Q&A with Bob Samuelson
BRIAN LAMB: Bob Samuelson one of the things about your habits as a reporter is that you never vote?
BOB SAMUELSON: Years ago I decided not to vote because I thought that when you vote you make a psychological commitment to one side and against the other side. And I thought it better not to do that.
And it is a purely private matter, I subsequently discovered that a number of other journalists including Len Downie, the former editor of The Washington Post, had the same practice and I assume for roughly the same reasons. But my wife describes this as one of the dumber things I do and she has a long list of dumb things that I do.
LAMB: Why does she think it’s dumb?
SAMUELSON: She just doesn’t she thinks she ought to exercise your right as a citizen and she doesn’t think that the privacy of a voting booth really prejudices you one way or another and she probably thinks although we’ve never discussed it at great length that you have a bias for and against certain people, certain parties, certain positions anyway. You write a column that’s an opinion column so what’s the big deal.
But I’m comfortable with it and since I’m writing the column that’s what I do.
LAMB: When did you start the column?
SAMUELSON: The column started in late 1976 when I went to work for the National Journal Magazine. The National Journal for maybe viewers that don’t know it is a magazine that’s published in Washington that is intended for mainly for lawyers, lobbyists, Congressmen, Senators, their staff people, academics, people who deal in policy and are interested in the details of policy.
And I was hired there in 1976 as their economics reporter and part of that job description was writing a column. It started off as an every other week column and then it became weekly when The Washington Post asked to use the column in The Post. And so I’ve been doing this really since 1976 one way or another.
LAMB: I saw somebody in one of the blogs that was mad at you for what you had written saying why should I pay any attention to him? He doesn’t even have an economics degree.
SAMUELSON: Well that’s true I don’t have an economics degree and I think in some ways that’s a strong point because I’m always trying to explain things to myself and if I can explain them to me I think I can try to explain them to my readers. I’m not trying to impress economists which is a relatively small group.
And I’m trying to subject economic theories and arguments to the evidence and to you know practical common sense. So although having an economics degree would be helpful in some ways I think it’s a burden in other ways because people who have economics degrees are often writing for fellow economists and that’s definitely not who I’m writing for.
LAMB: Where did you get an interest in economics?
SAMUELSON: Well I guess I was always interested in it a little bit. But this was an accident. And you know many people’s careers turn out to be partially by accident. I got out of college I was at Harvard and wanted to go into journalism.
This was in the late 60s when journalism was not a kind of high ticket profession, career and I got a job on The Washington Post and it was as a metro reporter reporting about you know Washington in the city and the suburbs, whatever. And I was hired in late 1968 and when I came down in early ’69 to take the job, Ben Bradlee who was then the editor said we have an opening on our business staff.
The business staff was five or six people, would you take it? I was 23-years old, he was executive editor. I didn’t have a strong objection to taking it. I thought it would be a good idea to say yes. Now if he’d of asked me to be a sports reporter I would have said no. I said I’m just completely unqualified to do that and I have no interest in doing it. But I had taken a couple of economics courses in college, I thought it was important, I thought it was interesting and I said yes. And one thing led to another.
LAMB: So are there a number of guideposts that you have when it comes to economics? When you sit down and decide I’m going to do a column on something what’s going on in your head at the time for me the reader?
SAMUELSON: Well I’m really trying to do two things. One I’m trying to find something that’s relevant and important. And secondly I’m trying to find something that’s that might be interesting to the reader.
And two and I envision my reader as somebody of reasonable intelligence and reasonable curiosity but no specialization who’s trying to understand how the economic world impacts his or her everyday life and sort of explains what they see going on around them.
So it’s a news judgment I make every week. And it obviously depends on some of the things that interest me and that I think are important. I mean I’ve written over the years going back many, many years now about the nature of the federal budget and how it’s been transformed into a vehicle for basically the largest part of the federal budget goes for paying benefits for older Americans. And I’ve written about that substantially, frequently and as I say going back over many years.
And I think it’s highly relevant but it’s not a subject that’s often very popular because I have said we need to reduce these benefits because we haven exploding population of old people including me, I just turned 65, and it won’t be easy for the country to afford all these benefits.
One day this is probably 10 or 12 years ago a guy who did not like what I was writing came into the office and said well I have a solution for your problem Mr. Samuelson, first we’re going to line up all the old people and shoot them and then we’re going to line you up and shoot you and so you do get reader reaction every once in a while.
LAMB: I have a friend who says this country is going down and it’s going down economically. And he has bought gold, he said not gold paper, gold ingots, gold you know that he can put his hands on. What would you say to him?
SAMUELSON: Well I’m not a gold book and I have not purchased gold but I’ve become a lot more pessimistic about our future over the last 10 or 15 years mainly because we haven’t addressed the problems that are quite obvious including the burdens of an aging society that will play out through the federal budget.
If you go back to the late 70s and early 80s the American economy was in terrible shape. We had double digit inflation, people thought that double digit inflation could not be cured in any practical way. This inflation was very de-stabilizing. We had four recessions between 1969 and 1982.
