Cycle of Boom and Bust - 21 April 2000

Here is an intriguing - I hope - suggestion for the game that they used to call Trivial Pursuit.

If you had to look back through the past, well, 90-odd years and whatever your age - whether you're a young reader or a living relic - pick out the most unlikely scene, or moment, in Soviet-American history.

Unlikely is an understatement. I mean something so improbable that it could happen only in a preposterous dream but not conceivably in life.

I - as we now say - I have no problem with that.

The scene was last Saturday in London. The leader of all the Russians is standing before an anxious audience of nail-biting Americans and Britons assuring them that capitalism has enough stamina, enough reserves to overcome an apparent collapse.

Now this was the day after what we all feared was Black Friday, when the industrial index on the New York exchange plunged more than 600 points and the high technology stocks - which for three or four years we have been saluting with trumpet blasts as the heralds of the forever-prospering new economy - they suffered their deepest drop in years, if not ever.

"Relax," Mr Putin was saying to us, "It's no catastrophe.

"A correction will follow in the near future."

When I saw this memorable scene I thought of another scene from another place, another time, a more typical Soviet leader - the rubbery little tough guy, Nikita Krushchev.

Here at the United Nations General Assembly in New York, listening to a Western statesman up there on the high podium, when suddenly the speech was rudely interrupted by a smart slapping sound.

It was Mr Krushchev banging one shoe on the desk in front of him and shouting: "We will bury you."

Another time when the then Vice-President Nixon visited Moscow and was taken by Mr Krushchev on a tour of Soviet achievements, the special exhibit was a model kitchen with which Mr Krushchev maintained every Soviet family would very soon be provided.

It did not take much journalistic digging to discover that this kitchen was being shown off as a special glory. It might well have been the only one in Moscow outside the Kremlin.

And Mr Nixon looked it over and, though he had the grace not to point out that as a kitchen it was, by American standards, a pretty rudimentary affair.

An attending American aide, later a newspaper correspondent and friend of mine, noticed no dishwasher, no disposal, one tiny sink, three gas rings, no "stickem" magnetic panel for knivesn and many other standard omissions. Not to mention the one which is, or was till very lately, common to all European and British kitchens, even of the well-to-do: no paper towel rack for the cook.

However, Mr Nixon did say, rather as a jokey but serious reminder, that all but the poorest people in America had kitchens like that.

Mr Krushchev exploded, raised his fists and shouted something somebody translated as: "The lies of capitalism."

A newsman here suggested that when Mr Putin comes to New York he ought to be taken to the studio of the national network channel that does nothing else all day but report every stock on three indexes - indices - and have him join the team, or bevy, of pretty ladies and sharp, mostly young, men who from the opening bell of the stock exchange until four o'clock in the afternoon keep up a running commentary on what is happening to everything and why.

It strikes me from time to time that all these alert and knowledgeable commentators have never seen hard times. None of them was there, obviously, in 1929 or 1937 or maybe even in the 1970s recession - the Jimmy Carter days when inflation was ferocious, something like 7%.

Now the other day, by happenstance or luck, after Monday's rally the television team brought on an old trader - a pretty old codger, maybe in his early 80s - and from his sad, crinkly smile you knew he had seen more things in heaven and earth and the volatile atmosphere in between than would have astonished Horatio.

An adorable smart young blonde asked him, with raised eyebrows: "Then you don't think yesterday we sank without trace?"

"Oh," he said gravely, "not at all, some ships sink very slowly you know."

It took six months after a famous magazine's October headline, Wall Street Lays An Egg, for the entire world to know that the American financial system, 70 years ago, had crashed and that an unprecedented depression was on the way.

Of all the living American experts there is one that everybody listens to, that I've talked about before, the Chairman of the Federal Reserve Board , Alan Greenspan, who has the power to make or break the economy by how wisely he handles the Central Bank's interest rates.

And what does he think about the pseudo Black Friday? He said we may well be groping in the dark to see how this new economy works.

I hasten to say he never used such language. If he ever talked simple, vivid English he could wreck the market in a day.

What he said was: "Familiar as we are with the patterns, the cycles of the present industrial economy it could well be that there are developing new patterns, new cycles, that we shall learn to cope with."

I think it would help us guess at things to come, the way we will live tomorrow, if we take a flashback view of other cycles, previous bubbles. What gave them the air to expand and what bust them?

Since records were kept of such things, starting in 1854, there have been 34 booms and succeeding busts. Have no fear, we shall focus only on four - one in the late 19th century, similar to today's nine-year stretch, and three in the 20th century.

The last 20 years of the 19th century is looked on - looked back on - as a prosperous time though there were six booms and six recessions.

And the driving force for this lively volatility - each new boom was better than the last - was the arrival on this horse-ridden continent of the railroad, the telegraph, the telephone, electric light - put them all together with the arrival also of several million labouring immigrants and among other novelties America, for the first time, surpassed Great Britain as Big Chief Manufacturer.

And Europeans started investing heavily in American industry. I think I ought to say now that it took time for people - most people - to accept, let alone embrace these marvels.

I mentioned the other week how the great prophet, reformer John Ruskin, hated and deplored the railway.

In this country, in the late 80s, even the rich who could afford Mr Edison's electric light thought it was too dangerous to install.

The first theatrical performance to have electric footlights was a staging of Iolanthe. On the first night, just before the interval, smoke started to rise from the orchestral pit. Mr Edison himself rushed below to see what was wrong and fix it but not before half the audience had fled.

That famous 20-year boom and bust ended because too many railroads were built and many, many went bust. In 1893, we're told, an unexplained financial panic more or less ended the naughty or dissolute 90s.

Now a jump to what is to most living oldsters and all living historians the worst reversal of all - the roaring prosperity of the 1920s, fuelled by the universal spread of electricity, a big tax cut to encourage investment in new industries, and the astonishing invention of Henry Ford - a cheap automobile. In only 10 years motorcar ownership leapt from seven to 23 million.

And why did that end in the Great Depression?

There is no agreed answer - too many of the public in the casino of the stock market, ridiculously low margin requirements, a government tight monetary policy, after the stock market crash a wild run on the banks. Choose your poison.

The 1960s prosperity, which seems unreal today, was caused by Kennedy's big tax cut and big deficit spending on the Vietnam War. The lowest known unemployment and inevitable inflation.

And now the last one - the Reagan boom of the 80s. The fuel: Reagan's truly whopping tax cut allied to his enthusiasm for deregulating industries and heavy spending on defence.

And the cause of the bust? The nation and the people living on too much credit and a surprising, not to say outrageous rise in the price of oil after Iraq's invasion of Kuwait.

About today - the unprecedented nine years of the 90s without an invading breath of recession. Record employment with - and this is the big puzzle - very low inflation.

And what fuelled it? A surprisingly big and sustained burst of productivity due wholly to the incredible spread of computers.

In the early 1980s there were two million computers in private homes. Today more than 50 million.

The President said here in San Francisco only the other day: Only one black household in three has a computer and, he said, it was not enough.

The internet alone has had a bewildering, all-embracing effect on everything from industry to shopping to the globalisation of financial markets, the globalisation of - name your trade or profession.

And the prognosis? The probable cause of death? Stay tuned.

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