Tape 208 - Friedman's Nobel Prize; GNP growth slows; inflation down; final sales up; mystery in federal spending
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- | Hello, this is David Francis, | 0:02 |
financial editor of the Christian Science Monitor. | 0:04 | |
I'd like to welcome you once more | 0:06 | |
on behalf of Instructional Dynamics Incorporated | 0:08 | |
to a visit with MIT's Nobel Prize-winning economist, | 0:12 | |
Paul Samuelson. | 0:15 | |
It has just been announced | 0:18 | |
that Milton Friedman has joined you, Dr. Samuelson, | 0:19 | |
as a winner of the Nobel Prize for Economics. | 0:22 | |
As our listeners probably know, | 0:25 | |
Dr. Friedman's economic views are also offered | 0:27 | |
as a cassette service by Instructional Dynamics. | 0:30 | |
Professor Samuelson, | 0:33 | |
how do evaluate Dr. Friedman's contribution to economics? | 0:34 | |
- | Well, I think that this is an event | 0:38 |
which is greeted with great pleasure and approbation | 0:41 | |
by the whole economics profession. | 0:45 | |
You know, there are certain people | 0:48 | |
for whom it's only a question of when, not whether, | 0:51 | |
they will receive a Nobel Prize. | 0:55 | |
Albert Einstein told his first wife | 0:59 | |
that when he got the prize | 1:03 | |
he would give it to her as divorce alimony, | 1:05 | |
and in a lesser man that would be a presumptuous statement. | 1:08 | |
By the way, he did get the prize. | 1:12 | |
He got it a little bit belatedly, | 1:13 | |
many great physicists thought, | 1:15 | |
but he got it, and he did follow through on his promise | 1:17 | |
to give it as alimony to his first wife. | 1:22 | |
Well, with Milton Friedman | 1:25 | |
it has always been a similar question, | 1:27 | |
not of whether he would get the prize, | 1:31 | |
but whether he would get it last year, | 1:33 | |
or this year, or next year, | 1:35 | |
and so it's very good news. | 1:38 | |
As a matter of fact, I always say | 1:42 | |
that it's better to get it just a little bit late | 1:45 | |
because the prize builds up tax-free, | 1:48 | |
and apparently the Nobel Committee | 1:52 | |
is a rather astute investor, | 1:54 | |
so that the prize was announced as $160,000. | 1:58 | |
This is 1976. | 2:02 | |
In 1970, it was just about half that. | 2:06 | |
Now, I don't think there are very many people who, | 2:12 | |
receiving half the sum six years ago, | 2:17 | |
could have put it out, | 2:23 | |
and certainly not after paying their taxes, | 2:23 | |
and now have an equivalent of this particular sum. | 2:26 | |
Well, it's very good news. | 2:30 | |
It's richly merited. | 2:31 | |
I can think of three or four different reasons, | 2:35 | |
each strong enough, | 2:40 | |
for Milton Friedman to have been awarded the Nobel Prize. | 2:41 | |
His work in monetarism, of course, | 2:44 | |
immediately comes to mind. | 2:47 | |
His work in connection with | 2:49 | |
the permanent income hypothesis | 2:52 | |
comes to mind. | 2:56 | |
His work | 2:58 | |
with respect to | 3:01 | |
the merits, | 3:04 | |
and now I mean the reasoned merits, | 3:07 | |
not the ideological rhetoric, | 3:09 | |
the merits of the use of market pricing | 3:13 | |
for organizing a society, | 3:18 | |
these are reasons | 3:21 | |
that a lesser man might have received the prize, | 3:23 | |
and I think that Milton and Rose Friedman | 3:28 | |
will enjoy their visit to Stockholm very much. | 3:32 | |
It's a pleasurable event, | 3:36 | |
and it looks, this year, | 3:39 | |
as if it is very nearly an all-American event, | 3:41 | |
so I know that all my listeners will join with me | 3:45 | |
in extending to Professor Friedman | 3:50 | |
our heartiest felicitations, | 3:53 | |
and we will congratulate | 3:56 | |
the Royal Academy of Sciences of Sweden | 3:58 | |
for their sensible choice. | 4:01 | |
- | I'm curious. | 4:06 |
Is the Nobel Prize money tax-free? | 4:07 | |
