendments put on it.	21:32
	Well now let's try to	21:35
	give some analytical shape to the vague outlines	21:38
	of what it is that we know from the president's message.	21:43
	Of course, the important thing to say first is	21:46
	that a good deal of what's going to happen	21:49
	between now and let's say next Labor Day	21:51
	is already, to a very considerable degree, decided	21:54
	because there are long lags and variable lags	21:58
	in the actions of fiscal policy and of monetary policy.	22:02
	Now it's very important of course	22:06
	what the Federal Reserve does in the three, four, five,	22:09
	six months ahead between now, say, and Labor Day.	22:14
	It's very important the direction	22:19
	in which the president moves his budget	22:21
	and in which Congress alters what it is	22:24
	that the president has proposed.	22:28
	But nevertheless, the president, I think,	22:31
	cannot, by anything he does,	22:35
	let's say in this first half of the year,	22:38
	really do very much to determine whether or not	22:41
	we will have a recession.	22:44
	I don't know whether we will have	22:47
	a genuine recession in 1974,	22:49
	but it's pretty much already decided in the data	22:53
	that will be revealed to us gradually	22:58
	in this current quarter and in the next quarter.	23:02
	I think that if we have a bare recession,	23:07
	we do have a decline for two quarters,	23:11
	the president saying we will have no recession	23:14
	will not be very embarrassing to him.	23:18
	Of course, if we have a fairly serious recession,	23:20
	something like the recession of 1954,	23:24
	you can be sure that next fall,	23:27
	the opposition candidates will play the TV tapes	23:29
	of the president saying there will not be a recession	23:33
	and will use this against him.	23:36
	My own guess is that he has a pretty good chance	23:40
	of winning the bet because if you're just on the ragged edge	23:43
	of, let's say, having the first quarter	23:48
	be a quarter of actual decline	23:52
	and the second quarter being a standoff quarter,	23:55
	zero growth, not plus, not minus,	24:00
	or maybe announced initially as a trifling minus	24:02
	but on revision being found to be a trifling plus,	24:08
	then I think that you would get a lot of semantic quibble	24:13
	about what constitutes a recession,	24:18
	and there will be enough noise in the discussion	24:21
	as against the message so that the person who said	24:25
	something on either side of the proposition	24:29
	will not be in serious trouble.	24:31
	The significant thing in my view	24:35
	in sizing up what's going to happen	24:38
	is that as a result of the Watergate affair,	24:41
	you do not have a president in his second term	24:50
	who is in a position, if he should want to,	24:54
	to take an activist economic policy,	24:56
	which is different from that associated	25:03
	with typical previous administrations.	25:07
	In other words, the Democratic party's ideology	25:10
	with respect to the general incomes policy,	25:15
	with respect to the general fiscal policy,	25:20
	with respect to anti-depression,	25:26
	leaning against the wind policy,	25:29
	with respect to what ought to happen	25:31
	to Federal Reserve policy,	25:34
	all of these things the president is in no position	25:36
	to deviate from given his present	25:40
	state of siege in political terms.	25:45
	This is in contrast to where the president stood	25:49
	the day after the election in November 1972	25:54
	when he had 49 out of 50 states	25:58
	voting for him and in that sense giving him a mandate.	26:03
	He was then in a position,	26:08
	if he should have wished to persevere in it,	26:10
	to have had a strong anti-inflation policy.	26:13
	He was then in a position, had he wished to persevere in it,	26:17
	to dismantle some of the redistribution of income programs	26:20
	that Congress and previous administrations	26:28
	had built into the American way of life.	26:31
	He is no longer in that position,	26:34
	and unless things change very rapidly	26:37
	between now and the November congressional elections,	26:41
	it doesn't look, to the betting man,	26:45
	as if he will soon be in that position.	26:47
	This is all on the assumption	26:50
	that he will continue in office until the end of his term.	26:52
	It seems to me in here I have to depart from	26:58
	economic analysis that every such appearance,	27:01
	as the one the president has just made,	27:06
	has to be regarded as an appearance in his favor.	27:08
	The mere fact that the president shows	27:12
	that he is in command of himself,	27:17
	that he is not a basket, mental case,	27:20
	that he is not a recluse who cannot face more than two men,	27:23
	whether that be Haldeman or Ehrlichman	27:30
	or General Haig and Ziegler,	27:32
	that wins him bonus points in the short run.	27:38
	Of course, in the longer run,	27:43
	the logic of events takes over.	27:45
	When the president said that he would cooperate	27:49
	with the judiciary committee,	27:52
	he added very carefully he would do that consistent	27:55
	with protecting the office of the president.	27:58
	Those who are unfavorable to the president	28:01
	will interpret that, they already have interpreted that	28:04
	as saying he will cooperate when he wants to cooperate,	28:06
	and he will not cooperate	28:09
	when he does not want to cooperate.	28:10
	So although the president said	28:12
	and he won applause, one year of Watergate should be enough,	28:15
	it still remains to be seen	28:22
	whether the particular legal procedures	28:25
	and investigations which are under way	28:28
	can be rapidly turned off.	28:32
	It's very important	28:35
	for the person interested in economic analysis to realize	28:37
	that it is not a crucial factor	28:41
	in what happens to the GNP	28:45
	and therefore should not be a crucial factor	28:47
	in our analytical probability estimations	28:49
	as to what's going to happen,	28:53
	whether the president of the United States is	28:55
	continuing in office or is not continuing in office.	28:59
	That represents a very strong statement on my part,	29:05
	but it's one which I think can be justified	29:08
	by a careful analysis of what it is	29:12
	that makes the price level rise,	29:15
	what it is that makes the GNP tick,	29:17
	and we'll go into that at some future time.	29:20
-	If you have any comments or questions	29:23
	for Professor Samuelson, address them to	29:25
	Instructional Dynamics Incorporated,	29:27
	166 East Superior Street, Chicago, Illinois, 60611.	29:29

Item Info

Title:

Tape 146 - On the state of the union address

Date:

1974

Contributor:

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

Subject:

Format:

audiocassettes

Language:

English

Digital Collection:

Paul A. Samuelson papers, 1933-2010 and undated

Source Collection:

Paul A. Samuelson papers, 1933-2010

Series:

Economics Cassette Series: Paul Samuelson

Rights:

Limited Re-Use

CC BY-NC 4.0

Rights Note:

This material is made available for research, scholarship, and private study. Copyright in this material has not been transferred to Duke University. For reuses of this material beyond those permitted by fair use or otherwise allowed under the Copyright Act, please see our page on copyright and citations: https://library.duke.edu/rubenstein/research/citations-and-permissions.

Identifier:

RL10082-CS-0139
ref2417_lzd
samuelsonpaul
duke:325162
pstau001139
ark:/87924/r4s75721s
1a7d6ded-8117-4074-812e-2815de3ad37d

Permalink:

https://idn.duke.edu/ark:/87924/r4s75721s

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Tape 146 - On the state of the union address

Transcript

Item Info

Economists' Papers Archive

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