Winnipeg Free Press

Winnipeg Free Press (Newspaper) - November 1, 1987, Winnipeg, Manitoba Winnipeg free press november 1987 Page 7 issues revisited stupidity comes in cycles by John Kenneth Galbraith the sunday London history has a Way of repeating itself in financial because of a kind of sophisticated in the months and years before the great crash of 1929 a Large number of people and institutions were in the Market Only because it was going and they aimed to get out before it went the same has been True in these last what has happened does not reflect any Strong views As to what might happen to the american or the world the Over whelming Factor was which turned suddenly into fear the end of the speculative euphoria desire of people and institutions that had been Riding the Market up to get and the fear that was immediately engendered once the Market started drawing in the 1920s there was a group of men who thought their Genius had Given them the Mastery of financial and there were new Finan Cial instruments which were thought to be a special Marvel the great investment trusts and the great holding company pyramids in railroads and rampant insanity the chairman of the democratic National committee wrote a famous in those Days saying that everybody ought to the and he proposed the creation of a special kind of investment instrument in which the masses could invest their wages and get the advantage of the wonders of the Stock nobody looking at that period can doubt the level of insanity that was then in the last couple of years we have had a repetition of this same people got into the Market because it was going intending to get out before it came we have had the mergers and acquisitions and we have had the Young generation of investment most of them in the big investment who persuaded Many vulnerable minds that they were bringing a new Genius to Wall nobody believed it quite so strongly As those Young people As in october so in october we have discovered How people were captured by the mythology of the Bubble has burst one can Only guess what will Hap pen and my guess is that the particularly As regards the More poorly financed has despite the limited re covery after the big there will be no euphoric return for the companies which have been the Pride and Joy of the Ven Ture capitalist once this one has worked itself there is no Early danger of another the financial memory is about 10 that is about the time be tween one episode of sophisticated stupidity and the so we do not have to worry for the next 10 for the recent disasters we must hold the Reagan administration substantially two great innovations carry a Large share of the there was first the extraordinary notion by Large reductions in one could have increases in this produced an unparalleled Defi Cit in the Public budget and lodged a great Deal of speculative Money in the hands of people who put it into the the second great contribution of the Reagan administration to the crash was its Experiment with the ideas of my Friend professor Milton the resort to monetarism in the Early 1980s brought very High inter est a very High Dollar on Exchange markets and subsidized imports from Korea and other the result has been the continuing High Trade that had a particular be cause the dollars the japanese and others or some substantial part of were invested in american securities and were subject to a double first of what might happen to the Market and second what might happen to the the third responsibility of the and apart from the conviction that god is a Republican and no danger needs to be came with the comments of James the Secretary of the trea that the Dollar might be Al Lowed to fall of produced a wholly predict Able uncertainty on the part of the japanese and other investors and contributed to the further Rush to liquidate reagans policies must take a lot of the blame for the big then there is the larger question what will the further effects be i would expect a depressing effect on the housing a depressing effect on upper scale buying of con Sumer some depressing effect on and some secondary effect on there is an old Canadian saying that when the horse Dies on the Street the Oats no longer pass through for the if there is a recession in the United the world effect will be More prompt and greater than it was in the then the United states was a relatively Small player on the International Trade now it is a much greater but i do think we will see anything quite As damaging As there was after in All of the world including the United there is now a responsibility on the part of the state to sustain the level of employment and the level of production and economic Addi in the modern welfare state a Good Many safeguards have been built into the there have been some people associated with both the government of the United states and that of the United kingdom who have in the Pursuit of the free to get rid of this supporting i think we were fortunate that they were not we must now get away from the dogmas of the Reagan administration and particularly the notion that rhetoric will take the place of a and that god will always pro vide for any conservative adminis we have had an irresponsible keynesianism in these last years from the Reagan administration which has undermined both local and world i am not being from wherever he is