NEW YORK - As the stock market continues to climb, some eminent
economists and financiers are dogged by the feeling that they are
living under a volcano, which could erupt at any moment - or lie
dormant for years.
Is there really any way to know? Conventional economic analysis
provides no answer, since the variables on which a prediction of
doom would be based are the same variables that can be interpreted
to mean that the present balance of forces is sustainable.
A ``Great Depression'' is a freakish event that comes along only
every several decades. A leading economic historian, Charles P.
Kindleberger, Ford Professor of Economics, Emeritus, at the
Massachusetts Institute of Technology, expresses his wariness of
economists who see recurring patterns for which they have no
explanation or for which different people offer different
One example is the Kondratieff 50-year cycle of booms and busts,
for which, he notes, the explanations vary: innovations (textiles,
railroads, electricity and chemicals), wars (Napoleonic, Crimean,
World Wars I and II), resource discoveries and exploitation (coal,
new lands, oil, nuclear weapons and other heavy military
Nevertheless, Kindleberger does see many similarities between
the present situation and 1929-39. Writing in ``Parallels,'' a
publication of the Toqueville Asset Management Corp. of New York and
Paris, he names these:
- The tangle of reparations, war debts and commercial lending
(to Germany, Latin America and the British dominions) in the 1920s
has a current parallel in the third-world debt crisis.
- The overvaluation of the British pound and undervaluation of
the French franc, which produced a pile-up of French claims on
London last time, is more or less matched now by the erratic path of
the dollar and the heavy claims that foreign central banks have on
- The price of farmland peaked in 1925 and fell after that.
In recent years the boom in agriculture peaked in 1979, when farm
debt reached new highs, and since then the shakeout of farm
ownership and farm banks has been relentless.
- Capital investments made during the 1920's boom stayed idle
long afterward. A classic example was the Empire State Building,
finished in 1929 but not fully occupied until 1939. Its current
analogue can be found in office buildings and luxury condos,
especially in Texas and Southern California, as well as in the heavy
oil-exploration investments of 1979-80.
But the most alarming analogy between the Great Depression and
the present, Kindleberger says, ``is in the organization and
leadership of the world economy.''
His explanation of why past depressions were so wide and deep
and long-lasting was that no country took charge as the economic and
financial leader. …