Magazine article The Spectator

Cyclical Crashes

Magazine article The Spectator

Cyclical Crashes

Article excerpt

Are we heading for another financial crash? Who knows? The BBC's economics editor Peter Jay obviously thinks so because at the end of a Radio Four programme about the 1929 Wall Street crash he said, 'Excuse me now, but I have to run.' Perhaps he knows something we don't, like John Paul Getty who sold his stocks and shares just in time, and built an oil fortune, or the New York financier, who, when given a share tip by the shoe-shine boy, thought, 'Oh, oh, time to get out.' Jay's programme, The Archive Hour: View from a Ledge - the Wall Street Crash (Saturday), trawled the archives and used as its spine an interview with the 91-year-old economist J.K. Galbraith at his home in Massachusetts. Galbraith is always good value, a fluent and witty talker, and one of the BBC's favourite economists. Indeed, there was a time when Galbraith only had to come to London for current affairs programmes to dispatch someone to Claridges to interview him about Third World poverty, monetarism, unemployment or his latest book.

Anyway, he was typically interesting about the crash, reminding us of his familiar maxim, 'Financial genius is just a rising market.' There was a kind of insanity about the late Twenties boom, with everybody from the boot-black to the company president piling into the stock market with borrowed money to speculate on ever-rising shares without knowing what they were investing in, rather like some of the Lloyd's Names in more recent times. Galbraith thought that it was such an easy time that it encouraged the most incompetent and stupid bankers to rise to the top. Suddenly, on Thursday, 24 October 1929, people started selling and there were no buyers. Jay put to Galbraith the legend that we've grown up with of people jumping from office windows, but the economist had done his research into suicide rates in 1929 and there was no marked increase, just some highly publicised jumps. It led to some jokes. If you registered for a hotel room in New York the receptionist might ask, 'Do you want it for sleeping or jumping?' And one speaker remarked grimly that they had to walk close to the walls of buildings in case they were hit by a falling stockbroker. Jay asked the question: 'Which caused which: the crash or the depression that followed?' Galbraith didn't think it could be measured except to say that the crash had a deflationary effect on the US economy, hitting confidence and spending.

Industrial productivity fell by close to a half and unemployment soared from just over 3 per cent to more than 23 per cent, a rise never seen before or since. …

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