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(1915-2009)
Paul Anthony Samuelson
 
:Human Events, 4/1/94, Vol. 50 Issue 12, p11, 3/4p, 1bw
Skousen, Mark
SAMUELSON RETREATS (SLIGHTLY) FROM SOCIALISM
"When he talks, Mr. Samuelson sometimes seems disappointed that the world's leaders did not learn enough from his textbook." The New York Times (Oct. 31, 1993).
Mainstream economists deny that they can be held responsible for today's economic problems because, they say, political leaders are ignoring their sound advice. If only they had taken Econ. 101 from me, proclaims Paul Samuelson.
Au contraire! The world's leaders have learned economics all too well from Paul Samuelson and the "neo-classical" establishment. His textbook, Economics, now in its 14th edition, has sold over four million copies and been translated into 30 languages. It has been the most influential textbook on economic theory and policy for the past 50 years. I and countless others (including today's political leaders) used it as undergraduates. And even though it no longer dominates the textbook field, today's leading college textbook by McConnell and Brue is considered a Samuelson clone.
What has the world been taught by he MIT professor and Nobel Prize-winning economist? In writing my book, Economics on Trial (Irwin Professional Publishing, 1993), I painstakingly reviewed the top-10 textbooks used in colleges today, including Samuelson's, and made an amazing discovery. Many of the problems we face today, including high deficits, inflation, excessive tax rates, low savings and capital growth, high consumer debt, the welfare state and a boom-bust business cycle can be traced back directly to fundamental errors taught by Samuelson and other mainstream economists over the past 50 years. Governments around the world have been especially enamored with Samuelson's version of Keynesian economics, which gives theoretical support for inflation, progressive taxation, deficit financing and the welfare state.
Remember, it was Samuelson's textbook that popularized the "paradox of thrift," the perverse idea that excessive saving could cause a recession or worse. Tell that to today's Chinese, who are enjoying the fastest economic growth rate in decades, or to the Japanese and Germans during most of the post-war period, where high savings and high economic growth went hand in hand.
Big Government as Built-in Stabilizer?
It was Samuelson who convinced the world that Big Government was a "built-in stabilizer" in the economy. Never mind that it also means built-in bureaucratic waste and inefficiency.
It was Samuelson who introduced the "balanced budget multiplier," the strange notion that starting a new government pro gram stimulates economic growth more than a cut in taxes. Since when is it more productive to transfer wealth from the private sector to the public sector? Needless to say, no one learns about the excited new trend toward privatization and supply-side economics from Samuelson's textbook.
It was Samuelson who theorized that high progressive taxation would have little or no effect on business people, entrepreneurs or high-paying executives. "[They] will work as hard for ,000 as for ,000," he asserted. The Nobel Prize-winning professor ignores all the evidence supporting the "supply-side" case that lower tax rates have significantly boosted economic activity in dozens of nations.
Finally, it was Samuelson who naively claimed as late as 1989, right before the Berlin Wall was tom down and Soviet communism collapsed, "The Soviet economy is proof that, contrary to what many skeptics had earlier believed, a Socialist command economy can function and even thrive" (Samuelson, 13th ed., page 837).
You won't find these embarrassing mistakes in the New York Times hagiographic review of Samuelson's career.
But the Times also missed out on one of the most important paradigm shifts in Samuelson's thinking. The leading Keynesian spokesman has had a dramatic change of heart in his latest (14th) edition of his famous textbook. He makes the following significant changes:
First, for the first time in over 40 years of publishing, he eliminates his infamous anti-saving doctrine. the "paradox of thrift." (In chapter 5 of Economics on Trial, I focused on this bizarre concept as the central flaw of Keynesian economics.) Shockingly, Samuelson replaces the "paradox of thrift" with a whole new section on the benefits of saving and investing, and why the saving rate in the United States is too low, a complete reversal of his long-standing belief.
Sounding more like Mises or Hayek, Samuelson's prescription for easing America's economic ills is simple: Save and invest more! Rejecting Ibis theme of the past, 12 e comments, "Our society has been on a consumption binge."
Second, Samuelson finally admits that the national debt can be a serious drain on the economy. In the new edition, the leading apologist for deficit spending confesses that "a large public debt can be detrimental to long-run economic growth." He asserts that "wild" government spending and mountains of debt are eating away at the nation. The huge deficit means over-consumption and under-investment, and hence less growth. The deficit has caused the crowding out of private capital, causing our "living standards [to] decline."
Third, the 78-year-old professor begrudgingly acknowledges that Soviet-style socialism has failed miserably. In his latest edition, Samuelson places question marks after Soviet "growth" data. The goods that were made under Soviet central command, he now says, were produced at "great human sacrifice, loss of life and political repression."
Paul Samuelson a free-market convert? It all sounds too good to be true. But, alas, to paraphrase King Agrippa, he is more likely to respond, "Almost thou persuadeth me to be a free-marketeer!"
Testing the 'Limits Of Taxation'
"Almost" is the key word, for Samuelson is still not baptized and cleansed in the pure waters of liberty. While he favors a capital gains tax cut, he recommends still higher progressive income taxes to reduce the federal deficit. "America is not remotely near the limits of taxation, and one more pfennig is not going to break the camel's back."
Last year, Samuelson finally responded to my expose, Economics on Trial, by writing me a letter "I am putting your book on a high shelf so that Sadie our retriever will do it no harm." Given the significant changes made in Samuelson's new edition, I felt that my book had achieved a certain degree of success. However, it would be premature to raise the victory flag or for Samuelson to take my book down and let Sadie the dog have at it. There's still a lot of bad economics being promoted in the media and a lot of good economics being overlooked.
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