FT.com / Comment / Obituaries - Nobel laureate who turned economics into a science dies.
Paul Samuelson has died. A Nobel laureate economist he has a lot to answer for, and his legacy (eulogised in the FT by the BBC's Stephanie Flanders) is pretty dire.
He, more than most mathematised economics. Which means he had to assume people were rational. In the process he broke the link between economics and reality.
Then he assumed the existence of stable equilibria in an economy - which is contrary to all known evidence. So once more he remeoved economics from the realms of usefulness.
And he wrote a textbook that has created more bad economists dedicated to harming the society in which they live than almost any other.
So what he got a Nobel prize? His legacy is dire.
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did he mathematise it (what a strange word!) or did he merely respond to it becoming more mathematised? I am sure history will demonstrate the latter, but even if it is the former, your statement “assume people were rational” does not follow. Mathematics is very good at helping to explain irrationality.
BTW it is normal practise to leave a decent interval after death before going for the juglar.
BTW – why?
Did he apologise for what he’d done?
Richard.
It is called respect . . .
@Billy
Let’s get real…
I make a valid point that in my opinion Samuelson caused considerable harm
It’s an honest appraisal
And you’d like it suppressed out of respect?
Pol Pot was a nice guy who had a strong affection for his fellow countrymen: is that your idea of an obiituary
This is 2009 and we’re discussing a figure not short of his own sense of self importance who was in the public domain
I made fair comment
You dislike fair comment
See http://www.taxresearch.org.uk/Blog/2009/12/14/why-be-awkward/
I’ll carry on
Please do carry on, Richard. These things need to be said. It would be good if there were an afterlife so that Samuelson could hear them.
@Carol Wilcox
Perhaps you might have spoken to him direct before he died?
Richard,
Here’s a good and fair appraisal of Samuelson’s views:
http://falkenblog.blogspot.com/2009/12/samuelson-rip.html
“He built up what was to become orthodox Keynesianism: that Government spending was basically the same as Investment (in that old C+I+G), in that both added to the capital stock. Via the Multiplier, Government spending magically created 3 times its spending in output. This implied that expenditures were almost always a free lunch. He focused on the Paradox of Thrift, the idea that economies tend to save too much, retarding growth, and necessitating government deficit spending when below full employment (which is always the case in real time). He believed private enterprise is afflicted with periodic acute and chronic cycles in unemployment, output and prices, which government had a responsibility to alleviate. “The private economy is not unlike a machine without an effective steering wheel or governor,” Samuelson wrote. “Compensatory fiscal policy tries to introduce such a governor or thermostatic control device” (Principles, 1948)
Samuelson generally thought taxes were innocuous at worst, but often morally just, and productive. Several editions displayed a chart showing that poor, underdeveloped countries had a tendency to tax less, relative to national product, suggesting causation (Principles, 1958). He thought the Laffer-curve was incorrect, and that greater progressivity to taxes would not only stimulate the economy directly (because the rich consumer less than the poor at the margin), but taxes might actually make some people “work harder in order to make their million.”
He emphasized market failure as endemic to capitalist systems, including imperfect competition, externalities, inequities, monopoly power and public goods. Samuelson pointed out that the government could take of “an almost infinite variety of roles in response to the flaws in the market mechanism” Explanations of market failure deserve a counterbalancing discussion of government failures, which are not difficult to document, but this was not considered very important to Samuelson, relatively.”
In these pages over the last couple of years you’ve shwon that you agree with all of that. That you are in fact a follower of Samuelson’s economics ideas.
So why this silliness with the blog post?
Tim
So he was saltwater not freshwater. http://en.wikipedia.org/wiki/Saltwater_and_freshwater_economics
He was still wrong.
And neo-Keynesianism was not what Keynes taught: see http://www.amazon.com/Keyness-General-Interest-Keynesian-Economics/dp/1403996288
So, yes – he’s better than Chicago
But I still don’t agree with him
Richard
Err, no, he wasn’t “saltwater”. He was so close to your expressed views that he might be described as “Murphian”.
Tim
I doubt he’d agree so
Only from your perspective – from which all perspective is lost – could you think that so
We’ll have to agree to differ
As ever
Richard
I know this might seem like heresy, but could the truth not be that he was right some of the time and wrong some of the time? Isn’t there a valid point of view that the state can be understood as a body politic, and that at different times it needs different medicine?
For example, Britain needed a Conservative government in 1979 and it needed a Labour government in 1997. Anbody who believes having a single party in power in a democracy for a long period of time is clearly an idealist rather than a pragmatist. With the Tories, you end up with underinvestment in public services, with Labour you end up with huge waste and inefficiency but some money finds its way to the right places.