- | Oh yes, by statute. | 4:12 |
The 1954 statute | 4:16 | |
mentions the Nobel Prize by name. | 4:20 | |
However, it was believed, prior to that time, | 4:23 | |
that an award which was received | 4:27 | |
not in exchange for any services | 4:30 | |
was tax-free, | 4:35 | |
and so this is completely tax-free. | 4:37 | |
I may mention that | 4:41 | |
one of the final moments in all of the ceremonies | 4:43 | |
is when you go to get | 4:47 | |
the check, | 4:52 | |
and I was asked where I wanted to send it. | 4:53 | |
Would I, perhaps, like to send it to a Swiss bank? | 4:58 | |
I thought that a bit cheeky to suggest that, | 5:03 | |
and I must have raised an eyebrow, | 5:06 | |
but I was told, I won't reveal a secret, | 5:10 | |
but a certain party hack in Russia, | 5:14 | |
who received the Nobel Prize in Literature, | 5:18 | |
and was a very unpleasant chap in Moscow, | 5:20 | |
I'm not talking about Solzhenitsyn, of course, or Pasternak, | 5:24 | |
that he sent his check | 5:29 | |
to a private bank account in Switzerland. | 5:34 | |
This from the Soviet Union. | 5:38 | |
Now, it cannot have been a matter | 5:39 | |
that escaped the notice of the Soviet authorities, | 5:42 | |
but that's the way it happened. | 5:46 | |
- | (chuckles) The gross national product figures | 5:50 |
have just come out. | 5:54 | |
What does this mean for the development of the economy? | 5:56 | |
- | Well, as had been | 5:59 |
widely expected, | 6:02 | |
the third-quarter numbers | 6:04 | |
definitely register a pause | 6:07 | |
in the strength of the economy. | 6:10 | |
The rate of real growth, annualized, | 6:13 | |
of the GNP, after correction for inflation, | 6:16 | |
in the third quarter, was only 4%. | 6:20 | |
This is after | 6:24 | |
about 4.4% in the second quarter, | 6:27 | |
a number which already was less than half | 6:31 | |
of the nine-plus percent that | 6:36 | |
prevailed in the first quarter. | 6:41 | |
In the final fortnight of the election | 6:47 | |
campaign where we now are, | 6:52 | |
this is not good news | 6:55 | |
for the incumbent president. | 6:59 | |
It is news which was widely discounted. | 7:02 | |
The consensus forecasters, | 7:05 | |
who keep their ears | 7:08 | |
very close to the ground, | 7:12 | |
had expected a continuation | 7:13 | |
of the second-quarter pause. | 7:17 | |
It wasn't as bad, actually, | 7:20 | |
as some of the consensus forecasters had feared. | 7:22 | |
For example, Data Resources had, | 7:26 | |
in its last estimate | 7:30 | |
before the announcement of these numbers, | 7:31 | |
thought that it would only be 3.3%. | 7:35 | |
The Manufacturers Hanover Bank, | 7:39 | |
I believe I commented on that | 7:41 | |
in my last tape, | 7:43 | |
- | Mm-hmm, yes, you did. | |
- | was, if I remember correctly, | 7:45 |
Dr. Kellner's estimate of 2.6%, | 7:48 | |
but by and large, the consensus forecasters | 7:52 | |
have reasons to pat themselves on the back. | 7:56 | |
Their squared error forecast is very, very small. | 7:59 | |
The Chase Econometrics, for example, | 8:03 | |
was almost on the nose | 8:05 | |
within a fifth of a percent, | 8:09 | |
at which the, actually, the data could not | 8:15 | |
be improved upon, | 8:20 | |
and it was not, however, | 8:21 | |
unmitigated bad news for the incumbent president, | 8:24 | |
because at least we had a little dividend | 8:29 | |
in the form of better news on the inflation front. | 8:31 | |
4.4% was the rate | 8:35 | |
of overall inflation, | 8:38 | |
and that was better than the 5% | 8:41 | |
of the previous quarter. | 8:44 | |
Now, you can always go fishing for good news, | 8:47 | |
and one way of fishing is to quote | 8:50 | |
the actual real GNP growth rates, | 8:54 | |
or, something that's better, if it is better, | 8:57 | |
namely the real rate | 9:02 | |
of final GNP sales, | 9:04 | |
meaning by that | 9:10 | |
the GNP without inventory changes in it, | 9:11 | |
