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He was a good chap and will be missed and carried with him some strong messages for the UK Labour government:



‘As economists have long known, and as Keynesian economist Paul Samuelson and the late Keynesian James Tobin have pointed out, the minimum wage destroys jobs for unskilled workers. Economists' consensus estimate is that a 20% increase in the minimum wage destroys 2% to 4% of youths' jobs. These job-destroying effects have been more severe for black youths. As Samuelson wrote in his 1970 textbook, Economics, about a proposal to raise the minimum to $2: "What good does it do a black youth to know that an employer must pay him $2 an hour if the fact that he must be paid that amount is what keeps him from getting a job?" ‘

For me I'm more 'a believer' in the Austrian school, especially Hayek. I think that people should seriously read his 'Road to Serfdom'.

The use of complex mathematics gives the illusion of certainty as is beloved by thjose who have to make decisons as they ask the mathematics to make the decison for them. The inevitable cry is we will modify the model and then it will fit, retrospectively.

My first Economics course text was Samuelson's. If he had a real claim to fame I think that it was his style which challenged students to think about what they were reading.

The use of complex mathematics is what has led to the development of derivatives, securitisation and all the other tricks of the trade.

What a pity it is that none of the regulators understood what was afoot, not.

Milton Friedman RIP. Anyone helping Keynesian ideas into the mainstream should hang their head in shame.

Good blog Steph. You need to smile more though!
One comment: You seem to confuse mathematical and optimisation techniques, which often have no rigorous check for fit, with statistical or econometric models. The former are used in the city by bankers and are borrowed from as diverse areas as bacterial reproduction and geo-physics, and have been thrown uncritically at finance by people calling themselves 'quants'. The later are the stuff Samuelson worked with - models that have proper theoretical foundations, and have proven themselves in applications in ecomomics..

#1. nautonier wrote:

"What good does it do a youth to know that an employer must pay him $2 an hour if the fact that he must be paid that amount is what keeps him from getting a job?"

Oh dear, whilst Paul Samuelson's economics was of a bygone age - I cannot let the above quote stand as a lesson against the minimum wage.

This statement might have been true when there was no social safety net, but it is not very valid today when it is generally agreed that we do not like to see the unemployed or employed destitute begging on the streets - so we pay them a social wage.

Consider the economic impact of benefits paid to the working poor. Here one employer is able to pay a derisory wage knowing that the state will make this up to a living minimum. That is to say other taxpayers are subsidising low waged work. I ask you to consider if it is economically proper for good (minimum?) wage payers to be subsidising bad wage payers in this manner?

Thus I contend that your aphorism about youth unemployment no longer applies. Indeed it is wrong.

The Mathematicising of Economics

I share the concerns of the previous posters about this aspect of economics. Sums are applied to the vague and by so doing the vagaries are made to appear to be false mathematical truths - when in reality the errors in both the data and the methodology of computation give rise to massive error.

For example consider the perversion of the cpi that was used to justify setting the wrong interest rates fro most of the last decade as the rates were set form a cpi that was net of imported Chinese deflation when the task was to manage UK indigenous inflation (and asset inflation). The regualtors knew that their rates were too low but were trapped by their pseudo-mathematical computations. This is a massive error in economics.

Samuelson's epic book Economics was my first introduction to the study of Economics as a discipline. The hard bound book instilled in me lot of pride about studying a subject which was the passion for people like John Maynard Keynes. Having just passed the 'O' level and antagonising my parents by not pursuing a career in pure science, Samuelson's epic book also gave me the solace and the confidence to move forward. My tribute to the giant of modern day Economics

I have just dug out my 1967 edition of Samuelson `Economics' for old times sake. A good book but I never got to the end of it. It gave me the basic grounding and in those days it was the `Classical' economists who were the fools.

I think that economists can get too hung up on labels. I doubt if anyone can deny the great contribution that Keynes made in his day to both economics and also to this country. I do not agree with every word he wrote but he made sense within certain criteria. To get an economy moving after a major collapse you turn to Keynes. However, when you are trying to manipulate a mixed economy as Wilson was in the last Sixties then another pattern might have proved more appropriate.

It is horses for courses and ideas can easily become dogmas. I have complained before that currently we seem trapped in an academic exercise. As time goes by I then begin to perceive that the academic exercise suits one powerful group more than it does the rest of us. This is not very helpful. The alternative is that we focus on what works using the ideas as touchstones by which we can measure the both inputs and outcomes: in other words move on to embrace new models.

