- js reader version
- view hidden posts
- tags and related articles
by Paul Samuelson
Wednesday, Oct. 12, 2005 at 10:22 AM
A post-Katrina economics must emphasize parallel worlds, solidarity and human dignity to safeguard long-term necessities and creativity. If all countries only become more competitive, mass unemployment will result. What is public must remain public.
“THE MARKET HAS NO HEART”
Interview with Paul A. Samuelson
America’s most famous economist, Paul A. Samuelson, on protectionist tendencies in the world economy, the losers of globalization, the risky debt policy of the US and the question how his teacher Joseph Schumpeter would judge capitalism today
[Paul A. Samuelson has influenced economics in the 20th century like no one else. Millions of students worldwide learned the connections of the economy from his 1948 textbook “Economics. An Introductory Analysis.” In the meantime 18 editions have been published. Samuelson, born in 1915 as the son of a druggist in Gary, Indiana, studied at the University of Chicago and later at Harvard before be became an assistant professor at the Massachusetts Institute of Technology (MIT) in Cambridge near Boston in 1940. At the beginning of the 1960s, he advised President John F. Kennedy on economic questions. Since 1986, the Nobel Prize winner has been a retired emeritus professor. Samuelson, 90, still works four days a week today at his office in the Sloan School of Management, writes many essays and has ten more in his head, his assistant says.]
[This interview is translated from the German in: DER SPIEGEL 38/2005.]
SPIEGEL: Professor Samuelson, relations between America and China have become strained. The French and Dutch rejected the draft of the European Union constitution because they feared competitors from Eastern Europe. Job shifts make people anxious. Is the idea of free trade in retreat?
Samuelson: The specter of protectionism has hovered over every modern society. America, coming from a colonial past, is known for its protectionist position. The republicans, the party of president George W. Bush, were always the party of protectionism. Perhaps our Darwinian roots are responsible for this. In the jungle one only survives by being cautious toward enemies.
SPIEGEL: In the lecture hall, students of economics are taught something else.
Samuelson: Yes. One of the most important principles that we teach is that free trade necessarily improves everyone’s living conditions and that specialization and diversification benefit everyone, poor countries and rich countries. The great British economist David Ricardo came up with the first proof for this.
SPIEGEL: That doesn’t hold true any more today.
Samuelson: Were you ever in a Wal-Mart?
SPIEGEL: Yes, why?
Samuelson: What is special about Wal-Mart is that the business can buy goods very cheaply, above all from China. When you visit a Wal-Mart supermarket, you will usually meet poor Americans buying cheap products. They can improve their living standards enormously this way. But at the same time they must fear losing their job or having to change to a lower-paying job.
SPIEGEL: Thus the coin has two sides. Do people lose more at the end than they gain?
Samuelson: Sometimes they lose more. Globalization does not make everyone winners. Everything that promotes globalization does not automatically benefit everyone. That is the reality of Ricardo’s comparative cost advantage today.
SPIEGEL: You sound almost like a globalization opponent.
Samuelson: To prevent misunderstandings, life in a globalized world on the whole means that material prosperity expands. The knowledge of the world has developed and spread through the technological change since Isaac Newton. There is no question about this. As an American patriot, I welcomed Europe’s ascent after the war. In war times, the economy is only a zero-sum game. Bismarck’s ascent involved the descent of Napoleon III when you recall the 1870/71 German-French war. On the other hand, postwar times were different: Germany and France rose.
SPIEGEL: Does that mean that most profit from the world economy in peace times?
Samuelson: Your generation lives better than your parents’ generation and your parents live better than their parents. We could not have had this strong economic growth around the world without the dynamic power of globalization. However everyone has not profited equally from globalization.
SPIEGEL: Is this a new phenomenon?
Samuelson: Perhaps 35 years ago I gave an address to the Ford board of directors and asked them: “Can you imagine that a Ford could be manufactured at a lower price somewhere else in the world?” I thought at that time of Toyota. The hearers did not understand my allusion. If Toyota can build cheaper and more efficiently than the manufacturers in Detroit, that was a win-lose situation according to my mathematics, not a win-win situation. We were the losers.