and that number is better in the third quarter | 9:16 | |
than it was in the second quarter. | 9:20 | |
That's 4.4%, | 9:22 | |
and it was only 4.2% in the second quarter. | 9:24 | |
Moreover, and this is important, | 9:27 | |
the tremendous strength in the first quarter of the year, | 9:33 | |
that 9.2% rate | 9:36 | |
of annual increase was, | 9:39 | |
if we take out the inventory component, | 9:44 | |
a final sales number of only 3.7%, | 9:47 | |
so those who are fishing for good news can say, | 9:51 | |
in terms of final sales in every quarter | 9:54 | |
we're getting better and better. | 9:58 | |
3.7% annual rate in the first-quarter final sales, | 9:59 | |
4.2 in the second, 4.4 in the third. | 10:03 | |
I, however, look at those numbers, | 10:07 | |
and I read them a different way. | 10:09 | |
It is true that 4.4 is a bit more than 4.2, | 10:12 | |
but those are all very low numbers | 10:15 | |
for this stage of the recovery. | 10:18 | |
It shows that even in the early stages of the recovery, | 10:21 | |
the strength in real output | 10:25 | |
was initially an inventory accumulation, | 10:30 | |
a not-uncommon event | 10:35 | |
in the annals of American business cycle history, | 10:38 | |
but the overall base load level | 10:42 | |
of real demand strength | 10:46 | |
is barely enough to keep us level | 10:51 | |
with the growing labor force, | 10:56 | |
and with the improved productivity | 10:59 | |
that takes place | 11:02 | |
on the average, overall stage of the cycle, | 11:05 | |
much less the higher productivity | 11:07 | |
which typically takes place | 11:09 | |
in the early couple of years of each recovery. | 11:11 | |
- | Does this mean that Mr. Ford | 11:14 |
will not get his below 7% unemployment rate | 11:16 | |
by the end of this year? | 11:20 | |
- | I would say that that's an odds-on bet, | 11:22 |
and I haven't heard Alan Greenspan | 11:26 | |
mention his earlier conjecture that by the end of the year | 11:29 | |
the unemployment rate would be below 7%, | 11:32 | |
because look at the odds | 11:36 | |
against the events happening. | 11:40 | |
Our last unemployment number, | 11:41 | |
which came in for September, was 7.8%. | 11:43 | |
The good news, from the administration's viewpoint, | 11:48 | |
with respect to the seasonal correction, | 11:52 | |
is partly, if not mostly behind us, | 11:55 | |
so that I myself would not be surprised | 12:00 | |
if it came in by the end of the year, by December, | 12:03 | |
which of course we won't know until January, | 12:06 | |
at 7 1/2%, | 12:08 | |
but below 7%, I think, is impossible. | 12:11 | |
I would also point out that the | 12:14 | |
consumer was | 12:18 | |
fairly heroic | 12:23 | |
in making the third-quarter figures as good as they were, | 12:25 | |
at least not worse than they were. | 12:30 | |
The general profile of retail sales | 12:34 | |
is flat, or sawtoothed, | 12:38 | |
and although automobile sales, | 12:42 | |
which are always an important part of total retail sales, | 12:45 | |
have come back | 12:49 | |
from their earlier recession lows, | 12:52 | |
they have been more or less marking time | 12:55 | |
in recent months, | 12:59 | |
but the consumer actually | 13:01 | |
spent a slightly larger fraction | 13:03 | |
of his disposable income, his and her disposable income, | 13:06 | |
in the third quarter than in the second quarter. | 13:10 | |
The savings rate dropped below 7%. | 13:12 | |
It was just above 7% and now it's just below. | 13:15 | |
I don't think we should make very much of a drop | 13:17 | |
from 7.1% to 6.9%. | 13:19 | |
The various measures of consumer sentiment | 13:24 | |
are beginning to show some deterioration. | 13:29 | |
The Sindlinger measure shows deterioration. | 13:32 | |
The Conference Board Measure show deterioration. | 13:35 | |
These are polls, samplings. | 13:38 | |
Surprisingly, | 13:41 | |
the Ann Arbor survey | 13:42 | |
showed an improvement | 13:47 | |
