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Interviewer | Welcome once again | 0:05 |
as MIT professor Paul Samuelson | 0:06 | |
discusses the current economic scene. | 0:08 | |
This series is produced by | 0:10 | |
Instructional Dynamics Incorporated. | 0:12 | |
Professor Samuelson, now that we're | 0:15 | |
in April, the tax bill is signed, | 0:16 | |
what is the outlook from here? | 0:18 | |
Paul | Will he sign, won't he sign? | 0:24 |
That was the question that the country was waiting to hear. | 0:27 | |
As most people thought, the President decided | 0:33 | |
not to veto the tax bill. | 0:37 | |
As most people thought, in signing the bill, | 0:39 | |
the President expressed his dissatisfactions with it. | 0:43 | |
For one thing, he had asked for 16 billions | 0:49 | |
and he received 22 billions | 0:51 | |
of tax stimulus | 0:56 | |
that I think is an understatement of the amount | 0:58 | |
of fiscal stimulus that is on the way | 1:00 | |
and whether or not the President should have wanted | 1:03 | |
the extra stimulus, it, I suppose, could not | 1:07 | |
but help him to put | 1:12 | |
warning on congress | 1:17 | |
that having spent more than he said, | 1:20 | |
they would be responsible for any excess in | 1:23 | |
inflation, which might follow. | 1:28 | |
Moreover, he used the occasion, of course, | 1:30 | |
that goes without saying, to stress | 1:34 | |
the importance to him of our not increasing | 1:38 | |
government expenditures. | 1:42 | |
What the effects of the tax bill will be | 1:48 | |
now requires some patient waiting. | 1:51 | |
Most of the fashionable forecasters, | 1:56 | |
I hesitate to call them experts, wanted the bill. | 2:00 | |
They had the, their forecasts, | 2:05 | |
which called for the economy reaching bottom | 2:09 | |
and beginning to turn up before the middle of the year. | 2:14 | |
Those forecasts were premised upon | 2:17 | |
the President's signing something like | 2:20 | |
the tax bill that he did sign. | 2:22 | |
As far as I know, they have had no reason to | 2:26 | |
change their opinions. | 2:29 | |
We've had on the Eastern seaboard signs of spring, | 2:32 | |
crocuses have been out. | 2:36 | |
Unfortunately, there's no good name for... | 2:39 | |
Well we have a good name for Indian summer, | 2:44 | |
but there's no good name for the return of winter | 2:45 | |
and that's what we've had in terms of the climate, | 2:50 | |
but it's not clear that there's been any | 2:55 | |
deterioration in the | 2:58 | |
economy beyond | 3:02 | |
what was confidently expected by the forecasters | 3:03 | |
who think that the upturn is very near indeed. | 3:09 | |
There have been a few straws in the wind | 3:16 | |
which suggest that the rate at which | 3:18 | |
we were sliding downward was perhaps | 3:21 | |
at its maximum shortly after the turn of the year, | 3:24 | |
say, in January. | 3:28 | |
The rebates of course improved the automobile sales. | 3:31 | |
We even had a month in which the leading indicators, | 3:35 | |
those that were available, were showing | 3:41 | |
on an aggregate basis, a small uptick. | 3:45 | |
It was a very small uptick and it followed seven months | 3:50 | |
of a rather strong downtick. | 3:53 | |
But for those who wish a straw | 3:56 | |
upon which to hope, this provided one. | 4:00 | |
I may have mentioned that the paperboard, | 4:06 | |
which is used in everything and is therefore | 4:09 | |
kind of a bellwether of activity, | 4:12 | |
that paperboard began to behave a little bit better | 4:15 | |
after its decline last autumn | 4:23 | |
and into the new year. | 4:27 | |
However, that little bit better | 4:31 | |
has turned out to be not quite | 4:32 | |
that good and we really are basing the | 4:35 | |
