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A giant has fallen: Economist Paul Samuelson dies at 94

by Magnifico Tue Dec 15th, 2009 at 06:26:58 AM EST

Paul Samuelson, the Noble Prize winning economist whose ideas helped shape the foundations of modern economics, died after a brief illness at his home in Belmont, Massachusetts. He was 94.

In 1970, Samuelson was the first American to receive the Nobel Prize for economics. He was cited by the prize committee "for the scientific work through which he has developed static and dynamic economic theory and actively contributed to raising the level of analysis in economic science".

The New York Times reports the Massachusetts Institute of Technology announced that Samuelson had died on Sunday. At MIT, Samuelson helped build the school into "into one of the world's great centers of graduate education in economics." Students and colleagues of Samuelson included fellow Nobel laureates George Akerlof, Robert Engle, Lawrence Klein, Paul Krugman, Franco Modigliani, Robert Merton, Robert Solow, and Joseph Stiglitz.

"Paul Samuelson was both a path-breaking and prolific economic theorist and one of the greatest teachers that economics has ever known," said Federal Reserve chairman Ben Bernanke, a former student of Samuelson's told the Wall Street Journal. "I join with many other former students and colleagues of Paul's in mourning the passing of a titan of economics," he said.

frontpaged - Nomad


Samuelson's textbook, Economics, first published in 1948 has remained one of the principle instructional text for instructing economic principles courses. The 19th edition of the book was published earlier this year. According to the NY Times, Samuelson wrote the book so he could earn more money to support his young family of six, after his first wife, fellow economist Marion Crawford, gave birth to triplets.

He focused his book on the "poorly understood Keynesian revolution" and wanted the text "be compelling for students" and yet "sophisticated and complete".

The textbook introduced generations of students to the revolutionary ideas of John Maynard Keynes, the British economist who in the 1930s developed the theory that modern market economies could become trapped in depression and would then need a strong boost from government spending or tax cuts, in addition to lenient monetary policy, to get back on track. No student would ever again rest comfortable with the 19th-century nostrum that private markets would cure unemployment without need of government intervention.

Samueleson saw the power of that lay with economics in the 20th century. "I don't care who writes a nation's laws -- or crafts its advanced treatises -- if I can write its economics textbooks," he said.

He said he "sweated blood" writing his book, employing detailed charts, color graphics and humor. He wrote: "Economists are said to disagree too much but in ways that are too much alike: If eight sleep in the same bed, you can be sure that, like Eskimos, when they turn over, they'll all turn over together."

His textbook, co-written by William Nordhaus in recent years, has been translated into more than 40 languages and sold more than 4 million copies according to the Associated Press. "Publisher McGraw-Hill paid an unusual tribute in 1997 by reissuing the original 1948 edition, reproducing not just the original text but the illustrations and layout."

The NY Times writes Samuelson helped bring mathematic "discipline into the mainstream of economic thinking, showing how to derive strong theoretical predictions from simple mathematical assumptions" and "his relentless application of mathematical analysis gave rise to an astonishing number of groundbreaking theorems, resolving debates that had raged among theorists for decades, if not centuries."

His work with Wolfgang Stolper created the Stolper-Samuelson theorum which is a basic part of trade theory and describes the "impact of trade on different groups of consumers and workers" and how free trade could hurt workers in one nation if productivity in a trading partner rose. Together the two economists "showed that competition from imports of clothes and similar goods from underdeveloped countries, where producers rely on unskilled workers, could drive down the wages of low-paid workers in industrialized countries." Samuelson did not advocate protectionism, however, rather he advocated "open trade" and "higher productivity".

"Samuelson also formulated a theory of public goods -- that is, goods that can be provided effectively only through collective, or government, action." Samuelson concluded public goods "cannot be sold in private markets because individuals have no incentive to pay for them voluntarily. Instead they hope to get a free ride off the decisions of others to make the public goods available."

Born in Gary, Indiana in 1915, Samuelson entered the University of Chicago at age 16 and was "born as an economist", he said, after hearing his first college lecture on economics.

The University of Chicago developed the century's leading conservative economic theorists, under the later guidance of Milton Friedman. But Mr. Samuelson regarded the teaching at Chicago as "schizophrenic." This was at the height of the Depression, and courses about the business cycle naturally talked about unemployment, he said. But in economic-theory classes, joblessness was not mentioned.

"The niceties of existence were not a matter of concern," he recalled, "yet everything around was closed down most of the time. If you lived in a middle-class community in Chicago, children and adults came daily to the door saying, `We are starving, how about a potato?' I speak from poignant memory."

Study economics at Chicago during the Great Depression, Samuelson told the Wall Street Jornal that "he became keenly aware... of the differences between what was being taught in the classroom and 'what I heard out the windows and I heard from the street.'"

