Friday, January 29, 2010

Paul Samuelson:The economist and his time (II)

Originally a scientific not an economist, Samuelson set the tone from the beginning. While he was defending his PhD thesis, Schumpeter who was among those present at that moment said:” I do not know whether this jury is able to write something as brilliant as this thesis” .
The contribution to macroeconomics has made Samuelson the real father of Macroeconomics, quite on the contrary to the conventional wisdom which give that credit to Keynes. As usual, public validation goes through a different way to what it should be.
Samuelson `contribution might be summarized as follows: The economic analysis as a conditional optimum (1947)(these days this is known as limited rationality).It made the so called neoclassical synthesis (1948),which means the classical approach plus Keynesian approach, to be applied to the way the economy works: mixing market with the State. Other areas includes Consumption theory,(revealed preferences 1947), International trade theory (The Stolper-Samuelson Theorem) , and the conditions to make equal world prices of capital and labor,(1948).Public economy and markets failure which affect optimality on market result(1954).Economy Growth theory ( 1939) and the accelerator principle ,the first overlapping generation model (1958).On the financial side , Samuelson worked on the efficiency of diversification(1967),and the rules to build a life time efficient portfolio (1969).He gave microeconomics a better mathematical support , such that it allowed to improve the quality of its implications .All of this transformed the economy from the traditional -static social science, to a modern –dynamic science with strong mathematics background.
On the political economics side, he said that both Marx and Friedman were wrong ,which it is true about the Marx interpretation concerning the real forces of History . but unlikely about Friedman statement that inflation is a monetary phenomena, or the nature of market forces and its close ties to human motivations, which add severe limitations to the role of Government in the economy . Friedman was probably wrong concerning his approach about the role of institutions , which apparently he ignored, and his misinterpretation of the strong ability of capitalism to adapt itself to different political regimes. However, it is hard to say that Samuelson had the last word about the way markets and Government works .The recent financial crisis ( 2008-2009 ) proved that both government and market might fail, and what it count more at the end of the day, is to have strong and reliable institutions. Thus, it seems that Douglas North Is the one who has settle down this discussion, although it is not the case to be a shadow on the outstanding Mr Samuelson` contribution .

Friday, January 08, 2010

Paul Samuelson: The economist and his time (I)

It is not easy to say something relevant when it comes to comments the legacy of a prominent economist .Thus, maybe it is better to side step. But ,I am an economist just like Paul Samuelson. Sure, I am not a genius like him ,but I am fully capable of understanding the magnitude of his legacy . I studied with his books, my basic notions of economics.
Like many other great economist once they pass away, the real issue becomes not just theirs contribution , but how it fit properly with the times. Let checks some examples: Michael Kalecki was a polish economist(socialist) ,who stated the foundation of Government intervention into the economy(1933) , just like Keynes (Liberal)did a few years later(1936). However, they had a different impact with this approach of Government activism. While Keynes has been widely considered the founder of macroeconomics, Kalecki is barely known outside the academic circle .Rudiger Dornbusch, a German born economist, who helped to reshape the financial implication of both capital mobility and monetary policy impact on exchange rate(overshooting effects), and along with it , the foundations of the normative macroeconomics , did not get the same recognition and impact as Robert Mundell got, who even rised himself up, above his colleague and mentor, Fleming . Thus, great economists with outstanding contributions do not get always the recognition they deserve .That was not the caser of Paul Samuelson .
Is it a matter of luck?. I think it is more a matter of timing. To be on time with history and its requirements , neither sooner nor later, but just in time. Knowledge is the input of economic progress and society welfare, and like any input its usefulness is higher when it is available at the right time, where it is most needed and with the format more comprehensive to all. Friedman ,although not the first one to call the attention upon the inflationary impact of money growth ,was also on time to cope with the implications of both Fiscal and monetary expansion.His contribution, cames along when Governemnet intervention and fiscal expansion were considered as the conventional wisdom. Therefore, it is the proper combination of the man ,the time and the knowledge which provides, which make the most of brilliant ideas.-
Paul Samuelson contribution was wide and diverse. It was famous his explanation of stock fluctuations and its ability to anticipate recession. “They had anticipated nine of the last five recessions” ,he said in a TV interview in the eighties. Beyond what it is at the surface, he was sceptics about markets and its ability to solve the cyclical fluctuations ,which make him an icon of Government interventionism. However ,Did he had the last words about it?.-