SPIEGEL: Is that still true today?
Samuelson: I believe American economists are playing down the significance of globalization. They do not seem aware that the process has not yet ended. That there are some win-lose situations in most countries alongside win-win situations is a typical pattern in economic history.
SPIEGEL: What do you conclude from this?
Samuelson: I believe the dividing line between the upper-half and the lower is becoming more critical. Globalization gives us more prosperity and also brings us more insecurity, tensions and greater inequality. It leads to nervous employees in America.
SPIEGEL: Workers are the ones who feel this most.
Samuelson: Yes. However things have changed even for an MIT graduate. In the past, he gained a better job with every change and his income rose until he retired. That does not function any more today. No one can foresee how his career will develop. We live in a tenser world, a more nervous world.
SPIEGEL: Where do you see signs of that?
Samuelson: Chairmen of the boards sometimes only keep their jobs for three years. Still I don’t have any sympathy for them because they could earn vast sums of money in this time. The building in which we are now was once the central headquarters of Unilever in America. One of the best-paid chairmen of the board had his office only three floors above us. He received 00 every workday. An average employee may have earned one-fortieth of that. Do you know what he proportion is today?
SPIEGEL: Hardly any lower.
Samuelson: The factor is 400, at least in some firms. The market has no heart; the market has no brain. It does what it does. Every time I open a newspaper, I read of a new firm that didn’t meet its pension obligation. This happens in harmony with the law and did not happen in the past.
SPIEGEL: What you describe seems like an excellent base for a union movement.
Samuelson: Unions in the US have long been dead since the time when Ronald Reagan was president. They lost much of their power at that time because they had no friends in Washington any more. Every success achieved by a union in a corporation was a Pyrrhic victory. It only accelerated Japanese competitors taking over the business.
SPIEGEL: What should we do if globalization has these negative sides?
Samuelson: Perhaps we should break the process a little. Globalization cannot and should not be stopped. What we can do is help the people suffering in the consequences. We can use the tax system to redistribute money from rich persons like me to less wealthy persons. That would hardly curb our growth.
SPIEGEL: Redistribution is the way we have taken in Germany for a long time. The result is low growth and high unemployment.
Samuelson: The tax system must be used carefully. The market laws cannot be annulled; everything cannot be made equal with force. Otherwise we kill the goose that lays the golden egg. My hope is that something of the idea of the New Deal of a Franklin D. Roosevelt and a John F. Kennedy will be preserved in America to reduce inequalities, to diminish them, not to remove them.
SPIEGEL: But aren’t tensions between nations on different economic levels inevitable?
Samuelson: It would be very surprising if they didn’t arise. You must remember two things: In the modern world, free trade and open borders exist. In a certain way, free trade is a compensation that cut-price workers come into your country. When you decide in Europe whether you want to integrate new countries in the community, you make a social decision, not an economic decision. Some social tensions diminish when jobs are shifted instead of bringing cut-price workers into the country.
SPIEGEL: Still that hasn’t changed the problem: jobs are endangered.
Samuelson: In America, where there aren’t strong unions keeping up wages, people accept a job even if the pay is lower than the past job. In Germany, that rarely happens. If this adjustment is blocked, the national economy loses power more and more. The hourly wages in France and Germany are as high as in America. French and Germans work fewer hours.
SPIEGEL: Is reduction of working hours a way out of the crisis in Germany?
Samuelson: Another human orientation will be necessary when the economy in Germany picks up steam…
SPIEGEL: Does politics have the power to shape globalization?
Samuelson: Of course, politics is very important. Let me give you an example. In 1945 I was a young talented economist. I was at the height of my abilities. Someone from SPIEGEL interviewed me at that time…
SPIEGEL: …the first issue of our magazine came on the market in 1947…
Samuelson: If someone had asked me what part of the earth would develop the fastest in the next 39 years, I would have said: Latin America – Argentina or Chile. There is a moderate climate there and a population with European roots.
