The Atlantic and Its Enemies

particular victory would clearly bring great problems, the worse for having been so widely unforeseen by the bureaucracies that had come into existence in the era of detente in the 1970s. Yugoslavia, the very model of Communism-with-a-human-face brotherhood-of-peoples, exploded, and the unification of Germany brought headaches of unemployment and mass migration to the prosperous places of the West. After a year or two of patriotic euphoria, the European countries of the former bloc were mainly taken over by variants of reformed Communists, now generally learning to talk another wooden language, that of ‘Europe’; their young migrated, their agriculture generally languished, particularly when European regulations were used to suppress the old-fashioned ways with, say, ham or smoked fish or wine that might have let them be competitive. Much effort went into making out that this was all a great success for Europe, and for a brief period there was even a parody of the old Sovietology, in which ‘transition’ from Fascism or Communism was solemnly studied, as if there could be any conceivable comparison between Spain and Russia except at the most superficial level. But the reality after 1990 was, mainly, depressive, and the collapse of population growth almost everywhere demonstrated as much.

However, even the extraordinary showcase boom of the eighties came to an abrupt end, as American and German financial problems introduced a recessionary period. Japan herself, where an asset bubble had enabled the Colombians to sell their Tokyo embassy and pay off the national debt, now stuck and shrank. Ronald Reagan had retired in 1988, succeeded by the much more conventional George Bush I; Margaret Thatcher herself lost office in November 1990, manoeuvred out by her own party and especially by the Europe-minded element. The pound had, despite her misgivings, been put into the emerging European single-currency arrangements. Quite soon, her misgivings were shown to be right, as the strains proved too much: interest rates, set by mainly German needs, rose to such a degree that credit was choked off, recession followed, and the pound was pushed out again, much to the benefit of astute speculators. Reagan was lucky to the end, in that he managed to retire before the bill had to be paid for a piece of extraordinary maladministration.

For well-intended reasons, Americans had been encouraged to buy houses on mortgage in the 1930s through federal-regulated institutions, Savings and Loans (as happened with the building societies in England). The interest paid by buyers was fixed, which made sense when there was not much inflation, as, until the 1960s, was mainly the case. However, these institutions, borrowing money, had to pay the going interest rate, which in the 1970s became double that of the interest rate that could be charged from their own borrowers. Money went elsewhere. In 1980, with Paul Volcker’s 20 per cent rate, the Savings and Loans were in trouble, and bankruptcy threatened. If Reagan had adhered to his own announced principles, the hundreds of insolvent institutions would have been allowed to collapse, but in the depression of the early 1980s he shrank from this, and in any case the troubles in the end were not of his making. The government insured deposits up to a value of $100,000. With this collateral, the institutions could borrow a great deal more. In 1985 they could have been shut down for a comparatively modest sum, but the Reagan administration itself encouraged easy credit — deregulation and an Act of 1982 allowed the Savings and Loans to move, beyond simple mortgages, into the world of speculation, and a further move abolished the rule that there had to be at least 400 shareholders: from then on, they could be owned by a single man, thereby empowered to borrow huge amounts of money on the basis of deposits guaranteed by the US government. On top of this, the amount of his own capital that he had to put in was decreased to 3 per cent of the money out on loan. The problem was further put off by accounting rules that allowed losses to be unreported for ten years, during which the institution might go on as before. So the more buccaneering of these institutions went on, especially in Texas, vastly over-building office blocks and the like; by 1990, of the 2,500 that survived, only half could be considered healthy. Some 750 Savings and Loans then went bankrupt, costing $160bn dollars and causing damage to house- building: depression then followed, in 1990, as the bill came in, and it wrecked the presidential career of Reagan’s successor.

The heart of the problem was Reagan’s unwillingness to apply free-market principles to residential housing: nearly 40 per cent of mortgages were guaranteed, whereas in 1970 almost none had been. In 1988 the failure was evident, and, with the deficits, even the tax cuts were reversed, partly formally, but mainly by stealth, as social security contributions went up and up. Federal spending rose by nearly 3 per cent per annum and income by 2.5 per cent: this made for a large deficit, overall of nearly $1.5tn. Defence spending had been part of the story, but only part, and in any case as the arms competition with the USSR ended, it in effect paid for itself in the end. In fact by 1986, to offset the deficit, taxes were raised, and endlessly rising social security taxes nullified the Kemp-Roth tax cut of 1981 for most people. In other words, the Reagan Revolution was something of an illusion, and the same might be said of the Thatcher Revolution. In England, too, taxes were if anything higher and the size of the State had hardly been diminished at all.