must have been marvelling at what the Reagan administration was doing in his reduce deficit we must close the budget some of this can be accomplished by the ridiculous overkill on Mili tary including such things As Star if it i Neces sary to increase taxes i would do so on the higher income i do not believe the Reagan Thatcher doctrine that the Rich have not been working because they have too Little Money while the poor have not been working because they have too much people say that the computerization of the markets had a hand in what has i do not modern technology spreads disaster a Little More rapidly but is not terribly i have also been repeatedly asked what is the effect of the changes that have occurred in the Leader ship of the american Central the Federal absolutely i would strongly urge everyone to question the mystique that is presumed to surround Cen trial it is a mystique that is accorded them by people who do not realize How supremely unimportant As individuals they they respond to the pressures to which they Are subject and Are instruments of the bureaucracy which they last chapter my guess is that we have written the last chapter on Reagan and that this will have a strongly Adverse effect on Republican prospects and will revive substantially the prospects of the dem after the crash of 1929 we did not have another Republican president until and i would expect that the Reagan administration and the Reagan or Lack of will in the coming months be held rather strongly responsible for what has Robert one of the contenders for the presidency is already seek ing to separate himself from Ron Ald Reagan in a rather ostentatious the combination of the Iran con tra the misadventures in the Gulf now this closing chapters of the Reagan John Kenneth Galbraith is the Paul Warburg professor Emeri Tus of economics at Harvard uni he is author of the great what to m if our confreres into business communal in beg into pick up the spare change is repeating its mistakes by Paul Craig Roberts los Angeles times the experts Are busily reassuring us that there cannot be another great but the United states government is already Mak ing the same mistakes that caused the last All economic contractions have their roots in a liquidity in previous centuries such crises occurred when Bank failures shrank deposits and the Money in the 20th Century liquidity crises Are caused by the policy mistakes of Central Banks like the Federal time of crisis at the time of crisis the govern ment never understands the the 1929 Stock Market crash was attributed to excessive liquidity in the banking this belief caused the Federal Reserve to drastically shrink Bank reserves and the Supply of the Feder Al government compounded the error by raising taxes to balance the budget and passing Protection is legislation to save the depression the crash of 1987 has started off on the same worried All year about excessive the fed eral Reserve prevented any growth in Bank As the Economy was growing but the Money Supply was interest rates were forced instead of realizing that higher interest rates were signalling that policy was too the fed saw the Rise in rates As an indication that financial markets thought policy was too to reassure the markets that there would be no the fed raised interest rates reasoning that an increase in the Dis count rate would lower Lon term Lon term interest rates shot whenever shareholders see interest rates they become fearful of economic slow Down and falling profits they sell causing the Market to the West German Central Bank turned a Normal Market decline into a record collapse by raising interest rates again after the new York Stock Market had turned that was a catastrophic because it placed shareholders in a sur loss americans had been led to believe that either the fed would have to raise interest rates further to prevent higher in Terest rates abroad from sinking the or foreigners would dump american stocks to avoid an Exchange rate loss on their hold either stocks could Only fall and panic piggybacked for the past five years the allies have piggybacked on the Reagan Selling it the goods that they sell at when these Export based economies saw the Stock mar Ket predict they realized that their own profits would and they rushed to sell whether or not this global col lapse leads to world recession de pends entirely on what the Federal Reserve and other Central Banks Central Banks com Pound their errors because they Are unwilling to admit Public criticism and careful monitoring would help to prevent further but in today politically charged reelection environment everyone is too Busy grinding axes to put the blame where it with so Many people explaining the crash in terms that Advance their own Agen the fed will get off the democrats Are blaming and Keyne Sian economists Are seizing the Opportunity to regain influence by blaming suppl Side Many suppl siders themselves have hitched their Agenda to the blaming it on the Lack of a Gold conservatives blame the budget even some administration officials appear to be blaming president Rea Gan for blocking a budget Compro Mise by his refusal to raise foreigners blame the Trade the main source of their not in the picture holding the fed accountable does not seem to be in the Conse there is nothing to prevent the fed from deciding after a few weeks