Paul Samuelson --from Eco 101 to mathematical predicting free market guru

RIP Dr. Samuelson. Me, I don't know about Dr. Samuelson and the wonders he brought about. He was more of an ideologue of the self-correcting free-market persuasion. His reduction of economics as a set of mathematic equations that supposedly eliminated risk for investors led us astray. People claim he was a Keynesian but this was hardly the case when it came to predicting the ups and downs of the stock market. Keynes said of the future: "we simply do not know,” (General Theory of Employment, Interest and Money (1936) . Samuelson argued that one could predict the behavior of markets. When Samuelson's student, Robert C. Merton, got the Nobel prize in economics for his mathematical insights and applied them to Long Term Capital Management hedge fund, the firm collapsed and caused the Fed to bail them out.

As the Times obit puts it:

"Late in his career, Mr. Samuelson laid out the mathematics of stock price movements, an analysis that became the basis for Nobel Prize-winning research by his student Mr. Merton and Myron S. Scholes. They designed formulas that Wall Street analysts use to trade options and other complicated securities known as derivatives."

We now know these mathematical formulas used to promote derivatives led to the recent collapse of Wall Street.

Keynes wrote on the impossibility of predicting the future when it comes to markets. His famous quote was: We simply do not know! Samuelson, on the contrary used mathematical equations to predict and he, along with Greenspan and many other free market economists, was proven wrong!