debt, and that is all it is, a debt, | 4:43 | |
of an upturn upon things to come. | 4:46 | |
Things has yet not unseen. | 4:51 | |
We did begin to have a little inventory | 4:55 | |
decumulation in real terms, it is thought, in January. | 4:58 | |
Presumably, the major forecasters | 5:05 | |
think that that process continued in February and in March. | 5:07 | |
They think that a few more months of that | 5:13 | |
process will be enough | 5:16 | |
so that coupled with | 5:19 | |
the strength in final demand, | 5:21 | |
the letting up of the rate of inventory | 5:24 | |
decumulation will contribute to an upturn. | 5:29 | |
But of course, most of all, its policy | 5:34 | |
upon which the same when forecasters are basing their case. | 5:38 | |
It's the fiscal stimulus, which is considerable, | 5:45 | |
which will be lumped into | 5:49 | |
a fairly short period of time, | 5:51 | |
say from May to Thanksgiving, | 5:53 | |
and with | 5:58 | |
not long but variable lags, | 6:01 | |
this temporary splash of income | 6:05 | |
will in some measure, it is believed, be spent. | 6:08 | |
And with inventory decumulation | 6:14 | |
at its worst behind the system, | 6:17 | |
at that time, all the forces of momentum | 6:19 | |
you might say the dominoes will begin to | 6:24 | |
stand upright in a chain and mutually | 6:27 | |
reinforcing a process which we call economic recovery. | 6:32 | |
Whether or not we have the strong the fourth quarter, | 6:40 | |
which most of the fashionable forecasters are predicting, | 6:44 | |
I think must depend rather crucially | 6:48 | |
upon what happens to the housing rebound, | 6:52 | |
what happens to the automobile industry. | 6:56 | |
Where the automobile industry is concerned | 7:00 | |
I think within the laugh of the gods, | 7:02 | |
I think the strength of that demand | 7:04 | |
for each level of income | 7:10 | |
must depend upon exogenous factors | 7:12 | |
of consumer's mood, | 7:16 | |
consumer's attitudes towards the new models, | 7:19 | |
the energy, | 7:24 | |
psychology. | 7:27 | |
However, in the case of housing, | 7:30 | |
what the federal reserve board does, | 7:32 | |
what the open market committee does, | 7:36 | |
in terms of getting the money supply expanding again, | 7:38 | |
that will be the important consideration. | 7:43 | |
A listener has asked my opinion | 7:48 | |
about the several moves in congress | 7:51 | |
to have congress itself | 7:55 | |
intervene | 8:00 | |
in calling the shots for the federal reserve. | 8:02 | |
And now both houses of congress have passed the resolution | 8:06 | |
calling upon the federal reserve | 8:10 | |
to report to the congress | 8:12 | |
its intentions | 8:16 | |
with respect to money and credit aggregates | 8:18 | |
in the period ahead. | 8:21 | |
Undoubtedly, this is not a bill, which | 8:24 | |
Dr. Burns would most wish for... | 8:30 | |
If he had his choice. | 8:37 | |
But, I think it's a good bill. | 8:40 | |
I think that Dr. Burns and the federal reserve can | 8:42 | |
live with it and more than that | 8:46 | |
since the whole Darwinian process of evolution | 8:50 | |
was not for the purpose of making the life | 8:53 | |
of the central banker an easy one. | 8:55 | |
I think that the behavior of monetary policy | 8:58 | |
may be marginally better under the new | 9:03 | |
rules than under the old. | 9:08 | |
But, this is a... | 9:11 | |
A matter of some complexity. | 9:14 | |
And I could marshal arguments on both sides | 9:18 | |
of the case and it would be a question of | 9:21 | |
fine judgment and subsequent experience | 9:24 | |
as to how one | 9:27 | |
will end up appraising | 9:29 | |
the counterarguments. | 9:31 | |
Let me put it this way, | 9:36 | |
the federal reserve was becoming so unpopular | 9:38 | |
