Friday, December 18, 2009

Samuelson on Mankiw

At Calculated Risk .
"The 1980s trained macroeconomics -- like Greg Mankiw and Ben Bernanke and so forth -- became a very complacent group, very ill adapted to meet with a completely unpredictable and new situation, such as we've had. I looked up ... Mankiw's bestseller, both the macro book and his introductory textbook, I went through the index to look for liquidity trap. It wasn't there!"
Paul Samuelson, June 2009

But anyway. The craze that really succeeded the Keynesian policy craze was not the monetarist, Friedman view, but the [Robert] Lucas and [Thomas] Sargent new-classical view. And this particular group just said, in effect, that the system will self regulate because the market is all a big rational system.

Those guys were useless at Federal Reserve meetings. Each time stuff broke out, I would take an informal poll of them. If they had wisdom, they were silent. My profession was not well prepared to act.

And this brings us to Alan Greenspan, whom I've known for over 50 years and who I regarded as one of the best young business economists. Townsend-Greenspan was his company. But the trouble is that he had been an Ayn Rander. You can take the boy out of the cult but you can't take the cult out of the boy. He actually had instruction, probably pinned on the wall: 'Nothing from this office should go forth which discredits the capitalist system. Greed is good.'

On Summers:
"Well first let me say that I have big admiration for Larry Summers as an economist. However, when he was at MIT as an undergraduate, he never took a course of mine!

But I think he was wise. If he had people could always say, 'well, he's traveling on someone else's steam.' There's a Chinese wall between him and me. Any view he expresses and any view I express -- there might be some overlap, but there's nothing synchronized.

So you're not in touch with him now?


Remember, Larry Summers' hero is Milton Friedman. No surprise that Samuelson and Summers weren't "in touch".


  1. I wanna share something here economists trained in the 80's are complacent. It is kind of funny that he thinks Bernanke is complacent since Helicopter Ben rained down liquidity in an unprecedented fashion. A lot of financial people think that Bernanke is the hero of the recovery. As head of the Fed, Bernanke is (somewhat) independent of Obama (btw, Bernanke was a Bush II appointee). Bernanke's actions may have been effective

  2. To clarify, I think Bernanke was entirely correct in flooding the system with money after the Lehman collapse, and while I would not have let Lehman collapse, I think he is not the only one who deserves blame there, and, in any event, a certain number of mistakes are certainly allowable. For example, I would not advocate dumping a Fed chairman b/c I disagreed occasionally about interest rate policy. But with Bernanke, it's getting habitual. I think, in large part owing to his too tight policies, unemployment has become unanchored. The negative effects of this are tremendous and will likely take a decade. I've been in vehement disagreement w/ the Fed Chairman for at least nine months now. It's too much.