that it has pumped in enough liquidity to stabilize the Market and must again restrain the Money sup ply in order to prevent a renewal of Stock Market when the fed sends interest rates Back the Stock Market will sink As the Economy slides into republicans will raise taxes to reassure the markets about the As unemployment democrats will shrink world Trade further by pass ing protectionist legislation to save As the world Economy grinds to a economists and the Media will be predicting inflation just As they did before the 198182 recession and the 1984 economic and again this year be fore the Stock Market if you dont believe that there can be another great just watch the policymakers in Wash Paul Craig Roberts holds he William Simon chair at the Centre for strategic and International studies in will have major effect on arts commune by Jim Carr special to the free press last weeks stunning revelation about misappropriation of funds by Rainbow stages former executive producer has shattered the relative Calm in Winnipeg cultural comm not since the Winnipeg sym phony orchestra teetered on the Brink of financial collapse in 1979 1980 has this cites attention been so sharply focused on the business of Jack Shapira repayment of 000 to his former employers ends one chapter of the the Board of directors and auditors Are satisfied that any funds owed to Rainbow stage have been fully re Jack Shapira is no longer the Centre of the attention now turns to the Board of directors and the auditors year after approved expenditures that were subsequently found to be i entirely questions Why didst the finance com Mittee of the Board routinely audit Shapira expenditures Why the auditors catch on Why did the announcement of Shapira Resigna Tion make no reference to the inde pendent audit that revealed misappropriation of funds Rainbow stages crisis has sent Shock Waves through Winnipeg artistic funding agencies will now be much More attentive to budgetary polite and casual inquiries Are bound to take on a More serious and searching donors in the private sector May take a More cautious position when approached for sagging for tunes in the Stock Market have Al ready alarmed nonprofit organizations As they prepare for fundraising allegations of mismanagement do not volunteers who donate Long hours to cultural organizations in this City will now be on the they will be reminded that the responsibility of monitoring and controlling expenditures is theirs and any abdication of that Trust can develop quickly into a full blown Public relations the Shapira Case will have lasting rubber Stamps will be re placed by discerning questions from Board professional Audi tors will be shaken Loose from any temptation to apply casual treat ment to artistic funding agencies will insist on full Public disclosure of Rainbow stages financial opponents of Public funding for the arts will use this isolated Case to bolster their i can hear perennial critic Alan Wade other those who love to Call hotline radio will be dredging this one up for it has always been a Challenge for cultural administrators and Volun Teers to convince politicians and 1 Public servants that the arts Are not a but a necessary part of a civilized that argument has been largely accepted in where funding for the arts at All Levels of government has grown dramatically since the Winnipeg has done particularly Well because of its unusual diversity and the Rich Quality of cultural activity for a City of its members of City Council themselves recognized that fact last summer when they approved substantial increases in Grants to cultural including Rainbow councillors accepted All the emendations of the arts advisory except the one for Rainbow Council increased the recommended Grant by the issues Are much bigger than Jack accountability for the use of Public the relationship Between granting councils and their the role of auditors and the boards which hire and the continuing Good will Felt by Mem Bers of the Public toward the arts Are much More it is important to keep this unfortunate episode in Jack Shapira conduct has nothing to do with Rainbow stages contribution to the cultural life of rain bows ought not be permitted to cast shadows Over the operation of other cultural organizations which manage their financial affairs remember the symphony water shed seven years the orchestra was almost million in the Board resigned and was replaced by provincially appointed audiences were staying away in and senior staff were fired or encouraged to move at the time it looked As if Winnipeg might lose its major musical thanks in part to the leadership of Sterling and a huge Community a deficit reduction package was a new Board put in new staff hired and innovative marketing techniques Only seven years the Winnipeg symphony orchestra is among the Healthiest cultural organizations in boasting a mod est budgetary surplus and playing to record numbers of Rainbow stage is facing a differ ent but one of similar proper the pressure is on for the Board to explain fully How it allowed years of to go units auditors will have to do the Only a Complete and Frank disclosure of the facts will Clear the air and allow for a renewal of Public Jack Shapira May have unwittingly performed a valuable service for his beloved Rainbow and the cultural Community of even this Cloud May have a Silver ;