Tape 46 - Revision of 1970 economic forecasts
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Transcript
Transcripts may contain inaccuracies.
- | Welcome again as MIT professor Paul Samuelson | 0:02 |
discusses the current economic scene. | 0:04 | |
This series is produced and recorded | 0:07 | |
for Instructional Dynamics Incorporated | 0:09 | |
for the week of March 23rd, 1970. | 0:12 | |
Professor Samuelson we have question here | 0:15 | |
from a subscriber who listens both to your tape | 0:17 | |
and the tapes of Professor Milton Friedman. | 0:19 | |
Here's his question directed to you: | 0:22 | |
"In his last tape, Dr. Friedman suggested | 0:24 | |
"that most forecasters are undergoing | 0:26 | |
"a downward adjustment in their forecasts. | 0:28 | |
"His implication is that if they continue their good work, | 0:31 | |
"they may end up with the same forecast | 0:34 | |
"that monetarists have declaring all around. | 0:36 | |
"My question is whether you are modifying your forecasts | 0:38 | |
"and whether you have now joined | 0:42 | |
"the ranks of the monetarists." | 0:43 | |
- | I think that Doctor Friedman is correct | 0:45 |
that the forecasts which come over my desk | 0:48 | |
and which I collect in great numbers | 0:51 | |
do seem to me to be lower now in March | 0:54 | |
than they were in October and November and in December. | 0:58 | |
And in this sense they are moving | 1:04 | |
toward the forecast of monetarists. | 1:06 | |
However, I think there's still a lot of | 1:10 | |
distance between my own position | 1:13 | |
and that of the typical monetarists. | 1:16 | |
And I would like today to discuss | 1:20 | |
the nature of that difference. | 1:23 | |
Before I do so, I might mention | 1:25 | |
that it's a very rational thing | 1:28 | |
to change your forecast when | 1:31 | |
evidence available to you changes. | 1:35 | |
Now it would be better still, of course, | 1:38 | |
to have a powerful method of analysis | 1:40 | |
which perhaps the monetarists in fact do have | 1:43 | |
so that very early in the game, you would | 1:47 | |
be able to see further down the road of the future. | 1:49 | |
This process of adjustment, however, may itself | 1:55 | |
be more than a one-camp operation. | 1:59 | |
Let me illustrate. | 2:04 | |
Doctor Beryl Sprinkel at the Harris Trust Company | 2:08 | |
is quoted in a report that I have before me. | 2:12 | |
This is the report of the Council | 2:17 | |
of Economic Advisers of the State of New York. | 2:19 | |
The report is dated January 1970, | 2:22 | |
which is a couple of months back, but has just come to me. | 2:27 | |
That council was set up, it's a state council, | 2:31 | |
by Governor Rockefeller and consists of | 2:34 | |
a fairly eminent group of people. | 2:37 | |
Eugene R. Black as its chairman, he of course | 2:39 | |
is the former president of the International Bank. | 2:41 | |
William F. Butler was the vice president, | 2:44 | |
chief economist of the Chase Manhattan Bank, | 2:46 | |
is a member of that committee. | 2:48 | |
Dean William H. Meckling of the College | 2:51 | |
of Business Administration, University of Rochester | 2:54 | |
is a member and I could go on | 2:57 | |
and mention some other distinguished | 2:59 | |
economists and men of affairs. | 3:02 | |
Now they quote Doctor Sprinkel | 3:05 | |
as forecasting a GNP for the year 1970 | 3:09 | |
of 966 billion. | 3:14 | |
That forecast is four billion dollars more | 3:18 | |
than the 970 billion dollars forecast | 3:22 | |
which I have recently received | 3:26 | |
from the Harris Trust company of which | 3:28 | |
Doctor Sprinkel is vice president. | 3:30 | |
At the end of the year if the actual GNP | 3:33 | |
is 975 billion dollars, say, shall I | 3:36 | |
record in my little black book | 3:42 | |
that Doctor Sprinkel has been off by nine billion dollars, | 3:43 | |
square that as quite a large number, | 3:47 | |
or should I say that he's been off by five billion dollars? | 3:49 | |
Situation is even more complicated than that | 3:55 | |
because on October 27th, Doctor Sprinkel | 3:58 | |
forecast that there would be a flat nominal GNP, | 4:03 | |