As am undergraduate, Samuelson met Friedman, a graduate student, at the university in 1933. "Samuelson said the two had almost always disagreed with each other but had remained friends."

Unlike the liberal Mr. Samuelson, the conservative Mr. Friedman opposed active government participation in most areas of the economy except national defense and law enforcement. He thought private enterprise and competition could do better and that government controls posed risks to individual freedoms.

Both men were fluid speakers as well as writers, and they debated often in public forums, in testimony before congressional committees, in op-ed articles and in columns each of them wrote for Newsweek magazine. But Professor Samuelson said he always had fear in his heart when he prepared for combat with Professor Friedman, a formidably engaging debater.

"If you looked at a transcript afterward, it might seem clear that you had won the debate on points," he said. "But somehow, with members of the audience, you always seemed to come off as elite, and Milton seemed to have won the day."

Samuelson said the second half of the 20th century had reduced his hope that a purely Keynesian approach would be the economic salvation for nations. When governments become too big and controls too much of a nation's wealth, they become wasteful and blind to the needs of its citizens. However, he still believed the Keynesian approach was a must to prevent economic trouble. "Neither government alone nor the markets alone, he said, could serve the public welfare without help from the other."

Despite his celebrated accomplishments, Mr. Samuelson preached and practiced humility. The M.I.T. economics department became famous for collegiality, in no small part because no one else could play prima donna if Mr. Samuelson refused the role, and, of course, he did. Economists, he told his students, as Churchill said of political colleagues, "have much to be humble about."

Samuelson is survived by his second wife, Risha Eckaus, six children, and 15 grandchildren. A private funeral is planned along with a public memorial service at MIT.

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You see part of the problem in gutting the General Theory in order to marry Keynesian Effective Demand with neoclassical economics in one sentence here:
Samuelson said the second half of the 20th century had reduced his hope that a purely Keynesian approach would be the economic salvation for nations. When governments become too big and controls too much of a nation's wealth, they become wasteful and blind to the needs of its citizens.

This is the post-WWII military Keynesianism, which follows from a misunderstanding of the monetary system and a shell game with the problem of uncertainty in which it is downgraded to mere calculable risk.

However, over a certain threshold size that most industrial democracies passed sometime pre-WWI, how big the central government is, is largely independent of whether the central government engages in active fiscal policies - especially in a federal system when the national government engages in the most effective automatic stabilizers.

One of the most effective automatic stabilizers that a national government can have in place are a job guarantee program, in which everyone who applies for work is allocated to a job at an established minimum living wage. That can be operated on a cadre system, in which a smaller supervisory staff adds to its ranks when there is an upsurge in JG applications out of the people with supervisory skills in the applicant pool. Since the wage is an entitlement, it can maintain a very high job/$ ratio by relying on labor intensive techniques and operating on tight labor on-costs. It can be further kept down in size as a permanent bureaucracy by permitting state and local governments to submit projects for JG labor, with project rotation and queuing encouraging state and local governments to use JG labor for wish-lists rather than to perform ongoing labor.

Complementing that is a program of automatic grants-in-aid to states/provinces when their tax revenues slump in response to an economic downturn to compensate $/$ for the lost tax revenue.

One could engage in quite effective Keynesian counter-cyclical policy using this approach, combined with a relatively small central government during times of economic expansion. Whether you should, or should not, depends on policy positions regarding the long term share of government investment and collective provision of social goods desired. However, the more direct Keynesian intervention is perfectly compatible with a much smaller central government than currently prevails ... and smaller than the size of government required for stability under hydraulic Samuelsonian Keynesianism ... where the fear of the Phantom Menace that is the imagined impact of deficits on interest rates in the middle of recession leads to much heavier reliance on the Balanced Budget multiplier, which requires a large government share of GDP as a stabilizer.

Of course, post-WWII, y'all got not so much military in that larger government share and more collective provision of social goods. Perhaps for some reason the collective memory of WWII was not so fond, even among the winners. But in the politics of the US, it was the military where hydraulic Keynesians could find the avenue to maintain a larger government share of US GDP.

One of the reasons that Samuelson kept losing to Friedman in debate is he conceded too much ground to a mindless Monetarism by working within a framework of exogenous, government determined money supplies, rather than exogenous, government-determined, price of liquidity. Government has repeatedly demonstrated its capacity to fix the price of liquidity at any desired level from 0% on up, and repeatedly demonstrated its inability to regulate the quantity of money in the economy, but in teaching legions of students, via his textbooks and rival textbooks that have to have 90% identical material to be adopted, in their required principles of macro course that government determines the money supply, he laid the foundation for the policy debate about how a government operating in that fictitious world ought to go about determining the money supply.