The harshest recession led to an unemployment rate of 10.8 percent. People were very pessimistic about America’s future because it seemed that we could not control this phenomenon. And I wasn’t all that pessimistic because I felt that our problems were soluble although with pain.
And at the beginning of the 1980s Paul Volcker who was then chairman of the Federal Reserve Board with the backing of President Reagan put the country through an awful recession. This recession resulted in unemployment reaching almost 11 percent but it did purge the country of inflationary psychology. And that was one of our problems, high inflation. And the other economic problem we had, I thought, at that time was that our management had become over confident and complacent and many of our companies were being mismanaged.
And that was a problem that also was solved more or less in the 1980s and so beginning in the early 1980s we had a 25 year boom essentially. And in the course of that 25 year boom or the cause of the 25 year boom were the solving of these problems that we were experiencing in the late 70s.
The problems we have now it seems that we are much more reluctant to address and find it much harder to address. It may be that the Reagan/Volcker alliance that crushed inflation was a happy accident for this country that if we had other leaders at the time maybe would not have done that.
And I have argued that, that is the case. But right now and really for the last 20 years we have not had political leaders who have been willing to address problems who were completely obvious and have been written about extensively.
For narrow and understandable but ultimately I think misguided political reasons.
LAMB: On the 19th of no actually the 21st of December this Reuter’s story came across my desk and I want to read just a couple paragraphs and get your reaction to it.
”The U.S. government fell deeper into the red in fiscal 2010 with net liabilities swelling more than 2 trillion as commitments on government debt and federal benefits rose a U.S. Treasury report showed Tuesday.
The financial report of the United States which applies corporate style accrual accounting
” You know and the average person including me you see that accrual accounting you know that’s that versus the cash.
showed that government’s liabilities exceeded assets by 13.47 trillion. That compared with 11.456 trillion GAAP a year earlier.” How can we do this?
SAMUELSON: Well I have to say first I think that, that is the wrong way to look at our problems because it is extremely complicated and the distinction between cash and accrual accounting is although it’s a significant difference, it’s a somewhat technical one. I prefer to just look on at things on a year to year basis and see what the trends are.
We have a huge deficit and have now for the last two years of well over a trillion dollars. Now most of that is the understandable consequence of this really savage recession that we’re going through, but if you look at the projections that are made, the deficits are endless because government basically has made more promises than it can keep at the existing level of taxes.
Social security, Medicare, & Medicaid, the first basically being an income transfer to people over 65, and the second being health insurance for the people over 65, fully for Medicare or almost fully for Medicare and partially for Medicaid, those three programs already constitute 40 percent of the federal budget. If you look out over the next 20 years, 30 years whatever you want as the baby boom, my generation retires, the number of people and the proportion of elderly, those people over 65 is roughly going to double.
At the same time we haven’t controlled health spending, and so when you put all that together, just maintaining the existing commitments of the federal government basically means that the budget has to expand by on the order of 40 to 50 percent over the next couple of decades. Well that can be only met in a number of ways.
One is you can raise taxes really very sharply which would undoubtedly you have a huge transfer from young people to older people which I do not think is economically prudent or socially justified or you can run these massive deficits that at some point will be unsustainable. Or you can engage in dramatic cuts in other government programs. Now all of this has been known for decades, and we have yet we basically have ignored that problem and continued to ignore it and the amounts are in the trillions of dollars and
If we had decided to do what we could have done, the beginning of the 90’s or even the middle of the 90’s or even the end of the 80’s and begin to raise eligibility ages gradually for these programs, again to reduce the benefits for wealthier retirees who really don’t need some of these subsidies and begin to reform healthcare in a way that reduces the, sort of the inexorable increases in spending, we’d be in a lot better shape today than we are.
Based on what you know about the new house coming in, in a day or two is Republican. The Senate remains Democrat but less so than it was last time. The President signed up for that, you know not to increase the taxes. Where would you guess we would be a year from now?
My guess is we would basically, I mean I hope the economy improves in 2011 and the consensus among economists, which I am not one as you pointed out earlier, is that it will improve and that the horrendously high unemployment rate which is now near ten percent will come down to a still very high and punishing nine percent or maybe a little bit less.
There will be some reduction in the deficit if that occurs, but in terms of dealing with these long term problems, I don’t see us making much progress. I hope I’m wrong, but I’ve been disappointed too many times in the past. The Democrats seem to think that you can somehow solve these problems by just taxing the richest one or two percent of the population.
The Republicans seem to think you can ignore this spending and simply enact an endless number of tax cuts and somehow pay for them by cutting other spending, but this is the spending for the elderly is the major part of the federal budget. The three programs I mentioned earlier are twice the size of the defense budget for example, and so if you don’t attack that problem, you are ignoring the basic mismatch that exists in our federal accounts and in the role of government as people conceive it.
And right now there is tremendous public support for cutting the deficit. There are also large majorities that oppose doing the things that would, over the long term, really begin to reduce the deficit. I looked at a recent poll, and I may have these numbers slightly wrong, but roughly 60 percent of the public opposes both increasing the eligibility ages for Social Security and increasing Medicare premiums for wealthier retirees. Well if you’re against those things, you’re basically against doing very much about the federal budget.
