Paul A. Samuelson has died (Nobel Prize in Economics in 1970). He was a brilliant, innovative, questioning centrist who cared about costs and cared about people. He distrusted government but he also distrusted the rich. He gave advice that matched the needs of the times.
He was widely regarded as the 'foremost academic economist of the 20th century'. In terms of economic philosophy, he called himself "a 'modern' economist... in the right wing of the Democratic New Deal economists."
From the New York Times Obituary
'A historian could well tell the story of 20th-century public debate over economic policy in America through the jousting between Mr. Samuelson and Milton Friedman, who won the Nobel in 1976.
Unlike the liberal Mr. Samuelson, the conservative Mr. Friedman opposed active government participation in most areas of the economy except national defense and law enforcement. He thought private enterprise and competition could do better and that government controls posed risks to individual freedoms.
Mr. Samuelson said he had never regarded Keynesianism as a religion, and he criticized some of his liberal colleagues for seeming to do so.
The experience of nations in the second half of the century, he said, had diminished his optimism about the ability of government to perform miracles.
If government gets too big, and too great a portion of the nation’s income passes through it, he said, government becomes inefficient and unresponsive to the human needs “we do-gooders extol” - and thus risks infringing on freedoms.
But, he said, no serious political or economic thinker would reject the fundamental Keynesian idea that a benevolent democratic government must do what it can to avert economic trouble in areas the free markets cannot.
Neither government alone nor the markets alone, he said, could serve the public welfare without help from the other.
As nations became locked in global competition, and as the computerization of the workplace created daunting employment problems, he agreed with the economic conservatives in advocating that American corporations must stay lean and efficient and follow the general dictates of the free market.
But he warned that the harshness of the marketplace had to be tempered and that corporate downsizing and the reduction of government programs “must be done with a heart.”
Despite his celebrated accomplishments, Mr. Samuelson preached and practiced humility. The M.I.T. economics department became famous for collegiality, in no small part because no one else could play prima donna if Mr. Samuelson refused the role, and, of course, he did.
Economists, he told his students, as Churchill said of political colleagues, “have much to be humble about.”
Advice to President John H. Kennedy
In his report to President-elect Kennedy in 1961 on the state of the American economy, he wrote: "Various experts, here and abroad, believe that the immediate postwar inflationary climate has now been converted into an epoch of price stability. One hopes this cheerful diagnosis is correct.
However, a careful survey of the behavior of prices and costs shows that our recent stability in the wholesale price index has come in a period of admittedly high unemployment and slackness in our economy. For this reason it is premature to believe that the restoration of high employment will no longer involve problems concerning the stability of prices.
"Economists are not yet agreed how serious this new malady of inflation really is. Many feel that new institutional programs, other than conventional fiscal and monetary policies, must be devised to meet this new challenge.
But whatever the merits of the varying views on this subject, it should be made manifest that the goal of high employment and effective real growth cannot be abandoned because of the problematical fear that re-attaining prosperity in America may bring with it some difficulties; if recovery means a reopening of the cost-push problem, then we have no choice but to move closer to the day when that problem has to be successfully grappled with."
In this report to President-elect Kennedy, Professor Samuelson made certain minimal policy recommendations "that need to be pushed hard even if the current recession turns out to be one that can be reversed by next summer at the latest."
He urged strong support of pledged expenditure programs, including: increasing defense expenditures and foreign aid on a basis of merit and need, vigorously pushing educational programs, high priority for urban renewal and health and welfare programs, highest priority on improving unemployment compensation, acceleration of useful public works and highway construction programs, help for depressed areas programs, and natural resource development projects.
To stimulate residential housing, he recommended reducing mortgage rates, mortgage discounts, insurance fees, and extension of maximum amortization periods, and a step-up in the Federal National Mortgage Association mortgage purchasing program.
In monetary policy he specifically urged more reliance upon short term issues (to nudge a reduction in long term rates), and decisive actions to improve the US international balance of payments position.
On the question of unemployment levels, Professor Samuelson made these comments in an interview with U.S. News World Report in December, 1960:
"I think, without question, that unemployment of more than 6 per cent is something to be concerned about. You don't push the panic button, but you don't relax and enjoy it either... I myself don't believe in a numbers game in which you give a maximum tolerable percentage, because I think, truly, it does vary with the times...
I would hesitate to specify the figure today, but I will say this: it would be, in my mind, less than a 4 per cent figure - that is, for the period ahead. I would not, realistically, think we could hope for a 2 per cent figure in the near future, as certain European countries have been able to do. But I do think that if we are pretty zealous in this matter and insist upon getting low figures - say, 3.5 per cent - then our very success in accomplishing that may lead to a new epoch just beyond when we could hope to go below 3 per cent... "
A further question in the interview asked what degree of responsibility the government has to insure high employment.
Replied Professor Samuelson: "I think I would say simply that the American people have expressed the choice that it is their concern to see that large departures from high employment will not be tolerated... I never look upon the government as something in Washington that does something to us or for us.
I think of public policy as a way in which we organize our affairs, and so I do think it is part of fiscal responsibility and monetary-policy responsibility to be discontented with the sort of unemployment we had in the prewar decade, and with the sort of exuberant booms leading to crises and panics that we have had throughout the history of our capitalistic system."
Summing up, he made this prediction for the decade: "I think the '60s will give us the potentiality of very good growth. More and more of our social problems of the past are, in fact, being licked. So I would face the '60s not complacently, but optimistically."
In his own words: Advice to President Obama
The new president will be splashed with contradictory advice.
Here is my suggestion: Seek the middle way by being a centrist.
That's not because you can't make up your mind. On the left are the failed notions of Marx, Lenin, Stalin, Castro and Mao. All of these were like idiotic Keystone cops when it came to organising any large economy. On the right are the extremist libertarian views of the post-Reagan crowd. Yes, market systems alone can preserve this millennium's affluence and progress.
However, unregulated markets will generate their own demise, as we have seen.
Centrists are doomed to have to make compromises. In good times, it can be folly to keep bumbling Detroit auto companies in business. (Harvard's Joseph Schumpeter called this "capitalism in an oxygen tent.") When rates of unemployment swell to 10 per cent or above, a different decision might be justifiable.
Dropping newly printed greenbacks from helicopters can be one way to generate growth. Such new currency will get spent rather than being hoarded or saved.
However, spending that new currency on roads to somewhere will be better than roads to nowhere.
In Japan, construction-industry lobbyists determined where public spending should be directed. In America we can do better, provided that the old Bush gang has become only an unpleasant memory.
Moral: Be centrist in your decisions about helping the poor as well as the middle classes. Females and Hispanics and others who come late to the feast deserve justice in the centrist court.
Those who presume to give advice become boring fast. Still, I will offer a final important caveat. A centrist must, of necessity, be a "limited" centrist. A centrist can be successful only in a limited degree to lessen the inequalities that are inevitable in a market system.
That's far from abolishing most inequality. To pursue that unobtainable, quixotic goal would be a sure way to plunge the modern world back into the past stages of stagnation.
No comments:
Post a Comment