Besides, as the economic tide went out, various grasping monsters were beached, as indeed had happened in 1930, and that again gave ‘the eighties’ a bad name. In 1934 the Stavisky scandal had almost destroyed republican, democratic France, since government ministers and parliamentary deputies had been found to be involved in an upended credit pyramid, the apex of which stood in the municipal pawn-shop of Bayonne; the Madoff running it was found dead in mysterious circumstances. Now, in New York, life imitated art, in this case Tom Wolfe’s Bonfire of the Vanities and Oliver Stone’s Wall Street: the makers of ‘junk bonds’ vanished into prison as recession pricked their bubbles. In London the empire of Robert Maxwell collapsed. He (repulsively: the baseball cap making it worse), larger than life, was a lie from the start. He was not, as he claimed, a Czech and therefore a gallant ally. He was born in an eastern part of Czechoslovakia which had been part of Hungary, and where the local (Hassidic) Jews all spoke Hungarian. His name was the Germanic ‘Hoch’, the Hungarian for which is ‘Magas’, no doubt the inspiration for his Anglicized or Scotticized ‘Maxwell’, to which was attached the army rank of ‘Captain’, when he became a Labour MP. His money came from Soviet connections: he had bought up the patents of German scientific magazines for a song in Soviet Berlin, and he performed useful services for the Soviet Communist Party, which probably paid him by letting him know in advance when they would be selling gold or timber, so that he could one-way-bet-ly speculate accordingly. When the Soviet Union collapsed, Maxwell stole his pensioners’ money and then fell overboard from his yacht, in mysterious circumstances. His US equivalent, Armand Hammer, was not caught, though upon his death he was found to have left, net, very little money. Both Hammer and Maxwell used a small orchestra of lawyers to silence enquirers.

By 1991, therefore, the critics of the eighties appeared to be justified. The notable books on the subsequent period — for instance, Joseph Stiglitz’s Roaring Nineties or even Edward Luttwak’s Turbo-Capitalism — rather shook their heads. Later booms and busts (most recently the crash of 2008) caused a veritable vibration of heads, and the ‘decade of greed’, as the eighties had been called, once more came in for condemnation. It is of course legitimate to ask what went wrong, and when. However, in this, the critics of the eighties were misleading. The great weakness in books of the Stiglitz type, knowledgeable and well-intended as they unquestionably were and are, was to suffer a strange nostalgia for the seventies; in fact one very good reason for the triumphs of ‘Reagan-and-Thatcher’ was that their critics were not only very wide of the mark, but disagreed badly among themselves, and were themselves products of the seventies, when their orthodoxies had indeed proven calamitously wrong. The record of development economics, for instance, is unimpressive; countries such as Tanzania, spoiled with World Bank largesse, spiralled down in planning, whereas South Koreas and Taiwans, with hardly any help at all, shot up. This phenomenon made the reputation of the economist Peter (Lord) Bauer, also of Hungarian origin (and also Jewish, but he was educated in Budapest at the grand and otherwise anti-semitic Piarist School, since his father, a bookmaker, had agreed to put a red line through the debts of the chairman of governors, a Count Sigray). His observations did not earn him a Nobel Prize, but, nowadays, the critical literature of the 1980s can mainly only be read as a sort of archaeology, turning up the urn burial practices of some once great tribe, the terror of its neighbours. This irrelevance applied still more when it came to the artistic artefacts of the anti-eighties. British film had a wonderful tradition to it, classics such as The Third Man still watched. In the 1960s, the film schools had been sixtified, in the sense that their students were supposed to develop an updated version of 1930s social realism, allied with hyper- active (or hyper-passive, in the German case) camerawork. Public subsidy was then showered upon films that would otherwise have been utter financial flops, the beneficiaries afterwards rounding upon the subsidy-givers to complain at their parsimony. In the opera, one Fidelio after another evoked Pinochet and the SS; you would hardly have been surprised to find the Dove in Parsifal represented by a B-52 bomber over Vietnam. There was a characteristic episode, in the context of President Mitterrand’s celebrations of the bicentenary of the French Revolution. The Bastille: ideal place for a popular opera, ran the thinking. The episode was chronicled by Maryvonne de Saint-Pulgent in her Syndrome of the Opera (1991) — vastly over-budget, vastly late, strikes at the opening, peacock-screeching between