Black Monday - 13 November 1987

A month or so ago, after the first bouts of rocketing stock markets in New York, Tokyo, London, Hong Kong, there was a newspaper despatch from London that was at once engaging and slightly chilling.

I hope that its report on English attitudes wasn't true. But the author's a good man and a sharp observer who spots things in English life that other correspondents come to take for granted or don't think worth writing about.

It was a piece about Londoners' attitude toward the stock market plunges. And the gist of it was that most, or a great many people, were having an enjoyable giggle at the sudden blow to the bank books of yuppies, investment bankers and all the other smart-alec types who've been playing, as they say, the casino.

Now this was a personal despatch, not based on a poll or other even halfway scientific surveys, but what amazed him, as an American, was that in a country where one in five has some money in stocks, as distinct from one in four in America, there seemed to be little apprehension about the effect on the rest of the population.

A general feeling was that people who invest in the stock market are too clever by half and have got what was coming to them. The man didn't go on about how this attitude had affected people's spending habits. I wish he had checked with the big department stores and the travel agencies and the estate agents. They might have confirmed, or denied, that this attitude was a whistling solo in a graveyard.

If it is true, then it must reflect the view that putting money into the market is still, for most English people – no word was vouchsafed as from Scotland – for most, a novelty, something like going into the football pools. Not, as it has been in America for 60, 70 years, a prudent form of saving that perfectly ordinary citizens, the grocer, farmer, office worker, doctor, perform once they get ahead of their upkeep and their mortgage.

In the United States, as I reported 10 days after Black Monday, the never-to-be-forgotten 19 October, the most pressing fear of the government and of the economists was what will happen to consumer spending. For in all the thrashing arguments – why it happened, how to correct it, was this the herald of a recession? Was it, on the contrary, a long overdue jolting adjustment? – one thing the economists, the administration, financiers, stockbrokers agreed on was that if there was one thing that could bring on a recession it would be a dive in consumer spending.

For a couple of weeks or more, the pollsters seem to be almost afraid to take a national survey. In fact, I was told of one pollster who was not afraid but deliberately refused to conduct a poll on the responsible principle as a citizen that to report a serious dip in spending would actually bring on more of the same.

Well, we're not in a war. There's no law that can be invoked to squelch the news of a mutiny, so to speak, and, of course, pollsters, like the rest of us, claim a pure devotion to the truth come what may.

Well, a week ago the first, to my knowledge, the first survey came out and it reported that one-third of the people booked on a winter vacation, or about to buy a car, or to build a house, had postponed their plans. One half had had second thoughts about how much of a splurge they'd indulge on Christmas shopping. The economy is not exactly tied to Christmas shopping but it's such a spending orgy that some stores and businesses claim that it accounts for as much as 20% of their annual revenue. And by 21 October at the latest, two days after the crash, I noticed businessmen and store managers, unaware then, of course, that the rocketing would go on and on, saying," We won't know the effect on the economy until the Christmas shopping is all over".

But the other figures are, to say the least, disturbing and they reflect how large a proportion of the American investing public are serious, ordinary citizens to whom the bruised yuppies and wheeler-dealing brokers are a nasty minority battening on the system.

I did check one figure, one symptom, with a travel agent who responded, reluctantly, with the news that there'd been a rash of cancellations for winter cruises even when the intending cruisers would lose a deposit. As for a drop in buying houses, building, flat rentals, the real estate picture, it's much too early to tell because most contracts, most loans and mortgages are set up in the late winter and spring, with the intention of doing the building through the summer. So, we await the figures on the fourth quarter.

While we wait, I can only say that every night on special segments of the television evening news, we've been ducking around the country listening to shopkeepers, farmers, young marrieds, labourers, blacks, Hispanics, who do seem finally to have taken in that the crash of 19 October was a good deal more than a just reward for wheeler dealers and programme traders that the, what is it, over 300 billions lost on that day represent a blow to their own money in the bank, to the mortgage they were about to take out, to the value of money put aside for improving the farm, the school classroom. Not to mention the sudden shortage of municipal and state funds for more policemen, for renovating hospitals, for fighting the drug pushers on the streets.