in consumers' sentiment in August and September. | 13:48 | |
I think that was before the bad news | 13:52 | |
with respect to leading indicators | 13:54 | |
had begun to permeate the newspapers | 13:56 | |
and the consciousness of people. | 14:01 | |
I was a little bit surprised by this, | 14:06 | |
and I called up Professor Thomas Juster | 14:08 | |
of the Ann Arbor survey University of Michigan group, | 14:12 | |
to ask him about it, | 14:17 | |
and he mentioned to me that | 14:19 | |
when you examine it very closely | 14:23 | |
it's not quite as optimistic | 14:24 | |
in its meaning | 14:28 | |
as you might think, | 14:31 | |
because there's something | 14:33 | |
very soft or chaotic | 14:36 | |
about the consumers' answers. | 14:41 | |
Usually, the people who at the previous survey | 14:45 | |
were optimistic about what's gonna happen to the economy, | 14:48 | |
about their own intentions to buy, | 14:52 | |
the next time you survey, | 14:54 | |
the same people are also optimistic, | 14:56 | |
but he said this time there was almost no correlation | 14:58 | |
between those who'd been optimistic | 15:01 | |
and those who'd been pessimistic, | 15:03 | |
and that's a suspicious factor, | 15:04 | |
so he thought that there was increased uncertainty, | 15:07 | |
not only in the consumer's mind, | 15:10 | |
but there ought to be some increased uncertainty in our mind | 15:12 | |
about the central figure. | 15:15 | |
Well, let's mention one other bit of good news. | 15:19 | |
Fortunately, when the government has news to put out, | 15:24 | |
it can balance | 15:28 | |
some bad news with some good news. | 15:32 | |
I don't mean by changing the date | 15:33 | |
of announcing the good news, | 15:35 | |
but the housing numbers have been better. | 15:37 | |
We're running, now, at a housing start rate | 15:41 | |
of about 1.8 million, | 15:44 | |
and there's even some hope, on the part of the industry, | 15:48 | |
that the multiple apartment dwellings, | 15:52 | |
the part of the housing market | 15:55 | |
which has been so terribly soft, | 15:57 | |
would begin to pick up, | 15:59 | |
and there are some signs that that may now be happening. | 16:01 | |
Apparently, in some parts of the country | 16:04 | |
you're getting the following: | 16:07 | |
there's been so little building | 16:09 | |
of new homes for a period of time | 16:13 | |
that they're getting to be a bit scarce, | 16:16 | |
and old homes are being bid up | 16:19 | |
in price. | 16:24 | |
People are making, in Southern California, | 16:25 | |
some rather handsome short-term capital gains. | 16:28 | |
That's not the sign of a weak housing market, generally. | 16:32 | |
Of course, as you know, the cost of production, | 16:37 | |
and therefore the cost of reproduction of homes | 16:39 | |
has gone way up. | 16:43 | |
The median home is now costing | 16:45 | |
something in the neighborhood of $45,000, | 16:48 | |
and that's a pretty plain, austere home. | 16:52 | |
It's a concrete slab | 16:56 | |
with only a few bedrooms | 17:00 | |
and minimal couple of baths. | 17:02 | |
It's not a very | 17:07 | |
desirable house | 17:11 | |
in comparison with an awful lot of existing homes. | 17:12 | |
That, of course, is the way scarcity shows itself. | 17:17 | |
If we really have | 17:19 | |
definite signs of a capital shortage, | 17:24 | |
it'll show itself in older capital, | 17:26 | |
older plant, older equipment, older factories, | 17:28 | |
having a nice resale value | 17:32 | |
in the market, | 17:37 | |
and when that happens enough | 17:40 | |
to raise the price | 17:43 | |
dangled before those who might build new factories | 17:47 | |
greater than their cost of production, | 17:50 | |
allowing for some good and certain return, | 17:53 | |
you will get a restoration of investment, | 17:57 | |
and if that doesn't happen, | 18:00 | |
then one has to be little bit skeptical | 18:02 | |
