Paul Samuelson and Robert Merton differ on the causes of the financial crisis

[warwize]

How could the losses be "as massive" without fancy financial engineering tools, like Credit default swaps? There were 3x the amount of insurance policies taken out on mortgages as there were mortgages...and those CDS were a huge part of the losses...and if they didn't use CDO's to manipulate risk levels how would the high risk shit mortgages get AAA ratings? I dont think merton is being totally honest...or maybe he just understands everything better than me

[fuckooo]

Samuelson is on the money, Merton, well, LTCM anyone?

[mpc91]

"I'm an incurable centrist" - who loved the Soviet Command Economy.

"Markets will... inevitably lead to their own destruction" - only if government interferes with them

[diogotomediogo]

7:53 who's to blame? Milton Friedman

[reverenceforall]

I think that Robert Merton has lost his mind if he can call what Wall Street did an innovation. It has had reverberations around the world and brought the entire world down. Yes people should buy a house when they can put the money aside like they do in the rest of the world. Insane guy.

[barsense]

Samuelson is the honest one here. Mertzon is trying to make excuses for fraud.

[mpc91]

@barsense - It depends how you define honest. He may believe what he is saying, but it's 180 degrees from the actual cause of the crisis.

[barsense]

@mpc91 I agree with Samuelson. 

[mpc91]

@barsense - So that's two of you who have no idea what actually caused the financial crisis. But Samuelson in his consistency, also didn't know what caused the Great Depression, didn't know what prolonged it, why there wasn't a depression in 1946, why the Soviet economy didn't overtake the US.

[barsense]

@mpc91 Or maybe just one of you that does not have a clue. LOL.

[mpc91]

@barsense - So you really have nothing to add but pom poms do you?

[Natalya1591]

Hey guys where I can find(download) Paul Samuelson "Economics" book ? Please help me :)

[Crusoeconomy21]

This is amazing to me that anyone could think economists or the government were too right wing. What country does he live in? only too right wing for an out of touch old keynsian.

[theone1087]

It's so hard to trust someone vis e vis Merton, who wears his hair slicked back; let Gordon Gekko die already. Lastly The Black-Scholes(Merton) Model was none of their creation. It was adopted and popularized from Louis Bachelier (1900) and O'Thorpe and they took credit. Myron Scholes, blew up not one but two firms! Merton is a fucking hack! Basically everyone knows now, at least I hope, prices don't fluctuate in "continuous time." Just ask Merton and Scholes how they felt about Russia in 1998?

[cybertron299]

@theone1087 These guys are pioneers of financial engineering. They provide the basis for reason, not unlike the fool hit traders of early 1990. Louis Bachelier proposed an option like security, the real beauty in options is how merton has streamlined it in a way which is abstractly beautiful and when used with care covering endogenous risks, liquidity issues reap benefits. Stop abusing these guys, they deserve a lot better than shithead bastards who don't know what they are talking about.

[CytherLynx]

Socialism = Creationism

Keynesian economics = Intelligent Design

Austrian Economics = Evolution

Don't buy into the propaganda.

[paulstroie]

@CytherLynx so TRUE

[bonfirejovi]

"Paul Samuelson thinks that government, and economists in general, have become far too right wing."

Of course he does. I bet the reason for the Soviet Union collapsing was because it was too right wing as well huh? Oh and stagflation was obviously the result of right wing policies, right?

The Soviet Union is gone Samuelson, I know you thought otherwise in 1989 but it was a failure and most sane people have moved on.

[bobjimjones]

guys like samuelson have helped take economics in the wrong direction

[nanaabril]

nanaabril RIP...pasemos pagina,si?las viejas glorias, deven su nombre a este dicho.Con cariño claro ejemejm

[ZHAKSE]

RIP "the last generalist in economics" Paul Samuelson. from Kazakhstan

[Mapky89]

RIP Paul samuelson from Portugal

[gunsandbullhorns]

PAUL SAMUELSON said in 1980:

"[i]t is a vulgar mistake to think that most people in Eastern Europe are miserable."

PAUL SAMUELSON said in 1989:

"The Soviet economy is proof that, contrary to what many skeptics had earlier believed, a socialist command economy can function and even thrive."

[QuasistellarQuark]

There is but one introductory economics textbook that all others should be compared, Samuelson's Economics. The man was giant in many fields and didn't have to plug his book constantly. His book was used for its quality and rigorous method

His death is a sad event.

