Conor Clarke interviews Paul Samuelson:
An Interview With Paul Samuelson, Part One, by Conor Clarke: ...Paul 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...
I've decided to break the transcript into two parts. I'll publish part two tomorrow morning. The first part ... is mostly economic history -- the rise and fall (and rise) of Keynes, the influence of Milton Friedman, and the era of Alan Greenspan. Part two covers current events -- the need for a more stimulus spending and how his nephew (one Larry Summers) is doing running the economy. ...
Milton Friedman. Friedman had a solid MV = PQ doctrine from which he deviated very little all his life. By the way, he's about as smart a guy as you'll meet. He's as persuasive as you hope not to meet. And to be candid, I should tell you that I stayed on good terms with Milton for more than 60 years. But I didn't do it by telling him exactly everything I thought about him. He was a libertarian to the point of nuttiness. People thought he was joking, but he was against licensing surgeons and so forth.
And when I went quarterly to the Federal Reserve meetings, and he was there... He wanted a machine. He wanted a machine that spit out M0 basic currency at a rate exactly equal to the real rate of growth of the system. And he thought that would stabilize things.
Well, it was about the worst form of prediction that various people who ran scores on this -- and I remember a very lengthy Boston Federal Reserve study -- thought possible. Walter Reston, at that time one of the most respected bankers in the country and in the world fired his whole monetarist, Friedmaniac staff overnight, because they were so off the target.
But Milton Friedman had a big influence on the profession -- much greater than, say, the influence of Friedrich Hayek or Von Mises. ... I don't know whether you read the newspapers, but there's almost an apology from Ben Bernanke that we didn't listen more to Milton Friedman.
But anyway. The craze that really succeeded the Keynesian policy craze was not the monetarist, Friedman view, but the [Robert] Lucas and [Thomas] Sargent new-classical view. And this particular group just said, in effect, that the system will self regulate because the market is all a big rational system.
Those guys were useless at Federal Reserve meetings. Each time stuff broke out, I would take an informal poll of them. If they had wisdom, they were silent. My profession was not well prepared to act.
And this brings us to Alan Greenspan, whom I've known for over 50 years and who I regarded as one of the best young business economists. ... But the trouble is that he had been an Ayn Rander. You can take the boy out of the cult but you can't take the cult out of the boy. He actually had instruction, probably pinned on the wall: 'Nothing from this office should go forth which discredits the capitalist system. Greed is good.'
However, unlike someone like Milton, Greenspan was quite streetwise. But he was overconfident that he could handle anything that arose. I can remember when some of us -- and I remember there were a lot of us in the late 90s -- said you should do something about the stock bubble. And he kind of said, 'look, reasonable men are putting their money into these things -- who are we to second guess them?' Well, reasonable men are not reasonable when you're in the bubbles which have characterized capitalism since the beginning of time.
But now Greenspan admits he was wrong.
Because we had, instead of three standard deviations storm, a six standard deviation storm. ... I think looking for scapegoats and blame can be left to the economic historian. But, at the bottom, with eight years of no regulation from the second Bush administration, from the day that the new SEC chairman -- Harvey Pitt -- said 'I'm going to run a kinder and gentler SEC,' every financial officer knew they weren't going to be penalized.
Self regulation never worked as far as macroeconomic events -- whether we're talking about post-Napoleonic War business cycles or the big south sea bubble back in Isaac Newton's time, up to today's time. ...