Here and there – Yet another crash? Pardon me for yawning
Only the most desiccated Philistine would be oblivious to the reason for this question of Don Quixote: ‘And are the lions large?’ By this stage of his journey as a knight errant, the madness of the Don might fairly be described as serene. (The Romantics would have said ‘sublime’.) When he encountered some lions, the Don wanted to know if their size might warrant their being exposed to his indomitable valour. On being assured that these lions were the largest ever sent out of Africa, the Don resolves to take them on, and those in his retinue head for the hills in terror. But, as we now know, the lion had the wrong script. This is what happened when he was released.
The first thing that the recumbent animal did was to turn round, put out a claw, and stretch himself all over. Then he opened his mouth and yawned very slowly….The lion proved to be courteous rather than arrogant and was in no mood for childish bravado. After having gazed in one direction and then in another, as has been said, he turned his back and presented his hind parts to Don Quixote and then very calmly and peaceably lay down and stretched himself out once more in his cage.
Now, I have to say, dear reader, that there is every chance that this lion later went to that great den in the sky without knowing just how close he came to utter destruction for this outrageous affront to the dignity of the most gallant knight errant that the world has ever known.
Why do I mention this now? Because in response to those people who are shrieking about events on the stock exchange, I feel like reacting like the lion – just yawn, present my posterior, and resume life in my place as if nothing had happened.
We have in truth seen it all before. Put 1929 to one side, and reflect on 1987 and 2008. As it happens, when J K Galbraith came up with a new edition of The Great Crash 1929 in 1998, he compared 1929 and 1987. He did so in terms that may be appropriate in looking at 2008 and 2020.
The most important of the controlling circumstances, powerfully operated before the two Octobers, was, as it must be called, the vested interest in euphoria. In the preceding years in both periods the stock markets had been going up seemingly without limit. There had been interruptions, some regarded as grave, but they had been overcome. Underlying influences affecting market values – earnings prospects, general economic growth, prospective interest rates – had in both cases given way to the belief that the increase in values, however unrelated to reality, would continue. Those who dissented or doubted were held not to be abreast of the mood of the times….The vested interest in euphoria leads men and women, individuals and institutions, to believe that all will be better, that they are meant to be richer, and to dismiss as intellectually deficient what is in conflict with that conviction. ‘All people,’ Walter Bagehot noted, ‘are most credulous when they are most happy.’
Associated closely with the vested interest in euphoria is the pure speculative instinct….It is a condition that is inherently unstable, for implosively within it are the causes of its own collapse. What triggers the rush to get out doesn’t much matter. It will however be discussed with compulsive banality by those who are impelled to find an external explanation for all market movements….
A third controlling circumstance, little mentioned then or recently, was the enactment earlier of tax reductions with primary effect on the very affluent – before 1929, those of Andrew Mellon; before 1987, more spectacularly, those of supply-side economics and Ronald Reagan. In both cases, they were supposed to energize investment, produce new firms, plants and equipment. In both cases they sluiced funds into the stock market; that is what well-rewarded people generally do with extra cash…
There was another marked resemblance between the events of 1929 and those of 1987. That was the prompt search for a scapegoat on which the stock market collapse, however inherent in the previous speculation, could be blamed. Economic theology is here involved. The market is not only perfect but in some measure sacred….
….in the Reagan years, taxes were drastically reduced in pursuit of the hitherto-mentioned supply-side fantasy that from reduced tax rates would come increased entrepreneurial energy and increased revenues. The result, in fact, in combination with increased military expenditure, was the huge budget deficit….
Capitalism, one notices, is currently defended (one does not yet know how effectively) by a great array of measures that its most ardent supporters once deployed.
And so it goes. The comparison of 1929 and 1987 may be instructive for that between 2008 and 2020. I mention one obvious link. We know that for various reasons, a lot of funds have been ‘sluiced’ – and the term is so apt – into the stock market – with results that cannot be stigmatized as unforeseeable. Another observation to catch my eye – belonging to one who knows zilch about economics – was that if the market is over-valued, what ‘triggers the rush to get out doesn’t much matter.’ Calvin may have been at home with that notion.
Two points may be made. First, yes there is a vested interest in euphoria when the market is on the up; but there is just as potent a vested interest in distress and desperation when the market is falling. Then shrieking sells. Secondly, logic tells us that merely because the market has always recovered in the past, we cannot be assured that it will do so again. As Bertrand Russell once mordantly remarked:
The man who has fed the chicken every day throughout its life at last wrings its neck instead, showing that more refined views as to the uniformity of nature would have been useful to the chicken.
Well, let us leave that intellectual rigour to the Apostles at Cambridge and to the endless glory of English caste. Those of us here on the ground know that if the world turns upside down, and the market for once does not recover, your best bet would be to have a crate of Scotch buried in the back garden to trade on the hottest black market that the world has ever known.
And the Don? Fie! Fie! And shame on you for suggesting that so noble a knight could ever be concerned about anything as vulgar as mere money! It was sufficient for the overpowering intellect of so mighty a man that he could and did unveil the one great truth you need to know about money: ‘The person who possesses wealth is not made happy by having it, but by spending it.’
But we can and do seek solace from that noble knight when we are afflicted.
Don Quixote saw his mission simply. It was to relieve the losers. As it happens, that mission was defined for an English court at that time in these terms: ‘…the refuge of the poor and afflicted; it is the altar and sanctuary for such as against the right of rich men, and the countenance of great men, cannot maintain the goodness of their cause.’
As well as relieving the losers, the Don liked to take down bad winners.
And as for me? I’m with the lion.