Wall Street Week with Louis Rukeyser; 1910; Galbraith on the Economy

<v Narrator>Wall Street Week with Louis Rukeyser <v Narrator>is made possible by the financial support of viewers like you and <v Narrator>by Prudential-Bache Securities, the investment firm with rock solid resources <v Narrator>and market wise thinking in the business of making money. <v Narrator>Produced Friday, September 8, our panelists are Frank <v Narrator>Capiello, John Dessauer, and James Grant. <v Narrator>Tonight's special guest is John Kenneth Galbraith, Professor of <v Narrator>Economics, Emeritus, Harvard University. <v Louis Rukeyser>Good evening. I'm Louis Rukeyser. This is Wall Street Week. <v Louis Rukeyser>Welcome back. Well, this was the week of Labor Day, when every good politician <v Louis Rukeyser>makes a speech about the future productivity of America. <v Louis Rukeyser>However, hopes that these dreams would actually be realized anytime soon <v Louis Rukeyser>suffered a severe setback when Congress insisted on returning from its summer <v Louis Rukeyser>recess and reconvening.

<v Louis Rukeyser>Well, you can't have everything. <v Louis Rukeyser>The economists, for their part, had to work overtime to find any trend in the economy <v Louis Rukeyser>this week. First, they told us that things may be moving a hair faster <v Louis Rukeyser>than they had expected in their impeccable wisdom, citing some surprisingly <v Louis Rukeyser>perky statistics on retail sales and auto sales. <v Louis Rukeyser>This upbeat finding distressed many of the geniuses in the investment community <v Louis Rukeyser>who concluded that the Federal Reserve might decide that its tender ministrations <v Louis Rukeyser>were no longer required right now and stop lowering interest rates. <v Louis Rukeyser>These worries also appeared briefly to have infected the White House, where chief <v Louis Rukeyser>economic adviser Michael Boskin was quoted first as saying that the Fed <v Louis Rukeyser>should ease further. And then after Fed Chairman Alan Greenspan <v Louis Rukeyser>growled audibly as denying that he had ever expressed such an impudent <v Louis Rukeyser>thought. Mr. Boskin will be my guest later this month, and we'll try <v Louis Rukeyser>to find out what he really thinks.

<v Louis Rukeyser>But just when all the wise authorities had told us that the economy was a bubble <v Louis Rukeyser>again, came an end of the week report that consumer debt, 1 of the <v Louis Rukeyser>perennial worries on the American economic scene, had, in fact been reduced <v Louis Rukeyser>in July, an astounding development that had not occurred in any month since <v Louis Rukeyser>January 1987. <v Louis Rukeyser>So the same wizards who had been mumbling all week the economy's too strong, <v Louis Rukeyser>promptly shouted, "No, it isn't!" And raced to buy bonds, <v Louis Rukeyser>ever the haven of believers in economic weakness. <v Louis Rukeyser>Their latest profound judgment is guaranteed to last at least for the weekend. <v Louis Rukeyser>Indeed, this Labor Day week found all the financial markets laboring a bit <v Louis Rukeyser>themselves. While bonds encouraged by a husky dollar and <v Louis Rukeyser>the late report on lower consumer debt finished with a gain, stocks went <v Louis Rukeyser>down for the first time in 10 weeks. <v Louis Rukeyser>The 9-week string of consecutive advances, totaling more than 300 <v Louis Rukeyser>points on the Dow Jones Industrials was the longest such unbroken string since

