Tape 44 - Economic growth in 1970

Download
- Rights
- Limited Re-Use
  CC BY-NC 4.0
  More Rights Info
- Files (1)
- MP3
- Please be patient with media downloads. They are often large files.
Share

Embed Code
<iframe src='//idn.duke.edu/ark:/87924/r4zw1982c?embed=true' height='125px' width='100%' frameborder='0' marginwidth='0' marginheight='0' scrolling='no' allowfullscreen></iframe>
Permalink

https://idn.duke.edu/ark:/87924/r4zw1982c
Skip to Item Info

Loading the media player...

Files for this Item

Transcript

Transcripts may contain inaccuracies.

-	Hello again, and welcome as Professor Paul Samuelson	0:02
	discusses the current economic scene.	0:04
	This series is produced and recorded	0:06
	by Instructional Dynamics Incorporated.	0:08
	This program is being recorded	0:11
	for the week of February 23rd, 1970.	0:12
-	Hello, it's been a rather long time	0:15
	since I made my last recording.	0:18
	I've been out of the country a couple of times	0:22
	and this gives me a little perspective	0:25
	to look upon the changes that've taken place.	0:28
	Since my last recording,	0:33
	the Council of Economic Advisors of President Nixon	0:36
	made its report early this month,	0:40
	and their forecast for the coming year	0:43
	was about what I had predicted it would be.	0:49
	You will remember that my prediction was	0:53
	that their forecast would be rather close	0:57
	to my own forecast,	1:00
	the one that I made early in December,	1:01
	for the London Financial Times.	1:04
	That forecast said that the gross national product	1:07
	would grow from about 932 billion for 1969	1:11
	to about 989 or 990 billion for 1970.	1:16
	And it was my belief, as expressed by me at that time,	1:23
	that the government economists	1:27
	were thinking pretty much	1:29
	in terms of the same ballpark figure.	1:30
	Now we have the number, we don't have to speculate about it.	1:33
	The President and his Council say	1:36
	that we can look forward in 1970	1:41
	to a gross national product	1:43
	of somewhere between 980 billion dollars	1:45
	and 990 billion dollars.	1:50
	That indicates the lack of precision of their estimate,	1:52
	their inability to pinpoint any single number,	1:58
	but they say for purposes of illustration,	2:01
	we may think of the gross national product as 985 billion.	2:04
	And all of their discussion is in terms	2:11
	of that halfway figure.	2:13
	Now, to be sure, this is a bit lower than the number I gave.	2:14
	I was at their upper range rather than right in the middle,	2:20
	but of course the economy has revealed itself,	2:24
	in the two months from the beginning of December	2:28
	to the end of January, to be a bit weaker	2:32
	than government economists had thought.	2:35
	And then I, myself, had thought.	2:38
	So, I would not hold out for my number	2:42
	as against their number.	2:46
	As a matter of fact, the path of discretion at this time	2:47
	would be to shade the earlier estimate	2:54
	and shade it pretty much in the direction	2:57
	that they have given.	2:59
	Now, what does this mean?	3:01
	To me, it means that I must eat humble pie.	3:04
	I must modify my odds on whether 1970	3:10
	will be a year of recession.	3:15
	You may recall that I said it was a 60 40,	3:18
	65 to 35 bet in Las Vegas,	3:23
	that there would not be a recession in 1970.	3:27
	And in order to make the wager operationally meaningful,	3:32
	I said, "Let's use the simplest definition	3:38
	"of the national Bureau of Economic Research	3:40
	"in defining what we mean by a recession	3:43
	"so that we can keep it clear from a slow down	3:47
	"so that we can keep it clear from a depression."	3:51
	By a recession in 1970, let us agree to mean	3:55
	that for at least two consecutive quarters of the year,	4:00
	the real gross national product	4:05
	will, in fact, have declined.	4:08
	Now, I have changed the odds, which I would quote	4:11
	instead of the odds being 60 40 against a recession,	4:18
	it seems to me that the odds now must be at least	4:24
	60 40 in favor of a recession.	4:27
	And I owe you an explanation as to why I've changed my mind,	4:31