that is money GNP, in the first two quarters of the year. | 4:07 | |
Now I don't think that 970 billion forecast for the year, | 4:10 | |
I don't think that's compatible with | 4:18 | |
a flat money GNP for the first two quarters of the year. | 4:19 | |
So at least some of the monetarists have been | 4:25 | |
moving in an upward direction. | 4:29 | |
I will not say in my direction. | 4:32 | |
Actually I find it a little difficult | 4:36 | |
to catalog Professor Friedman's | 4:40 | |
successes or failures in this area because, | 4:43 | |
for reasons which I can understand and can respect, | 4:47 | |
he doesn't like to engage in the game | 4:50 | |
of numerical forecasting. | 4:53 | |
If you don't engage in the game of numerical forecasting, | 4:55 | |
of course, you must not expect | 4:57 | |
to receive either credit or blame. | 5:00 | |
But in a recent tape he said that since | 5:03 | |
the Federal Reserve might, to a very calculating eye, | 5:06 | |
be discerned to have begun to make a change | 5:11 | |
in sometime in December and since the ordinary lags | 5:15 | |
between changes in monetary posture | 5:20 | |
as measured by one method or another, | 5:24 | |
and changes in GNP of the six to nine month duration | 5:27 | |
then it's quite possible that the trough | 5:32 | |
of the current recession will take place | 5:36 | |
in the third or fourth quarter. | 5:38 | |
Now I can't write that down in my little black book | 5:41 | |
as a forecast by him on this | 5:44 | |
because he actually qualifies that immediately, | 5:46 | |
but I'm not sure whether on the basis | 5:50 | |
of that forecast if it should work out | 5:54 | |
to be exactly correct that it will be possible | 5:57 | |
for historians of the future to say | 6:02 | |
that we did encounter a recession | 6:04 | |
as bad as the 1958, '59 recession. | 6:07 | |
Or as bad as would fit in with the reasonable interpretation | 6:13 | |
of the qualitative outlook as depicted | 6:17 | |
by many monetarists three or four months ago, | 6:20 | |
including Professor Friedman. | 6:24 | |
In any case, if time permits on this particular tape, | 6:27 | |
I will return to the Council of Economic Advisers | 6:30 | |
of the State of New York because on page 12 | 6:35 | |
of their report they have a little round up in detail | 6:37 | |
of three different forecasts and they compare those | 6:42 | |
and it might be interesting to run over them. | 6:45 | |
However, to make clear what the extent | 6:47 | |
of the revision of forecast downward is, | 6:51 | |
I thought I might just read to you very briefly | 6:55 | |
a new forecast which I have just made. | 6:59 | |
It's dated March 17th, just a few days ago. | 7:03 | |
This is not for the London Financial Times, | 7:06 | |
like the one of mine which was prepared | 7:08 | |
early in December and appeared New Years, | 7:11 | |
but is for the so-called Wall Street Journal of Japan, | 7:13 | |
the Nihon Keizai Shimbun which has a circulation | 7:18 | |
of more than a million readers | 7:21 | |
and for whom, at intervals, I do write. | 7:23 | |
This will go very quickly so let me begin. | 7:29 | |
There's a little duplication with what I've been saying | 7:32 | |
in recent tapes as is, of course, natural | 7:34 | |
but perhaps you'll forgive me for any such duplication. | 7:37 | |
The title of this is 'Will 1970 Be a Year of Recession?' | 7:41 | |
And I begin. | 7:46 | |
At the end of March | 7:47 | |
it appears that real output | 7:48 | |
has been declining for about six months. | 7:49 | |
One popular definition of a modern recession | 7:52 | |
requires that the price deflated GNP | 7:54 | |
should decline for at least two successive quarters | 7:58 | |
and by that definition I would guess | 8:01 | |
that we are now in a recession, | 8:02 | |
actually have been in one since last fall. | 8:04 | |
Since everyone has realized since the middle of 1968 | 8:08 | |
that the United States is in an | 8:11 | |
economic slowdown or retardation, | 8:13 | |
it is not really very interesting to know | 8:15 | |
that we may already be in a recession | 8:18 | |