<v Louis Rukeyser>1965. And it caused some neophytes to conclude that they would never <v Louis Rukeyser>again be a losing week for stocks for the rest of this century. <v Louis Rukeyser>This forecast turned out to be somewhat exaggerated. <v Louis Rukeyser>Whether this was just an expectable pause for breath or the start of something more <v Louis Rukeyser>ominous, we will labor to tell you tonight. <v Louis Rukeyser>And my guest will be a man who has seen many a financial fit and start, including <v Louis Rukeyser>the 1 he wrote about in his book called The Great Crash. <v Louis Rukeyser>The always distinguished and always controversial economist, John Kenneth Galbraith. <v Louis Rukeyser>But first, let's see what happened in an undistinguished week in Wall Street. <v Louis Rukeyser>And as the Dow Jones Industrial Average indicates, the best thing that can be said about <v Louis Rukeyser>this trading week is that it lasted only 4 days. <v Louis Rukeyser>On ho-hum trading and near tangible uneasiness, the Dow <v Louis Rukeyser>went down for the first time since June, losing 42 and a half points <v Louis Rukeyser>to close at 2709 point 5 4.

<v Louis Rukeyser>The broader market indexes generally followed suit, though less dramatically, <v Louis Rukeyser>and the American exchange composite actually rose to its second highest reading <v Louis Rukeyser>ever, none of which impresses our elves, whose technical market index <v Louis Rukeyser>remains bearish at minus 3. <v Louis Rukeyser>With inflation appearing to be back under control and the US dollar defying all <v Louis Rukeyser>efforts, including our government's, to bring it down, there was no discernable <v Louis Rukeyser>reason to buy the precious metals and they retreated again. <v Louis Rukeyser>And here are 2 questions for you: do you like your job? <v Louis Rukeyser>And if so, how old are you anyhow? <v Louis Rukeyser>A Gallup poll reported that most full time workers are mostly satisfied with their jobs, <v Louis Rukeyser>but there was a much higher degree of grumbling among those born since World War <v Louis Rukeyser>2. Frank Cappiello, are you happy in your work? <v Frank Capiello>Oh, yes, definitely. Yeah, been a very pleasant experience. <v Frank Capiello>[laughs]. <v Louis Rukeyser>What do you- what do you think? Market just pausing for breath?

<v Frank Capiello>I think it is pausing for breath. But I also think that we're going through a rolling <v Frank Capiello>correction in terms of groups. We've pierced the bubble of one of the fastest <v Frank Capiello>rising groups recently, the airlines, and they're cooling off. <v Frank Capiello>The cyclical stocks seem to have flattened out and a new group has replaced <v Frank Capiello>those. And I guess you'd call that sort of interest, maybe not interest-sensitive, but <v Frank Capiello>interest related. The new highs this week were Sallie Mae and Fannie <v Frank Capiello>Mae, 2 rather attractive ladies, both of which are interests- sort of related <v Frank Capiello>to interest rates. <v Louis Rukeyser>Isn't there also some feeling that they may be beneficiaries of the savings and loan <v Louis Rukeyser>bailout? <v Frank Capiello>Absolutely. Yeah. And that's gonna be an improvement, too. <v Louis Rukeyser>Well, I have no objection to a rolling correction as long as we don't get steamrollered. <v Louis Rukeyser>How do we avoid that? <v Frank Capiello>Well, I think what we'll be dealing with is something coming out of a hundred, maybe a <v Frank Capiello>hundred and 50 points on the Dow. It's not going to be anything earthshaking, but it's <v Frank Capiello>really going to be important to be in the right groups. <v Frank Capiello>You are going to have to move around a little bit. <v Frank Capiello>And this is the kind of market where the average persons should stay- stay out until the <v Frank Capiello>clear trend is sort of set going back up again. <v Louis Rukeyser>I mentioned that the geniuses in the bond market, which of course in dollars is much

