AND ANOTHER THING
Time to fasten seat-belts as the Giant Panda takes over the flight deck
PAUL JOHNSON
This summer season is the most glitter- ing I can recall. London is the place in all the world where zestful people, especially the young, want to be at present and it is certainly the most enjoyable, provided you have the money. And many people do have the money as the world economy booms, the Dow Jones and the FT index soar and many huge financial institutions are, literal- ly, giving cash away to their members. To add to the euphoria, we have here the most popular government I can recall — popular with all classes, too. BA have had to put up the price of Concorde because so many people are using it, and the exodus to the Continent for a splurge has already begun. For the first time in many years you can get ten francs to the pound, which is rising against the mark, the Swiss franc, the lira, the peseta — the lot.
It is the same story across the Atlantic. In Washington last week I was told: 'Alan Greenspan's effort to curb the bull market and give it a soft landing has failed. There is more money about than ever.' The sums being earned in Wall Street have never before been approached, in real terms or any other terms. One of my most percep- tive American correspondents points out that as much money is being spent as in the headiest days of the 1980s, though more discreetly. He draws my attention to a Wall Street Journal headline, 'Global Growth Attains a New, Higher Level that Could Be Lasting' and to a recent survey of 200 chief executives of the Massachusetts High Tech Council: 88 per cent called the business cli- mate good or outstanding while no less than 99 per cent said it would 'hold steady or improve'. One United States economist is quoted: 'We've entered a golden age that could last for decades.' As my correspon- dent says, such blithe dismissal of uncom- fortable historical facts like business cycles is ominous. He recalls a similar remark by the all-seeing Bernard Baruch in the Ameri- can Magazine: 'The economic condition of the world seems on the verge of a great for- ward movement.' The date of this predic- tion was June 1929.
So in the last few days I have found myself humming that 1938 hit, 'Let's Face The Music And Dance', whose brilliant lyric begins, 'There may be trouble ahead'. I have not consulted my colleague Christopher Fildes, wisest and wittiest of commentators, because I wanted to make my own judgment, but I have talked to some of those actually engaged in manufac- turing wealth as opposed to spinning it out of thin air. They all agree that a violent `adjustment' (as they have been condi- tioned to call it) is overdue and will proba- bly take place this autumn. United States stocks are at absurdly high levels because, as my US Treasury friend said to me on Saturday, 'there is no place else for the money to go — the guys cannot spend it as fast as they are making it'. One of my American gurus defended the rises until recently on the grounds that they were con- centrated largely on good stocks but even he now agrees that much of the Wall Street madness is fuelled by the hope of continu- ing capital gains rather than any prospect of commensurate earnings. Once the mar- ket reaches this stage a crash is inevitable and the only question is: when?
As a historian, there are two aspects of the business cycle which particularly inter- est me. One is the nature of the detonator required to turn a bull into a bear market. It can be significant or trivial, but there has to be something, usually a downturn in commodity prices or an event which seems ominous. The American economy is healthy in many ways, with productivity ris- ing, real jobs being created at an enviable rate and competitiveness sharper than ever. Much the same can be said of the British economy. Indeed, the Anglo-Saxons and their progeny are riding high. The Geneva World Economic Forum's league table of competitiveness, which I regard as the most reliable index of economic health, lists the top seven as follows: Singapore, Hong Kong, the United States, Canada, New Zealand, Switzerland and Britain — six out of seven being originally English creations. On the other hand, some Continental economies are in a fragile state and the direction of the two most important, the `Now I've exhibited here the next step is a BA tailplane.' German and the French, is in the hands of men who put the attainment of political objectives — monetary union in Germany, and reducing unemployment in France before any other consideration. That is not a good sign. I fear Old King Kohl has lost his economic marbles and is in danger of turning into a Teutonic King Lear, with the new grinning idiot from France, Jospin the Socialist, playing his Fool. Between them they are quite capable of starting a panic.
My own guess, however, is that trouble will come from the Far East, whose economies for the first time in history are now big enough for major roles in a world crisis. I do not like the look of things in Japan or, for that matter, in its adjunct, Korea. The financial structures out there have never experienced a meltdown since the tiger economies were born, and there is no such thing as leadership in Tokyo, which is a citadel of collective decisions and crowd movements. The Chinese, too, have launched themselves into a proto-capitalist boom without even knowing what the busi- ness cycle is, let alone possessing an ideolo- gy to deal with it. Their high-speed but primitive financial machine has an accelera- tor but no brakes. And at this delicate point their unreconstructed Marxist-Communist regime is about to clutch to its ugly bosom the six million free people of Hong Kong and one of the most sophisticated financial artefacts in history. I do not like the image of the triumphalist Giant Panda being pre- sented with a new, gossamer toy it can destroy in one swift movement of its irre- sponsible paws. That, I foresee, is where the trouble will start, perhaps quite soon.
It is true that a major market adjustment — a stock exchange crash to you and me does not necessarily mean a comparable recession. The second aspect of business cycles which fascinates me as a historian is the often illogical relationship between financial downturns and the business col- lapses which follow. I still do not under- stand, though God knows I have studied it, why the Great Depression of the 1930s was so severe and prolonged. The answer must lie in the inept political attempts to end it. We have a good and strong Prime Minister in Britain, but elsewhere all the leaders are obsessed with politics, including the Arkansas Neanderthal in the White House. So the outlook is not good, and sensible mortals will be fastening their seat-belts this summer.
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