LAMB: I have your book that you wrote in 2008 is the new version in paperback called The Great Inflation and Its Aftermath and the reason I hold it up is to ask you we keep hearing that we’re going to get inflation back that, that’s the way possibly that we get out of this mess. What will happen that will increase inflation?
SAMUELSON: Well first of all, right now I don’t think inflation is a big threat. It conceivably might become a threat in the years to come. What will happen is basically the Federal Reserve will just keep pumping money into the economy regardless of how much prices went up and would ignore the problem. I don’t think that’s likely to happen, and I don’t think the public expects it to happen.
If the public began to think that the Federal Reserve had lost all commitment to keeping inflation down, I think it would become self fulfilling. In writing that book, one of the conclusions I came to is that it is extremely important what the public and by the public I mean ordinary consumers, ordinary taxpayers, business executives, labor union leaders, you know the whole gamut, what people think the government is going to do.
Once people became convinced in the late 60’s and early 70’s that the government really didn’t care very much about containing inflation, you got a kind of built in wage/prices spiral. That higher prices would produce higher wages and higher wages would then produce higher prices and the thing just fed on itself, and the government was unwilling to sort of
Until the early 80’s the government was unwilling to take the punishment of a recession deep enough and severe enough to convince people that the government that the Federal Reserve and the rest of the government really was determined to stop inflation and would stop it almost at any social cost. I think that lesson has now sunk in, but so even though the Fed has kept interest rates very low
People don’t expect inflation to increase and therefore the business practices and wage practices are quite restrained.
Businesses don’t raise prices and they don’t feel they can, and workers hungry for jobs and don’t push for big wage increases, but again if the psychology changed and this is going to be very difficult to judge, if the psychology changed then you could, you could see a reversal of this. I mean, the one thing that we’ve absolutely learned over the last 30 years is that economists and other sages of the economy are not very good at predicting what actually happens.
And so I don’t pretend to have a crystal ball to tell you what’s going to happen in two, three, five years.
LAMB: How often do you write?
SAMEULSON: Once a week. I mean I write my column once a week. I mean I do occasionally other longer pieces and as you pointed out I’ve done this book and I did two other books before that.
LAMB: And in Washington it’s highly visible. It’s in the Op Ed page of the Washington Post. It’s also planted in Newsweek magazine. How do you tend to get reaction?
SAMUELSON: I get some e-mail reaction, but I don’t get as much reaction as you would think. I mean over the years I’m not flooded with e-mails the next day after a column. And you know, I get some calls from people that either agree or disagree and I still get some letters through the old fashioned mail, but I’m not inundated.
Now I have to say I’m one of the few last columnists who does not print his e-mail at the end of the column. My feeling is that if you want to get in touch with me, you ought to have to go through a little bit of trouble. This is not a kind of constitutional right that sort of so I don’t print my e-mail at the end of the column, and if I did I’m sure I’d get a lot more e-mails.
LAMB: When did you make that decision?
SAMUELSON: Well it’s a decision I didn’t make. The decision I didn’t make was to put the e-mail at the end of the column and some of my editors have consistently urged me to do this, but as I say, it’s like not voting. This is the way I am, and if you look at the comments. I mean you people can comment on the columns, and there are typically, after a column runs in the Post on the Post web site there are typically hundreds of comments.
Well I don’t look at them all of the time, but when I do look at them I see that a lot of the comments have nothing to do with my column or that they are very strident, but sometimes, you know somebody picks up something and starts to run with it, and somebody else responds to it or whatever, and frankly I don’t care to be inundated with those kind of e-mails every day.
Nor do I care to engage in the kind of theater of having an e-mail to which comments might be sent and which people would get an automatic reply that Mr. Samuelson is so receives so many e-mails that he can’t possibly respond to them all. So if somebody really wants to get in touch with me they can find my e-mail but by searching the net and that’s fine. But as I say I don’t give them a free ride.
LAMB: How many words approximately is each column?
SAMUELSON: Well they start at when I started out writing for the National Journal and the columns were soon reprinted in the Post it was about 1100 or 1200. And over the years it’s constantly shrunk. It’s slightly different in New Week and the Post. In the Post I’m allowed 800. In News Week it’s about 710. So it’s gone down an awful lot and frankly it takes longer to write a shorter column than it did a longer column because you can be a little bit more relaxed in your writing style when you have 1100 or 1200 words than when you have 700 or 800.
LAMB: So how do you check your own writing? In other words when you lay down a lot of figures and all that stuff anybody say?
SAMUELSON: This is garbage. This is completely incomprehensible.
LAMB: Yes I mean do you get any feedback on it before it hits the
SAMUELSON: Well I mean before it’s published for years I’ve had a very good friend of mine Joel Hammerman who is an editor and a reporter at the Los Angeles Times edit my columns before they even go to the Post or to New Week. And then they go through and Joel besides being very smart and having covered the economy at the LA Times so he and at the National Journal where we both worked together as well, so Joel has sustenance background and he’s a good writer.
He’s an expert at grammar and when things aren’t clear he tells me.