I'm delighted to see that you now call economics a 'social science', since it's no more a proper science than Media Studies, really.

The mystery is why we've allowed ourselves to be ruled by the nonsense for so long, and continue to do so - it's not predictive, not repeatable and depends on multiple variables. That kind of activity is usually called guesswork, and so far as I know there isn't a Nobel Prize for that.

Is there astonishment that macro models are not predictively valid ? Surely when studying microeconomics when you reach Arrow's impossibility theorem and realise that there are very few micro models that you can reach firm conclusions and then jump to macro economics and study a subject that by definition requires a suspension of disbelief. It is surely completely intuitive that behavioural economics is going to be the most fruitful area for research since any interpretation of human behaviour that is predicated on 100% rational behaviour is a non-starter as micro economists have known for years. I am astonished at the surprise that macroeconomics is lacking robustness in its forecasting - microeconomics has always pointed to this as more certain than virtually any other certainty there is. Add this to all the vested interests involved in the generation of these theories and you can multiply this certainty by 10.

I would agree with all of the wholehearted tributes to Paul Samuelson both as an Economist and for his excellent textbook.

However I would draw the line at him being the most influential American Economist of the 20th century.

I wouldn't place him above Milton Friedman and would also argue that Friedman's followers from the "Chicago School" had a bigger impact across the World.

I too was surprised by Samuelson's remarks about minimum wage which seemed political rather than economic. The question of supply and demand for labour is unfortunately for economics rather untidy. Labour is not just a resource like energy - it is a person and persons come together in society where not unreasonably you would expect economics to serve the welfare of those in society. The laws of supply and demand for labour are there to make the unequal power relationship between employee and employer respectable and 'scientific' Such 'laws' are no longer obeyed in a global and corporate economy. I dont think Samuelson ever grasped the emerging obsolescence of much of his work.

Economics is like religion, there is nothing wrong with the foundation of beliefs, it is the applications that get messy because of the involvement of human beings. The most recent application, as a sceince, is as if when testing the atomic bomb, half the atmosphere had caught on fire. Those who create new ways of looking at things should always have the good fortune of death before others apply them in their name.

That takes me back to university days, 35 years ago. I can still 'see' the book in my mind's eye.
What a pity that humanity gets in the way of economic theory and that, in reality, humans do not move to maximise economic outcomes.
On second thoughts, perhaps it is just as well that they don't!
Ashill

This comment was removed because the moderators found it broke the house rules. Explain.

But if there's a link between Samuelson and our current troubles - and frankly I think it's a bit mean to draw one - it's a link that goes to the core of all of modern economics. For, whatever economics is today, for good and bad, it is, in no small part thanks to him.

I don’t. Think it is mean, that is.

Our financial system is fundamentally flawed and mathematically unsustainable. Shame he failed to spot this fact isn’t it.

I think Richard Feynman might have disagreed with the meaning implied by your juxtapostion of the words 'Social' and 'Science'.

Econ00000mics is the science of AAAlchemy where its protag00nists forever reAAArticulate their bAAAwls whilst THE BEADERS OF LABYLOANIAN VOODOO turn their cheekease in exchange for the pie that is not in the sky.

Economics has turned Man into a slaaave raaat in a wheel of missedfortune instead of giving him domminion .

Stephanie

I would certainly be one to claim there should at least be a debate about the claim that Paul Samuelson was the most influential American economist of the C20th.

Whilst JK Galbraith was born in Canada, he adopted US Citizenship in 1939, so if you are flexible about how you interpret American as North American, then I think he fits into the geographic category for consideration. His writings were arguably more accessible to a wider range of people, through his prose and he had the ear of LBJ.

I would have to agree with the earlier contributor that Milton Friedman and the Chicago School may eventually be considered at the most influential American economists of the C20th. Margaret Thatcher and Ronald Reagen adored him. Central Banks around the globe continue to target inflation, due to his monetorist theories.

Lastly, I would put in a very cheeky bid for Michael Porter as a micro-economist. This assumes that you had already discounted Paul Krugman on basis that at least during the C20th he did not enjoy the political influence of aforementioned contenders. His text books on International Economics have been staples for years, not not until late last century.