for the tourniquet, | 9:43 | |
which it was holding on the real money supply. | 9:46 | |
This last many quarters that there was considerable | 9:50 | |
danger from its viewpoint | 9:55 | |
that its autonomy would be reached | 9:57 | |
in a more serious way than this particular resolution | 10:00 | |
or any of the successful efforts in congress | 10:05 | |
have yet to indicated. | 10:08 | |
Well, let me... | 10:12 | |
Speak then about some other problems. | 10:17 | |
A listener had asked me whether the | 10:21 | |
social security system is in good or bad shape. | 10:24 | |
He has been hearing rumors that | 10:29 | |
its about to go bankrupt. | 10:33 | |
Those rumors, like the rumors of the death | 10:37 | |
of Mark Twain, are sightly premature. | 10:41 | |
What is the case is that if the present | 10:46 | |
plan, program, of financing | 10:52 | |
of tax rate | 10:58 | |
scheduled increases in the late 1970s | 11:00 | |
and the early 1980s were to | 11:05 | |
stay as they are on the books, | 11:09 | |
and if the presently | 11:12 | |
expected and proposed | 11:16 | |
changes in benefits, including the indexing | 11:19 | |
of the payments of Social Security | 11:24 | |
to the Social Security recipients, | 11:27 | |
if those stay the same then according to the best estimates | 11:30 | |
that one can make about population trends | 11:36 | |
and about trends in the level of income and of prices, | 11:38 | |
the so-called | 11:45 | |
trust reserve fund | 11:48 | |
of the federal reserve, of the Social Security | 11:50 | |
system, will begin to zero out | 11:54 | |
and go into the red. | 11:59 | |
And therefore it will be necessary to | 12:02 | |
pay the social security recipients | 12:08 | |
out of some kind of general tax revenues. | 12:10 | |
Or what is very much the same thing, | 12:14 | |
out of some changes in | 12:16 | |
the scheduled | 12:20 | |
employment taxes that are used to finance Social Security. | 12:22 | |
Those are not sac or sanct. | 12:26 | |
Those have not reached their limits. | 12:29 | |
Moreover, this 1980 date | 12:32 | |
at which the trust fund | 12:36 | |
may on a bookkeeping basis | 12:39 | |
zero out, | 12:43 | |
is not an unexpected phenomenon. | 12:45 | |
Long ago indeed, essentially | 12:49 | |
40 years ago, | 12:53 | |
when the Social Security system was set up in 1935 | 12:55 | |
to begin operations in 1937 | 13:02 | |
de facto, | 13:07 | |
a decision was made to disregard the advice | 13:09 | |
of the private insurance actuaries | 13:14 | |
who were making their proposals. | 13:18 | |
And not to put the Social Security program | 13:20 | |
on an actuarily funded basis. | 13:24 | |
So although there were plans at the beginning, | 13:28 | |
scale down I may hasten to add, | 13:34 | |
very, very soon for a sizeable trust fund to accumulate. | 13:36 | |
All this based upon the assumption that the initial | 13:43 | |
stipends, which even at the time looked to many of us | 13:48 | |
to be pitifully low and which in retrospect | 13:54 | |
looked almost advisory even for | 13:58 | |
the price level | 14:02 | |
which prevailed in 1937 and in the years | 14:03 | |
before World War Two. | 14:07 | |
Even if those rates had | 14:11 | |
kept in existence, | 14:15 | |
even if we had had no inflation, | 14:17 | |
even if we had no increase in the real income | 14:18 | |
of the typical citizen, which he wants | 14:22 | |
his elderly colleagues to also in some part enjoy, | 14:26 | |
in which he wants himself in some part to enjoy | 14:31 | |
when he becomes a retired citizen. | 14:35 | |
Even if we disregard of all that, | 14:43 | |
the sizable trust fund which | 14:47 | |
it was planned would accumulate | 14:51 | |
was nowhere near the size that a | 14:54 | |
properly actuarily funded | 14:59 | |