Keynes did not arrive at a satisfactory theory of inflation, but remaining within the GT framework, the Post Keynesians did. However when Samuelsonian Macro came unstuck under the pressure of the stagflation crises of the 70's, they were swimming against a tide of received wisdom that government sets the money supply, while the Friedmaniacs were swimming with that tide.

However, one cannot lay the blame at the feet of one man for the actions of thousands of professional economists, and as Barkley Rosser, writing at EconoSpeak says:

I have been critical of Samuelson myself, and gave him quite a hard time the first time I met him in person 38 years ago. However, starting with that encounter, I must confess that while he may be the ultimate origin of much that is misguided in deeply entrenched conventional economic thought, he himself was generally personally aware of the flaws and limits of many of his own ideas, even as near the end he insisted on reasserting some of them more strongly than ever. However, I would say that the greater sins have been by simplifying followers of his, the "sons of Samuelson," who have been more responsible for codifying and spreading and enforcing the more simplistic versions of what he posited. The man himself was more complicated and self-aware than many gave him credit for , and he is indeed the last of the giant economic thinkers whose professionally active roots go back clearly into the Great Depression.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Mon Dec 14th, 2009 at 11:33:06 AM EST
It is bad enough that the field of psychology has for so long been a non-social science, viewing the motive forces of personality as deriving from internal psychic experiences rather than from man's interaction with his social setting.

mmmmmmmmmmm, no. The premises of psychology, entombed in The Literature, are "man's interaction with his social setting." Behavior is the expression of internalized experiences with a "social setting," the relation of one's self to the other. More accurate are retrospective observations of research bias that acknowledge the antipathy of latter day psychologists toward ideologic pathologies arising from abject institutional "engineering", so to isolate autogenetic mental defect in the individual.

Similarly in the field of economics: since its "utilitarian" revolution about a century ago, this discipline has also abandoned its analysis of the objective world and its political, economic productive relations in favor of more introverted, utilitarian and welfare-oriented norms. Moral speculations concerning mathematical psychics have come to displace the once-social science of political economy. Read more ...


Diversity is the key to economic and political evolution.
by Cat on Mon Dec 14th, 2009 at 12:55:55 PM EST
That article was written in 1970. So, what it says was already known 40 years ago but it didn't matter, Neoclassical Economics reigned since then... Sometimes I despair.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
by Migeru (migeru at eurotrib dot com) on Mon Dec 14th, 2009 at 01:04:29 PM EST
[ Parent ]
Mig
That article was written in 1970.

Which article was "that"?

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Dec 14th, 2009 at 02:52:14 PM EST
[ Parent ]
Michael Hudson on Paul Samuelson.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
by Migeru (migeru at eurotrib dot com) on Mon Dec 14th, 2009 at 04:23:28 PM EST
[ Parent ]
Thanks, I hadn't read the intro paragraph in italics, as I saw the first paragraph was what had been quoted. You are right. And Hudson was right then and is now. My bad.

I am also glad I successfully resisted characterizing Samuelson by inserting what would have been the third word of the title, although my fingers are gnawed as a result. It would have been uncivil and disrespectful.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Dec 14th, 2009 at 05:55:07 PM EST
[ Parent ]
If you cannot find it --will-- in yourself to refuse, turn away from that which you cannot do. Look here.

100,000 people marched in Copenhagen from the Danish Parliament to just outside the Bella Center, the site of the UN climate change conference.

The world-renowned Indian environmental leader and thinker Vandana Shiva spoke before thousands at Saturday's protest in Copenhagen.

Pull up your delegates KATE HORNER: So, ministers are--right now we have delegations here. These are negotiators. These are often technocrats who are coming here to lobby on behalf of their countries. Ministers, who are going to come on the weekend, are going to have to engage on some of the political questions...

We know of a couple of examples already. In Barcelona, the Algerian delegate led the African Group in a very strong demand to focus the negotiations on emissions reductions, what's at the heart of this, and he was lambasted. And we don't know exactly what happened; this is all speculation on my part. But he was called home halfway through the meeting, because one of his family members was sick. What we hear is that he was under pressure, that there were European capitals calling home and asking them to rein in their delegates.

We also know that another strong negotiator, who speaks--who formerly spoke on behalf of the Philippines, was kicked off the delegation. She is one of the lead voices of developing countries in trying to secure a just and equitable outcome. And we see that she's come under pressure and has been kicked off. It's kind of amazing, but these are the tactics that we see.

One of the things that I think has been incredible--I know that you reported earlier on African civil society demanding more aggressive targets earlier this week. One of the things that they said is that they intend to stand boldly behind those countries that are supporting the strong demands of Africa, and they will not accept any of these kind of pressure tactics. So they're really acting very strongly to support their delegates, which is a great thing.