LAMB: Is this
SAMUELSON: When he thinks I’m saying something Joel’s political views are somewhat different from mine. And when he thinks I’m saying something that’s really, really off the range he tries to reign me in. And then I go and either to the News Week editors or the editors at the Washington Post writers group that syndicates the column and they’re very good too.
So particularly, I would say particularly editors at the writers group, at the Post writers group you know when I say stupid things or things that are unclear they say you know let’s clarify this. They do what editors are supposed to do.
And I’ve always regarded editors as my friends. I mean you what everyone wants to hear is this is the most brilliant thing that has ever been written. It is completely clear. You don’t have a word out of place. But unfortunately that’s not the reality. And I regard editors as protecting me against myself. And so I tend to listen to them.
LAMB: Does Joel Hammerman do this for free?
SAMUELSON: No, why he I make a payment to him. He objected to my making it at the beginning, when we entered this arrangement and my impression is he gives it to charity. But I would have I mean he’s a very good friend of mine and I value his guidance.
LAMB: I’ve got a column on here from December the 13th. The headline on it is the Flight From Risk. I’ll just read the first paragraph. It is becoming clear that the great recession has left a deep and possibly lasting scar on the American psyche. From CEOs to ordinary families we are a nation that is more cautious, more fearful, more risk adverse this wide spread and so far indestructible anxiety has hobbled the recovery and helps explain the slow pace of job creation.
The economies revival depends in part on risk taking but risk taking is an eclipse.
SAMUELSON: Well one of my it was obvious in the aftermath of financial crisis that Americans of all sorts beginning with Wall Street types and CEOs but standing down to ordinary consumers had underrated the risk that they were undertaking.
And so this is in some ways a very natural reaction to this financial calamity that we had that people who had borrowed a lot are running down their debts and paying off their debts and saving more and corporations are building up huge cash hoards because they during the crisis they were cut off or feared they would be cut off from their normal sources of financing. So this is a kind of normal reaction. But it’s also to some extent is one explanation of why we’re having such a weak recovery because businesses don’t want to undertake risks.
They don’t want to hire people if they don’t feel there’s an absolute need to hire them. As I pointed out in the column half the hiring that has occurred over the last year or so has been through temporary job services. So companies are taking even when companies are taking on more people they’re not making a permanent commitment to them.
And ordinary Americans also are cutting back and they reluctant to take on new debts and they’re trying to build up their savings because their cash reserves and their wealth had been depleted by the decline in the stock market and the decline in their housing values.
My fear is that this is going to linger and that we will have a much more cautious risk averse economy going forward for the next few years and maybe for a decade or so because this traumatic event will leave such a large scar on our collective psyche and that would on average begin would contribute to a kind of more sluggish slower growing economy that has more difficulty meeting the obligations that people expect from jobs to public services and new products and rises in living standards and all that sort of thing.
LAMB: As you look out on the landscape of people that you cover and that you write about, who’s done the best job from your perspective over the last two years? If you had to name one person that’s made some pretty important decisions that you liked?
SAMUELSON: You’re talking about
LAMB: Anybody in the government, anybody in I mean you know
SAMUELSON: Well I would say
LAMB: Of leaders.
SAMUELSON: Of the people who have done this I’d say Ben Bernanke probably. If you want to pick out one person I would pick out Ben Bernanke. Because he stepped in, in the fall of 2008 and a little bit before and with the Federal Reserve provide the backstop to these financial markets that were collapsing. In other words financial institutions that had been used to borrowing from some sources could no longer borrow from sources.
The banks were not lending the way they used to, to each other. The commercial paper market which is a source of credit, a short term credit for business and to some extent for financial institutions was freezing up. And Bernanke stepped in or the Federal Reserve stepped in and created a sort of array of very complicated liquidity institutions inside the Fed that basically substituted for private credit.
And so that the collapse of these markets was arrested and the kind of hysteria and panic that people were feeling at the time was basically stopped and the economy stabilized. But I would say that you know a lot of people deserve now go back a little bit before that and you say well Bernanke really and the Federal Reserve did not anticipate this crisis and maybe they conceivably might have prevented it if they had anticipated it earlier.
So you know this is a kind of a double edged sword. This was a crisis that had they had better policies earlier they might have avoided. And you can say the same thing of Henry Foster who was treasury secretary. I think you know that although his reputation is not as high as Bernanke’s I think that you know during this period of crisis he acted decisively on a number of occasions to help stabilize the economy and help stabilize financial markets.
And when I think and I think when President Obama came in they continued and broadened these policies. So I think that the credit for stabilizing the economy belongs not just to one person but to an array of people in both parties. But they all made mistakes at different times. And nobody was perfect. But you know under other circumstances things might have gotten much worse.
LAMB: Who do you think has been wrong?
SAMUELSON: Well everybody’s been wrong.
LAMB: But I mean the big in other words
SAMUELSON: Did somebody create a single sin that led to everything else? The answer is I don’t think so. I mean
LAMB: Let me step back a minute.
LAMB: If you listen to the talk shows
SAMUELSON: I don’t.
