Re: [gang8] Re: The US Dollar, Inflation and the Outlook for 2004

[Gunnar Tómasson <gunnar.tomasson@xxxxxxxxxxx>]

Samuelson has 20/20 retrospective vision!

Foresight is another matter - here is his Reagan-Bush Jr. fiscal policy
prescription.

First, Samuelson cited "the historian Lord Macaulay" as follows:

"At every stage in the growth of [public] debt the nation has set up the
same cry of anguish and despair.  At every stage in the growth of that debt
it has been seriously asserted by wise men that  bankruptcy and ruin were at
hand.  Yet still the debt went on growing; and still bankruptcy and ruin
were as remote as ever...

"The prophets of evil were under a double delusion.  They erroneously
imagined that there was an exact analogy between the case of an individual
who is in debt to another individual and the case of a society which is in
debt to a part of itself.... They make no allowance for the effect produced
by the incessant progress of every experimental science, and by the
incessant efforts of every man to get on in life.  They saw that the debt
grew, and they forgot that other things grew as well..."

Then, Samuelson surveyed recent U.S. experience in this respect:

"Figure 19-3 dramatically exemplifies that the growth of our economy and
price inflation since 1945 have drastically _reduced_ the ratio of United
States public debt to gross national product.  (This chart, properly,
excludes FRB and Treasury holdings; but the point would be the same if these
exclusions had not been made.)  This fact of growth explains why, in the
United States, where money GNP doubles in about a decade, the public debt
might increase by another two-thirds of a trillion dollars in that time
without its relative percentage burden growing at all.

"This would give the wildest believer in government spending an average
deficit of tens and tens of billions of dollars per year before he would
have to turn to such even more unorthodox financial expedients as printing
money or selling interest-free bonds to the Federal Reserve Banks."

Finally, Samuelson presented his conclusions:

"Could a nation fanatically addicted to deficit spending pursue such a
policy for the rest of our lives and beyond?  Study of the mechanics of
banking and income determination suggests that the barrier to this would not
be financial.  The barrier would have to be political and self-imposed; and
the effects of such a policy would depend crucially upon whether it impinges
on an economy that is already inflationary or deflationary."

Two final points.

First.  Dick Cheney was wrong when he told O'Neill not to worry about Bush
Jr's fiscal policy because "Reagan proved that deficits don't matter" - that
honor belongs to Samuelson!

Second.  I wonder how Samuelson got the stagflation problem right WITHOUT
going back to basics and rethinking (thinking?) through orthodox Monetary
Economics as reflected, inter alia, in The Washington Consensus?

Kind regards,

Gunnar


----- Original Message -----
From: "Sam Vaknin" <vaknin@xxxxxxxxxxx>
To: "Gunnar Tómasson" <gunnar.tomasson@xxxxxxxxxxx>; <gang8@xxxxxxxxxxxxxxx>
Cc: <vow@xxxxxxxxxx>; <gang8@xxxxxxxxxxxxxxx>; <pkt@xxxxxxxxxxxxxxxx>;
<jozefimrich@xxxxxxxxxxxxxx>; "William Engdahl" <engdahl@xxxxxxxxxxx>
Sent: Thursday, January 15, 2004 10:40 AM
Subject: Re: [gang8] Re: The US Dollar, Inflation and the Outlook for 2004