about purely rhetorical talk about capital shortage. | 18:04 | |
Well, that brings me to the fact | 18:08 | |
that we still have disappointment | 18:10 | |
on fixed capital, | 18:15 | |
on plant and equipment spending, | 18:18 | |
on non-residential construction, | 18:20 | |
and I think that it's a great mistake | 18:25 | |
among some modern economists | 18:29 | |
to regard dollars spent in this area | 18:32 | |
as if they were much higher-powered dollars | 18:35 | |
than dollars of investment spent in other areas. | 18:38 | |
To a first approximation I go with Gertrude Stein | 18:43 | |
that a dollar is a dollar is a dollar, | 18:46 | |
so I'm not saying that this is a weak recovery, | 18:50 | |
because a recovery, by definition, must be weak | 18:53 | |
if plant and equipment spending is languid. | 18:57 | |
No, I say that plant and equipment spending | 19:01 | |
in real terms is rather languid, | 19:05 | |
and since it is not compensated for elsewhere | 19:07 | |
by tremendous strength, | 19:11 | |
then the overall recovery is rather on the languid side, | 19:13 | |
so I must say that | 19:17 | |
I regard the third-quarter numbers | 19:20 | |
as a bit sad and disappointing. | 19:24 | |
Now, that's my opinion, but as you know, David, | 19:29 | |
there are people of other opinion. | 19:33 | |
I read Kidder Peabody's | 19:37 | |
economic reports. | 19:41 | |
I'm appreciative of being | 19:43 | |
on their free list, | 19:47 | |
and their | 19:48 | |
main economist, a very good one, | 19:53 | |
thinks that a very modest rate of recovery | 19:57 | |
is an excellent thing, | 20:01 | |
that it means that the | 20:03 | |
economy will grow | 20:07 | |
for a longer period of time, | 20:11 | |
it puts off the next downturn, | 20:12 | |
and besides, he takes comfort from the fact | 20:16 | |
that the rate of increase in profits | 20:19 | |
is not bad. | 20:24 | |
Well, I keep thinking about | 20:25 | |
what our potential for producing output is, | 20:28 | |
what the job opportunity is, | 20:31 | |
not just for the prime worker, | 20:37 | |
but for the worker who is not in greatest demand | 20:39 | |
in the marketplace, | 20:42 | |
and I think it's very sad that we must fight the inflation | 20:43 | |
on the backs of the people | 20:49 | |
who already are not getting a very good deal | 20:51 | |
from our present economy. | 20:55 | |
- | Well, that brings me to the election campaign. | 21:02 |
About the time our subscribers receive this tape | 21:05 | |
they will be going to or just returning from the polls. | 21:08 | |
What do you think about the economics | 21:11 | |
presented by the two presidential candidates | 21:13 | |
in this campaign? | 21:16 | |
Is it all scientific, | 21:17 | |
or is it pretty political in its context? | 21:19 | |
- | Well, that, of course, is a loaded question | 21:21 |
because the general comment has been | 21:26 | |
that the rhetoric of both candidates | 21:30 | |
has not been at a very high or sophisticated level, | 21:34 | |
and I will go with that general view. | 21:39 | |
Apparently, a large part of the | 21:44 | |
electorate who are polled | 21:49 | |
regard Mr. Carter, the Democratic candidate, as a moderate, | 21:52 | |
and this is considered to be an asset, | 21:57 | |
certainly by those who regard him | 22:02 | |
as a moderate. | 22:07 | |
A large part of the electorate, when polled, | 22:11 | |
regard President Ford | 22:15 | |
as not a terribly bright fellow, | 22:18 | |
not a terribly brilliant fellow, | 22:22 | |
and not a terribly active fellow, | 22:26 | |
and they somewhat fault him for this, | 22:32 | |
but they think they know the worst about him, | 22:36 | |
and the evil which they know | 22:40 | |
they think is better, | 22:45 | |
those who are in favor of Ford, | 22:47 | |
and that's very close to half the people, | 22:49 | |
the evil they know, | 22:53 | |
the unexciting, comfortable shoe | 22:55 | |