Those who criticize him and insult him posthumously are generally ignorant of economics, know almost nothing about Samuelson and are devoid of human decency.

[mpc91]

@QuasistellarQuark - Comparing other economics textbooks to Samuelson's would be great for all the other textbooks, as Samuelson puts forth a system of economics that's based on fantasy and fallacy. Where the laws of nature can be put aside for political whim.

All deaths are sad events. But his death doesn't make his ideas any less wrong, and his ideas should not be shielded from accurate criticism on this basis. He may have been a wonderful person, but his ideas are faulty and damaging.

[RaymondDundas]

Satan's minion has perished. Praise the Lord!

[jsjw2]

RIP

[kitycalifornia]

RIP :(

[theone1087]

In a 1989 economics textbook, he said, "The Soviet economy is proof that, contrary to what many skeptics had earlier believed, a socialist command economy can function and even thrive." The Berlin Wall soon fell and the Soviet Union collapsed two years later "This is his quote from his own textbook provided by wikipedia" My correction it was 1989 not 1988 which makes his economic prognostications a lot worse. Again Paul Samuelson is a joke. A propagator of the left and nothing more.

[theone1087]

Paul Samuelson is a joke... another defunct economist bites the dust. You all don't remember Samuelson's quote in 1988 about the Soviet Union... How it is an ideal economy, he said the soviet system works contrary to belief. Well a year later... Go Figure. As a mathematician and physicist myself I would never trust a man with that level of inaccuracy and who cares nothing about positive economics but his defunct neo-Keynesian agenda. I guess we should return to the hyperinflation of the late 70s

[Slash417]

The soviet union failed for political reasons. Paul Samuelson is an intelligent man. If you read any of his works, you'd understand he's open to many opinions and is modest. You can't chastise a man for saying one thing that's crazy. Milton Friedman wanted to get rid of doctor licensing and the FDA. No one is calling him a fool.

[tewj57]

I see. People's "political" opposition to the Soviet regime had nothing to do with their economic deprivation. Gotcha.

On doctor licensing and the FDA, try having an original thought for once. Have you read anything about either?

[Slash417]

No, you misunderstood me twej57. I did not state that political opposition to the Soviet regime had nothing to do with economic deprivation. I stated that a MAJOR factor of the Soviet Union's downfall was its political corrosiveness.

Now, regarding the FDA idea, i did not claim the idea was mine. I merely used to to cite Friedman's unorthodox policies. Most consider abolishing the FDA as crazy or disadvantageous.

Next, what does this mean (I quote you): "Have you read anything about either?"

[Slash417]

Sure. I am not disagreeing with you. My comment addressed the political aspect of the Soviet Union's dissolution.

[Slimdawgc]

@Slash417 Politics and economics often go together, especially in a command economy like the USSR. At its peak, the Soviet Union is estimated to have only achieved 36% of the United States' GDP, and a large portion of it was spent on military expenditure - not social services, national parks, etc. When the government controls the economy, politics is economics.

[Slash417]

@Slimdawgc I agree.

The argument in question here is whether or not Paul Samuelson is an idiot.

I say no, whoever i started arguing with says yes.

[LogicalFlawDetector]

@Slash417

Milton Friedman was right when he said we should end the FDA. The FDA's inability to approve effective drugs on time, delaying their introduction to the market, cost many lives.

[warwize]

@LogicalFlawDetector

so how would we detect which drugs are harmful and which are safe to take? the general population becomes the test subject, and we let supply vs demand determine which drugs are ok?

[mpc91]

@warwize - Why do you assume that the general population would be test subjects? Why do you assume that the company making the drugs would not have the greatest interest in their effectiveness and safety? A company putting out a drug that is not effective or safe would have a lot to lose, and a safe drug would be much more profitable than a dangerous one.

[warwize]

@mpc91

because a company's main incentive is to maximize profits. and even with FDA testing they still manage to get away with some ineffective and dangerous drugs and they still profit off them after being sued.

For example, GSK agreed to settle charges for the dangerous effects of Paxil for $2.5 million. Yet they made sales of $2.7 BILLION off of paxil that year. Companies will do a cost-benefit analysis in terms of law-suits without caring about public safety.

[mpc91]

@warwize - Didn't the FDA approve Paxil?

[warwize]

@mpc91

yep, and even after they got new evidence that paxil was unsafe GSK was still aggressively advertising its drug as safe all over the world. The FDA isn't international. The FDA issued them numerous warnings to pull their false advertising or face more fines.