LAMB: Well, I do. But if you listen to the talk shows and they’re pointing their fingers always at the other side. And so if you’re just listening and trying to figure out who’s right and wrong the conservatives say that it’s all Obama, President Obama’s a socialist and all that. And if you listen to the left they’ll say it was George Bush’s fault and the rich and all that. When do you shake your head and say that’s just baloney?
SAMUELSON: I mean I think my explanation of what happened is a little bit different from the conventional wisdom. And it falls directly onto the book and is a part of the book the The Great Inflation and Its Aftermath. In the book I argue that the rise of the double digit inflation and the fall of double digit inflation was really one of the major if not the major if not the major economic event of the last half century.
Here is what happened in my view. At the beginning of the 80s as I said earlier Reagan and Volker or Volker and Reagan crushed the inflationary psychology. How? By putting the economy into the vise of a terrible recession, by raising the price of credit, by tightening credit and basically creating unemployment and creating excess capacity that brought down wage increases and brought down price increases because workers needed jobs and companies couldn’t sell at the higher prices. And continuing that policy long enough to basically send out the message that the Federal Reserve was no longer in the business of accommodating a wage price spiral.
BRIAN LAMB: Did they know at the time that they were going to have a higher unemployment?
SAMUELSON: Absolutely. It went higher than they thought it was going to go, but this was a deliberately engineered recession to get rid of inflation. But what that did is it triggered really two 25 years of prosperity. The stock market went from less than the Dow Jones Industrial Average was under 1,000 in 1982. It went to over 10,000 by the end of the ’90s. You had only two very short recessions during this whole period, recession in 1990, ’91 and another recession in 2001. The highest unemployment rate during the whole period was 7.8 percent. So you had a huge explosion yes, an interest rates came down dramatically. In the early ’80s if you wanted to borrow to buy a house, you were basically talking about interest rates at 14, 15, 16 percent mortgage rates and by the end of the ’90s, they came down to six percent.
And so you had a huge increases in jobs. You had essentially a stabilized economy, although people complained about the economy, it was much, much better than it had been in the previous 15 or 20 years and my view is that this induced enormous amount of confidence and complacency and carelessness that was all across the political spectrum, across the spectrum of economists or of regulators. And so the dubious financial practices of subprime lending, of lending to people on the assumption that their housing prices would just continue to go up and so the loans were safe even if people had reasonably low incomes because if mortgages could always be refinanced at lower interest rates as the housing price went up and the owners required more equity. The stock market, even despite periodic declines would always go up and people would get wealthier. So people borrowed more, they had households had increasing wealth over this period.
So you had essentially a classic boom and bust cycle. The boom created an enormous amount of complacency and people started doing things with retrospect were just dumb. And in some cases, they were unethical and other cases they were illegal, but the context and the climate in which this occurred was not one in which all the blame belongs to the republicans or all the blame belongs to the democrats. President Clinton was President during a large part of this sort of extended boom. George Bush was President during a large part of this extended boom. Economic officials in the Clinton administration basically backed the policies that helped create this boom and the same policies were basically followed in the Bush administration.
So this was a crisis that has deep historic roots, but you have to follow the history of what happened as opposed to simply engaging in this kind of partisan screaming match that has become the standard explanation for what happened and why. It’s not that everything that people say on both side of the ideological divide is mistaken, they are factually correct, but they overlook the context and the climate in which all of these things occurred.
LAMB: What about the Fannie Mae, Freddie Mac story? Well, a couple of things; one, we don’t really know much about them any more. You don’t see much coverage on what’s -- you never see what’s going on inside.
SAMUELSON: Well, Fannie Mae what Fannie Mae and Freddie Mac did was part of the boom and again they assume that mortgage lending was a lot less risky than it turned out to be. And in other circumstances, I don’t think they would have followed the policies that they did, but these were two institutions who were essentially created by Congress to promote home ownership and promote the housing industry. They were extremely thinly capitalized, meaning they had very small capital bases for trillions of dollars of lending and the assumption was that their losses were going to be minimal. And they helped power the housing bubble, but they weren’t the only force powering the housing bubble. The same practices were followed in the private sector as well.
So the argument that now people are having which is it was all Fannie and Freddie’s fault or it was all the private sector’s fault in my view is really a kind of false dichotomy. They both were subject to the same kind of intellectual and financial influences and they both did more or less the same thing.
LAMB: So go back to the my friend that says that it’s all going down, you don’t think so.
SAMUELSON: Well, I’m much more a pessimistic about the future now than I was 25 years ago.
LAMB: Like what do you think could happen? What’s the worst that could happen?
SAMUELSON: You know what is the worst that could happen? The worst that could happen is the United States would default on its debt, which I don’t think will happen, but it is not you know 10 years ago, it was inconceivable. It’s not inconceivable anymore. I don’t think it’s going to happen, but it’s not inconceivable. The United States will simply say, ”We cannot afford to pay 100 percent on the bonds that we have borrowed or we can’s afford to pay the interest rates that we’ve undertaken to pay” and the people who borrowed from us will have to take a haircut, meaning they will have to take they’ll have to receive 90 cents on the dollar or instead of receiving four percent interest, they’ll receive two percent interest or whatever. And the side effects of that would be to some extent, they’re unimaginable and to the extent you can imagine, they would be horrendous. People would lose faith in the dollar, they might dump dollar assets around the world, the dollar might go into decline, banks and financial institutions that held treasury, securities as part of their capital base because it was the safest instruments in the world would suffer large and unexpected losses and you know they would then curtail their lending and there would be a kind of a chain reaction that would make the financial crisis of 2008 look like child’s play.