merely by the definition given above. | 8:19 | |
So the really interesting question is | 8:22 | |
how deep will the slowdown be? | 8:23 | |
Will this be a long lasting recession, | 8:25 | |
specifically will it be like the mild | 8:27 | |
and short 1960, '61 recession? | 8:30 | |
Or is it likely to be at least as sharp | 8:33 | |
as the significant 1957, 1958 recession | 8:35 | |
in which the Production Index | 8:38 | |
fell from peak to trough by some 15% | 8:41 | |
and which was followed by little more than a year | 8:44 | |
of very weak economic expansion. | 8:47 | |
Now I'll remind you that opinion among the experts | 8:50 | |
is, as usual, divided on the outlook. | 8:53 | |
Perhaps it's even more widely divided than usual. | 8:55 | |
At year's end, Doctor Pierre Rinfret, | 8:58 | |
successful and ebullient consultant to corporations | 9:00 | |
forecast a 1970 money GNP of just over a trillion dollars. | 9:03 | |
And that would represent just 7.5% increase | 9:07 | |
over 1969's 932 billion dollar GNP. | 9:10 | |
But Winfrey is high man on the totem pole. | 9:15 | |
I don't know what the Japanese translator | 9:17 | |
will make of that idiom, but you will understand me. | 9:19 | |
But perhaps I should say he was the high man. | 9:22 | |
For he has been quoted recently | 9:26 | |
and identified as a White House one-time advisor | 9:28 | |
as predicting unemployment of above 5%. | 9:33 | |
And another White House advisor, | 9:36 | |
one-time advisor, during the campaign, Alan Greenspan | 9:40 | |
has been telling his corporate clients | 9:43 | |
that unemployment will be over 5%. | 9:46 | |
Well now if Winfrey is now predicting unemployment | 9:49 | |
of more than 5% it perhaps explains | 9:52 | |
why he seems to have become strangely silent | 9:55 | |
on that inevitable 9.5% prime interest rate | 9:58 | |
for later this year that he had earlier predicted. | 10:01 | |
Now to abuse the monetarists, at the other extreme | 10:06 | |
tend to be the monetarists. | 10:09 | |
The disciples of Chicago's Professor Milton Friedman. | 10:11 | |
I'm quoting from this paper. | 10:14 | |
News Week's last issue of 1969 quoted | 10:16 | |
the First National City Bank of New York, | 10:18 | |
an outpost of monetarism as forecasting | 10:21 | |
a GNP for 1970 of only 965 billion. | 10:23 | |
Which would represent less a 4% increase | 10:27 | |
in the nominal money GNP for the year. | 10:30 | |
Since no one is expecting the price deflator | 10:34 | |
to grow by much under 4% for the year as a whole, | 10:36 | |
this would imply an actual drop in real GNP | 10:39 | |
for the year 1970 as a whole. | 10:42 | |
Let me add that since I wrote these lines, | 10:45 | |
I've talked to a financial editor | 10:48 | |
of the Christian Science Monitor | 10:50 | |
and he gave me an up-to-date reading | 10:52 | |
on the First National City Bank. | 10:55 | |
The First National City Bank has not changed its ground. | 10:57 | |
It still sticks by 965 billion dollars for the year. | 11:01 | |
And if the GNP turns out to be | 11:08 | |
965 billion dollars for the year, | 11:11 | |
I shall award them a squared error of zero and the palm. | 11:13 | |
Now although this seems to be a very low forecast, | 11:20 | |
it is in the same ballpark as that given | 11:24 | |
by other monetarists, I'll skip the part | 11:26 | |
dealing with Doctor Beryl Sprinkel. | 11:28 | |
And... | 11:33 | |
Let me just go on to say | 11:35 | |
that the... | 11:38 | |
Forecast of Professor Friedman, | 11:42 | |
as I try as fairly as I can, to translate it | 11:45 | |
into numerical terms to see what probability | 11:48 | |
lead he gives me into what is likely to happen. | 11:53 | |
Seems to me to be in that same ballpark. | 11:56 | |
I'll define that ballpark for the sake of this argument | 12:01 | |
as 965 billion GNP | 12:04 | |
up to, say, 975 billion. | 12:09 | |
Among the recent research by monetarists, | 12:14 | |
I find those of the Federal Reserve Bank of St. Louis | 12:19 | |
to be perhaps the most interesting. | 12:22 | |
And Doctor Andersen, this is Andersen with an E, | 12:25 | |
and his associates have claimed some | 12:28 | |