<v Louis Rukeyser>bigger than the stock market, were absolutely confused this week. <v Louis Rukeyser>So would you, un-confuse them- are the rates going up or down? <v Frank Capiello>Well, rates are not going to go up and the trend will probably be down over the next 6 <v Frank Capiello>months. But I would not be a buyer of bonds because I think this is the time <v Frank Capiello>when the stock market's going to divorce itself from the bond market. <v Frank Capiello>You're not going to make much money on bonds in the next 12 months. <v Frank Capiello>You're probably gonna make a lot of money on stocks. <v Louis Rukeyser>Jim Grant, when someone says you're probably gonna make a lot of money in stocks, I turn <v Louis Rukeyser>to you, [James laughs] confident that those words will soon be balanced-. <v James Grant>Which- which stocks? I'll give you a list. <v Louis Rukeyser>This- the strength of the market this year has somewhat surprised you, has it not? <v James Grant>[Laughs] A bit. <v Louis Rukeyser>Do you think this can go on much longer? <v James Grant>Well, I've often said that it's going to end in 1986. <v James Grant>So um I suppose-. <v Louis Rukeyser>And if 1986 ever comes back, you may be right. <v Louis Rukeyser>But what do you make of the present situation? <v James Grant>Well, I think it's certainly notable that the pillar <v James Grant>on which so many of these stocks is standing, there's this pillar of speculative <v James Grant>credit is beginning to crumble. The junk bond market is a disaster.

<v James Grant>Well, that's overdrawn. The junk bond market is- is- is- is in bad <v James Grant>a condition as the stock market seems to be as good a condition. <v James Grant>And um more and more you find that there is a kind of default du jour, <v James Grant>big issue is shot and taken out and shot and uh and the spreads <v James Grant>between speculative grade debt and treasury debt are ever widening, even as the common <v James Grant>stocks of debt laden companies go up. <v James Grant>So there is a massive divergence in the public's mind and the industrial market's mind <v James Grant>between the stocks of precariously financed companies and the bonds and the bonds are <v James Grant>going down. <v Louis Rukeyser>Is it fair to say that you are not the financial advisor to Merv Griffin? <v Louis Rukeyser>[laughs]. <v James Grant>He couldn't afford me. <v Louis Rukeyser>How does- not anymore. <v Louis Rukeyser>How does the average person deal with this if they if they buy bonds, at what level of <v Louis Rukeyser>quality would you haven't stopped buying bonds? <v James Grant>I would kind of start and stop at triple-A. <v James Grant>There is- there is, I think so much yet- there's so much damage

<v James Grant>yet to be done in the speculative area that you are not yet paid for the risk. <v James Grant>So I would recommend short maturities and government <v James Grant>securities at that. <v Louis Rukeyser>John Dessauer, what do you make of what you've heard so far? <v John Dessauer>Well, I kind of came out in favor of Frank's opinion, and I'm not too worried about the <v John Dessauer>total level of debt. I mean, we're in this period between August and October and 2 years <v John Dessauer>ago that wasn't- uh didn't end up in a very nice way come October 20th, <v John Dessauer>'87, so they're gonna be a lot of nervous people around. <v John Dessauer>The fear of the debt was the same then, same now. <v John Dessauer>But there are a couple of differences that impress me. <v John Dessauer>And 1 of them is this very strong U.S. <v John Dessauer>dollar. 2 years ago, the dollar was going the other way. <v John Dessauer>Now it's too strong. And I think if it breaks above 2 to 1 against the mark, and it's <v John Dessauer>right on the threshold of doing that now, that that that may force Alan Greenspan and the <v John Dessauer>boys down at the Fed to bring interest rates down a notch, I think that would help the <v John Dessauer>stock market and ease a lot of fears. <v Louis Rukeyser>So the thing in your judgment that may induce them to lower rates is not a failing <v Louis Rukeyser>economy, but a strong dollar.

