PAUL SOLMAN: Paul Samuelson, America’s first Nobel laureate in economics in 1970, and about as celebrated and twinkling a member of the discipline as ever there was.
An MIT professor for 69 years, his emphasis on math drove economics down a path that has made it more scientific, more technical, more abstruse. But his breakthrough plainspoken textbook of 1948 also made economics accessible to millions and sold the ideas of England’s John Maynard Keynes that government plays a key role in managing the economy.
Samuelson himself seemed to know and remember everything, everyone. Fellow Nobel Bob Solow was among his best friends, Nobel Robert Merton one of his students. And last year, at a Boston University conference with both them, Samuelson was his usual dazzling, endlessly amused, and forever young self in refusing to speak to the topic: What retirement means to me.
PAUL SAMUELSON: What retirement means to me.
I never obey instructions on what I should talk about, because only after I grow up will I generate notions about what my own retirement will mean to me.
PAUL SOLMAN: Samuelson sat down with us before the panel, just a month after the crash of ’08 had begun in earnest.
PAUL SAMUELSON: I’m really very realistic about the mess that we are in. People compare it with the Great Depression. But the Wall Street shenanigans this time are much worse. And people like me, who lived through the Great Depression, as a young, budding, kind of bright economist, are in great demand because the other people don’t have a clue as — as to what this kind of situation is.
PAUL SOLMAN: Well, what did Wall Street do this time that it didn’t do last time?
PAUL SAMUELSON: This is the first time ever that this happened after the — and I have to use my words very carefully — fiendish, Frankenstein monsters of financial engineering had been created, a lot of them at MIT, some of them by people like me.
And these are marvelous things which can be used to spread risks rationally, and, in that sense, reduce riskiness. But the Frankenstein part of the story is that they also are marvelous things, Samson-like, to blind you. You don’t know what you’re doing. All transparency disappears. What’s happened this last eight years is an absolutely unnecessary thing.
With centrist, reasonable behavior…
PAUL SOLMAN: And regulation, you mean?
PAUL SAMUELSON: Regulation, monitoring and punishing, there would have been much, much less trouble. I’m not sure that all of the fiendish stuff could have been picked up by centrist regulators, but you don’t have to be perfect in anything in economic life. If — if you spend 70 years in economics, you will understand that.
PAUL SOLMAN: I once misquoted you to yourself by saying that you had said when asked, how come, if you’re so smart, you’re not rich, you had said, but I am rich.
PAUL SAMUELSON: What I say is, if you’re so rich, how come you’re so dumb?
PAUL SOLMAN: Paul Samuelson died yesterday of congestive heart failure at his home in Belmont, Massachusetts. He was 94.
JIM LEHRER: David Warsh has more on Paul Samuelson. He’s an economics journalist with his own Web site, Economic Principals. He’s also former columnist for The Boston Globe, who also knew Paul Samuelson.
David Warsh, welcome.
What’s the most important thing we should all know about Paul Samuelson?
DAVID WARSH: Oh, gosh, Jim.
He was a warm and generous person, I guess is the most important thing.
JIM LEHRER: What was his principle thrust of his economics? What was he up to?
DAVID WARSH: Well, he was a remarkable guy.
He — there are four people to conjure with on 20th century economics, four principals. John Maynard Keynes was the one who influenced policy-makers the most, but he died in 1946. Paul Samuelson and Milton Friedman were the other two.
Friedman probably had the greatest influences on ordinary citizens. Kenneth Arrow was the fourth name. He had — he was surely the most important with respect to just economic theory. But Paul Samuelson really changed the way the economists talked to each other, and the things that they try to do, the way they try to manage the economy.
JIM LEHRER: Changed in what way? What was his — the big change that he generated?
DAVID WARSH: Well, the big change was formal methods. It was beginning long before — before he came along, but Paul Samuelson was born at the right time. He was born in 1915 in Gary, Indiana, went to the university of Chicago when it was still a Big 10 football power, in 1931, graduated in 1935.