> This is why it is always recommended to own the latest edition (laughing).
>
> 1976 is almost 30 years ago! A millennium in terms of economic theory.
> Stagflation was a new phenomenon in 1976.
>
> (See my earlier response to James with reference to the pages in the
> Seventeenth edition of Samuelson's which deal with stagflation).
>
> Take care.
>
> Sam
>
>
> ----- Original Message -----
> From: Gunnar Tómasson
> To: gang8@xxxxxxxxxxxxxxx ; Sam Vaknin
> Cc: vow@xxxxxxxxxx ; gang8@xxxxxxxxxxxxxxx ; pkt@xxxxxxxxxxxxxxxx ;
> jozefimrich@xxxxxxxxxxxxxx ; William Engdahl
> Sent: Thursday, January 15, 2004 4:07 PM
> Subject: Re: [gang8] Re: The US Dollar, Inflation and the Outlook for 2004
>
>
> Re. the following:
>
> The other qualification concerns your suggestion that my analysis of the
> cause of the inflation after 1969 is "the classic explanation for the
> stagflation of the 1970s [and] appears in all textbooks (Samuelson's for
> instance)." Samuelson would be surprised to note that...
>
> James,
>
> You are right on this one - in my 1976 copy of Samuelson' Economics, he
> wrote that the "stagflation" problem remained to be explained.
>
> If some young economic scholar could figure it out, he added, he or she
> would be on track for a Nobel Prize in Economic Science.
>
> Gunnar
>
>
> ----- Original Message -----
> From: James Cumes
> To: Sam Vaknin
> Cc: vow@xxxxxxxxxx ; gang8@xxxxxxxxxxxxxxx ; pkt@xxxxxxxxxxxxxxxx ;
> jozefimrich@xxxxxxxxxxxxxx ; William Engdahl
> Sent: Thursday, January 15, 2004 4:14 AM
> Subject: [gang8] Re: The US Dollar, Inflation and the Outlook for 2004
>
>
> Sam,
>
> Your responses are always acute and refreshing.
> (I like them too because you so often agree with me - and indulge my
> egocentricity!!)
> However, just a couple of qualifications.
> I am not anti-American.
> I am strongly anti the Bush Administration. I think this administration
has
> done the United States a great deal of harm and has split many people
> overseas asunder from a country, a civilisation, a "culture" if you like
to
> which they have been deeply attached for decades and even generations.
> I fought alongside the Americans after Pearl Harbour. Their performance
then
> and for many years afterwards deserved and continues to merit recognition.
I
> like to think that the Bush episode is a bleak and, in some ways, even
> terrifying regression from which they will soon recover
> The other qualification concerns your suggestion that my analysis of the
> cause of the inflation after 1969 is "the classic explanation for the
> stagflation of the 1970s [and] appears in all textbooks (Samuelson's for
> instance)." Samuelson would be surprised to note that and so would
Greenspan
> who too embraces quite a different theory and, in particular, the idea
that
> a hike in interest rates is the way to deal with actual or potential
> inflation. The mainstreamers around the world, including the central
> bankers, have been for decades and still are afflicted with this notion.
> A man called Gibson - the "Gibson paradox" - thought otherwise way back in
> the 1920s and Keynes had a brief flash of understanding in the thirties
but,
> for the rest, it was left to me to tell the world, in 1970-71, that you'd
> get stagflation if you hiked interest rates. (The sad thing was that not
> much of the world listened.) There are now a few, in Gang 8 and ICE, who
> think as I do but we're a pretty select - though we try not to be
> exclusive - bunch.
> Thanks again, Sam, for your comments which are always appreciated.
>
>
>
>
> James Cumes
> http://www.authorsden.com/visit/author.asp?AuthorID=3473
> http://members.chello.at/jamescumes/default.htm
> http://www.kokodatrail.com.au/forums/?showtopic=54
> http://members.chello.at/jamescumes/VOW/default.htm
>
> ----- Original Message -----
> From: "Sam Vaknin" <vaknin@xxxxxxxxxxx>
> To: "James Cumes" <cresscourt@xxxxxxxxx>
> Cc: <vow@xxxxxxxxxx>; <gang8@xxxxxxxxxxxxxxx>; <pkt@xxxxxxxxxxxxxxxx>;
> <jozefimrich@xxxxxxxxxxxxxx>; "William Engdahl" <engdahl@xxxxxxxxxxx>
> Sent: Wednesday, January 14, 2004 2:06 PM
> Subject: Re: The US Dollar, Inflation and the Outlook for 2004
>
>
> > Dear James,
> >
> > Thank you for your kind words.
> >
> > You wrote:
> >
> > "My analysis differs from yours - and from that of everyone else of whom
I
> > am
> > aware - in that I relate the deficit, directly, to the inflationary
> > pressures that arose in the late sixties and early seventies and to the
> > unwise policies that, then and after, were used in the attempt to curb
> > inflation.
> > Those unwise policies simply intensified inflation - giving us
initially,
> > you will recall, stagflation."
> >
> > Sam:
> >
> > Actually, the connection between the twin deficits, inflation, and
> retarded
> > economic growth as the classic explanation for the stagflation of the
> 1970s,
> > appears in all textbooks (Samuelson's for instance).
> >
> > What I find new and intriguing in your article is the novel linkage you
> > propose between capital investment and inflation:
> >
> > "Some countries avoided stagflation through policies of intense, real,
> > fixed-capital investment. The outstanding economies in this respect
were,
> in
> > the 1970s, (West) Germany and Japan."
> >
> > That - to the best of my knowledge - is a new and enlightening twist on
> > economic orthodoxy!
> >
> > James:
> >
> > "they thought that the "recovery" after 2001 was a real recovery.
> > It wasn't and isn't, of course, and the pressures built up constantly
> during
> > those boom and bust years, plus the "recovery" years, to leave us in the
> > position we have today in which the Mother of all Boilers could now
burst,
> > unless we're lucky, with an explosive intensity and a global reach that
> > we've never imagined before."
> >
> > Sam:
> >
> > Couldn't agree more.
> >
> > James:
> >
> > So we must not make the mistake of ascribing the American "free lunch"
to
> > characteristic American villainy or, for example, to imperialist
designs.
> >
> > Sam:
> >
> > This paradise of fools inhabited by both the USA and exporting countries
> > reminds me of another "coevolution" ---
> >
> > Reminds me of the collusion between greedy American investors and
> avaricious
> > rapacious American managers.
> >
> > When the bubble burst the former feigned innocence and blamed it on the
> > villainy and imperialist designs of the latter ...
> >
> > I happen to be a rabid anti-American and am following its inevitable
> decline
> > with ever-rising hopes and delight - but I think your brilliant analysis
> > hits quite a few nails on their proverbial heads.
> >
> > Take care.
> >
> > Sam
> >
> >
>
>
>
>
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