<v John Dessauer>I believe Alan Greenspan in that gang when they say they don't want a recession, because <v John Dessauer>I think, you know, some of the problems that Jim points out are an insurance policy, in <v John Dessauer>other words, we all know might what would happen if we had a serious recession, and so <v John Dessauer>nobody wants 1. And a strong dollar is one of the things that could tip things a little <v John Dessauer>bit too far in the direction of recession. <v John Dessauer>So I think Alan Greenspan and company would react, and they really want to keep <v John Dessauer>the economy growing. They don't want to create a recession. <v Louis Rukeyser>All righty. Now, this is the point in the program when we normally pause for a round of <v Louis Rukeyser>viewer questions. Tonight, though, we're saving that time for more questions of my guest, <v Louis Rukeyser>who offers us a lifetime of experience at giving provocative answers. <v Louis Rukeyser>Next week, though, we'll be back to our usual tricks. <v Louis Rukeyser>So send us your own money questions to Wall Street Week, Owings Mills, Maryland, 2 <v Louis Rukeyser>1 1 1 7. That's Wall Street Week, Owings Mills, Maryland, 2 1 <v Louis Rukeyser>1 1 7. Now, before we meet tonight's special guest, let's take a look at some <v Louis Rukeyser>of the wit, language, and insight he has given us in 24 elegantly <v Louis Rukeyser>crafted and invariably controversial books over the past 50 years.

<v Louis Rukeyser>Here, for example, is John Kenneth Galbraith on money: "Most things <v Louis Rukeyser>in life are important only to those who have them. <v Louis Rukeyser>Money, in contrast, is equally important to those who have it and those who don't." <v Louis Rukeyser>And here's his view on those responsible for economic policy: "The task <v Louis Rukeyser>attracts a very low level of talent. <v Louis Rukeyser>1 that is protected in its highly imperfect profession by the mystery that is thought to <v Louis Rukeyser>unfold the subject of economics in general and of money in particular. <v Louis Rukeyser>Inadequacy is protected further by the fact that failure is almost never <v Louis Rukeyser>at cost to those responsible." He said this about the stock <v Louis Rukeyser>market: "The stock market is inherently unstable. <v Louis Rukeyser>The instability being related to its superbly orchestrated ability to attract <v Louis Rukeyser>people with a promise of effortless riches, give them a taste of such gains, <v Louis Rukeyser>give them the promise of a great deal more gain, persuade them that it is rewarding their <v Louis Rukeyser>financial acuity, or that of the people who are managing their money, and then

<v Louis Rukeyser>usually after overcoming some preliminary setbacks which greatly add to <v Louis Rukeyser>the general state of confidence, destroy these illusions in 1 mortal thud." <v Louis Rukeyser>Indeed, he wrote of market disasters: "What is necessary for a new disaster <v Louis Rukeyser>is only for memories of the last 1 to fade, and no one knows how long that takes." <v Louis Rukeyser>On the other hand, he has kind words for optimists: "Courage <v Louis Rukeyser>is required of the man who, when things are good, says so. <v Louis Rukeyser>Historians rejoice in crucifying the false prophet of the millennium. <v Louis Rukeyser>They never dwell on the mistake of the man who wrongly predicted Armageddon." <v Louis Rukeyser>Business executives often think of Galbraith as an egghead leftist. <v Louis Rukeyser>He doesn't speak too well of them either: "He is the kind of free enterpriser <v Louis Rukeyser>who is steadfast in his faith up to the very point where money may be made or lost, <v Louis Rukeyser>then, like most others, he rushes hell for breakfast to the government. <v Louis Rukeyser>Wouldn't you prefer an honest socialist?" Would America really be better

<v Louis Rukeyser>off with an honest socialist? <v Louis Rukeyser>And just what does John Kenneth Galbraith think of what's going on in this country today? <v Louis Rukeyser>For some thoughts on that, let's go over now and meet tonight's special guest, John <v Louis Rukeyser>Kenneth Galbraith. <v Louis Rukeyser>And welcome. We're just delighted you're here. <v John Kenneth Galbraith>Very nice to be here, Lou. <v John Kenneth Galbraith>What an impressive- what an impressive gathering you have here <v John Kenneth Galbraith>this evening. <v Louis Rukeyser>More so right now. I first met Ken Galbraith nearly 27 years ago when he was <v Louis Rukeyser>ambassador to India, and I was a foreign correspondent stationed there. <v Louis Rukeyser>He was, as usual, creating interest and controversy wherever he went: as Harvard <v Louis Rukeyser>professor, as bestselling author, and as a tireless advocate of causes usually <v Louis Rukeyser>on the left of American politics. <v Louis Rukeyser>The Canadian-born economist has won friends, even among those who disagreed with him <v Louis Rukeyser>because of his wit and engaging prose. <v Louis Rukeyser>Professor Galbraith will be 81 next month, and it's a pleasure to welcome him here <v Louis Rukeyser>tonight. Ken, you've never lost faith in the power of government