He had already published a paper in technical economics at 22, and then he went off to Harvard to graduate school, published another 10 in the couple years he was in graduate school. And each one was more formal and mathematical than the last. He really changed the whole discourse of economics in a fairly short period of time.
JIM LEHRER: Discourse about…I’m sorry.
DAVID WARSH: No, no, discourse meaning — meaning the way that they described the economy, the way they thought of it as a system, the way they behaved. And, basically, he took the Keynesian insights and translated them into a mathematical form that permitted the measurement and the manipulation of things.
JIM LEHRER: You said that — you called him a mixed economy welfare state liberal. What is that?
DAVID WARSH: Well, that’s the opposite of Milton Friedman, which is a kind of an entrepreneurial capitalism libertarian. These guys were remarkable.
Friedman was born in 1912, Samuelson 1915. Samuelson had — had life easy. His father was a pharmacist, a small businessman, prosperous family in the Midwest, until they lost some money in the Depression. Friedman was — grew up in Rahway, New Jersey. His parents were merchants.
But he had a hard time of it when he went off to the University of Chicago, where he met Samuelson. He had to borrow money from his sister to get there and he ran out of money in the Depression after one year, got a fellowship for another year, but, after that, he had to leave school altogether. He didn’t get another job until 1946, another academic job.
Samuelson, on the other hand, was one of the first eight guys to get a National Research Council full-ride fellowship, and went straight to Harvard, stayed there, went down to MIT in 1946, and had a relatively easy time of it.
JIM LEHRER: Yes. But, on his theories, on his economic theories, he was basically a guy who believed that it could be controlled on a central — in a central way, that government and regulation could have an impact, rather than laissez-faire, right?
DAVID WARSH: Yes, sir, not just that it could be, but that it should be, and that he knew how to do it. He was very much an economic management guy, I mean, what we call the new economics, which was sort of on everybody’s lips in the ’60s, when Kennedy came in, Kennedy, to whom Samuelson was a principal adviser.
The whole idea was that government could kind of regulate the level of demand, that there would be — there would be insufficiencies periodically that it could control with fiscal policy, principally, by — by raising and lowering taxes.
JIM LEHRER: OK.
DAVID WARSH: Yes, OK.
JIM LEHRER: Well, I was just going say. Paul Solman — we just have a minute or so left here — Paul Solman mentioned — and he held up the — Paul Samuelson holding up the big book that he wrote, the big textbook.
How would you state the influence Paul Samuelson had on the education of economists through MIT and elsewhere?
DAVID WARSH: Well, he had enormous effect that way.
Samuelson really wrote two books. He wrote a book called “Foundations of Economics.” And it was for graduate students. And then he wrote the famous textbook “Economics: An Introductory Analysis” and stuff.
He understood that — that he, through his influence, he sort of controlled economics. He said to me once — he said: “Milton understands that, in order to reach other economists, he’s got to come through me,” meaning — meaning through technical journals.
Friedman wrote a very influence book in 1962 called “Monetary History of the United States.” But, after that, he really dealt directly with the public by writing a book called “Capitalism and Freedom,” and, of course, later, through the famous television series “Free to Choose.”
JIM LEHRER: Yes.
DAVID WARSH: That’s really the difference.
JIM LEHRER: But your point is that Samuelson’s impact was more through the teaching of economics, through the — through, what, through the colleges and universities?
DAVID WARSH: Well, through textbooks. I mean, almost every textbook is based on his introductory textbook — mainly through research, Jim.
It was — he influenced what was written in technical journals. And that, in turn, determines who winds up in the economic policy seats, a whole bunch of…
JIM LEHRER: Sure.
DAVID WARSH: … advising Obama are MIT economists.
JIM LEHRER: All right. David Warsh, thank you very much.
DAVID WARSH: Thanks, Jim.