non-governmental pension insurance plan | 15:06 | |
would have had to have to be declared actuarily sound | 15:10 | |
by a member of the accredited actuary associations. | 15:15 | |
You know that | 15:23 | |
pensions are a fairly new thing | 15:27 | |
as far as most of the population is concerned. | 15:30 | |
When the Social Security Act was put into effect, | 15:34 | |
we had surveys to show that most people die broke. | 15:37 | |
And it wasn't that they lived affluently. | 15:42 | |
And just at the moment of death | 15:46 | |
when sending for the spiritual advisor | 15:51 | |
or the estate tax lawyer, they ran out of money. | 15:54 | |
They lived miserably | 15:58 | |
in the retirement years. | 16:02 | |
Those were still the days of the compact family. | 16:06 | |
And very often perforce parents and grandparents | 16:10 | |
lived with | 16:16 | |
the younger family. | 16:19 | |
And so you had a non-actuarily funded | 16:21 | |
Social Security based on the family compact. | 16:24 | |
I took care of my parents | 16:30 | |
in the expectation | 16:34 | |
that my children would take care | 16:35 | |
of their parents, namely of me. | 16:37 | |
I recall in driving through the Swiss countryside | 16:41 | |
seeing the farmer or peasant farm arrangement | 16:46 | |
in which | 16:51 | |
the active farmer lives in the | 16:54 | |
sizeable part of the house. | 16:58 | |
But attached to it is sort of a | 17:02 | |
dowager wing. | 17:06 | |
I can't call it a cottage, a wing. | 17:08 | |
And when the farmer's first born son, | 17:11 | |
I suppose, | 17:16 | |
comes of age and when he gets married, | 17:19 | |
he moves into that wing. | 17:23 | |
But then, as the major farmer becomes a little bit older, | 17:27 | |
and before he becomes useless and retired citizen | 17:33 | |
on the production | 17:38 | |
farm, there's a switch. | 17:41 | |
The first born son is beginning to have children, | 17:45 | |
he needs the space. | 17:48 | |
The other children in the family have | 17:50 | |
grown up, they have left the nest. | 17:53 | |
So the young family had moved into the major part | 17:59 | |
and the older person moves into the what I've called, | 18:05 | |
not the Swiss expression, the dowager wing. | 18:10 | |
Well pretty much something like that | 18:14 | |
perforce had to be the | 18:17 | |
rule of the road | 18:20 | |
which governed American life back in earlier times. | 18:21 | |
But of course, in modern industrial times, | 18:27 | |
and particularly in the Great Depression, | 18:30 | |
against the background of which the | 18:33 | |
Social Security Act was put into effect. | 18:36 | |
We were late. | 18:39 | |
It was Bismark who was buying off Marxism socialism | 18:41 | |
by pension plans and other welfare state devices | 18:46 | |
really from the last part of the 19th century on. | 18:51 | |
It was Gladston who began to put in pensions | 18:56 | |
who revived the income tax which had prevailed | 19:02 | |
in the Napoleonic war period. | 19:07 | |
It was finally in 1909 and in 1911 | 19:10 | |
Lloyd George of the Liberal party, | 19:14 | |
not the Conservatory party, | 19:16 | |
who instituted a more thoroughgoing reforms. | 19:20 | |
Well the US was behind in these matters. | 19:25 | |
By the way, I call these reforms | 19:29 | |
because I reveal my value judgment | 19:32 | |
that I think that this is a move in the right direction. | 19:35 | |
It's a move which I think the vast majority of us | 19:41 | |
realizing that any one of us might come into destitution. | 19:46 | |
Wish willingly | 19:50 | |
to rule upon ourselves. | 19:54 | |
It's a mutual insurance system, | 19:57 | |
not something imposed upon us by a few bureaucrats. | 20:01 | |
This is my way of looking at the problem. | 20:06 | |