<v Louis Rukeyser>to cure economic ills, but most of the country apparently has. <v Louis Rukeyser>How do you explain that? <v John Kenneth Galbraith>Oh, there's no- no doubt about that, Lou. <v John Kenneth Galbraith>My generation is responsible through the <v John Kenneth Galbraith>Keynesian revolution, the welfare revolution. <v John Kenneth Galbraith>A great many Americans, a majority of Americans have become comfortable, <v John Kenneth Galbraith>happy, and inevitably conservative, <v John Kenneth Galbraith>least those that vote. And no one notices <v John Kenneth Galbraith>that while people have lost faith in government, as you say, <v John Kenneth Galbraith>that doesn't apply to when some measure of affluence is involved. <v John Kenneth Galbraith>There's been no loss of faith in government when it comes to bailing out those S&Ls?, <v John Kenneth Galbraith>low loss of faith in government as far as Social Security is concerned. <v John Kenneth Galbraith>Farmers are still committed to a very great faith in government for maintaining price

<v John Kenneth Galbraith>supports and farm income. <v John Kenneth Galbraith>So uh I don't want to correct you, Lou. <v John Kenneth Galbraith>I know that that you will get even next time when I'm not here. <v John Kenneth Galbraith>But I would point out that the faith in government <v John Kenneth Galbraith>is still very high, except as regards the most unfortunate <v John Kenneth Galbraith>of our people. And I would like to see a little more faith as there as- as <v John Kenneth Galbraith>regards them. <v Louis Rukeyser>Not only do I not dispute you, I quite agree that the search for government aid seems to <v Louis Rukeyser>be near universal. Would you have not given the S&Ls the aid they requested, though? <v John Kenneth Galbraith>I would not have deregulated them and invited the kind of <v John Kenneth Galbraith>insanity that has made necessary this bailout. <v John Kenneth Galbraith>I would go back and <v John Kenneth Galbraith>remind you of that error. <v John Kenneth Galbraith>As I reminded myself of some writing at that time. <v Louis Rukeyser>Would you not have bailed out Chrysler?

<v John Kenneth Galbraith>I had testified against it at that time. <v John Kenneth Galbraith>I testified against bailing out both Chrysler and Lockheed. <v John Kenneth Galbraith>But I did it really, particularly in the case <v John Kenneth Galbraith>of Lockheed, because there were conservatives on the- on the committee <v John Kenneth Galbraith>who were committed to it. And I- and I was so pleased <v John Kenneth Galbraith>to go and talk about something which gave them real inner <v John Kenneth Galbraith>sorrow that I couldn't resist it. <v John Kenneth Galbraith>I remember coming out- can I tell a story? <v Louis Rukeyser>Please. <v John Kenneth Galbraith>I remember coming out of that hearing. <v John Kenneth Galbraith>And I had circulated my statement in advance and ran into Barry Goldwater and he stopped. <v John Kenneth Galbraith>And he said, Ken, I've just read that statement of yours and I agree with it. <v John Kenneth Galbraith>And I said, Well, Senator, I now have doubts. <v John Kenneth Galbraith>I want to reappraise my decision. [laughs] <v Louis Rukeyser>If, as you've just suggested to us, the reason for what you would interpret as a <v Louis Rukeyser>conservative turn in America is, in fact, the affluence that was produced by <v Louis Rukeyser>government policies earlier.