	and I also owe you an elucidation	4:36
	of how much of a change in mind that really does represent.	4:40
	Well, the explanation of why I've changed my mind	4:47
	is very simple.	4:50
	We, in fact, now know that the fourth quarter of last year	4:51
	was a quarter of decline in real gross national product.	4:56
	And so, in order to win your bet	5:02
	that there'll be a recession, you no longer require	5:04
	that there be two new successive quarters of decline.	5:07
	All that you need is to cap the fourth quarter decline	5:11
	in real national product with a repetition	5:16
	in the current first quarter.	5:20
	And that certainly is a distinct possibility,	5:22
	and is not at all a remote likelihood.	5:26
	So I have recanted, and I have explained the change	5:30
	in my mind, and I've explained the basis for that change.	5:35
	Let me now interpret whether that	5:38
	is a very important change.	5:42
	Now, if you were betting a large sum of money,	5:47
	it would be important to you because you'd lose your money.	5:50
	But I use the frivolous language of gambling	5:53
	not because I have the remotest interest in a casino	5:58
	based upon the economic outcome,	6:02
	but because that is a literary way	6:05
	of expressing the probability precision	6:08
	and imprecision of our forecasting knowledge.	6:11
	So forgetting all bets, it seems to me	6:15
	that what we have seen as a result	6:20
	of the new experience that has accumulated in December,	6:22
	in January, and thus far in the month of February,	6:27
	is a slight further weakening of the economy	6:32
	beyond what seemed to be indicated	6:38
	by my method of analysis at an earlier stage.	6:42
	This is not a drastic change, and to point that up,	6:45
	let me tell you how I now stand with my new estimates	6:51
	with respect to the spread	6:59
	of the business forecasters throughout the land.	7:03
	You will remember that at year's end,	7:06
	one could separate the general economic forecasters	7:09
	into three categories.	7:15
	On the one hand, you had the expansionists.	7:19
	This was the smallest group by far.	7:23
	It consisted of people like Pierre Rinfret,	7:26
	possibly Eliot Janeway, and a few others,	7:30
	who said that 1970 would be a boom year	7:33
	as much ahead of 1969 as 1969 was above 1968.	7:39
	Pierre Rinfret's estimate, as quoted in the public press,	7:47
	was that the year would average	7:52
	more than a trillion dollars of GNP,	7:54
	which means that by the end of the year,	7:56
	you'd be well over that figure.	7:59
	It looks to me as if Dr. Rinfret	8:03
	is sitting with a less comfortable poker hand,	8:06
	unless he has changed his mind	8:10
	based upon more recent statistics.	8:13
	Let me go to the other extreme.	8:18
	At the other extreme, we have primarily monetarists,	8:22
	and a good case in point	8:26
	would be the First National City Bank of New York.	8:30
	First National City Bank of New York	8:33
	has a pretty good forecasting record in the past,	8:35
	so I think it behooves us to listen to them when they speak,	8:38
	and to pay attention to their forecasts.	8:42
	Well, according, again, to the same public press,	8:46
	the First National City Bank has predicted, for 1970,	8:51
	a GNP or money gross national product,	8:58
	gross national product in nominal terms,	9:02
	not corrected for price change,	9:06
	of the very low figure of 965 billion dollars.	9:10
	That is not very much more than the gross national product	9:17
	at the moment as that I'm now speaking.	9:22
	In other words, if I'm at all correct in where we stand	9:27
	in the first quarter,	9:33
	and I don't profess to have confidence	9:34
	within five billion dollars of where we stand,	9:38
	but let's say I'm within five billion dollars of the mark,	9:40
	then this quoted figure of the Fist National City Bank,	9:44
	based upon what the Federal Reserve has been doing	9:48
	to the money supply for the last seven months or so,	9:52
	and based upon their best prediction	9:57
	of what the Federal Reserve will do from now on,	10:00
	and indeed what the Federal Reserve can do from now on,	10:03
	is that there's not going to be much of an increase	10:06