Surely we are in Minsky Moment

Hopefully the Minsky Moment passed in Q4 2008, when the retail banks that had over lent consolidated, causing some revaluations of assets and the Bank of England eased cash flow pressures by the reduction of base rates. The knock on effect of stock price reductions carried through until Q1 2009.

A second Minsky Moment now would precipitate a double dip recession. It is not completely impossible. Stock market prices have increased substantially since March 2009. Hopefully, reduced interest rates charged by retail banks will reduce cash flow pressures and asset prices such as on the stock market and housing are finding a more sustainable market equilibrium.

Stephanie,

I don't remember anyone asking Robert Peston to smile more. I may be speaking from total ignorance, but given the influence Milton Friedman has had over the past 40 years I think that he tops him.

But it's an important distinction to draw: both men were influential but I doubt they were good for economics. Friedman's blindness to the power of the banking system and the mathematisation of economics has not allowed us to progress in our understanding of how economics works in the real world; and how it is used. If anything, a psuedo scientific approach has alienated mainstream readers who would possibly have a clearer understanding of the subject, and a truer one, without both men's contributions.

I am not so sure the Minsky Moment has passed rather than merely temporarily masked. The anti-assets are still in the cupboard, marked to make believe, or at least in need of further haircuts. There remains huge underwriting losses lurking should a big-un fall and interest rates are starting to come under real pressure. QE can probably hold the fort for another three months but the banks and their new sovereign underwriters remain massively over-leveraged.

"I'm delighted to see that you now call economics a 'social science', since it's no more a proper science than Media Studies, really."

This is a strange comment, economics has always been labelled a social science. As science is the observation, identification, description, experimental investigation, and theoretical explanation of phenomena I am curious what a proper science is? Economic theories should be more observable and often easier to test than say theoretical physics, do you consider physics not a 'proper' science?

Your further comments "it's not predictive, not repeatable and depends on multiple variables" demonstrate a lack of logical thought which many would argue is a basic requirement of a "science". If we look at meteorology the main problem with the prediction of weather patterns is the complex interaction of multiple variables. If a theory fails to accurately predict an outcome from the starting variables such as the weather forecast, such as chemistry at a nano level, or physics with the expansion of the universe, do we dismiss these fields as "not proper science" or do we work to refine or create new models based on our observations.

Oh BTW you are wrong with your statement about economics and media studies. Media studies is the critique of artistic styles and aesthetic forms (genre, narrative, and so on), the study of the production process (e.g. technologies and markets), and sociological analysis of the impact of media. Given that observation, identification, description, experimental investigation, and theoretical explanation of phenomena is only part of the course then economics is by definition more of a science than media studies. That is not to say that either is harder or more rewarding a subject to study than the other.

I would like to make a prediction based on your statements that you have studied neither economics or media studies beyond GCSE level, if that. I would predict that you have instead studied chemistry and/or physics. I would suggest that taking pride in your subject is generally a good thing, but arrogantly claiming that your subject is a "proper science" is really just inflating your own ego and moving you towards an unquestioning closed mind, which really is the antithesis of a productive scientist. If I am indeed correct then you should realise you are making statements without observation or evidence which is decidedly unscientific.

Of Christopher Wren, it was said that if you would see his monument, look around you. Sadly, as the father of modern economics, Paul Samuelson's monument is the wreckage of the credit crunch. He may not have produced the ideas that led to the catastrophe, but his disciples did.

But having said that, as a teacher the guy was brilliant. I remember one of his books introducing me to the concept of the dollar vote and the realisation that came to me from this that Marxist / Socialist ideas of a command economy were doomed.

A man of many talents who deserved to be remembered by those who come after him - just as Keynes' ideas are still relevant today.

But remember the dictum of Frank Cousins. "If there is a free for all, then we are part of the all". Samuelson propounded the free market economy. We take our part in it and live with the consequences.

Samuelson's view on the minimum wage (comments 1, 8 and 14 above) is of course spot on. Consider that in the UK today we have record youth unemployment, some 10 years after Labour introduced the minimum wage. Where have the jobs gone? Well they have gone to countries that do not have a minimum wage of course, predominantly China. This is economics pure and simple and UK consumers, many of whom may have supported the minimum wage, are very happy with their bargain Chinese made purchases but then complain about lack of jobs for their childrem, ever rising national debt and ever rising taxes.
Maybe Samuelson should be compulsory reading for all those who wish to stand for election.

