Paul Samuelson, the Nobel Prize-winning giant of modern Keynesian economics, died today at the age of 94. A few months ago, Atlantic Business writer Conor Clarke interviewed Samuelson about how the economics field failed to prepare us for the financial crisis and the Great Recession. Here is Part One of that interview. You can read Part Two here. And you should. Samuelson is one of the most influential economists of the Post-WWII era, and this is a brilliant, informative and entertaining interview.
I've spent the last six months, off and on, trying to interview Paul Samuelson. Samuelson has a long list of accomplishments -- A John Bates Clark Medal, a Nobel Prize -- that I won't try to recap here. But by most accounts he is responsible for popularizing Keynesian economics in Post-Second World War America, and I wanted his thoughts on the current administration's fiscal policies and the modern Keynesian resurgence.
So is it time for the Keynesians to declare victory?
Well I don't care very much for the People Magazine approach to applied economics, but let me put it this way. The 1980s trained macroeconomics -- like Greg Mankiw and Ben Bernanke and so forth -- became a very complacent group, very ill adapted to meet with a completely unpredictable and new situation, such as we've had. I looked up -- and by the way, most of these guys are MIT trained; Princeton to MIT or Harvard to MIT -- Mankiw's bestseller, both the macro book and his introductory textbook, I went through the index to look for liquidity trap. It wasn't there!
Oh, I used those textbooks. There's got to be something in there on liquidity traps.
Well, not in the index. And I looked up Bernanke's PhD thesis, which was on the Great Depression, and I realized that when you're writing in the 1980s, and there's a mindset that's almost universal, you miss a lot of the nuances of what actually happened during the depression.
I am regarded as a Keynesian. My book, which over a period of about 50 years sold millions of copies, for the first time brought home -- not only to advanced Ivy League places but also to community colleges and high schools -- the gist of the Keynesian macroeconomic system. I thought it would be a success because it was one Keynesian book by Lorie Tarshis, which for reasons I've never understood got completely tarred by a kind of a fascist group, and by Bill Buckley, as unsound and so forth. And unfairly that book never got a good chance. He had actually been a student of Keynes.
And my book came along and swept the field, and set a pattern so that every time somebody -- this is just scuttlebutt -- so that every time some economics textbook writer sued another textbook writer for plagiarism, it never got anywhere because the judge would just say, 'it's all Samuelson lite,' so to speak.
Anyway. Things swept so badly that I had distrust -- after 1967, let's say -- of American Keynesianism. For better or worse, US Keynesianism was so far ahead of where it started. I am a cafeteria Keynesian. You know what a cafeteria catholic is?
I think so. Someone who picks and chooses the bits of the doctrine that they find agreeable.
Yeah. I might go to mass every week, so I'm a good catholic, but I don't regulate my family size the way the Pope would like to.
So which bits of the Keynesian doctrine do you not take out of the cafeteria?
Well, let me give you a bit of boring autobiography. I came to the University of Chicago on the morning of January 2, 1932. I wasn't yet a graduate of high school for another few months. And that was about the low point of the Herbert Hoover/Andrew Mellon phase after October of 1929. That's quite a number of years to have inaction. And I couldn't reconcile what I was being taught at the university of Chicago -- the lectures and the books I was being assigned -- with what I knew to be true out in the streets.
My family was well off but not rich. I spent the four years I was an undergraduate working on the beach. And it wasn't because I was lazy; it was because my freshman class would go to a hundred different employers and wouldn't get a nibble. That was a disequilibrium system. I realized that the ordinary old-fashioned Euclidean geometry didn't apply.
And I applauded when the major members of the Chicago faculty -- maybe even a few years before Keynes's general theory -- came out with a petition to have a deficit-financed spending without taxation in order to create a new increment of spending power. And I was for that. And Franklin Roosevelt, who was not a trained economist, and who experimented and made a lot of mistakes, in his first days, by good luck or good advice got the system moving. It was in a sense an easier problem because the pathology was so terrible.
He would go to Warm Springs Georgia. And that county -- a pretty sizeable one, this is the old south -- there were maybe three to ten people with enough income to file an income tax return. So, when along came the WPA, the PWA, and a little later the Reconstruction Finance Corporation, you could be very sure that those monies spit out by government-- not from airplanes in the air, sending newly printed greenbacks, but essentially the equivalent of that -- would be spent.