	on the average in the gross national product	10:10
	from this time on.	10:15
	I presume that the most likely way	10:16
	of that scenario developing	10:18
	would be that the national product would actually decline,	10:20
	and then perhaps towards the end of the period	10:25
	when the Federal Reserve has seen the error of its ways	10:27
	under its bold and sagacious new chairman, Arthur F. Burns,	10:30
	that the GNP will be rising at the end of the period.	10:37
	Well, you're more interested in the interpretations	10:43
	that I offer than in my bringing you	10:51
	the kind of news that you can read in any newspaper,	10:54
	so let me say point blank that my reading of the situation	10:57
	and giving the full weight that I think should be given	11:04
	to the deteriorating automobile sales picture,	11:08
	to the promised declines in government defense expenditures,	11:12
	to the balanced and overbalanced budget,	11:20
	and everything I know about the Federal Reserve,	11:24
	due to all these things, it seems to me	11:26
	that it's a darn good bet for any business man	11:29
	not to go along with so pessimistic of forecast	11:32
	as the one I've just quoted.	11:38
	And, for the record, let me make one thing clear.	11:40
	I do not have before me a detailed breakdown	11:45
	by the First National City Bank,	11:48
	and so it's quite possible,	11:52
	I've learned this from personal experience,	11:53
	that the public press has misquoted them.	11:56
	Or, if the public press has correctly quoted the position	11:59
	which they held at some earlier date,	12:03
	it's possible that there've gone through	12:06
	an agonizing reappraisal	12:08
	and have worked out the full implications	12:10
	of what their own forecast would mean,	12:13
	and as a result have abandoned that forecast	12:16
	and have replaced it by another forecast.	12:19
	Nevertheless, I wouldn't bring it up	12:22
	if I didn't think it was relevant to the current discussion	12:23
	because if they do not believe in this particular number,	12:27
	then let's just move down the street	12:32
	and we'll find a monetarist from one of the other banks	12:34
	in another city in the country	12:40
	who is not too far from their forecast,	12:42
	and who is pretty far from the fashionable middle group.	12:46
	Now, that particular view could be right.	12:52
	And so when I say that I don't agree with it,	12:55
	and I think it's a pretty good bet to bet against it,	12:58
	I wouldn't want you to think that I regard it	13:01
	as an open and shut thing, like taking candy from babies,	13:04
	to make such a bet,	13:09
	particularly since these are highly intelligent people	13:10
	who have studied the past data intensively for many decades,	13:13
	and even going back a century, and in a field like economics	13:21
	is very possible that they are right,	13:26
	and that I am dead wrong.	13:30
	And my attempt in this game is, if I can,	13:32
	to forecast correctly the future.	13:37
	But in any case, not to be caught napping on the present,	13:40
	and I will have to eat some more humble pie	13:43
	if it should turn out that they are exactly on the nose	13:48
	and exactly right,	13:51
	I will be very candid in telling you	13:53
	when I've joined their particular camp.	13:57
	I say this because it seems to me	14:00
	that the kind of methodology which I use	14:03
	is quite compatible with a broad spectrum	14:06
	of actual forecasts,	14:10
	and I have collected some forecasts not by monetarists,	14:12
	which point in the same pessimistic direction.	14:17
	Well now, let me then interpret what I think	14:22
	is going to happen based upon an outcome like that,	14:25
	which the government itself has forecast,	14:31
	and for safety's sake,	14:36
	based upon that of the more pessimistic forecast.	14:38
	Or the more bearish forecast.	14:43
	I shouldn't say pessimistic	14:45
	because whether that's good or bad depends,	14:46
	really, upon your point of view of how seriously	14:48
	we should take the inflation problem	14:55
	and how much we should be prepared	14:56
	to pay to fight the inflation.	14:58