Tuvalu Interrupts Copenhagen Summit: "So we are saying, as the Tck Tck Tck campaign and Greenpeace, that it's not over until it's over. And, in fact, you know the phrase when you say, "It ain't over until the fat lady sings"? We are saying it ain't over 'til the thin man from the United States sings--President Obama--because he has the power to make the difference here. And so, basically the real issue here is about the legally binding, because basically all these small developing countries and citizens across the world know from UN summits that if you don't get a binding treaty, no implementation takes place. And this is one summit we have to have a real road map that has specific benchmarks and targets and that is binding, because time is running out very, very fast for the planet.So we are saying, as the Tck Tck Tck campaign and Greenpeace, that it's not over until it's over. And, in fact, you know the phrase when you say, "It ain't over until the fat lady sings"? We are saying it ain't over 'til the thin man from the United States sings--President Obama--because he has the power to make the difference here. And so, basically the real issue here is about the legally binding, because basically all these small developing countries and citizens across the world know from UN summits that if you don't get a binding treaty, no implementation takes place. And this is one summit we have to have a real road map that has specific benchmarks and targets and that is binding, because time is running out very, very fast for the planet."
Developing nations end Copenhagen "boycott". "The summit was suspended briefly after G77-China bloc, made up of 130 nations, staged a walkout over what it called a violation of the democratic process by the Danish hosts, but the summit resumed Monday afternoon after delegates from the bloc returned, the BBC reported.

::

Some people will not roll. Fuck your dispair. Solidarność!

Diversity is the key to economic and political evolution.

by Cat on Mon Dec 14th, 2009 at 03:02:00 PM EST
[ Parent ]
Michael Hudson: The Problem with Paul Samuelson
The Swedish Royal Academy has therefore involved itself in a number of inconsistencies in choosing Mr. Samuelson to receive the 1970 Economics Prize. For one thing, last year's prize was awarded to two mathematical economists (Jan Tinbergen of Holland and Ragnar Frisch of Norway) for their translation of other men's economic theories into mathematical language, and in their statistical testing of existing economic theory. This year's prize, by contrast, was awarded to a man whose theoretical contribution is essentially untestable by the very nature of its "pure" assumptions, which are far too static ever to have the world stop its dynamic evolution so that they may be "tested." (This prompted one of my colleagues to suggest that the next Economics Prize be awarded to anyone capable of empirically testing any of Mr. Samuelson's theorems.)

And precisely because economic "science" seems to be more akin to "political science" than to natural science, the Economics Prize seems closer to the Peace Prize than to the prize in chemistry. Deliberately or not, it represents the Royal Swedish Academy's endorsement or recognition of the political influence of some economist in helping to defend some (presumptively) laudable government policy. Could the prize therefore be given just as readily to a U.S. president, central banker or some other non-academician as to a "pure" theorist (if such exists)? Could it just as well be granted to David Rockefeller for taking the lead in lowering the prime rate, or President Nixon for his acknowledged role in guiding the world's largest economy, or to Arthur Burns as chairman of the Federal Reserve Board? If the issue is ultimately one of government policy, the answer would seem to be affirmative.

Or is popularity perhaps to become the major criterion for winning the prize? This year's award must have been granted at least partially in recognition of Mr. Samuelson's Economics textbook, which has sold over two million copies since 1947 and thereby influenced the minds of a whole generation of -- let us say it, for it is certainly not all Mr. Samuelson's fault -- old fogeys. The book's orientation itself has impelled students away from further study of the subject rather than attracting them to it. And yet if popularity and success in the marketplace of economic fads (among those who have chosen to remain in the discipline rather than seeking richer intellectual pastures elsewhere) is to become a consideration, then the prize committee has done an injustice to Jacqueline Susann in not awarding her this year's literary prize.



En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
by Migeru (migeru at eurotrib dot com) on Mon Dec 14th, 2009 at 01:06:43 PM EST
[ Parent ]
Richard Murphy is a UK tax accountant who advises the TUC. From his Tax Research UK blog:


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.

by yacker on Tue Dec 15th, 2009 at 06:42:35 PM EST
[ Parent ]
The incomparable economist - Paul Krugman Blog - NYTimes.com

There have been hedgehogs; there have been foxes; and then there was Paul Samuelson.

I'm referring, of course, to Isaiah Berlin's famous distinction among thinkers - foxes who know many things, and hedgehogs who know one big thing. What distinguished Paul Samuelson as an economic thinker, making him like nobody else, past or present, was the fact that he knew - and taught us - many big things. No economist has ever had so many seminal ideas.

With a little help from Google Scholar, I've compiled a list of some of Samuelson's big ideas. I say "some" because I'm sure it's not complete. But anyway, here are eight - eight! - seminal insights, each of which gave rise to a vast and continuing research literature:



Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Tue Dec 15th, 2009 at 02:13:59 PM EST


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