I mean that is one of the worst things you can expect that might happen, but you know there are other things that conceivably might happen. We have a global economy, global supply chains and not all of the countries that are parts of these supply chains are all that friendly with each other and you sort of ask yourself, what would happen if we start to come in conflict with some of these countries? And so there are a lot of things you can imagine happening that would de-stabilize the world and pose a threat to future prosperity.
I have to say in those circumstances, I am not sure that your friend’s gold bars would do him that much good.
SAMUELSON: Because I’m just not sure that you would have a working market that would that people would be willing to give them other things for that gold.
LAMB: Why is it that everybody’s if you’re in a business, you’re told that you’ve got to pay your debts if you’re you know we’ve gone through the whole business with the credit cards and all that stuff, but in your own family, you have to pay your debts and all that. And why is it the government just keeps spending?
SAMUELSON: Well, it isn’t that the government doesn’t pay its debt. I mean the government when a 10 year Treasury bond comes due and let’s say it’s $10,000 or whatever it is, the government pays $10,000 and it pays the interest. The difference is that the government has, up until now, has had unlimited access to the credit markets. People if the government says it needs to borrow, people will lend to the government because they think the government is a good credit risk because the entire wealth and income of the United States ultimately stands behind U.S. treasury bonds.
LAMB: Well, let me ask it a different way.
SAMUELSON: But if you ask so the fact that that is true makes it easier for the government to spend beyond its means. It means it makes it easier for the government to spend more than it’s willing to tax and so politically that’s quite advantageous and now generations of politicians going back to the 1960s have been willing to do this because it’s just politically very appealing to spend a lot more than you tax people. And up until the 1960s there was a custom in this country that in good times you balanced the budget and in the 1960s, we broke that taboo in the Kennedy, Johnson years we broke that taboo and once it was broken, it’s been impossible to restore it. And that was a kind of self-restraint that was built on custom and habit. Not that you balance the budget every year, but outside of war times and economic depressions and severe recessions, the government made an effort to tax as much as it was going to spend and we got out of that habit and it’s just we don’t do it anymore.
LAMB: From what you’ve watched this town for years and how many years have you lived here?
SAMUELSON: Since 1969.
LAMB: The republicans are saying they’re going to come back to town and cut. Do you expect this? And will it make a difference?
SAMUELSON: Well, I will believe it when I see it and if they don’t go after spending for older Americans, Social Security, Medicare and Medicaid, it’s essentially a fraud. Because you cannot bring the budget under control unless you deal with that issue. That is the bulk it’s the largest chunk of spending and if we try to compensate for the increasing spending that’s going to occur by the doubling by the retirement of the baby boomers and the massive number of people who are in the baby boom and the uncontrolled healthcare costs by cutting other programs, we will really savage a lot of these other programs that are very important, including national defense and I don’t think we should do that. And I think as a practical matter, it’s going to be very difficult to do.
It’s not that we shouldn’t make cuts there, too, but we cannot get at the problem of the budget without getting at the problem of the welfare state. We are like Europe, we have a welfare state. We transfer income to people that we think deserve it.
LAMB: We have watched Great Britain and we went over to London and talked to a lot of people over there and tried to compare the two countries and you see them cutting and lots of people in the streets and all that stuff, but there’s no evidence here of any cutting at all.
SAMUELSON: Very little, yes.
LAMB: And over there, do you see a lot of cutting?
SAMUELSON: Well, they have made substantial cuts in their future, future spending to bring down the amount of spending as a share of their economy, of GDP, their economy. Even after they do that, their government spending will be higher as a share of their economy than our government spending. I mean the European tradition is to have a larger role for government than Americans have felt comfortable with. But we haven’t done anything like what they’re attempting to do and I think we will need to do something like what they have done is they have gone to basic premises. They have said some spending is just not justified and we’re not going to do it anymore. And that’s those are the kind of questions we need to ask, how much should the government, that is to say taxpayers subsidize the retirement of people who are reasonably well off to begin with? When should they do it? Should they do it at 62 or at 65 when life expectancy has increased dramatically since the 1930s when Social Security was enacted and even dramatically since 1965 when Medicare was enacted?
If you reach 65, you can expect now that we have about another 25 years, 20 to 25 years and the average person over 65 now receives from the government through Social Security and Medicare about $25,000.
LAMB: So what are you saying? You talking about Social Security and Medicare, you have doctors say that if they cut us like they’re planning to, that they’ll stop taking Medicare patients.
SAMUELSON: Well, the problem is not I think sooner or later that will happen. I don’t think it’s about to happen right now because, first, I don’t think they’re going to be cut and secondly, I think that most doctors, not all doctors, but all the doctors that I have been familiar with, feel an ethical obligation towards their patients. It’s not just a monetary transaction that they relationship that they have and so I think that they will try to make accommodations. They may spend a little less time with their Medicare patients and they may make it a little bit more difficult for them to get appointments, but I don’t think they’re going to stop seeing them.