pretty good results of fitting past data | 12:30 | |
by means of multiple correlation analysis | 12:33 | |
that primarily regresses changes | 12:35 | |
in the gross national product, measured | 12:39 | |
in money terms, against lag changes in the money supply. | 12:41 | |
They find that fiscal variables seem to add very little | 12:44 | |
to their goodness of fit and tax rates add nothing at all. | 12:47 | |
Only recently, and this is very interesting to me | 12:52 | |
in an article which I believe is going to appear | 12:55 | |
in a subsequent issue of the monthly letter, | 12:57 | |
perhaps the April letter. | 13:01 | |
They have seen fit to bring in the interest rate | 13:03 | |
as an explanatory variable which so to speak | 13:07 | |
increases the estimated quantity | 13:10 | |
of the velocity of circulation of money. | 13:14 | |
They don't actually separately estimate | 13:16 | |
the velocity of circulation of money | 13:18 | |
but since the rate of interest | 13:19 | |
functions in a positive way in a regression, | 13:22 | |
that's what it's equivalent to. | 13:25 | |
I may say that a post Keynesian like myself | 13:26 | |
would not object in the slightest | 13:31 | |
to a formulation of that sort | 13:34 | |
and it's the kind of thing which I've been | 13:37 | |
myself using all along | 13:40 | |
in making my general forecast. | 13:42 | |
Now the St. Louis bank people | 13:45 | |
make additional forecasts upon what's gonna happen | 13:50 | |
to the rate of growth of money supply. | 13:53 | |
And they do it for a 0% rate of growth, | 13:54 | |
they do it for a 3% rate of growth, | 13:57 | |
they do it for a 6% rate of growth. | 13:58 | |
I shall choose a 3% rate of growth | 14:01 | |
as an interesting in-immediate figure | 14:05 | |
to apply that analysis too. | 14:08 | |
And their particular analysis is | 14:12 | |
for a good deal lower figure | 14:18 | |
than that which was implied | 14:20 | |
in forecasts which I made early in December | 14:22 | |
for the London Financial Times. | 14:25 | |
Now let me review that forecast | 14:27 | |
which I've already spoken of on these tapes. | 14:30 | |
My forecast prepared at that time | 14:34 | |
called for a 1970 GNP of about 990 billion dollars, | 14:37 | |
which is about 6% above the counter year, 1969. | 14:41 | |
It projected a growth of unemployment | 14:46 | |
to about 4.5% of the labor force in the average. | 14:48 | |
It called for relatively slight drop in profits, | 14:52 | |
the drop in after-tax profits implied by that forecast | 14:55 | |
taking account of the reduction in the surtax rate | 15:00 | |
from 10% to 2.5% for the year. | 15:03 | |
Once, if I remember correctly, | 15:07 | |
less than 5%, it was only a couple of percent. | 15:12 | |
If the predicted, some tempering of the rate | 15:17 | |
of overall inflation but not a tempering | 15:20 | |
of the rate of inflation to much below 4% annual rate | 15:24 | |
in terms of the overall GNP deflator index for the, | 15:29 | |
even the end of the year. | 15:33 | |
Now in the four months that have intervened | 15:34 | |
since that forecast appeared in early December, | 15:38 | |
a good deal has happened. | 15:41 | |
On February 1st, President Nixon's economic report | 15:44 | |
came out and that envisaged a 985 GNP | 15:47 | |
with at least a 5 billion dollar range | 15:52 | |
of uncertainty around that average figure. | 15:54 | |
Now look they said 980 to 990 | 15:56 | |
and 985 is perhaps their best in-immediate estimate. | 15:58 | |
But we say that having learned | 16:06 | |
since my December forecast that output | 16:08 | |
was already falling in the last quarter of the year. | 16:11 | |
And taking account of the weakness | 16:14 | |
in automobile sales so far in 1970, | 16:16 | |
and I may now add taking into account | 16:19 | |
the rather jolting inventory decumulation figure | 16:22 | |
which came out for the month of January. | 16:26 | |
Which showed a rather massive | 16:28 | |
reduction in retail inventories. | 16:31 | |
Primarily in the consumer's durable area. | 16:33 | |
Automobiles and other appliances. | 16:36 | |
