by Mario Rizzo
It is possible to agree with someone’s conclusions but wonder if he has the slightest basis for them. That’s how I feel about Paul Samuelson’s latest article.
Now I beg forgiveness for criticizing an article by a man who is 94 years old. God willing, I should be so good at that age. Nevertheless, it is instructive for the rest of us to look carefully at the latest from one of the fathers of the neoclassical “synthesis”.
There are two points Samuelson makes:
1. Economics “can never be an exact science” and so prediction is impossible. The example he gives is Irving Fisher, the great economist, continually mispredicting the stock market in 1929 and then in the early thirties. He lost a number of fortunes (Glad he had a number of fortunes in the first place.) And then there was Joseph P. Kennedy who was presumably without much knowledge of economics but who continually sold stocks short and made a fortune. (In addition, of course, he made money from illegal activities.) But, then, somehow Kennedy knew when the New Deal would work and turned to buying property.
Samuelson’s lesson here is not clear. Either there is some knowledge more important than economics or the predictions were simply a matter of luck. In the first case perhaps a distinction such as Hayek’s “scientific propositions,” on the one hand, and “knowledge of the concrete circumstances of time and place,” on the other, might be relevant.
2. The Chinese will eventually (perhaps soon) not want to hold dollars anymore. This will cause big problems for the U.S. economy. Now, I won’t be so petty as to say: “Hey, he just got finished saying prediction is impossible.” Let us assume he is making Hayek’s distinction between “pattern prediction” and more precise quantitative predictions. The Chinese prediction, we can say, is the former kind.
In the first place, Samuelson spent his whole life mathematizing, quantifying, and generally making fun of Austrians who said that there were strict limits on the “scientific” (in the positivist sense) nature of economics. He never had time for Hayek’s subtle distinctions. Now he cautions us. Okay.
In the second place, the enormous debt that the U.S. has recently run up is due essentially to the Keynesian policy prescriptions Samuelson did so much to advance. “We owe it to ourselves…” Oops that was a different era.
I worry that I am being uncharitable. Maybe so. But there are important lessons to be learned, especially for young people. The chief lesson is: We are in the current mess for a reason. In my personal view, Keynes himself is far less to blame that those who promoted an agenda that invoked hydraulic or mechanical Keynesianism. (Shall I also mention that Samuelson was totally wrong on the Soviet Union and the great issue of our time: whether rational economic calculation is possible under socialism? Let that pass.)