SPIEGEL: You were wrong.
Samuelson: I was completely off the mark. I underrated populist movements like the dictatorship of Peron; I didn’t estimate the economic possibilities incorrectly. The Argentinians are taking control of inflation.
SPIEGEL: India and China seem to be developing more successfully.
Samuelson: India has slept for 40 years. China is the 800-pound gorilla in the living room. It is inevitable – and I hope I am right this time – that China will overtake Japan in the near future.
SPIEGEL: Do you expect that China will develop a greater economic strength than the United States?
Samuelson: If its development progresses practically and realistically, China will be the dominant economy in the world if the political system doesn’t prevent this. That is a very important “if.”
SPIEGEL: Critics say China violates the rules of fair competition. Do you think that this country only profits from free trade?
Samuelson: You cannot expect strict working conditions and environmental standards like ours from a low-wage country. I grew up in the steel region in Gary, Indiana. That was a long time ago, almost 90 years. When molten steel fell on a worker’s leg, the work was not interrupted at that time. Can you see how things have improved? This will also happen in China.
SPIEGEL: How did your teacher, the Austrian economist Joseph Schumpeter, assess the global economy that makes creative destruction into a driving force of capitalism?
Samuelson: He understood this dynamic. I spoke to him ten days before he died during the 1949 meeting of the association of American economists. I know his attitude rather exactly. He would say this eruption of energy since the invention of the computer was completely in harmony with his 1912 book “The Theory of Economic Development.” Schumpeter did not spend as much time as me in brooding over the fate of the poor. I think he had sympathy for the former Prime Minister Margaret Thatcher. He rejected the program of German Social Democrats although he was himself an Austrian minister of finance in a social democratic government.
SPIEGEL: Schumpeter was convinced that the Great Depression was a necessary evil since it removed the exaggerations in the system.
Samuelson: My other Austrian colleague, Friedrich August von Hayek, was also convinced of that “necessity.” He argued that giving more alcohol to a drunkard only worsens the situation. I regard that attitude as mad in view of the hardships of those years. At that time, a third of Germans and a quarter of Americans had no job. That meant simply: “Let the system bleed us.” That demonstrates a belief in pure capitalism that cannot be justified.
SSPIEGEL: Because capitalism must be tamed?
Samuelson: Capitalism needs rules of the game and a reliable legal system. People will not lend any money to other people when the others are not obligated to repay. This is true in the business world and between states. I don’t believe president Bush has much power to tell the Chinese what they have to do. He speaks to his equals.
SPIEGEL: Many fear the new competitors in the East. How much do they threaten the American economy?
Samuelson: We always want to be the cyclists in whose slipstream the others ride but the others are coming closer. America’s position is under pressure because we have become a society that hardly saves. We are a society of me, me, me – and now. We don’t think of others or of tomorrow.
SPIEGEL: What is wrong in America?
Samuelson: Look at the community hall of young mathematics students at MIT. Perhaps one of ten students was born in America. The television is responsible for that.
SPIEGEL: Do you think television threatens competitiveness?
Samuelson: in the past, clever children who later were mathematicians played puzzles that challenged them. Today they watch television. There are too many diversions, which is one of the reasons why we have this attitude of me, me, and me - and now.
SPIEGEL: Is the television responsible for that?
Samuelson: Obviously not exclusively. America is so vulnerable because our population like the population of Japan and Germany is becoming older. In 2020 the baby-boomer generation will retire. This development has been recognized since the early eighties. Therefore employees must save like crazy. However they actually only spend money. We fall back on the savings of countries that are much poorer than us. These countries take their trade surpluses and buy low-interest US government bonds.
SPIEGEL: You mean the special relationship between the United States and China. The People’s Republic gives the US nearly unlimited credit and Americans buy their products.
Samuelson: The Chinese will do this for a while. However this could change when the demographic transition occurs. Then foreigners will withdraw their money and Americans will invest abroad. Capital controls must be introduced when everything becomes absolutely chaotic.
