Political predictions they got wrong (No31) Paul Samuelson’s Economics

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:

For a full list of political predictions they got wrong please click here

About matthewashton

I'm a Politics Lecturer at Nottingham Trent University. I specialise in the fields of American, British and media politics.
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6 Responses to Political predictions they got wrong (No31) Paul Samuelson’s Economics

  1. sheiloan says:

    ‘Economics’ ?
    Before ‘information’ became available to the masses (ie the Slaves-you and me) Slavery was enforced by the ‘Rulers’ by pure (military) force. Not so easy after WW1 when ‘the masses’ became aware of the Rulers (the ‘Establishment’ after so long) absolute contempt for Human life, by for example, culling the population (see the ‘Killing fields’ etc)
    How then, to maintain the Slave Trade?
    Answer= Money. Make everybody need money to survive and make all the Slaves have to work for it. The Establishment therefore have to control the money supply. Government (you and me supposedly) apportion the money supply and produce it and give it to the Establishment to distribute. ‘Economics is Bunkum’ and whilst we continue to have a ‘rigged’ democracy there is no hope of an improved society and if we carry on needing ever increased production to keep the Slaves employed Planet Earth will cease to support Human life’
    With the decline of ‘Religion’ to help control the Slaves (‘Work away for your wicked Master and you will enjoy Eternal Live, living with me and my Dad (God) whilst the slave drivers will burn in Hell!)
    Is Economics really believed by some to be a sensible subject or is it Bunkum?

    • Well I’d argue that economics is a useful subject in that you can make broad predictions about what effect certain decisions will have. However because economics (like politics), deals with humans I’m hugely sceptical about it’s ability to predict the future. We need to stop viewing either of these subjects as a science, as the most we can hope to do is to understand the past and gather evidence, to hopefully, make better decisions about current policy.

      I would agree though that economics, like many things (religion, culture etc) can also be used as a form of social control.

  2. sheiloan says:

    Certainly ‘economics’, if applied sensibly could be used (and is in some circumstances) to apportion priorities and perhaps limit the damage we are clearly causing to ‘poor old Mother Earth’ (who managed so long, presumably, without out help)
    Although an over-simplification, by now we could probably have reached a stage where .virtually all mankind could be living in peace and comfort and perhaps be more engaged in attempting to find out ‘what its all about’? Of course perhaps its not about anything – but that would be terribly dis-appointing?
    Its surely not about Money distribution?
    Do we leave our ‘existence’ knowing no more than when we entered it?
    Clearly we agree that Economics is Bunkum? – but it needn’t be?

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