How good was Paul Samuelson’s macroeconomics?

Reading the new Nicholas Wapshott book and also Krugman’s review (NYT) of it, it all seemed a little too rosy to me. So I went back and took a look at Paul Samuelson the macroeconomist. I regret that I cannot report any good news, in fact Samuelson was downright poor — you might say awful — as a macroeconomist.

For instance, during the early 1970s there was a debate about President Nixon’s 1971 wage and price controls. There is some disagreement about the actual stance of Samuelson, as Wapshott (p.152) claims Samuelson opposed Nixon’s wage and price controls, but that doesn’t seem to be true. The Los Angeles Times for instance reported Samuelson opining as follows: “With the wage and price controls, he [Nixon] assured a more rapid short-term economic recovery, and made it absolutely certain he would be the overwhelming victor in the 1972 election.” Maybe that is not quite a full endorsement, but consider Samuelson’s remarks on the August 17, 1971 ABC Evening News: “I don’t think that a ninety-day freeze is going to solve the problem of inflation. But it’s a first move toward some kind of an incomes policy. Benign neglect did not work. It’s time the president used his leadership…We’re better off this Monday morning than we were last Friday. Friday was an untenable situation.”[1]

Really?

For Samuelson and many other Keynesians of his era, it was mostly about wage-push inflation. Do you know what my take would have been?: “The wage and price controls are neither good microeconomic nor good macroeconomic policy.” Samuelson did not come anywhere near to uttering such words. In October 1971, Samuelson argued that Nixon’s NEP [New Economic Policy], which included both severing the tie of the dollar to gold and wage and price controls, was “necessary,” and that the wage and price controls were working better than might have been expected.[2]

In October 1971, Samuelson also argued that the Fed should continue to let the money supply grow, to stave off the risk of a liquidity crisis occasioned by America’s lingering involvement in the Vietnam War (what??…if this is fear of a Bretton Woods collapse, print fewer dollars, besides Samuelson wanted to end Bretton Woods). He said he favored presidential “guideposts” to lower the rate of price inflation from four to three percent, but didn’t favor explicit wage and price controls because it wasn’t enough of an “emergency” situation. That is the extent of his opposition to wage and price controls – lukewarm at best, not objecting in principle, contradicting his earlier stances, and showing a poor understanding of monetary economics more broadly. You don’t have to be a hardcore monetarist to realize that continued money supply growth, in an expansionary period, combined with presidential “guideposts” to lower rates of price inflation, was simply an incorrect view.

In a 1974 piece, Samuelson continued to insist, as he had argued in the past, that the inflation of that era was cost-push inflation, and not driven by the money supply. He also asserted (without evidence) that full employment and price stability were incompatible. In one 1971 piece he made the remarkable and totally false assertion that: “…with our population and productivity growing, it takes more than a 4 per cent rate of real growth just to hold unemployment constant at a high level.”[3]

Really?

In other words, his basic model was just flat out wrong. More generally, the Samuelson Newsweek columns of that era make repeated, dogmatic, and arbitrary stabs at forecasting macroeconomic variables without much humility or soundness in the underlying model.

Milton Friedman did have an overly simplified view of the money supply, as many of his critics have alleged and as Scott Sumner would confirm. But as a macroeconomist he was far, far ahead of Paul Samuelson.

Don’t forget how bad macro was before Friedman came along.

[1] For The Los Angeles Times, see Hiltzi (1994), and also see “Questions and Answers: Paul A. Samuelson,” Newsweek, October 4, 1971. For the ABC News remarks, see Nelson (2020, volume 2, p.267).

[2] See “Questions and Answers: Paul A. Samuelson,” Newsweek, October 4, 1971.

[3] See Paul Samuelson, “Coping with Stagflation” Newsweek, August 19, 1974, and for the 1971 remarks see “How the Slump Looks to Three Experts” Newsweek, Oct.18, 1971. On the four percent claim, see Paul A. Samuelson, “Nixon Economics,” Newsweek, August 2, 1971.