If I multiple that by 12 | 16:40 | |
and if I make price corrections, | 16:42 | |
that is a very strong negative rate. | 16:44 | |
Well given these particular facts, | 16:47 | |
I would certainly be happy to shave my forecast | 16:49 | |
downward by the 1.5% needed to bring | 16:52 | |
it inline with that of the government. | 16:55 | |
But the question which I must ask myself | 16:57 | |
is whether even more drastic | 16:59 | |
revision downward is not called for. | 17:01 | |
Now in the light of the weaknesses that have already | 17:04 | |
been observable from December through March, | 17:08 | |
I now feel that I would rather be | 17:10 | |
a bit under the government forecast | 17:13 | |
of 985 billion rather than over it. | 17:14 | |
And so I've summarized in a table | 17:18 | |
my new guesses on the aggregates for 1970. | 17:20 | |
I'll read from that table, if any of you have a pencil | 17:25 | |
and paper handy, you can jot down these numbers. | 17:30 | |
In 1968 the money GNP was 866 billion. | 17:36 | |
It went up 7.66% to 932 billion in 1969. | 17:41 | |
And according to my new forecast, | 17:46 | |
982 billion seems to me to be a reasonable | 17:49 | |
median figure to estimate, | 17:54 | |
representing only a 5.33% increase in money GNP | 17:57 | |
for the calender year. | 18:03 | |
What about real growth? | 18:06 | |
1969 showed a real growth of 2.75% over 1968. | 18:08 | |
Most of the 7.66% was price, | 18:14 | |
but a little bit of it, | 18:18 | |
well 2.75% was real. | 18:20 | |
Now what about the year to come? | 18:23 | |
According to my estimates, | 18:26 | |
you have only about a 1% increase | 18:28 | |
in real growth for the whole year, | 18:31 | |
a negative amount in the first quarter of the year. | 18:34 | |
I shall be surprised a little, | 18:38 | |
not a lot, but a little, | 18:41 | |
if in the second quarter there's also negative growth | 18:43 | |
or appreciable amount of negative growth. | 18:48 | |
But I would expect that in the last two quarters of the year | 18:50 | |
there would be some quickening | 18:54 | |
of business activity in some positive rate. | 18:57 | |
The unemployment rate was 3.6% for 1968 | 19:01 | |
on the average and 3.5% in 1969 on the average | 19:06 | |
more at the end of the year than early in the year. | 19:13 | |
And according to my forecast, the average for 1970 | 19:18 | |
is gonna be around 4.5%, actually 4.6% is the number | 19:23 | |
that I wrote down which is a tenth of a percent, | 19:27 | |
not very much different from what | 19:30 | |
I forecast in December. | 19:32 | |
On net exports this is something that | 19:35 | |
I think is very relevant if we're trying to guess | 19:37 | |
monetary policy also for trying to guess | 19:40 | |
the possibility of financial crisis. | 19:43 | |
Net exports of goods and services, | 19:46 | |
that is the surplus on current accounts | 19:49 | |
over goods and services imported. | 19:52 | |
It was two and a half billion in 1968, | 19:54 | |
a very disappointing number. | 19:56 | |
It was eight billion now mind you, | 19:59 | |
back in 1965 before the quickening of the Vietnam War | 20:01 | |
and its implied inflation. | 20:05 | |
That disappointing figure was even more disappointing, | 20:09 | |
only two point one billion in 1969. | 20:11 | |
I have no confidence in the number | 20:15 | |
that I'm now gonna give you | 20:17 | |
but I wrote that up to three billion dollars | 20:17 | |
for 1970 figuring that the slowdown here at home | 20:21 | |
will make our exporters a little more eager | 20:25 | |
to export and will hold down the rather disturbing | 20:28 | |
increase in our export prices | 20:32 | |
relative to the prices quoted in world markets | 20:35 | |
by such competitors as Western Germany and Japan. | 20:39 | |
What about corporate after-tax profits, | 20:45 | |
which I'm sure will interest a number of our subscribers. | 20:48 | |
The... | 20:52 | |
Actual figure for 1968 was 50 billion dollars. | 20:54 | |
It was 51 billion in 1969. | 20:59 | |
Would've been higher if the surcharge hadn't gone up. | 21:02 | |