	If the monetarists are right,	15:03
	then I think you probably, at this point,	15:05
	with considerable safety,	15:08
	ought to go out and start buying long-term government bonds.	15:09
	I cannot believe that interest rates,	15:14
	which are high, which are, in my judgment,	15:17
	probably just past their crest,	15:22
	I cannot believe that interest rates can stay this high,	15:27
	anything like this high, if the money gross national product	15:32
	is going to be frozen pretty much in its tracks	15:38
	for the next quarter, or two, or three, or four.	15:42
	Unemployment, which I believe since I last made a recording,	15:49
	went from 3.4%, bobbed up to 3.9%,	15:56
	its last figure at the time that I speak,	16:01
	last published figure, that unemployment rate undoubtedly,	16:04
	if the extreme monetarists are right,	16:09
	is going to rise above 4%.	16:12
	It's going to rise above four and a half percent,	16:14
	and if past patterns are any criterion,	16:17
	it's going to rise above 5%.	16:21
	You have heard yourself prominent monetarists predicting	16:24
	that 6% was a good forecastable figure,	16:29
	and some have even said 7%.	16:33
	I do not see how corporate profits	16:39
	on the basis of such a forecast could fail to suffer.	16:41
	And suffer pretty intensively.	16:46
	That would mean a 25%, 30% drop	16:49
	from the peak levels reached in last year.	16:55
	Now, the government's own figures, I think,	17:01
	are much more moderate.	17:05
	Theirs is a more gradualist approach,	17:07
	and theirs is a gradualist's forecast.	17:10
	You may ask me this question:	17:15
	Does the government believe in this forecast,	17:17
	or is this a case of the sort of thing,	17:21
	which we have seen many times in the past,	17:24
	where a government is soft soaping us,	17:26
	is keeping two sets of books?	17:29
	One, its beliefs in its own boudoir, so to speak,	17:32
	and second, what it thinks is good for us to hear?	17:36
	So does it believe in its present figures?	17:40
	I can only speculate and guess on that question.	17:45
	My candid opinion is that the technicians	17:49
	who constitute troika,	17:53
	that's the slang name for the analysts	17:55
	in the Treasury Department,	17:59
	and the Council of Economic Advisors,	18:00
	and in the Budget Bureau,	18:02
	these are the people who provide the government	18:03
	with its prime economic information.	18:08
	I believe that this is the figure	18:11
	that they think is about going to happen	18:13
	based upon what they are told	18:17
	about the Vietnam war outlook and other budgetary matters.	18:19
	So I don't think it's a case of double dealing,	18:24
	or they're putting a gloss upon the picture.	18:28
	On the other hand, they are realists,	18:30
	and they know that they're fallible men.	18:33
	Probably, if you ask me,	18:40
	I think that if they think they're gonna go wrong,	18:42
	they think they're more likely to go wrong	18:45
	because the recession will develop worse than they believe.	18:47
	Now, why is that?	18:52
	Well, my interpretation is the following.	18:55
	Many of the government economists	18:58
	in this republican administration	18:59
	would like to be monetarists.	19:01
	If monetarism could, in their own eyes, deliver the goods,	19:03
	they would find it a more satisfying alternative	19:08
	to the previous administration's so-called	19:12
	fine tuning fiscalism.	19:16
	However, they have a technical problem.	19:19
	They have to forecast the components	19:22
	of the gross national product,	19:24
	and in all candor,	19:25
	they are not able to get a very good handle	19:27
	on estimates of those numbers	19:29
	from the monetarist approach.	19:33
	So willy-nilly, and rather unwillingly,	19:35
	they have found themselves making	19:39
	a, which we might now call from the standpoint of 1970,	19:42
	an old-fashioned gross national product approach.	19:48
	If I were to be crude and just caricature it,	19:52
	they find themselves willy-nilly making a	19:56
	kane-gian, or a post kane-gian approach.	19:58
	Now, being in a frame of mind	20:00
	that wants to give a great deal of weight to money,	20:04