But the fact that they are complaining points out that our healthcare system is really quite dysfunctional now. It spending goes up year in and year out and it’s not clear we’re getting more, better healthcare as a result of the spending and one of the reasons that the system is as out of control as it is is that it’s basically too (balkanized). You have doctors who are specialists and they do what they do and they recommend to their patients that they have this procedure or this therapy or whatever and there’s very little coordination between different specialties and you don’t have the kind of networks that would be much more sensible from an economic point of view and also probably from a healthcare point of view.
LAMB: Where do you fit in the spectrum between Keynesian and a Milton Friedman follower?
SAMUELSON: Well, I’ve learned a lot from studying both schools and I would say I’m just a kind of pragmatist. I sort of look at I think to start on the one side, I think Friedman was clearly right about inflation, that inflation in the United States and almost everywhere where it’s reached high level is what he a monetary phenomenon, it is created by government printing too much money or creating too much money in whatever ways it does. And once that was accepted in the United States in the late intellectually accepted and politically embraced in the late ’70s and early ’80s, we got a handle on inflation by simply bringing down the rate of money creation. He was wrong in he postulated that you could have a kind of mechanical increase in the money supply every year and you could that was the best rule to follow. That’s a technical matter, but that turned out not to be the case. But Friedman was fundamentally right about the nature of inflation and how to conquer it.
The Keynesians I think were certainly right about the 1930s and I think right about the initial diagnosis of our current recession and that is to say that the fundamental problem was absence of demand and you need to sort of create enough demand somehow to make sure that the economy doesn’t go into kind of a vicious downward spiral. On the other hand, I don’t think they’ve paid nearly as much attention as they should to the microeconomics of why businesses create jobs and why they hire and they have not paid enough attention to creating the right incentives by reducing government regulation, reducing uncertainty so that a business that is facing a practical decision, do I hire another person or another 10 people, would do so rather than not doing so.
I think that the healthcare quote reform that Obama pushed through Congress has not been helpful in helping revive the economy because it’s created enormous amount of uncertainty for employers. It’s well, it’s just unbelievably complicated and if you are a small or a medium sized businessman trying to figure out what you have to do under this law, it’s immensely complicated. And there are certain thresholds, if you’re below 50 employees, you don’t have to meet certain requirements and above 50 employees you do. And you look at this and you say, ”Well, if you are a company that has 48 employees, are you going to expand to 55?” Probably not because in doing so, the costs are not just of the hiring of those extra six or seven employees, but you’re going to take on a lot of other obligations under the law.
And so I try to be a pragmatist here and I look at the evidence and I look at the ideas that people are using to explain what’s happening and I ask myself, ”Is this plausible?”
LAMB: We’ll go back to your column for a minute. Who do you have in mind when you’re writing?
SAMUELSON: I have in mind someone I consider of reasonable intelligence and reasonable curiosity who is not a specialist in the things that I write about and I’m writing for that person. I don’t want that person to be put off by jargon. I don’t want that person to be put off by my writing a sentence or a paragraph that assumes a great deal of knowledge about things. I have been laboring under the belief and perhaps the illusion that you could say things that were not just simpleminded, but writing for a general audience and you could say things that would also appeal to somebody who is reasonably knowledgeable and sophisticated by clear writing and a kind of intelligent marshalling of the evidence.
But I have deliberately tried to keep this column accessible to a mass audience and not it’s not targeted towards an audience of businessmen or corporate executives or economists or bankers or people who are sort of steeped in economics and finance, that’s not the audience. I hope it appeals to people like that, but I don’t aim it at them exclusively.
LAMB: We’ll take this recent tax bill or whatever you want to call it.
LAMB: What were you thinking in the middle of all of that? Here, you had President Obama who said definitely that we were not going to give we were going to give a tax increase to the rich over $250,000 and then you had the republicans who said you’ve got we’ve got to cut this budget and then depending on how you look at it, there’s an $850 billion price tag on all of this. And is that true, by the way?
SAMUELSON: Well, it’s true, but it’s misleading. It’s you know the price tag is reckoned in the are of $850 to $900 billion. And it’s misleading because they agreed on most of the things that were in that package, they agree on cutting on extending the Bush tax cuts for people who are under $250,000. I think they fundamentally agreed on doing something on unemployment insurance, although republicans said they wouldn’t do it unless they got certain other things. So the add ons that were not expected in the that didn’t encompass this sort of the consensus that really already existed were this holiday for two percent payroll tax holiday and a somewhat larger estate tax exemption than had been considered that people thought would be that the part of the consensus and that added perhaps $200 billion.
My own view is that they simply should have stuck with the status quo. They should’ve extended all of the Bush tax cuts a couple of years because this was not a time to sort of mess around with the recovery which is quite fragile essentially with political reasons. They should’ve made a bipartisan pledge that they would overhaul the tax system and basically try to reduce all rates by broadening the tax base. They could have increased the progressivity of the tax system at the same time meaning the burden on wealthier people, even while they were reducing tax rates by getting rid of some of the exemptions, the credits and the tax deductions that exist now.
