Prof.Paul.A. Samuelson, the foremost Keynesian economist of 20th century, who breathed last recently was a great mathematician and best known for his most influential text book on Economics and many scholarly papers which are collected in several volumes. In my doctoral dissertation, submitted to University of Pune in the early 90s, I had a friendly quarrel with Prof. Samuelson’s way of correcting David Hume’s Price Specie Flow mechanism. I felt that, Samuelson’s corrected version of Hume’s mechanism in a monetarist tradition took away the flavor and the real spirit of Hume’s analysis and expressed my note of dissent.
In the last two decades, I never bothered to articulate this in a journal article. Perhaps I was too diffident and or not adequately enterprising enough to bring it to his attention and even get an affectionate hit from him when he was alive. At this juncture I remember my student, one Mr. BalaRaman, writing some thing in a post card to late Milton Friedman and getting reply from him. I am proud that my students are more enterprising than me.
Going back to the theme, Samuelson was the first prominent American economist who carried the revolutionary ideas of John Maynard Keynes to the American soil and he had the privilege to teach students, some of whom became the actual and potential candidates for Nobel Prize eventually.
John Maynard Keynes knew very well that the best way to lift the capitalist economy trapped in depression was to stimulate more government spending and effect more tax cuts, besides keeping interest rates low. Keynes was the first one to demolish the 19th century view that the private sector was stable and the market forces of demand and supply would always cure unemployment without any kind of government intervention.
It is gratifying to note that, Paul Samuelson lived through several decades, which witnessed currency crises, more particularly the recent financial mess into which U.S economy trapped itself by adhering to orthodox market economics dominated by the notion of rational market and efficient market hypothesis.
It is to the credit of Keynes and Samuelson that the U.S and other western nations currently affected by the most serious banking and liquidity crises of 20th century, have embraced Keynesian economics – rising government spending, cutting taxes and easing the monetary policy, almost driving the short term interest rates to near zero and more important, not yielding to much protectionist pressures at home against the opposition of the monetary conservatives.
This time, the U.S did not commit the mistake of balancing fiscal budgets and erecting trade barriers as most of the countries, including U.S did during the depression days of 1930s, when Keynesian economics in full format was not yet born .It must be mentioned however that, the lessons of Great of Depression of 1930s have been not fully learnt and there is a full cry for protectioism in the advanced countries to safe guard domestic employment . Both the volume of trade and capital flows have declined substantially indicating that current recession is more farther, deeper and more costlier than what polcy makers would have thought.
In the context of current crisis, it would be more instructive to recall the kind of advice that Prof.Samuelson himself gave to president elect, young John F. Kennedy after 1960 election. He told the president that, U.S was heading towards a recession and that he might have to push through a tax cut and Kennedy was shocked.
“I have just campaigned on a platform of fiscal responsibility and balanced budget and here, you are telling me that the first thing I should do in office is to cut taxes.”Samuelson recalled, quoting the president. But unfortunately, Kennedy was assassinated before he could implement this decision with all reluctance. It was left to his successor, Johnson to administer the Keynesian medicine of tax cut to lift the U.S economy out of recession and it became the famous text book example to demonstrate the efficacy of Keynesianism.
Although there are reports that there are signs of recovery in the U.S economy now, the ground level realities give a contrarian picture. The pain of recession is very much alive and kicking. Very recently, Prof.Paul Krugman has lamented that, while Obama administration had taken measures to help the banks and financial institutions in distress, the same enthusiasm is not shown in tackling growing unemployment in the U.S, occasioned by one of the worst economic crises in the country. Not only Republicans, but also the Democrats are unwilling to support the second fiscal stimulus for a large budget deficit to cure the problem of unemployment. It appears that for many years, many millions of workers will be on the street without job and there is no guarantee that private markets would cure this massive unemployment without the need of government intervention. Will the U.S. listen to the voice of Keynes and Samuelson,very aptly echoed by Prof.Paul Krugman time and again?
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