So you see, even with regulators & journalists trying to make them behave properly, Pharma like any other company, only seeks profits. You think they'd regulate themselves without outside pressure? lol

[mpc91]

@warwize - So evidence that the system of outside regulation doesn't work doesn't dissuade you. Hmm.

But what about the good drugs, that get held up for years and years while unnecessary tests are done? What about the lives lost because the regulator has a lot to lose from approving, but nothing to lose in delaying approval?

Why do you demonize the company that makes the lifesaving drugs, yet assign an undeserved altruism to regulators and journalists?

[warwize]

@mpc91

just because a filter only blocks 95% of harm doesn't mean you should throw it away and let all harm go through.

you can't tell a good drug from a bad drug until you test them, even good drugs have side-effects companies want to hide.

If a company intentionally hides information and harms people with their product, they deserve to be held responsible. And the law suit they got was much too lenient...we need a better legal system and regulations to product consumers.

[mpc91]

@warwize - The last thing we need are more regulations. We have tons and tons of them already. We need fewer, clearer regulations.

No drug company is perfect, and no regulator is perfect. But you assume evil intentions on the part of the drug company, and altruistic ones on the part of the government. That's just fantasy.

You assume that drug companies are just in business to profit off of sick people, and that we need government to protect us. Neither of those is true.

[warwize]

@mpc91

I don't assume your black and white scenarios. The data shows that even with regulations in place drug companies try to weasel their way around the rules, hide information from consumers, and in the process they hurt society. They can't regulate themselves.

Drug companies do profit off of sick people, that is a fact. They also care more about recreational therapies, viagra and hair loss, than life saving drugs--the 3rd world malaria market is irrelevant to them because of low profits

[mpc91]

@warwize - The greater fact is that these drug companies you vilify to a great deal more good than harm. They help a lot of people, that is a fact.

And the regulators, who create nothing, do more harm than good in delaying a great deal of good medicine for decades, while still letting some dangerous ones through. The regulators are the one who hurt society.

The third world drug needed is DDT.

But you act as if profit is a bad thing.

[warwize]

@mpc91

What data are you using to say that regulators do more harm then good? Citation required.

Why should society be the guinea pigs for big pharma and bear all the risk when we can regulate and have them test their products properly? even if it only works 9 out of 10 times its better than 0 out of 10.

Without proper testing our courts would be overflowing with lawsuits, and they dont dispense justice anyway...2.5million cost vs 2.6billion profit, go figure

[mpc91]

@warwize - How do you measure prevented good?

But for example, Steven Lonegan has a degenerative eye disease. He might be helped by Dr. Alan Chow, who has created a retinal implant, but even though it's already been through $50 million in FDA-approved tests, the FDA wants another $100 million in tests. Longean is going to go blind, but he is being stopped from a method that may help.

Shouldn't doctors and patients make these decisions, instead of bureaucrats?

[warwize]

@mpc91

People should be able to experiment on themselves and be guinea pigs, with all sorts of drugs and treatments. I agree.

I don't think a good doctor would prescribe something that is completely untested and unknown...that's bad practice. In your example the treatment was partially-tested.

But there still needs to be a regulator that serves the interests of the general public...the one's who are willing to wait for proper testing and who appreciate warning labels on harmful drugs.

[warwize]

@mpc91

saying the regulators do nothing is like saying the police do nothing

they pull harmful drugs off the market all the time, they also do sanitation inspection in various areas and they try to hold companies accountable in how they market their drugs...they put warnings on products

you must not understand human nature, you think the tobacco industry would regulate itself? they intentionally market to teenagers for a reason, and its not because they are altruistic and care about society.$

[mpc91]

@Slash417 - Samuelson may be intelligent, but his fondness for the Soviet command economy is laughable.

1985 - "But it would be misleading to dwell on the shortcomings. Every economy has its contradictions. ... What counts is results, and there can be no doubt that the Soviet planning system has been a powerful engine for economic growth."

1989 - "The Soviet economy is proof that ... a socialist command economy can function and even thrive."

[mpc91]

@Slash417 - How valid is the opinion of a man who in 1989 thought the Soviet economy was thriving?

Samuelson wants to use as cure that which causes economic crisis, interference in the economy, and attempts at central planning.

[Slash417]

@mpc91

Show me the quote of him implying the thriving of the Soviet Economy in 1989.

Also, elaborate your second statement. I don't understand what you mean.

What does he want to use as a cure?