I had assumed that the before-tax profit figure | 21:05 | |
will drop and after allowing for the lower tax rates, | 21:10 | |
I come up with 47 billion. | 21:17 | |
That's a four billion dollar drop | 21:19 | |
on 51, I guess that's an 8% drop. | 21:21 | |
That's what seems to me to be consistent | 21:25 | |
with the GNP forecast that I've made. | 21:29 | |
I think that if the First National City Bank is right | 21:33 | |
and the GNP grows only by, or it's 965 billion, | 21:37 | |
instead of by my 5.33% money terms to barely 4%, | 21:42 | |
then I think the profits are gonna take it on the chin | 21:48 | |
and then my number will be a gross overestimate. | 21:51 | |
Now in making this re-estimate, | 21:55 | |
I'm trying to balance signs of strength and weakness. | 21:59 | |
Thus I am assuming that the government | 22:02 | |
does adhere to a tight budget. | 22:04 | |
Although I believe the Federal Reserve | 22:07 | |
will at least credit some, | 22:08 | |
and indeed I suspect they already have begun to do so. | 22:10 | |
Let me add parenthetically here | 22:13 | |
that in the few days since I wrote this, | 22:15 | |
Professor, excuse me, | 22:19 | |
one-time Professor Arthur Burns | 22:21 | |
now chairman of the Board of Governance | 22:23 | |
of the Federal Reserve System, | 22:25 | |
has testified before Congress and, | 22:26 | |
for joint committee and has said | 22:30 | |
that they have eased and that if you | 22:31 | |
look at the weekly money supply figures, | 22:34 | |
you will already detect that easing. | 22:36 | |
Well that's along the lines of my own | 22:40 | |
a priori expectation. | 22:43 | |
I am expecting the pick up in housing | 22:46 | |
to be only gradual in coming. | 22:48 | |
I should say though that the February housing | 22:51 | |
stats figures were up. | 22:53 | |
I believe that's a blip. | 22:56 | |
And that taking account of building permits | 22:57 | |
and everything else | 23:01 | |
that you can't count upon that continuing. | 23:02 | |
What about the rather high level | 23:08 | |
reported by businessmen to the Office of Business Economics | 23:11 | |
in the Securities and Exchange Commission? | 23:15 | |
With respect to their intentions | 23:17 | |
to invest in plant and equipment. | 23:18 | |
That number was almost 11% increase | 23:21 | |
for 1970 over 1969. | 23:24 | |
It's very much like that reported earlier | 23:29 | |
by Rinfret-Boston, Boston-Rinfret Associates | 23:32 | |
and by Lionel Edie. | 23:37 | |
Now... | 23:40 | |
I am now thinking of shedding | 23:41 | |
their actuals down from what they say are their intentions | 23:44 | |
because I think for one thing that already | 23:50 | |
they are a bit out of date in their intentions. | 23:54 | |
The problem though is how much should I | 23:57 | |
shed them down and it seems to me that | 24:01 | |
it would be dangerous for me to reduce something | 24:06 | |
from almost 11% to below 5% or 6%. | 24:08 | |
The more typical I am to guess is inventory accumulation. | 24:17 | |
'Cause I said I was rather jolted by the January report | 24:21 | |
of considerable rate of inventory decumulation. | 24:24 | |
And as a matter of fact the big difference | 24:28 | |
between an estimate like mine and those of analysts | 24:32 | |
who look for GNP in the low 1970s, | 24:35 | |
that includes analysts like the Wharton School, | 24:38 | |
not just the monetarists. | 24:42 | |
Or I saw an interesting forecast | 24:44 | |
around the 970 billion level | 24:46 | |
coming out of Indiana University's School of Business, | 24:48 | |
both have a pretty good record, they are GNP forecasters | 24:54 | |
Well that resides in this uncertainty | 24:58 | |
over inventory accumulation and since we don't have any | 24:59 | |
inventory regressions with accurate | 25:03 | |
and narrow confidence bands, I will not insist | 25:05 | |
in my more moderate assumption about inventory swings | 25:08 | |
will necessarily be realized. | 25:11 | |
Finally I'll assume that the consumer | 25:14 | |
will be a bit slow to spend his tax savings | 25:16 | |
resulting from the lowering of the tax surcharge | 25:19 | |
from 10% to 2.5%. | 25:21 | |