<v Louis Rukeyser>How do you- <v John Kenneth Galbraith>By my generation. <v Louis Rukeyser>Understood. <v John Kenneth Galbraith>Don't- don't omit that. <v Louis Rukeyser>Absolutely. By the- by the geniuses of your generation. <v Louis Rukeyser>How do you explain the apparent turn in the same direction toward freer <v Louis Rukeyser>markets, toward capitalism, even behind the Iron Curtain where affluence is not a <v Louis Rukeyser>problem? <v John Kenneth Galbraith>Oh, I think there's a very different situation there. <v John Kenneth Galbraith>I- a very serious point. <v John Kenneth Galbraith>These countries- socialism behind the Iron Curtain worked very well <v John Kenneth Galbraith>when it was satisfying primitive lives, when it was building heavy industry. <v John Kenneth Galbraith>After all, it built the second greatest industrial system in the world in the Soviet <v John Kenneth Galbraith>Union. But that socialism does not work <v John Kenneth Galbraith>for the mo- the command structure of the economy, the planned <v John Kenneth Galbraith>economy does not work when you've got to the great multiplicity, <v John Kenneth Galbraith>variety and change- constant change of <v John Kenneth Galbraith>the consumer economy. And as those countries have moved into the consumers goods economy, <v John Kenneth Galbraith>they have had no real alternative to the market.

<v John Kenneth Galbraith>I know that you read Marx regularly and you may have- <v Louis Rukeyser>A few words before going to bed every night. <v John Kenneth Galbraith>I know that you have never encountered anything in Marx which suggested that well styled <v John Kenneth Galbraith>women's clothing and cosmetics and automobiles would be <v John Kenneth Galbraith>objects of proletarian demand. <v John Kenneth Galbraith>And that is what has happened. And for that, the markets is <v John Kenneth Galbraith>the only available mechanism. <v Louis Rukeyser>Another reason for disliking Marx. <v Louis Rukeyser>Now, let me ask you about George Bush. <v Louis Rukeyser>You were not a great fan of his predecessor. What do you think of George Bush? <v John Kenneth Galbraith>Well, George Bush is bringing a- uh <v John Kenneth Galbraith>something that is not entirely new, but he certainly has a strong commitment to <v John Kenneth Galbraith>it. And that is to assume that almost any problem will lend <v John Kenneth Galbraith>itself to a really good speech. <v John Kenneth Galbraith>We've had the most wonderful example of that in the last week with the drug problem. <v John Kenneth Galbraith>Which uh involves nothing new, but did produce

<v John Kenneth Galbraith>a really eloquent speech. And I understand the president's not going out and making some <v John Kenneth Galbraith>more of them. <v Louis Rukeyser>Is it your view then that he hasn't done much? <v John Kenneth Galbraith>I would not on this program want to make any partisan comment, but if you insist on <v John Kenneth Galbraith>the point, I'll agree. <v Louis Rukeyser>How do you explain the fact that Ronald Reagan, who stood for most of things you have <v Louis Rukeyser>opposed, left office with such popularity? <v John Kenneth Galbraith>Oh, no question about that. It was Ronald Reagan was our first <v John Kenneth Galbraith>president in our great theatrical tradition: uh <v John Kenneth Galbraith>Hollywood. And he did a magnificent job of substituting <v John Kenneth Galbraith>the script for the reality. Uh this is- this is <v John Kenneth Galbraith>his lifetime commitment, his lifetime achievement. <v John Kenneth Galbraith>But now we're beginning to see in the S&L bailout <v John Kenneth Galbraith>and in HUD and the Pentagon scandals <v John Kenneth Galbraith>and they of course, the continuing deficit, the problems

