Who is Paul Samuelson and Why Does He Matter?

I have just noticed in the New York Times that the great 1970 Nobel Prize winning Economist Paul A. Samuelson has passed away at the age of 94.

Samuelson was a prodigy who entered the University of Chicago early in his teens and made his way up the ladder to Harvard and then to MIT. It was no small feat. The Nobel-winning Economist Robert M. Solow remarked about him, “You could be disqualified for a job if you were either smart or Jewish or Keynesian. So what chance did this smart, Jewish, Keynesian have?”

If people only understood how much of their lives has been touched and shaped by this man, they would take a moment of reflection as well. Forget about Lady GaGa or Jon Stewart, or the mountain of celebrities that have their short period of fame based on media magic rather than talent. Forget about that talent, even the deserving kind, that provides us a life of entertainment and emotional satisfaction, sophist revelations or sappy, even dopey touches of realism. That is part of the American landscape, and it may have an evolutionary use; in fact, I would say it does have an evolutionary use, but…

When Americans worry about job loss, depression or any host of maladies, or work with glee toward some form of entrepreneurship, and when the government proposes any particular stimulus plan–monetary expansion, government spending, tax reductions or trade or regulatory policy changes — they often don’t know that one of the leading thinkers informing the basis for such activity has just passed away.

Samuelson was one of those public figures who planted one foot in the public debate and one in the academic debate on economics and on public policy. Like Liberals Paul Krugman and Obama advisors Larry Summers and Christina Rhomer, and conservatives such as Harvard’s Martin Feldstein today, Samuelson was very important in that way. He convinced John F. Kennedy, against Kennedy’s own sentiments about unbalancing the budget, to cut taxes in the early 1960s in order to head off a coming recession. The succeeding President Lyndon Johnson carried out that seemingly counter-intuitive policy very successfully after Kennedy’s early death.

When we think of the need for prosperity to head off all those aforementioned maladies, we can partially thank Samuelson for his advice to Kennedy.

Samuelson’s economics textbook was the one most used in university coursework starting in 1948 and lasting another half century. I used it in my intro course in economics. It influenced generations of budding businessmen, economists, government policy makers, journalists, academics, and even Citizen Joes. It influenced the world as well. John Maynard Keynes had written in the 1930s a devastating critique of Classical Economics, at that time the predominant view. So important was this that Depression-era scarred governments were trying anything promising to end the misery. Keynes offered the concept of government intervention as a counter-cyclical policy to lapsing economies. Keynes influentially made the case for this by revamping how we thought about interest rates, prices, money supply and the interaction of demand and supply of goods. But Keynes did not put his ideas together into a full-blown model.

It was Samuelson who popularized the concepts in his text and made Keynes a house-hold name.

Do not think of him as a left-leaning economist. He also mounted powerful critiques of Marxian economics in the day when Marx looked like the future. I know because those critiques helped convince me that Marx was, in the end, wrong.

I also remember using over and over again his Foundations of Economic Analysis while I was in graduate school in economics. I could only survive the rigorous math required in the graduate programs by having this worthwhile exposition of the math constantly by my side.

Samuelson synthesized the Classical and Keynesian schools of thought, utilizing the Classical School in times of full employment, but Keynes in times of falling employment. His tools of mathematical analysis and the way in which he would dissect intricate economic interactions became a standard way most economists analyze economic problems. His use of such analysis to understand stock markets, for instance, led to the breakthroughs of Robert Merton and Myron S. Scholes that are the basis for standard modern day financial analysis.

His life-long friend, Nobelist Milton Friedman, did not make it easy for him either. Friedman debated Samuelson in public and in the Halls of Academia. Friedman opposed the Keynesians including Samuelson’s formulation into what was named the Neo-classical Synthesis.

Today, when Americans debate the role of government in economic policy-making and the value of one policy over another, or we debate the future impact of today’s decisions, we should appreciate that both Friedman and Samuelson laid out the contours of that debate so we have some place to start. Otherwise, it would all be over anyway. Like a car without a steering wheel, we would be on the road to ruin for sure.