The Crash of '87

A good friend of mine works on Wall Street. He's not a whiz-kid trader. He's a computer programmer, well-paid, but still a wage worker. My friend is not particularly religious and through most of the time I've known him, he's been basically apolitical. But a couple of years ago, he told me that working in the Wall Street environment had turned him into a socialist. He didn't read Marx. He just had a gut-level revulsion from witnessing the conspicuous accumulation of unearned wealth alongside New York City's equally conspicuous army of the unemployed and homeless.

Moral and ideological considerations aside, my friend also once told me, "These people [the marketeers] don't know what they're doing. They just go along from day to day predicting the future on the basis of whatever happened last week." Armed only with common sense, an inquiring mind, and a measure of ironic detachment, he saw early on that the much-vaunted Reagan-era prosperity was only a speculative house of cards.

On October 19,1987, the deal went down and the house of cards folded. But even now, in this first phase of the post-Reagan era, short-term thinking (based on whatever happened the previous week) and detachment from the needs and aspirations of ordinary Americans are still woefully abundant in official diagnoses and prescriptions for our gravely ill economy.

The conventional wisdom from the sages of New York and Washington is that the problem is the federal deficit. We need decisive action against the deficit to restore investors' confidence in the economy. The official analysis of the crash holds that the deficit-induced need to lure foreign investors was driving up U.S. interest rates. High interest rates mean tight money for businesses in need of refinancing and reduced consumer purchases of big-ticket items such as houses and cars.

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