is better than the stylish new slipper, | 22:58 | |
which might pinch. | 23:05 | |
Well, the result is that Carter | 23:07 | |
must continue to appear to be a moderate | 23:12 | |
at the same time that he must try to make hay | 23:15 | |
by criticizing the president | 23:19 | |
for not taking more action, | 23:22 | |
and it seems to me | 23:25 | |
that that is a situation | 23:27 | |
that calls for a certain amount of ambiguity | 23:30 | |
and even duplicity, | 23:36 | |
so the voters, not being fools, | 23:39 | |
they see this happening, | 23:41 | |
and they have a certain amount of disillusionment. | 23:45 | |
Just | 23:49 | |
this last day, the Harris Poll has just come in | 23:54 | |
and shows President Ford only a very, very little | 23:58 | |
behind Mr. Carter and closing the gap, | 24:03 | |
so that I would not say | 24:08 | |
that if I were the advisor of either candidate, | 24:12 | |
I would be counseling them | 24:17 | |
to do anything very different from what they're doing. | 24:20 | |
The American public, | 24:25 | |
in a certain sense | 24:27 | |
it's difficult in short compass | 24:30 | |
to express this so as not to be misunderstood, | 24:33 | |
wants to be bamboozled, | 24:36 | |
and I think the political process | 24:39 | |
usually will cater | 24:42 | |
to the desire of what people want | 24:44 | |
in somewhat the same way that the business community | 24:47 | |
will cater to what people want | 24:51 | |
in the way of toothpaste, and soap, and other matters. | 24:54 | |
- | You mean they want to be promised the impossible | 24:57 |
in economics. | 24:59 | |
- | Yeah, they don't like the present state of the economy, | 25:00 |
and they would like to have it be better, | 25:03 | |
but they don't want it to be better | 25:06 | |
by running risks or doing nasty things | 25:08 | |
like breaking eggshells, | 25:12 | |
but those omelets would be very, very good. | 25:16 | |
- | What difference will it make to the economy | 25:19 |
if, say, Jimmy Carter wins this election? | 25:22 | |
- | Oh, I think it will make | 25:26 |
a small but significant short-run difference. | 25:29 | |
I didn't comment on one thing, David, and I should. | 25:34 | |
The third-quarter government spending | 25:39 | |
has been surprisingly off-target, | 25:44 | |
and has been off-target in a downward direction. | 25:48 | |
Now, you may remember that | 25:52 | |
in one of our earlier recordings, | 25:53 | |
some time ago, | 25:57 | |
perhaps three months ago, | 25:59 | |
I said, well, I think the third quarter | 26:03 | |
may not be as soft as other people are now thinking, | 26:06 | |
because remember, the third quarter of the year | 26:09 | |
is in no fiscal year. | 26:12 | |
It's the transition quarter in American history. | 26:14 | |
As we go from one | 26:17 | |
part of the calendar fiscal year | 26:22 | |
to another part of the calendar fiscal year, | 26:24 | |
and so I said, | 26:26 | |
but only repeating what I'd heard in Washington, elsewhere, | 26:27 | |
sure there will be a temptation | 26:31 | |
to put into that third quarter all kinds of spending, | 26:33 | |
because it won't be the deficit of the last fiscal year, | 26:36 | |
it won't be in the deficit of the next fiscal year. | 26:40 | |
I might have added, if I had been canny and Machiavellian, | 26:43 | |
and besides it's an election year, | 26:48 | |
so sweetening up the economy just a little bit | 26:51 | |
before the election, | 26:53 | |
that's been known to happen in other democratic governments. | 26:54 | |
Well, so much for sophistication. | 26:59 | |
So much for a priori reasoning. | 27:03 | |
One peak is worth several finesses. | 27:04 | |
The fact is exactly the reverse. | 27:09 | |
There may be as much as an 8% shortfall | 27:14 | |
in government spending in the third quarter. | 27:17 | |
I'm now talking about money | 27:22 | |
which has been voted by Congress, | 27:24 | |
