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Allen and Stein

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from: Herbert Stein

Blue Friday

Posted Friday, Sept. 18, 1998, at 9:55 AM ET

Good morning, Jodie,

Why do you insist on talking about economics when I only want to talk about old musicals and still older ballets? It must be that I am so much older.

Anyway, I admit that it's pretty hard to find good news today. Sammy went 0 for 4. The Dow fell over 200 points. Congress is snarled up in the Clinton- Lewinsky tapes. Africa continues to be a disaster, and so on.

But, for us Jews a New Year begins Sunday evening. It may be a better year.

Now, to your question about George Soros' plan. As I understand it, he proposes the creation of an insurance fund into which persons and institutions making foreign investments would pay premiums and from which they would receive compensation if the investments failed. No taxpayer money would be involved.

I have three comments on that:

First, many financial institutions in the U.S. and Europe are big enough to provide such insurance for themselves, internally, by the diversification of their investments. Many of them have suffered losses this year on their investments in foreign countries, but probably few if any have had losses on the total of their foreign investment for a period of, say, ten years added together.

Second, if the Soros fund would really be without government financial backing, he doesn't require government approval to create it and he doesn't have to testify before a Congressional Committee about it. He can just call together some of his friends and do it.

Third, as I understand it, the proposal does nothing for the real problem. The real problem is not the foreign investor but the local worker in, say, Indonesia, who is now unemployed or has to take a big pay cut because the factory in which he has been employed, built with foreign money, has turned out not to be competitive in the world market.

I will give you a little different view of the world economic "crisis". For a long time about two-thirds of the world's population has lived in countries with average per capita incomes less than twenty percent of that in the U.S. We and the rest of the developed world have pretty much given up trying to do anything about that. We did not consider it a crisis. Some countries, notably China and India, have been working their way out of that category, by their own efforts plus access to world markets.

Now, a group of countries, including some of the poorest but also some others, are in trouble, and their real incomes are falling. The reasons are various, but in many cases the reason is that the investments they made with foreign capital turned out to be no good. Foreign investors have lost money. Also, that experience may have been what pricked the bubble in the U.S. stock market. And that, the losses to investors in the richest countries, and not the continuing poverty of the poorest, and increased poverty of some of them, is what we now recognize as a crisis.

That's my news for this gloomy day in Washington.

the breakfast table
entries
12345678910111213141516171819
from: Herbert Stein

Blue Friday

Posted Friday, Sept. 18, 1998, at 9:55 AM ET
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Jodie T. Allen is Slate's Washington, D.C., editor. Herbert Stein, a senior fellow at the American Enterprise Institute, was chairman of the Council of Economic Advisers under Presidents Nixon and Ford. He is a member of the board of contributors at the Wall Street Journal.
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