If you go into any decent second-hand book shop and look in the economics section, I’d be willing to bet you’d find several different additions of Nobel prize winner Paul Samuelson’s best-selling textbook Economics. First published in 1948 it’s sold over four million copies and is still available today (it’s now in its 19th edition as of 2012). Its importance can not be overstated and I’d recommend it to anyone in the process of learning more about the subject.
Obviously economics has changed a great deal during the 20th century, with new theories and ideas being developed and older ones discarded. If you read through the many editions though, it’s interesting how many claims and predictions Samuelson made that later turned out to be flat-out wrong (it should be noted that later editions were co-authored with William Nordhaus).
For instance in the 1973 edition, he predicted that the Soviet Union’s per capita income would continue to grow, and would probably match that of the USA by 1990 and overtake it by 2010. This prediction was based on his argument that the Soviet central planning system was in some ways more efficient than the US model, something we now know to be untrue.
He was still making these sorts of claims as late as the 13th edition in 1989, just before the fall of the Berlin Wall. To quote: “The Soviet economy is proof that, contrary to what many sceptics had earlier believed, a socialist command economy can function and even thrive”. While it could be argued that the Soviet model certainly functioned, up to a point, and did thrive in its early years, it had been in a downward spiral for some time. I shouldn’t be too harsh though because hardly anyone saw the collapse coming. It should also be pointed out that Samuelson was a lot more pessimistic about the fate of the Soviet Union in earlier versions of the book.
It wasn’t just the Soviet Union though where he got it wrong. In a separate book in 1943 he predicted a huge recession for the USA after the Second World War, due to a fall in demand and rising unemployment. If this happened then, “there would be ushered in the greatest period of unemployment and industrial dislocation which any economy has ever faced”. Possibly his warnings, amongst others, forced the government into taking action to avert this crisis, but that’s difficult if not impossible to prove.
In the 1980 edition of Economics, Samuelson argued that it was unlikely the banking sector would face any serious problems in the coming decade. As it later turned out massive numbers of Savings and Loans ran into difficulties (to put it mildly), due to insufficient regulation and over-lending.
Why all of this matters is because Economics is the best-selling economic textbook of all time, and as a result shaped the views of millions of students who would later go on to be business leaders, policy advisers and politicians. To his credit Samuelson was always fairly open about it when his predictions failed to come true, stating that he was using the best data available at the time and he changed his mind as the evidence changed. I’d argue that in some cases, especially concerning evidence coming out of the Soviet Union, he possibly should have been a bit more sceptical as to its accuracy, however almost everyone in economics is guilty of that. Also in his defence, Samuelson did make many predictions that were right, including warning about the growing size of the US debt.
Here is a clip of Paul Samuelson talking a lot of sense about Wall Street: