Paul Samuelson – Master of Economics With the Net Down

Gene Epstein — Requiem for a Failed Messiah:

a bona fide economist, or even just a noneconomist with common sense, would have realized that the Soviet Union was not producing “gross national product” to begin with, much less price-adjusted GNP. In the Soviet system of nonmarket prices, with no capital markets and no competition in the consumer markets, there was no role for entrepreneurship, which drives meaningful growth and development.

The Soviets were churning out government’s national product. It could hardly compete with even the admittedly flawed gross national product coming from the U.S.

Such knowledge would have been easy to acquire, even 45 years ago. Samuelson could have grasped the insights of such Austrian economists as Ludwig von Mises and F. A. Hayek, who had written extensively on the economics of socialism. One of their drawbacks for Samuelson is that they eschewed the mandarin perspective that an advisor to presidents found congenial. Another was probably that they wrote almost exclusively in English instead of math.

The appeal of math for a practitioner of what we might call mandarinomics is clear: By excluding nonmathematicians from the dialogue, it helps elevate the economics you practice to the esoteric status enjoyed by pure sciences like physics. But whatever the merits or demerits of math, its frequent use did occasionally turn Samuelson into one of those clueless types often satirized in economist jokes.

Take Samuelson’s celebrated work on “revealed preference,” that nice phrase he coined to capture the idea that consumer preference is revealed through active choice. (OK — maybe it doesn’t sound that brilliant, but at least it’s sensible.) It should go without saying that while consumers might choose consistently in terms of their preferences, those preferences rarely stay constant. Even if there were no new products altering our preferences, we do get older every year, and occasionally take on dependents. What we valued highly last year may therefore be nearly worthless to us now. But untroubled by such human considerations, Samuelson assumed that preferences are frozen, the better to apply complex math to “map” individual preferences.

His common sense, however, did occasionally thwart his penchant for counting angels on a pin’s head. A few years after that phone call about fiscal policy, I encountered Samuelson in a small seminar on free trade. The grey eminence surprised everyone by declaring that, despite having constructed a mathematical model on the drawbacks of free trade, he repudiated the results of his own model. His reason: The model did not allow for the influence of entrepreneurship, which would offset its results ..

UPDATE:  Read also this.

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The chief powers of the trade unions rest entirely on their being allowed to use power to prevent other workers from doing work they would wish to do. — F. A. Hayek

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