Paul Samuelson wrote in the 1961 edition of his famous economics textbook that GNP in the Soviet Union was about half that in the United States but the Soviet Union was growing faster.
Figure 1: Samuelson’s 1961 Forecast of Soviet catch up
Source: Levy and Peart (2006)
As a result, Soviet GNP would exceed that of the United States by as early as 1984 or perhaps by as late as 1997, depending on whether you were reading the early 1960s or later editions of Samuelson’s immensely popular textbook. In the 1980 edition there was little change in the analysis, though the two dates were delayed to 2002 and 2012
Samuelson predicted that the Soviet Union would catch up with the United States and kept predicting this until 1989 in every edition of his textbook of which there are at least 14. Levy and Peart were good enough to tabulate these predictions by Samuelsson of Soviet catch up with the USA over the editions of his textbook in the table below.
Source: Levy and Peart (2009)
Samuelson’s predictions of the Soviet Union catching up to and overtaking the United States were echoed in most other major economics textbooks of his time.
Plainly, they all got it wrong except for the Austrian economists, Eastern bloc émigrés and G. Warren Nutter.
From 1956 to 1961, Nutter undertook a massive study of the history of the economy of the Soviet Union and published The Growth of Industrial Production in the Soviet Union in 1962.
Nutter’s study concluded that Soviet economic growth over the first half of the 20th Century was indeed remarkable, and that there had been periods of growth spurts, but when the entire Soviet period was taken into consideration, Soviet growth lagged behind Western economies and Soviet economic capacity showed every sign of falling further behind rather than catching up with the West.
Nutter’s conclusions were certainly not welcomed by the Sovietologists of his time. As the fall of the Soviet Union revealed more realistic data, Nutter’s estimates of Soviet growth rates have been vindicated, and in fact, if anything Nutter overstated rather than understated Soviet economic performance.
Paul Craig Roberts found worse exaggeration with the Romanian economy in 1979. A World Bank report, Romania: The Industrialization of an Agrarian Economy under Socialist Planning, credited central planning with achieving a 9.8 annual rate of economic growth over the quarter century from 1950 to 1975. It should be added that in the 1970s, Romania was a western favourite because of its independent stance within the Eastern European bloc.
The World Bank did not realize that using these growth rates to project backward these growth figures on Romanian income per capita quickly produced a figure too low to sustain life. This mistake provoked the Wall Street Journal observation:
We have heard exaggerated claims made for central economic planning, but never that it resurrected a whole nation from the dead.
Samuelson never reflected in his later textbooks after 1989 about how wrong he was for many decades about Soviet economic performance. Few people, thank you for admitting that there you’re wrong – they are more likely to dance on the grave of your error.
In Paul Samuelson’s case, he had more reasons of most to learn from his failed predictions because as his predictions didn’t work out, he had to rewrite and update his book and charts predicting the USSR was going to overtake the USA in about 20 years.
Rather than the suspect that there something wrong with the Soviet economic system, Paul Samuelson looked for excuses – increasingly pathetic excuses. As Larry White explained:
In the seven editions of his textbook published from 1961 to 1980, Samuelson kept including a chart indicating that Soviet output was growing faster that U.S. output, and predicting a catch-up in about twenty-five years. He repeatedly had to move the predicted catch-up date forward from the previous edition because the gap had never actually begun to close. In several editions he blamed low realized Soviet growth on bad weather.
What is more puzzling is Samuelson did update his views on the merits of fiscal and monetary policy in stabilising the economy, and the effectiveness of each over the decades in light of experience and between the 1960s and 1980s. In the 1948 edition of his best-selling textbook, Economics, Samuelson wrote that:
few economists regard Federal Reserve monetary policy as a panacea for controlling the business cycle.
In 1967 Samuelson said that monetary policy had “an important influence” on total spending. His 1985 edition states;
“Money is the most powerful and useful tool that macroeconomic policymakers have,” adding that the Fed “is the most important factor” in making policy.
Samuelson’s 1967 edition said policymakers faced a trade-off between inflation and unemployment. His 1980 edition said there was less of a trade-off in the long run than in the short run. The 1985 edition, he said there is no long-run trade-off between unemployment and inflation.
Samuelson gave quite compelling reasons as to why Keynesianism declined:
- Keynesian macroeconomists and policymakers made the mistake of projecting the experience of the Great Depression onto the post-war era;
- it turned out that, contrary to what Keynes had said, monetary policy mattered a lot; and
- The final blow to Keynesianism was stagflation: There is nothing in Keynesian macroeconomics that would allow you to solve stagflation.
Samuelson did not learn in the same way from brute experience regarding the economics of socialism.