	whether they're willing to cross over	20:08
	all the way over the aisle to a monetarist position,	20:11
	which says that it's primarily money alone	20:14
	which matters to determine the aggregate of nominal GNP,	20:19
	but leaning in that direction,	20:25
	they've taken their kane-gian outcomes,	20:26
	and they've shaded them.	20:30
	They've said, for example, in past periods of tight money,	20:31
	housing has suffered.	20:35
	And therefore we ought to take this housing equation	20:37
	of ours, with our estimate of housing starts,	20:40
	and let's knock it down another hundred thousand,	20:42
	or a couple hundred thousand for tightness of money.	20:45
	Let's disbelieve our own surveys	20:49
	of what businessmen have reported to us,	20:54
	are going to be their plant equipment,	20:56
	to some degree because they just aren't gonna have the money	20:58
	if the Federal Reserve has been as tight as it's been,	21:01
	it's in the cards that they won't have the money,	21:04
	businesses won't have the money,	21:06
	to have this much investment.	21:08
	And so in a modified way,	21:09
	they've tried to bring money into their approach.	21:12
	But I've talked to these people,	21:15
	and they really have a great deal of difficulty in doing it.	21:17
	And they keep asking themselves,	21:20
	have we fully allowed for this?	21:21
	And their apprehension in their own minds	21:24
	is that they weren't able, fully, to do justice to this.	21:27
	And that Mother Nature may pull a surprise on them,	21:30
	and it would turn out that the economy's gonna be weaker	21:33
	because of money factor.	21:36
	And they would've been better if they had been	21:38
	even more old-fashioned and had gone to an old,	21:40
	almost classical, money approach,	21:45
	like the quantity theory of money	21:48
	and had used that to make their aggregates,	21:51
	and then had allocated,	21:53
	by some more or less arbitrary device,	21:54
	the aggregate among the different components.	21:59
	So you may be sure that they are apprehensive	22:03
	about the possibility of an inflation.	22:07
	Now, what about Arthur F. Burns?	22:10
	Arthur F. Burns is now the Chairman	22:13
	of the Federal Reserve Board.	22:15
	He's gotten off to a very good start.	22:16
	Several times he's sent the stock market up,	22:21
	he's the Wall Street man's best friend.	22:23
	However, as of this date, it is not possible,	22:26
	I think for an observer outside the Federal Reserve system,	22:31
	who hasn't bugged the Open Market Committee,	22:34
	to know how much difference Arthur Burns'	22:38
	appearance in the chairmanship	22:41
	of the Federal Reserve has yet made.	22:45
	I am confident myself that events will be moving	22:48
	the Federal Reserve towards an easier posture.	22:53
	And I think we will learn, in about 60 days,	22:57
	and more likely in 90 days,	23:02
	that the Federal Reserve has already moved	23:05
	towards a different style,	23:07
	and towards a somewhat easier posture.	23:09
	But that's a question of things as yet unseen,	23:12
	and as yet unseeable,	23:17
	except for the fact that in January	23:19
	there was a big blip in the money supply.	23:22
	That blip could mean nothing.	23:26
	Indeed, if there was no great change in the climate	23:29
	of opinion among Washington insiders,	23:35
	and you had observed a blip like that,	23:39
	you would be pretty confident	23:42
	that it was just a seasonal thing	23:45
	and that it would be later erased,	23:46
	in exactly the same way that we had a tremendous blip	23:48
	in the money supply at Easter of last year	23:52
	because of certain things that had to do	23:55
	with euro dollar market, and storms, and so forth.	23:57
	And with some confidence,	24:00
	one could guess that that would disappear.	24:02
	And, in fact, it disappeared with a vengeance	24:05
	because it was just after that period	24:07
	that the over tight money, by most definitions, took place.	24:10
	So I think that the Federal Reserve is easing.	24:17
	I think that this will happen even more	24:20
	to the degree that the low estimates	24:25
	by the monetarists are realized.	24:29