What is the collective noun for economists I ask with all this adulation. Economists are obviously terribly clever chaps and chapesses, after all only very clever people could have made such a good job of the totality of what is around us. What a load of bull. Statistics do not apply to this, the number of same events is small so there is not quantifiable uncertaintiy, so it is not a science. It is glorified guesswork dressed up as having certainty. As for the weather forecasting analogy. There are satellites in space photgraphing the planet. It is much the same as looking out the window and saying it is raining and coming our way. Remember the bar-b-q summer that was a washout - that was the forecast. The fact that people still venerate this so called science even when the results of its implementation are all around is very telling. Hopeless.

#29 riverside wrote:

"What is the collective noun for economists?"

A claque? (In that they all praise and congratulate each other even when none has any actual merit.)

A derision? (What the rest of the World thinks of economists.)
A laughingstock ? (ditto)

An asylum? (In that there are all deranged as they think of themselves as skilled and continue to think so even when there is amply evidence that they are almost totally unable to use their 'skills' for any practical economic purpose.)

A waste of time/their lives? (ditto)

etc.

And economics is NOT a science - so all collective nouns that suggest any from of scientific basis - such as school for example- are by definition inappropriate.

30 john from hendon

Perhaps there is a depression of economists, is that it.

''Paul Samuelson .... He once boasted: "My finger has been in every pie." ''

Pity he didnt wash it then, cross contamination. Given us all the finger.

On a jollier note I see the MOD budget, already bust, is being described as unsustainable. Doh. The budgetary cannibalism is now moving to cutting bases and staff. rather a strange foundation to base overseas war from. This has errie echoes of the USSR where Reagan encouraged the Bloc to overspend on defence leading to economic instability. All we need is a 5 year plan, oh we have a 4 year on due in statue.

I feel that Osama may well succeed but not as intended, he managed to get the US and UK to look at war and not keep the eye on the home front from 911 onwards. There never seems to be any admission in the US that 911 occurred because they pulled their pants down. Clinton refused internal security recommendations that US domestic airline security be tightened in the face of commercial lobbying. The US domestic airlines wanted, and got, a walk on walk off approach similar to trains to boost travel growth despite security concern. Thing is, trains run on tracks and cannot enter buildings unless intend to.

Governments that do not govern and commercial lobbying together are a deadly mixture. Governments drifting into commercial influences and becoming de facto profit partners in economic manipulation via the science of economics are equally deadly. The government enjoyed revenues from the financial sector and therefore dropped the reins, did not want to do anything to spoil the party.

I see, surprise surprise that China is looking to take more of the global financial activity. I never seems to have occurred to anybody that what moved to London in short space of time, can also move elsewhere. Financial transactions look a prime candidate to slip down a telephone wire to me. But who am I, I am not an economist.

Tell you what, as the financial sector is now central to UK HMG revenues, providing 1/5 of inflow, perhaps a clever economist can mathematically model and tell me how quickly the City can move, bit like that castle in the kids fantasy film that flickered and moved every night. Here today, gone tomorrow.

I think we need a new kind of economics now. For example in Keynes day you could not borrow ridiculous amounts of money. the multiplier exelarator only works when it sustainable. We need "Sustainable economics now". I always question supply and demand as builders get more money for building less this makes absolutly no sense. As we see in the current housing market people are making more money for a lack of demand. Supply and demand encourages laziness.

A distribution of economists

Surely it is a "disagreement of economists".

Thomas Carlyle called economics 'The Dismal Science'. Judging from recent events it seems he wasn't far wrong.

bob(28) says: "Samuelson view on the minimum wage is spot on....in the UK today we have record youth unemployment, 10 years after Labour introduced the minimum wage." Well, we also happen to be in the middle of a huge economic crisis. That crisis was not caused by the minimum wage and it's that crisis - and not the minimum wage - which is pushing unemployment up. The minimum wage is set at a level which is meant to cover basic needs. If a business is unable to function profitably within those modest labour cost parameters it: 1) ought not to be trading or 2)find cost savings elsewhere. The distorted property market would be a good place to start looking for savings in. Ridiculously high commercial rents seem - to me - to be a much bigger threat to job creation than minimum wage legislation.

A finger in every pie or a finger in every eye. That is the question, or it would be if the answer was not known.



