Fickle Crushes and Volatile Markets - 11 February 2000

Just when we were already to celebrate the 107th month of the longest economic boom in American history, something or somebody rained on our parade by making the stock market industrial index drop 1,000 points.

There was a time, four or five years ago, when such a number would have triggered a financial panic but the people in the market - which is to say, today, nearly 50% of the American population - shrugged it off as "a necessary correction" and assumed it would bounce back in a few days - which it did.

This up/down bounce would once have been the omen of a bust. Today it's called volatility.

I've noticed in the reports of the American boom in European newspapers that there's a tendency, verging in some papers on a secret wish, to see the bubble burst any day now.

The nadir or comic extreme of this approach was achieved, as you might guess, by a French paper way over on the left with a headline "Capitalism at last proved a fraud" - at last, after 151 years: the Communist manifesto was published in 1848.

Perhaps it's unkind to recall now that a year later - 1849 - along came the California gold rush which made Karl Marx wish he'd waited awhile before the manifesto came out.

As it was, his biographer says, he was deeply depressed because California had suddenly produced an enormous gold reserve. Poor old Karl in London hated to conclude that capitalism was not on its deathbed but was actually convalescing and "all present hopes of a world revolution are futile."

There's a simple, forgotten lesson here which I think we do well to remember today: the folly in economic matters of prophecy.

You don't need to have been present the day of the biggest crash in 1929 or the recession of 1937, even the youngest of the new rich can remember the early '80s when we knew that the Japanese had inherited the world for keeps. They hadn't.

In the past four or five years all the hotels, super office buildings, golf courses, tropical resorts that they bought are, in a flash of their crash, in other hands.

And most listeners, I'm sure, were alive and sentient in the two years BC - before Clinton.

Ah, there - the mere trick of memory that brought up his name points also to the main delusion that presidents hope most Americans live by: the strong belief, which I'm sure is shared by most other countries, that the man in power, in this country the president, is most responsible for a strong economy. And so Mr Clinton is never slow to remind us that he alone produced the big boom.

A prominent economist has summed up this delusion neatly in a couple of sentences. Writes Alan Sloan: The Clintonistas say the boom is due to their 1993 tax hike. The Reaganauts say it was their 1980s tax cut but ascribing the economy's performance to Washington and by extension to the White House is like saying a ship's captain controls the tides.

Another school is busy at the moment scorning the president's cosmic boast that the United States will have paid off the national debt by, I think he said, 2015, for the first time since 1835.

Well the school of scorners is clearly not the same school which is busy pointing out that paying off the national debt is no sign of a country's economic wealth unless the debt measures alarmingly, massively, against the size of the gross national product - which today it does not.

My favourite school of economists is one whose leader has just written a brilliant, tantalising book called Hamilton's Blessing.

Alexander Hamilton was the first secretary of the treasury and the blessing ascribed to him is that he established America's first national debt and so allowed the new, struggling United States to be taken seriously abroad as a trading nation, one that could borrow and was also stable enough to be borrowed from.

So who is responsible for a prosperity and a depression? I'm relieved to be able to tell you the answer is nobody knows.

Most non-partisan economists, that's to say men not formally employed in the White House, agree that the public's acceptance of this presidential myth only serves them right - the public routinely and always associates the stock market with the president and if a slump happens during his reign the public wastes little time or sentiment in firing him. Just as they do with a football coach whether or not he's responsible for his team's losing two games in a row.

It's, I think, the everlasting American belief in a head man not as a manager but a saviour.

When they choose a president everybody looks for a man - and one day it'll be a woman - who will make a great president in the teeth of history which cheerfully discloses that the great majority of American presidents have been very ordinary men.

Now you may have noticed that right at the start of a presidential election campaign the candidates - at least one of them - does not say he's running for election, he's launching a crusade.

This suits the public's yearning not for a competent president but for a Moses. After about two years he turns out not to be Moses and not to be running a crusade but something far less heroic and much more intractable, namely the presidency.

And we learned in 1996 that the presidency can be bought with money - lots of money - from home and abroad.

Today Governor Bush of Texas was so preposterously well financed from the start when he entered the presidential campaign that he has given off the air of being actually president-elect.

So during most of last summer and fall, what we used to call well-informed people agreed that this was the dullest presidential campaign in memory: Governor Bush would be President Bush in spite of President Clinton's being shamelessly successful in compiling millions of dollars both legal and soft for his vice-president, Mr Gore.

But then out of the wilderness - and to most easterners Arizona is the wilderness - came John the Baptist or Galahad or better still former navy captain John McCain. John McWho?

By now he's as recognisable as pictures of Franklin Roosevelt and to an alarming number of Americans - alarming to Governor Bush - almost as much of a hero.

I think a factor that's been forgotten or by now downplayed by the press - the media - is the question how deep and how much alive still is the general distrust, distaste, for the character of Mr Clinton?

Remember at the height of the impeachment trial the national response to a double-edged question was puzzling to say the least.

The question was: Do you take a favourable or unfavourable view of the president's character? The answer: 65% took a dim view.

And how many approved of the job he was doing as president? Answer: 67% in favour.

How do you explain that contradiction? I was frequently asked at the time.

Being long trained in American history and being, in fact, an old fuddy duddy who shares President Franklin Roosevelt's view that, whether he likes it or not, the president is the moral leader of the country, I could only think of a sentence at the end of the first volume of Edward Gibbon's: Decline and Fall of the American - whoops - of the Roman Empire: "The people became indifferent or inured to the Emperor's debauches so long as he paved the roads and remitted taxes."

A year later the nation is split between people who believe the United States is maintaining its vitality through its economy and those who believe that America - for that matter the West - is well along in its decadence.

The towering Franco-American historian Jacques Barzun is about to publish a colossal work, a 500-year history of Western civilisation called From Dawn to Decadence.

Well, if he's right then there's hardly a question that Vice-President Al Gore will not be burdened with the collective memory of Mr Clinton's shame and will be the Democratic nominee if not the next president.

If, on the other hand, enough Americans who grant President Clinton's intelligence, his persuasiveness, his charm, nevertheless deplore his character, if there are enough of them then the stirring record of Captain McCain as a war hero, might topple both Governor Bush and Mr Gore.

So far what has appeared to overwhelm people about Mr McCain is the appalling record of his resistance to five and a half years of torture in a North Vietnamese jail.

At the end of nearly two years, perhaps sooner, his captors discovered that he was the son of an admiral - of the admiral, Commander of the Pacific fleet. They immediately made up to Captain McCain and opened the prison gates for him.

He told them impolitely to get lost, so they tortured him for another three and a half years.

But the yearning for a brave, decent hero as president may be a crush and crushes in politics, as in life, are notoriously fickle. Shall we say like the market, volatile. We shall see.

But I do believe everything will turn on the state of the stock market the weeks before the November election.

So according to the moral temper of the people and whether it's boom or bust I can foresee a landslide for Governor Bush, a landslide for Mr Gore or a landslide for John McCain.

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