Prospective Shifts, Speculative Swings: “Macro” for the Twenty-First Century in the Tradition Championed by Paul Samuelson

Abstract

Abstract This chapter presents Samuelson's economics from the expectation and uncertainty points of view. It applies Samuelson model for stagflation, for instance, to show how shifts in the underlying parameters that affect inflation and unemployment could cause swings in an economy. Economies are driven by ‘visions’ and ‘fear’, which require a disequilibrium paradigm, as it was advocated by Keynes in Chapter 12 of his General Theory. The latter underlines Samuelson's brand of expectation and uncertainty. Such a view of the economy cannot be captured in a rational expectation model, as ‘personal knowledge’ of the economic agents cannot be made public for analysis. Samuelson's model has the potential to capture big swings in the economy unlike the rational expectation point of view, which requires vibration around a saddle point.

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