SPIEGEL: Then the world will fall into an enormous financial crisis.
Samuelson: I don’t believe it will be worse than the Great Depression. Humanity has learned to print only enough money to escape deflation. However I think we have a rather rough bumpy stretch before us if this scenario occurs.
SPIEGEL: Is the present risk level extraordinarily high in an historical comparison?
Samuelson: Yes, I think so. The devaluation of the Chinese Yuan will only help a little; we will hardly become more competitive that way. I don’t believe for a moment this will substantially reduce the foreign debts that will accumulate up to 2020. That will be the time when the distress will be really great.
SPIEGEL: Professor Samuelson, thank you for this conversation.
Report this post as:
GUIDE TO REBEL CITY LOS ANGELES AVAILABLE
lausd whistle blower
Help KCET and UCLA identify 60s-70s Chicano images
UCLA Luskin: Casting Youth Justice in a Different Light
Change Links April 2018
Nuclear Shutdown News March 2018
Join The Protest Rally in Glendale on April 10, 2018!
Join The Protest Rally in Glendale on April 10, 2018!
Spring 2018 National Immigrant Solidarity Network News Alert!
Anti-Eviction Mapping Project Shows Shocking Eviction Trends in L.A.
Steve Mnuchin video at UCLA released
Actress and Philanthropist Tanna Frederick Hosts Project Save Our Surf Beach Clean Ups
After Being Told He's 'Full of Sh*t' at School Event, Mnuchin Demands UCLA Suppress Video
Resolution of the Rent Strike in Boyle Heights
What Big Brother Knows About You and What You Can Do About It
Step Up As LAPD Chief Charlie Beck Steps Down
Our House Grief Support Center Hosts 9th Annual Run For Hope, April 29
Don’t let this LA County Probation Department overhaul proposal sit on the shelf
Echo Park Residents Sue LA Over Controversial Development
Former Signal Hill police officer pleads guilty in road-rage incident in Irvine
Calif. Police Accused of 'Collusion' With Neo-Nazis After Release of Court Documents
Center for the Study of Political Graphics exhibit on Police Abuse posters
City Agrees to Settle Lawsuit Claiming Pasadena Police Officer Had His Sister Falsely Arre
Professor's Study Highlights Health Risks of Urban Oil Drilling
Claims paid involving Pasadena Police Department 2014 to present
Pasadenans - get your license plate reader records from police
LA Times Homicide Report
More Local News...
What does the Quran Say About Islamic Dress??
Biodiversité ou la nature privatisée
The Market is a Universal Totalitarian Religion
Book Available about Hispanics and US Civil War by National Park Service
The Shortwave Report 04/20/18 Listen Globally!
The Republican 'Prolife' Party Is the Party of War, Execution, and Bear Cub Murder
Paraphysique de la dictature étatique
Book Review: "The New Bonapartists"
The West Must Take the First Steps to Russia
Théorie générale de la révolution ou hommage à feu Mikhaïl Bakounine
The Shortwave Report 04/13/18 Listen Globally!
“Lost in a Dream” Singing Competition Winner to Be Chosen on April 15 for ,000 Prize!
The World Dependent on Central Banks
Ohio Governor Race: Dennis Kucinich & Richard Cordray Run Against Mike DeWine
March 2018 Honduras Coup Again Update
Apologie du zadisme insurrectionnel
ICE contract with license plate reader company
Black Portraiture(S) IV: The Color of Silence...Cuba No...Cambridge Yes
Prohibiting Micro-Second Betting on the Exchanges
Prosecutors treat Muslims harsher than non-Muslims for the same crimes
Amy Goodman interview on cell phone safety
Mesa, Arizona police officer kills unarmed white man
Israeli leaders should be prosecuted for war crimes
Paraphysique de l'autorité
Two Podcasts on fbi corruption
Fbi assassins assault & try to kill DAVID ATKINS
More Breaking News...