This is inline with the general permanent income | 25:24 | |
view that's how consumers behave. | 25:27 | |
And I am also assuming that only gradually | 25:29 | |
will consumers spend his new social security benefits | 25:32 | |
and the actual wages that are likely | 25:35 | |
to be voted for government employees. | 25:36 | |
I'm going along with the view that the government employees | 25:39 | |
will get their pay increase even though President Nixon | 25:42 | |
advocated that they not get that pay increase | 25:46 | |
in 1970 itself. | 25:49 | |
Let me again add parenthetically | 25:51 | |
that in the last couple of days | 25:53 | |
the Nixon administration has | 25:55 | |
announced a reversal of its anti-inflation austerity | 25:59 | |
and has released a billion or a billion and a half dollars | 26:04 | |
worth of frozen construction funds | 26:07 | |
and I think that part of this same pattern | 26:09 | |
will be less opposition to the pay increase as | 26:13 | |
already voted on for Federal employees by Congress. | 26:17 | |
The post office strike I think indicates | 26:23 | |
the kind of restiveness which is endemic among | 26:26 | |
Federal employees. | 26:30 | |
I had in mind of course the November 1970 | 26:32 | |
Congressional Elections and I'm assuming | 26:35 | |
that the party in power will also | 26:37 | |
have those elections somewhat in mind. | 26:40 | |
Now... | 26:43 | |
On the Federal Reserve I've been betting | 26:45 | |
just because I put myself into their shoes | 26:47 | |
that they will let the money supply | 26:52 | |
resume its rate of growth. | 26:54 | |
And I put that on a number just at random, | 26:55 | |
it's in the 2% to 6% range which | 26:59 | |
the Joint Economic Committee has recommended | 27:01 | |
which Doctor Burns has said that he personally assents to. | 27:03 | |
I put down 4% with the most rapid increase | 27:10 | |
coming in the middle rather than in the end | 27:15 | |
or beginning of the year. | 27:18 | |
Since Burns has not spoken I will move that down. | 27:20 | |
Now the fact that I expect prices still to be rising | 27:23 | |
at about a 4% rate on the overall GNP deflator, | 27:26 | |
and then I expect real GNP | 27:29 | |
will again be growing after mid-year. | 27:31 | |
Well I suspect inhibit the Federal Reserve | 27:33 | |
from really militant easing of credit. | 27:36 | |
This means that interest rates will decline | 27:39 | |
but not in a drastic way. | 27:42 | |
Finally my conclusion was, and I quote | 27:45 | |
with one of my other pessimistic observations. | 27:48 | |
One widely held view both in Washington and Wall Street | 27:51 | |
is that after a healthy period of mild recession, | 27:54 | |
short healthy period of healthy recession, | 27:58 | |
the American economy will be then purged | 28:00 | |
of its inflationary excesses. | 28:02 | |
In consequence according to this view | 28:04 | |
by the end of this year or by mid-1971 say, | 28:06 | |
we shall be able to look forward again | 28:09 | |
to healthy full employment growth without inflation. | 28:11 | |
I see no warts for the view that our mixed economy | 28:14 | |
knows how to enjoy price stability and full employment. | 28:18 | |
And I certainly have to register doubts | 28:21 | |
that any brief period of slowdown would suffice | 28:23 | |
to change the basic thoughts-co problem | 28:26 | |
that has plagued us in the past. | 28:29 | |
And continues to plague much of | 28:31 | |
the rest of the world as well. | 28:33 | |
My article for the Nihon Keizai Shimbun, | 28:35 | |
I think I've been responsive to the subscriber's question, | 28:40 | |
I have written down my estimate by about as much as the | 28:43 | |
facts have already falsified my estimate | 28:49 | |
and I think that's a prudent thing for me to do | 28:54 | |
but my conversion to monetarism | 28:58 | |
is still to come in the future, if at all. | 29:01 | |
- | If you have questions or comments | 29:05 |
send them to Instructional Dynamics, | 29:07 | |
166 East Superior Street, Chicago, Illinois, 6-0-6-1-1. | 29:09 |
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