Of course, these snippets of interviews with individuals are no more than a selective Gallup poll. But together they do seem to contradict a famous senator who said the other day that the people have not yet grasped the threat of the crash to their own lives.

Anyway, for the first time, there are foreigners in the allied countries who do appreciate the threat and the means to repulse it. Wiseacres in Tokyo and London have been saying with increasing urgency over the past few weeks that the Reagan administration and the Democratic opposition together must come to a radical plan for a severe cut in the federal deficit. And by "radical", they are suggesting a figure way beyond what Washington then thought feasible.

The present annual deficit is $148 billion. The Reagan men and the Democratic leaders, who started meeting a fortnight ago, were at odds from the start, the administration saying it absolutely would not touch the 29% of the budget that goes to the military. And the Democrats saying that that budget must be trimmed, while the domestic budget, especially as it concerns forms of welfare, must be kept intact.

There came a point, indeed, only 10 days ago, when several of the President's men, Republicans, in the house, were ready to call off the negotiations and fall back on the new law which, willy-nilly, prescribes an automatic cut of $23 billion which goes into effect a week from now.

As I mentioned last time, social security, the 21% of the budget that spends over 200 billions a year, social security was then said by everybody to be sacrosanct. And everybody means every politician, Democrat and Republican, who's coming up for reelection next November. To cut into social security, they all know, would probably guarantee their defeat at the hands of the poor, the old, the disabled, the blacks – everybody who is kept housed and fed, if not solvent, by the system.

So, the early talks between the president's and the Democrats' congressional leaders came down to the dread word "taxes". Now you'd think that any politician up for reelection who even mentioned the phrase "higher taxes" would be signing his own political death warrant.

But the Democrats have done some far-ranging homework around the country, and found that people of all ages, and conditions, were ahead of them, were ready to pay a few more dollars in taxes, provided the burden fell fairly on everybody. Mr. Reagan may yet make this discovery.

But the heart of Reaganomics, from the day he came into the White House, has been cutting taxes. He regards the doctrine as the triumph of his presidency, that tax-cutting alone produced a buoyant economy, low unemployment and low inflation. And those two latter facts of life, in the past seven years, have been the bitter pill that the president’s opponents have had to swallow.

But how about the one trillion budget estimated for next year? How about the unprecedented deficit? They may alarm economists and financiers but they have no emotional meaning to the voters. Or had not, until the crash of Black Monday. When we, the mooching citizens going about our business began to hear and believe for the first time that some bugaboo, some unseen Dracula in the night, called the deficit was what was really draining the blood from the economy.

Well, once recognised, the question was "Who created the monster?" The president said the Congress. The Congress said the president. At the end of two weeks of wrangling, more than negotiating, the leaders were coming up with a plan. But it won't be final. It will have to be approved by the house which is the body that holds the purse strings and decides all issues of money, taking it in and paying it out.

If this all seems very remote to you in Coventry or Sydney or Stockholm, or wherever, let me say that to some foreigners and those the most knowledgeable about America's economic influence on its friends and neighbours, the size of the budget cut and the means of doing it are the most urgent of today's international issues. Thirty-one billions has been proposed by the Democrats. It will not be considered enough by London and Tokyo to ward off a recession.

Two weeks ago, the London Economist wrote that if the American deficit shrinks too slowly, the underlying cause of the recent troubles would reassert itself. The Economist suggested a cut between 25 and 50 billion dollars. And this sombre editorial ended by pondering what it sees as enfeebled presidency. And concluded with the sentence, "If America is to be led by Mr Reagan's wraith, his ghost, for the next 15 months, the soup kitchens of the 1930s may make an unwelcome return".

So, you see, not everybody in London, by a long shot, is a-giggle over the discomfiture of the yuppies.

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