which has been accepted by the administration, | 27:28 | |
either eagerly, or reluctantly, or over a veto. | 27:32 | |
It's money which is supposed to be spent | 27:37 | |
in this election year, | 27:41 | |
and we already were showing slippage | 27:42 | |
before the third quarter, | 27:44 | |
but we're never on the mark, | 27:46 | |
and everybody is now investigating this including myself, | 27:49 | |
and one of the things I learn | 27:53 | |
is that almost always there's a tendency | 27:54 | |
for each cabinet officer to put in a bit more | 27:58 | |
than he actually thinks he's gonna spend | 28:02 | |
because he believes, and maybe he's right, | 28:04 | |
that his next-year budget will be cut | 28:07 | |
if it's demonstrated | 28:11 | |
that he isn't spending his this-year's budget, | 28:14 | |
or if even he says he needs very little, | 28:17 | |
so I'm not talking about the ordinary shortfall, | 28:22 | |
which happens year after year. | 28:24 | |
I'm talking about an extraordinary shortfall. | 28:26 | |
My guess is that | 28:31 | |
when that shortfall began to register itself, | 28:32 | |
and was reported in May, | 28:35 | |
that one should have extrapolated it. | 28:37 | |
Now, until we know what the cause of the shortfall is, | 28:39 | |
and nobody does know, | 28:43 | |
and when I say nobody knows, | 28:45 | |
I mean that the advisor to the president | 28:46 | |
doesn't know. | 28:49 | |
You can be sure he's on his way to finding out, | 28:51 | |
and the people in the budget bureau do not yet know. | 28:54 | |
Well, until we know that, | 28:58 | |
we don't know whether to expect a burst of spending. | 28:59 | |
There's a way of reading these third-quarter numbers | 29:02 | |
to say if it was so strong without the government spending, | 29:05 | |
then the private sector is really quite strong, | 29:09 | |
and when we get to government spending, | 29:12 | |
maybe you'll have too much. | 29:14 | |
Well, now to come back. | 29:15 | |
I think that what we've now been describing | 29:17 | |
would be a little less likely to happen | 29:20 | |
under what you might call | 29:21 | |
a free-spending Democratic administration | 29:24 | |
than under a Republican administration | 29:26 | |
concerned about inflation. | 29:28 | |
So much more so will that be the case after the election, | 29:29 | |
so in the short run | 29:33 | |
I think that the | 29:36 | |
rate of growth in 1977, | 29:40 | |
in the first part of the next president's term, | 29:44 | |
is likely, in real terms and in money terms, | 29:49 | |
to be a bit higher if a Democrat is elected | 29:53 | |
than if a Republican is elected. | 29:57 | |
Now, I happen to favor that, | 30:00 | |
because I think that these real growth rates are too low | 30:02 | |
for this stage of the business cycle, | 30:05 | |
but there is another side to the story, | 30:07 | |
and I ought to tell it in my last few seconds, | 30:08 | |
namely, if it's overdone in 1977, | 30:11 | |
then you will activate, reactivate, | 30:16 | |
reaccelerate the inflation, | 30:20 | |
and a policy | 30:22 | |
plus the natural reactions of the system | 30:24 | |
will mean that you'll pay for it in 1978 | 30:27 | |
in lower growth than would otherwise be the case. | 30:31 | |
There is some kind of a golden mean that is desired, | 30:34 | |
so yes, it makes a difference, | 30:38 | |
but this is not, I think, a watershed election, | 30:41 | |
where we're at a turning point | 30:45 | |
and for all time America will go one way with one candidate | 30:47 | |
and another way with the other. | 30:51 | |
- | Thank you very much. | 30:53 |
If you subscribers would like to ask questions | 30:55 | |
of Professor Paul Samuelson, | 30:57 | |
or suggest subjects for him to discuss, | 30:59 | |
please write to Instructional Dynamics Incorporated, | 31:02 | |
450 East Ohio Street, | 31:05 | |
Chicago, Illinois 60611. | 31:07 |
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