	What about two things that will interest any observers?	24:33
	What about unemployment,	24:39
	and what about the profit situation?	24:40
	Because the profit situation	24:43
	is part of the key to the Wall Street stock price situation.	24:45
	I think that on any of these estimates	24:50
	that unemployment is going to trend upward.	24:52
	I would like to call your attention	24:56
	to one interesting phenomenon.	24:58
	It happens to be a very happy phenomenon,	25:00
	and a rather surprising one.	25:04
	Our greatest fear in fighting inflation	25:08
	by engineering a period of retardation, if not recession,	25:10
	was that certain minority groups	25:15
	whose unemployment is disproportionately large	25:17
	in comparison with, say, white married males,	25:21
	that that group would, as in the past,	25:25
	have a great increase in their unemployment	25:28
	when the overall figures	25:31
	have a small increase in unemployment.	25:32
	And so our concern was that there would be	25:35
	riots in the ghetto as this scenario developed.	25:39
	Very happily, and for reasons	25:45
	which I have not yet seen explained by cogent analysis,	25:48
	we have been surprised.	25:53
	In this last year, unemployment has gone up.	25:55
	It has gone up from 3.3% to,	25:58
	in the most recent period, 3.9%.	26:01
	Black unemployment has not gone up.	26:07
	White unemployment has gone up,	26:10
	black unemployment has not gone up.	26:12
	The volatile has been stable,	26:14
	and the stable has been volatile.	26:16
	Now, I don't know the explanation.	26:19
	My suspicion is that business is making	26:21
	a very sincere effort to lean over forward	26:25
	and make up for past discrimination.	26:29
	And, as a result, is trying very hard	26:32
	not to make it true that the black man,	26:35
	who was the last to be hired,	26:38
	is always the first to be fired.	26:40
	This time, it has not bene the black man	26:42
	who has been the first to be fired.	26:44
	Hopefully this trend will continue,	26:46
	but I think one should be somewhat pessimistic	26:50
	as to whether it can continue.	26:51
	Secondly, what about the stock market	26:54
	and what about profits?	26:56
	In a way, if I could believe that it's just a matter	26:59
	of the American economy's going to the cleaners	27:04
	and getting the inflation virus out of its system,	27:07
	and then it will be back in healthy progress of growth,	27:10
	real growth, without inflation,	27:14
	then it would really be a good thing for the stock market	27:17
	to have the economy bearish at this time.	27:21
	Because the stock market could say,	27:23
	aha, both shoes are falling,	27:25
	and we can see our way ahead	27:27
	beyond the valley to healthy growth.	27:31
	Now, I don't have time on this occasion	27:34
	to develop the thesis, but I am extremely skeptical	27:36
	about the notion that we go to the cleaners	27:40
	and get the bad viruses out of our system	27:43
	within six months or nine months,	27:45
	and from then on, we go along in health.	27:48
	And I ought, in a later recording,	27:51
	to give you my reasons for this skepticism	27:54
	because I think it's very relevant	27:57
	to whether the stock market,	27:58
	which is always ahead of the game,	28:00
	whether the stock market will be able	28:02
	to find itself in an optimistic mood	28:03
	so that the Dow Jones averages can leap above 800,	28:06
	above 900, and 1,000, according to the happy story	28:10
	that we sometimes read about in the newspapers.	28:14
-	Thank you, Professor Samuelson.	28:16
	If you have any questions or comments,	28:18
	send them to Instructional Dynamics	28:20
	166 East Superior Street, Chicago, Illinois, 60611.	28:23

Item Info

Title:

Tape 44 - Economic growth in 1970

Date:

circa 1970

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-0044
ref2227_i8s
samuelsonpaul
duke:325067
pstau001044
ark:/87924/r4zw1982c
d831b40d-64e0-4658-ad09-293a7f7d7d4c

Permalink:

https://idn.duke.edu/ark:/87924/r4zw1982c

Sponsor:

Sponsor this Digital Collection

Tape 44 - Economic growth in 1970

Transcript

Item Info

Economists' Papers Archive

More Info & Options