I personally don’t think that they should have gone with the two percent payroll tax holiday because the deficit is already very high and I think that symbolically it kind of indicates a lack of seriousness in dealing with it, despite all the rhetoric that everybody wants that both republicans and democrats embrace this rhetoric were going to get serious about the deficit, but then they go out and increase it by $200 billion. And I don’t think it was necessary. But I didn’t actually write about that issue because everybody else was writing about it and I felt you know I didn’t really have much to add. I mean the arguments had been aired on both sides and I wrote the columns that you saw there, one about the increase in risk aversion, people becoming much more cautious and the other one about the stable government finances and the problems there.
Again, when I going back to your original question, when I write, I try to write on something that will help my readers understand the world. And so I try to stay away from things that everybody else is writing about or if I am writing about that, I try to find some slightly different angle that I hope will enlighten people or inform them somehow.
LAMB: Here’s one from November the 22nd.
LAMB: America’s budget problems boils down to a simple question, how much will we let programs for the elderly displace other government functions national defense, education, transportation and many others and raise taxes to levels that would almost certainly reduce economic growth? What’s depressing is that this question has been obvious for decades, but our political leaders have consistently evaded it. This includes and indicts democrats, republicans, conservatives, liberals and every President since Jimmy Carter, particularly Bill Clinton and George W. Bush who clearly understood the problem. You pretty much whacked everybody in that process.
Do people think you are on one side or the other?
SAMUELSON: You know yes, I do. I think that people I mean a lot of liberals think I’m conservative. Some conservatives think I’m liberal. There are a number of people you know when I say people, these are people I come across or e-mail me or whatever, some people say, ”You know I really don’t know what your politics are.” I would say I’m sort of sensible. I mean I try to be sensible. I try to judge things by what actually happens as opposed to assuming that all the good guys are on one side and all the bad guys are on the other.
LAMB: What would you advise somebody who they’re tired of the rhetoric on both sides and they know both sides are playing politics all the time? How do you test this any thesis that somebody has? I mean what kind of guidelines can you give us as we’re reading what to think about when somebody comes out and announces, ”Here’s what I’m going to do for you”?
SAMUELSON: Well, I guess over the years my lesson has been you ought to be skeptical. You ought to wait and see whether they actually do what they promise to do and I that’s I don’t regard myself as a kind of a player here. My goal is to inform people as the best I can and to bring a judgment as to the meaning of the things I’m writing about. But I don’t regard myself as marshalling a lobby for this or for that.
LAMB: Let me read some more of what you said in that column on the 22nd.
LAMB: Our political culture prefers delusion to candor. Liberals would solve the budget problem by taxing the rich and cutting defense, think again. The richest five percent already pay about 45 percent of federal taxes. They may pay more, but not enough to balance the budget. Defense spending constitutes a fifth of federal spending, projected deficits over the next decade are similar. We won’t shut the Pentagon. Republicans and tea partiers think that eliminating wasteful spending would allow more tax cuts, dream on. The major spending program, Social Security and Medicare, are wildly popular with roughly 50 million beneficiaries.
SAMUELSON: And that’s the problem. I mean the problem is that to simplify it just only slightly is that our political leaders basically tell their bases and even and people in the middle of the road what they think they want to hear. And
LAMB: Isn’t this going to kill us though in the end?
SAMUELSON: Well, in the I have come to the sad conclusion that what is going to make us face up to these problems is some sort of a crisis that will force action as opposed to political leaders doing what they should do is leading us out of and dealing with problems that are obvious and for which there are solutions. You know what’s so sad about this is that there are a lot problems social problems we have for which there are not obvious solutions. I mean if you people have been talking for decades about reforming inner city schools. Well, it’s a very difficult thing to do and so we haven’t really done so. This is an issue for which there are obvious things you can do. You can cut benefits and raise taxes and that’s basically what and that’s the that’s what the argument should be about.
LAMB: We’re out of time, but I have asked you this
several times in the past, but I have to do it again.
LAMB: You’re not related to Paul Samuelson.
SAMUELSON: I am not
LAMB: And how many times have you been asked that question?
SAMUELSON: Several hundred. Maybe some thousand. But he was a very I met him once in an airport very briefly and he had the ”Newsweek” column that I now write in the ’60s and ’70s until he retired from it in the late ’70s and when I got it, he wrote me a very nice letter and which was one or two lines, the last line of which someone named Samuelson can’t be all bad. And I know he may have lived to regret that, but or change his mind, but he seemed to have a very good sense of humor and obviously he was a giant among economists.
LAMB: We didn’t invite you here for the because of this book, but we’re going to mention it anyway.
SAMUELSON: I’m thrilled that you’re going to mention it.
LAMB: Paperback out 2010 the which came out last year, ”The Great Inflation and It’s Aftermath” Robert J. Samuelson, columnist for ”Newsweek” and ”The Washington Post”, thank you
SAMUELSON: Thank you.
for joining us.