And not something | 20:08 | |
put upon us | 20:12 | |
by some demagogue populist | 20:14 | |
leaders | 20:18 | |
appealing to the envy and the base motives of the, | 20:19 | |
half of the population with the lowest income. | 20:26 | |
Now, I don't for a moment wish to underestimate | 20:30 | |
the importance of precisely those forces. | 20:34 | |
You must expect a statesman to be responsive | 20:38 | |
in a democracy to the vast preponderance | 20:43 | |
in the number of people. | 20:46 | |
And so one man's populist is another man's statesman. | 20:48 | |
Furthermore, why should we expect | 20:53 | |
in the textbooks of | 20:57 | |
Adam Smith and John Stuart Mill | 21:01 | |
and Alfred Marshall and | 21:03 | |
modern textbooks | 21:07 | |
whose names I will not mention, | 21:09 | |
why should we expect selfish, | 21:12 | |
calculating behavior in the way people spend their money, | 21:16 | |
in the way people seek to maximize opportunity, | 21:21 | |
in the way they conduct their business affairs, | 21:26 | |
and in the way that corporate management | 21:30 | |
prudently conducts its efficient operations, | 21:32 | |
and the charges, the price, which permits | 21:37 | |
of, as they would put it, adequate dividends | 21:41 | |
which permits of reinvested funds in a growing economy. | 21:45 | |
Why should that benthamite | 21:50 | |
calculus | 21:53 | |
of rationality | 21:55 | |
apply in our day-to-day life | 21:57 | |
and be applauded | 22:01 | |
by economists without it occurring to them | 22:04 | |
that in political life, that same | 22:08 | |
enlightened self-interest will lead | 22:13 | |
to class coalitions | 22:17 | |
that will function | 22:20 | |
in order to serve as a mutual, reinsuring | 22:22 | |
mechanism. | 22:27 | |
And as a matter of fact, as | 22:28 | |
some would put it, a leveling mechanism, | 22:32 | |
or as others would put it, a movement | 22:36 | |
towards greater Egalitarianism. | 22:39 | |
Indeed, I commend to your attention | 22:42 | |
the book by John Rawls, the Harvard philosopher, | 22:45 | |
on A Theory of Justice. | 22:50 | |
He stresses something which has been in my mind | 22:54 | |
for a long time and | 22:58 | |
which I | 23:01 | |
analyzed in some detail on the occasion of the 60th birthday | 23:04 | |
of a great modern economist Abba Lerner. | 23:09 | |
Professor Meridist now from the University | 23:14 | |
of California Berkeley, now I believe at | 23:18 | |
Queens University in the city | 23:21 | |
of New York. | 23:25 | |
- | [Professor Meridist] If all of us were | 23:29 |
conscious of the vicissitudes | 23:33 | |
and the uncertainties of income, | 23:35 | |
in the life that we are going to pursue, | 23:39 | |
even let us say on the day we're born | 23:42 | |
or on the day that we're born as 21 year-olds | 23:45 | |
as voting citizens, perhaps it's moved on | 23:48 | |
in these rapidly maturing days to 18. | 23:52 | |
If we all had reason to think that | 23:57 | |
in the income pyramid we might by chance | 24:03 | |
end up anywhere, then to the degree | 24:08 | |
that we realize that, | 24:13 | |
we would, by unanimous vote, impose upon ourselves | 24:14 | |
willingly a social compact in which you would not only have | 24:20 | |
progressive taxation, but you would have | 24:25 | |
very highly progressive taxation. | 24:28 | |
So highly progressive as to constitute | 24:31 | |
according to the arithmetic of the mathematical theorem, | 24:34 | |
complete Egalitarianism. | 24:39 | |
Now, of course, many of us have reason to | 24:40 | |
know that we were born with a silver spoon | 24:45 | |
in our mouths or a | 24:47 | |
silver brain in our heads | 24:52 | |
or silver muscles in our arms, | 24:54 | |
so we want so joyfully out of non-altruism | 24:57 | |