Prepare to defend yourselves as best you can, for the die it is cast.

Re 32, I agree we need a "new type of economics" ... perhaps we should revisit the Austrian school of ideas, many of these guys warned of this boom & bust and correctly view our current politicians as fools for pushing the pain further down the line. We know we have to face it one day and the more we try to avoid the problems we have created, rather than ignore them, the worse the end game will be.

8. At 7:44pm on 14 Dec 2009, John_from_Hendon wrote:

#1. nautonier wrote:

"What good does it do a youth to know that an employer must pay him $2 an hour if the fact that he must be paid that amount is what keeps him from getting a job?"

Oh dear, whilst Paul Samuelson's economics was of a bygone age - I cannot let the above quote stand as a lesson against the minimum wage.

>>>>>>>>>>>>>>>>>>>

I agree John - the quote was one that Mr Samuelson pursued vigourously with his thinking about governments interfering with and not understanding wage market pricing mechanisms.

I'm glad that someone has replied because it is the associated tax policy that matters equally or perhaps even more than the minimum wage level itself - the low paid in the UK are overtaxed and that is causing additional UK unemployment.

Mr Samuelson was, I understand the first in economic circles to explain in detail why tinkering with a minimum wage and low paid tax thresholds is not a good idea unless there is sound underlying economic management, and tax and benefits structure to go with it.

The important bit is the UK's MW, tax and benefits are out of kilter and this is causing additional unemployment - this I think, is relevant today. Removing the tax burden from the low paid would give them 'a level playing field' in competing for work against 'tax dodgers' and the 'black market'.

The really important bit in terms of economics is, I think, that economists need to set their ideas out against the 'big picture', otherwise their words are meaningless.

Mr Samuelson deluded himself with the 'illusion of economic quantitative precision' but is acknowldeged as having made some significant contributions.

"The fact that people still venerate this so called science even when the results of its implementation are all around is very telling."

Do you feel physics is not a science due to a lack of a unified theorem and the inability to predict the future with accuracy?

I used the weather analogy because recent use of 3d fractal mathematics is showing promising signs of producing much more accurate predictions of weather predictions. Now it may be the case that in a few short years the 5 day forecast will have a near perfect accuracy, or it could come to pass that this promising theory is no more accurate that current forecast models. This is why I felt the analogy to be of interest. Presumably you dismiss meteorology in the same way you dismiss economics?

Your belief that economics cannot be a science because the events involved are too unique to present quantifiable data would similarly allow me to dismiss chemistry and physics as unscientific because they are unable to accurately predict future events. I do wonder if developments in quantum computing, nano and quantum data storage as well as advances in a non-related field such as fractal mathematics will lead to the seemingly unpredictable to become much more predictable.

There are additionally three huge flaws in your logic.

Flaw 1
ALL governmental decisions are based on economic models which are believed to accurately predict future events. The nativity of this belief is staggering. Just like a lawyer will use forensic evidence when it suits them a politician will justify their actions with economic theory.

Flaw 2
That a flawed theory means that an entire body of work is not scientific. I would say this is a kin to stating medicine is non-scientific because people use homoeopathy to treat illness.

Flaw 3
That the detrimental effects of the flawed application of a theory means that a whole body of work should be dismissed. Does the Chernobyl disaster suggest all nuclear physics is invalid? Should we dismiss chemistry and biology because of climate change? Surely you can see there is no logical connection in your argument...

Alex - 36. Youth unemployment has been rising for several years, it's nothing to do with the current recession as such, that has merely made it even worse.

Businesses HAVE found cost savings elsewhere - they have moved production out of the UK, whilst still having free access to the UK market. We have to face one of the following - reduce our labour costs to more competitve levels or go protectionist and take away the importers cost advantage. Failure to do either, or more probably a mix of both, will simply lead to more unemployment, therefore more public spending, therefore more taxes, therefore more jobs exported. A viscious downward spiral.

We have no raw materials to speak of, our wealth has always been built on making things and providing services the world wants to buy. We are no longer competitve and have to face that reality. Any politician who says otherwise is misleading us.

Stephanie~My heartfelt condolences are being sent to Mr. Samuelson family and friends (and) to the world of Economics....

*Dennis Junior*

Paul Samuelson was in no doubt the most influential American economist of the 20th century. He was a great person and will be missed a lot.