Monday, December 17, 2012

Paul Samuelson: “Like herpes, math [in economics] is here to stay.”

Zero Hedge links to a 1996 interview of Paul Samuelson, published in 2009.

Samuelson never had a sound grounding in economic methodology and was a hardcore econometrician. Nevertheless, all over the place during this interview, it is clear that reality must have smashed Samuelson's models often enough that, although continuing to promote the unsound method of econometrics, he is really taking a very strong anti-econometric and anti-Keynesian position.

It's sort of like the current Chinese paying homage to the "social good and communism " but in actuality moving towards free markets as fast as they can.

Consider these quotes from the Samuelson interview:

Like herpes, math is here to stay...
Math is a problem for everybody in the profession and it has been for years. We all say, math should be used just up to the point that I have used it, and no more...I always say to our graduate students when they are leaving: ‘As a graduate student at a top-notch university, you tend to lose touch with reality. You have been engaged in puzzle solving and learning a new language. When you emerge, you may tend to think you have been asleep for several years.’ 
 He [Samuelson] recalled attending an event that was held in Cambridge, England, in 1986 to mark the one-hundred-and-fiftieth anniversary of Keynes’s birth. “Everybody was there. And they all stood up and said, ‘I am still a faithful Keynesian. I am still a true believer.’ I was a bit rude. I said, ‘You remind me of a bunch of Nazis saying, I’m still a good Nazi.’ It’s not a theology: it’s a mode of analysis. I think I am a different Keynesian than I was ten years ago.”

There’s nothing in Keynesian economics that would allow you to solve stagflation. But there’s nothing in neoclassical economics that would allow you to solve stagflation, either... the failure to solve the ongoing problem of stagflation was the most important nail in the coffin of Keynesianism.”
Samuelson's last comment above sounds almost as if he is acknowledging that Murray Rothbard was right. Here's Murray:
Every time someone calls for the government to abandon its inflationary policies, establishment economists and politicians warn that the result can only be severe unemployment. We are trapped, therefore, into playing off inflation against high unemployment, and become persuaded that we must therefore accept some of both.

This doctrine is the fallback position for Keynesians. Originally, the Keynesians promised us that by manipulating and fine-tuning deficits and government spending, they could and would bring us permanent prosperity and full employment without inflation. Then, when inflation became chronic and ever-greater, they changed their tune to warn of the alleged tradeoff, so as to weaken any possible pressure upon the government to stop its inflationary creation of new money.

The tradeoff doctrine is based on the alleged "Phillips curve," a curve invented many years ago by the British economist A.W. Phillips. Phillips correlated wage rate increases with unemployment, and claimed that the two move inversely: the higher the increases in wage rates, the lower the unemployment. On its face, this is a peculiar doctrine, since it flies in the face of logical, commonsense theory. Theory tells us that the higher the wage rates, the greater the unemployment, and vice versa. If everyone went to their employer tomorrow and insisted on double or triple the wage rate, many of us would be promptly out of a job. Yet this bizarre finding was accepted as gospel by the Keynesian economic establishment.

By now, it should be clear that this statistical finding violates the facts as well as logical theory. For during the 1950s, inflation was only about one to two percent per year, and unemployment hovered around three or four percent, whereas later unemployment ranged between eight and 11%, and inflation between five and 13 %. In the last two or three decades, in short, both inflation and unemployment have increased sharply and severely.
Keynesian and neo-classical economists just can't explain the economic phenomena of simultaneous increases in the unemployment and price inflation. Only Austrian business cycle theory is capable of doing so--and it appears that at the age of 86, Samuelson finally understood that.

(ht Taylor Conant)

1 comment:

  1. Samuelson: Iggle biggle wiggle schmiggle mish mosh goo.

    Public: What did you say? That makes no sense at all.

    Samuelson: Look buddy, I know MATH!

    Public: Well then, I guess what you said must make sense. I guess.