Britain clearly needs a change next year, but nothing looks that inspiring. But surely the truth is that you need a flexible approach that changes according to circumstances. The idea of any political or economic thinker being “right” or “wrong” seems rather arbitary unless you ask the question “in respect of what”.
@mad foetus
Of course no one is all bad!
My point is a simple one though: he got the broad assumptions and methodologies of economics wrong
Pretty much everything else flows from that….
So he may have been freshwater turned saltwater but he still prescribed the sort of solution and model making that failed to predict the crisis we’re in now
Which proves me point, I’d say
So it was a pretty big mistake
Mad, surely the change we need is a completely new order where the wealth which is created by labour is not mainly transferred to those who create nothing.
Carol,
No, what we need is something much more radical than that. What we need is a change from people largely being passive consumers (and passive producers) to actually being participants in a local community who understand the inter-connectedness of things.
Wealth is a red herring – the key issues are cultural rather than economic: quality of life, preservation of the environment, people being connected to their locality (without the flipside of being afraid of outsiders) and communities looking after each other.
Or to put it another way, if wealth was more evenly distributed and the outcome was socially the same (people watching Sky TV and eating out of season vegetables imported from south america) I wouldn’t say that was a great improvement. Maybe you need some greater wealth equality to get the cultura changes, but the cultural changes are the ones that matter more.
“So he may have been freshwater turned saltwater but he still prescribed the sort of solution and model making that failed to predict the crisis we’re in now”
what makes you think his model is not so capable? I think it is capable of predicting both the cyclical and also the outcomes of the structural. I would agree it is not capable of predicting the way in which the regulatory systems failed – but then whilst you can predict that there will be fraud it is most common not to identify the actuals until it is too late.
@Mad Foetus: Wealth is a red herring – the key issues are cultural rather than economic: quality of life.
Tell that to those who exist on less than $1 a day.
We’re talking economics here and it’s real life.
Through careful analysis and concern for the human outcomes, some economists have sought answers to real economic issues. Samuelson wasn’t one.
@alastair harris
Ah, so it works so long as we assume regulation is not needed
So very useful then, eh Alex/
Perfect real world application, don’t you think?
@Richard Murphy
no, not at all. Nothing wrong with the economic models. The banking liquidity crisis was a discontinuity. The regulatory systems were supposed to pick this sort of thing up, but didn’t.
What does this saltwater/freshwater distinctin mean? Sorry for being dim!
@James from Durham
http://en.wikipedia.org/wiki/Saltwater_and_freshwater_economics
Hope that will do
Richard
@alastair harris
Ah, so the models worked but reality didn’t
Of course…
Now which are we more concerned with?
I’m worried about reality
You seem to be worried about models
Which of us might achieve more?
Richard,
I find it impossible to express how appalled I am by your combination of ignorance and pomposity. As Tim points out, it’s remarkable you have chosen to pillory and economist who is probably closer to your sympathies than any other your could name – you do so, because you didn’t take the trouble to know what you were talking about before putting fingers to keyboard.
Maths, of course, is inescapable when trying to understand real economies. You can do a lot more with maths than just write down rational expectations macro models. Samuelson, who Paul Krugman calls a great economic theorist…. also an acute observer of the real world understood the dangers of excessive focus on maths, but said: “Like herpes, math is here to stay,” he said. “It takes strong math to defeat misleading math.” You would do well to read the whole thing but I know you have no interest in correcting your own misapprehensions
I think Paul Samuelson was one of the best in a bad bunch. The bad bunch being neoclassical economists. His approach was deeply flawed but at least he went some way to acknowledging the flaws. Unlike most of the neoclassical economists who came after him, who have become more and more detached from reality.
@Howard
Unlike Luis you make a fair comment
And one with which I agree
But he was still a neo-classicist – and that branch of economics needs to be consigned to history
And as you have said elsewhere – I must have been feeling generous to let some of this stuff on
Richard
Richard,
Please enlighten us as to who your favourite economists are?
Other than, presumably, your good self.
@Richard Murphy
so worry about reality then. Worry about the failed regulation – Gordon’s tripartite system. Worry about what the models are predicting for 2011, when the quantitative easing starts to backfire, inflation takes hold, and the real hard choices will have to be made.
Samuelson’s Economics: An Introductory Analysis became the best selling economics textbook, thus his neo-classical interpretation became ingrained in the system. Unfortunately his successor Mankiew is not much better. The world needs something better.