and turn it into that. | 25:02 | |
We also know that in the world as we have it | 25:05 | |
who your parents were is very important | 25:09 | |
in terms of what kid of education you get, | 25:12 | |
what kind of neighborhood you live in, | 25:14 | |
what kind of attitude you have, and so forth. | 25:15 | |
But... | 25:21 | |
But of course, we'll tamper, and the theorem says that | 25:25 | |
this complete Egalitarianism to the degree | 25:30 | |
that we realize that | 25:33 | |
incentives to work, | 25:37 | |
to take risks, can be distorted | 25:39 | |
in a dead-weight loss fashion to the benefit of nobody | 25:43 | |
By such complete Egalitarianism. | 25:47 | |
And so we live in some kind of uneasy compromise. | 25:50 | |
I should have mentioned, because | 25:54 | |
I believe Tom Wicker of the New York Times | 25:57 | |
has said this and some others, | 25:59 | |
that | 26:02 | |
the tax cut which we received | 26:04 | |
was of an extremely Egalitarian type. | 26:07 | |
For one thing, an element of the | 26:13 | |
negative income tax entered in. | 26:14 | |
Every Social Security recipient will receive | 26:17 | |
a check that's an actual cash | 26:21 | |
payment. | 26:25 | |
For another, although the more you | 26:27 | |
pay in taxes, the higher your income is | 26:32 | |
the more you pay in taxes, the more you get back, | 26:35 | |
that's only true at the beginning. | 26:38 | |
And people who have a lot less income than I have | 26:40 | |
will get back more than I will. | 26:45 | |
And the amount in which I will get back, | 26:48 | |
I don't say this by way of complaint, | 26:50 | |
quite the contrary, I approve of it, | 26:51 | |
the amount I get back is a dry 300 dollars. | 26:56 | |
So what you had is a | 26:59 | |
tax | 27:02 | |
change, | 27:03 | |
a marginal alteration, which is much more Egalitarian, | 27:04 | |
I think that's probably the better word to use | 27:07 | |
than progressive, than the tax system itself, | 27:10 | |
leaving us with the system | 27:15 | |
which is slightly more Egalitarian. | 27:16 | |
Well now to go back onto Social Security, | 27:19 | |
there are some minor defects | 27:23 | |
in the way the system is indexed. | 27:26 | |
There's a report which makes this clear | 27:30 | |
by both committees of congress, | 27:32 | |
the Shao report. | 27:37 | |
Shao is a... | 27:40 | |
Is a chairman, it's a Chinese name, | 27:44 | |
is also the W. Allen Wallace committee Report | 27:47 | |
to the nation and they all indicate | 27:52 | |
that we must take account of the fall | 27:55 | |
in the birth rate which has taken place | 27:58 | |
and which with some confidence we know | 28:02 | |
will continue in comparison with earlier extrapolations. | 28:05 | |
And we must correct this indexing. | 28:09 | |
This indexing does not overpay | 28:11 | |
the people who are retired and run Social Security, | 28:14 | |
it just keeps them absolutely protected. | 28:16 | |
But the way the formula is advised, | 28:18 | |
it does over-adjust | 28:22 | |
the incomes | 28:25 | |
of those who are in their last periods | 28:27 | |
of working life and are still working. | 28:29 | |
With these changes, will the system | 28:33 | |
be given a complete bill of good health? | 28:35 | |
I think so, but that bill of good health does involve | 28:39 | |
financing a lot of future Social Security | 28:44 | |
out of general tax revenues, | 28:47 | |
which on another occasion I shall argue is a good thing. | 28:50 | |
Narrator | If you have any comments | 28:57 |
or questions for Professor Samuelson, | 28:58 | |
address them to Instructional Dynamics Incorporated | 29:00 | |
450 East Ohio Street, Chigago, IL | 29:03 | |
60611. | 29:07 |
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