[mpc91]

@Slash417 - "contrary to what many skeptics had earlier believed: The Soviet economy is proof that ... a socialist command economy can function and even thrive." - from his 1989 Economics textbook.

What do you not understand? Government interference in the economy, along with the Fed, caused the economic crisis. The Keynesian solution is to interfere further with the economy and rely more on the Fed.

[Slash417]

@mpc91 You stated that Samuelson believed the Soviet Economy was thriving as it was collapsing. I suspect he wrote those words in his economics textbook at a different time. Ergo, they are not relevant. Obviously, he did not believe the economy was thriving as the USSR was collapsing.

I don't understand your motives to discredit Samuelson. He is far more educated than you are in the realm of Economics.

Furthermore, Keynesian economics and the FED should be mentioned separately.

[Slash417]

That is because the Fed is a table where representatives from all the major banks sit.

What does that have anything to do with Keynesian economics?

The Fed involves monetary policy, not fiscal policy.

[mpc91]

@Slash417 - What does the Fed have to do with Keynesian economics? You are serious, aren't you?

You don't know? Do you actually know anything about Keynes? Anything about his ideas on interest rates... about the Fed's role on interest rates?

You think monetary and fiscal policies are independent? Really?

[Slash417]

@mpc91 Keynesian economics is a system of fiscal policy, while the Federal Reserve is a institution that affects monetary policy. That is what I learned 3 years ago when I took economics. I am not an economist, that's why I watch videos like these to learn from people more knowledgeable than me.

Now, do you care explain to me why you are trying to discredit Samuelson?

[mpc91]

@Slash417 - Keynesianism has a monetary aspect. Monetary policy on the part of the central bank is a central part of the his General Theory.

Watching videos like this one will not make you more knowledgeable, you'd be better off watching no videos at all. You'd really be far better served though to look up Tom Woods. Try the individual rights side.

Why discredit Samuelson? He's the subject of the video, and he's as wrong on the current crisis as he was on the Soviets.

[Slash417]

@mpc91 Interesting. What does he think about the current crisis?

And how is he wrong? More importantly, what do you think about the current crisis?

[mpc91]

@Slash417 - Samuelson blamed deregulation. How is he wrong - we didn't actually have significant deregulation. We have more regulation now than we ever have. 115 agencies were regulating Wall Street, do you think a 116th would have made a difference?

The main culprit is the Federal Reserve, which creates the business cycle. They cut interest rates after the dot com bust, and this led to a housing bubble, fueled by cheap artificial credit. There's more to it than that, but that's the heart of it

[warwize]

@mpc91

By "de-regulation" he means Non-regulation. People were trying to get derivatives regulated but the Fed along with the Treasury totally destroyed any attempt to regulate the derivatives market, then what happened?...LTCM collapse...then what happened? financial crisis a decade later...

Glass-steagal is actual "de-regulation" the rest was just "non-regulation"

The Fed didn't matter that much Global interest rates were being suppressed by Asia's high savings level anyway.

[Slash417]

@mpc91

The Federal Reserve is essentially Wall Street in another form. The big banks

comprise the Federal Reserve.

I've learned that printing money is the source of the boom and bust cycles,

and that the Federal Reserve is lowering the purchasing power of the dollar for

the average citizen. In my opinion, it seems that Wall Street is to blame.

Do you agree?

[mpc91]

@Slash417 -It doesn't matter what you suspect. He wrote it, in 1989.

He definitely spent more time in a classroom than I did in terms of economics, but that doesn't make him any less wrong.

What motives? Keynesian economics in its many forms has been justifying the forcible and failing acts of governments for decades. It hurts people.

And really, you want to separate Keynesian economics from the Fed (a Keynesian tools)? You might as well try to mention baseball and the bat separately.

[RohaniArian]

@mpc91 from where did you get those quotes?

[mpc91]

@RohaniArian - From versions of his "Economics" textbooks.

[Slimdawgc]

Paul Samuelson is SO adorable. He must have been a hit with the ladies back in the day.

[LucBertolotti]

This is a hot discussion!

[qazqashire]

i cant believe this is the only video of paul samuelson online! i mean, this man invented the economics textbook!

[greegomileego]

That would be the market speaking. It kind of a shame really that his flawed theories (which are really just corruptions of Keynes' flawed theories) have dominated mainstream macroeconomic thought for so long. Thanks to the internet, people are starting to come to their senses and reject this kind of bullshit.

[buffettlampert]

Totally agreed

[Burdell22000]

@qazqashire That man invented the "Economics textbook to laugh at", yes.