<v John Kenneth Galbraith>of our central cities, the legacy of Ronald Reagan. <v John Kenneth Galbraith>We're beginning, in other words, to have moved from Ronald Reagan's wonderful script <v John Kenneth Galbraith>to the considerably sadder reality, a very serious point. <v Louis Rukeyser>Did you anticipate a generation ago that complaining about the deficit would become a <v Louis Rukeyser>Democratic Party issue? <v John Kenneth Galbraith>Uh. Yes, I uh- I'm a fiscal conservative <v John Kenneth Galbraith>when a conservative- conservatism is required. <v John Kenneth Galbraith>There certainly are times when you want to expand the economy <v John Kenneth Galbraith>with an excess of with- with- with a substantive contribution <v John Kenneth Galbraith>by the government to demand. And there are times when you want to put that into reverse. <v John Kenneth Galbraith>I would like to see the deficit substantially reduced. <v Louis Rukeyser>We have a supply of excellent panelists here tonight, so I demand that they now ask you <v Louis Rukeyser>some questions. <v Frank Capiello>Professor, 1 of the big problems we've had in the past 20 years is Japan.

<v Frank Capiello>They continue to dominate our markets. <v Frank Capiello>They buy our companies. <v Frank Capiello>Will that continue? Is there anything America can do to prevent this or slow <v Frank Capiello>it? <v John Kenneth Galbraith>Well, this is related and of course, to the deficit, isn't it? <v John Kenneth Galbraith>We're putting uh- we have the 2 twin deficits, <v John Kenneth Galbraith>which is very large measure to go- go together. <v John Kenneth Galbraith>The budget deficit, high interest rates, they- <v John Kenneth Galbraith>flow that they passed effect of that on the strength of the dollar <v John Kenneth Galbraith>and the resulting trade deficit. <v John Kenneth Galbraith>And I would- I would think that the most important <v John Kenneth Galbraith>thing we do- I've long felt the most important thing we need to do is put our own fiscal <v John Kenneth Galbraith>house in order. Now, beyond that, we have to recognize <v John Kenneth Galbraith>that there is a more fundamental development here. <v John Kenneth Galbraith>For the last hundred, 150 years, there has been certainly <v John Kenneth Galbraith>this tendency for work labor intensive

<v John Kenneth Galbraith>manufacturing, mass manufacturing to move from the old countries to <v John Kenneth Galbraith>the new. It moved from Europe to the United States, moved to the United States to Japan. <v John Kenneth Galbraith>And one can't go out to Japan now without seeing that it is moving now on to Korea, <v John Kenneth Galbraith>Taiwan, Malaysia, so that there is a broad movement there, <v John Kenneth Galbraith>which I am forced to say we probably have to accept. <v James Grant>Professor Galbraith, Robert Heil- <v John Kenneth Galbraith>I must say, I dealt with him very well. <v James Grant>You did very well. <v Frank Capiello>Cooled me off, right? <v James Grant>Robert Heilbroner, like you, a man of the left who can write, said recently that in the <v James Grant>75-year race between capitalism and socialism, that capitalism had finally won. <v James Grant>Do you agree? <v John Kenneth Galbraith>Well, I wouldn't put it quite those terms. <v John Kenneth Galbraith>I would say that what has happened, <v John Kenneth Galbraith>and I feel very strongly about this is that both socialism and <v John Kenneth Galbraith>capitalism have discovered that the old ideology,

<v John Kenneth Galbraith>the old rigorous rules do not hold. <v John Kenneth Galbraith>We have discovered that there are some things which must be done <v John Kenneth Galbraith>by the state. That must- there were some steps that must be taken <v John Kenneth Galbraith>in the direction of greater social concerns. <v John Kenneth Galbraith>And- and the socialist countries have discovered, as I was <v John Kenneth Galbraith>instructing, Lou, just a little while ago, that socialism <v John Kenneth Galbraith>does not work for the diverse changing consumers goods economy <v John Kenneth Galbraith>and those that- that I would- that is the way I would put this- that the uh discovery. <v John Kenneth Galbraith>Rather than in terms of the conflict between <v John Kenneth Galbraith>structure, I think one has to go beyond that. <v John Dessauer>Professor, we've got the dollar very strong this week. <v John Dessauer>And for some time now, the central bank keep trying to calm the currency markets down, <v John Dessauer>almost as a throwback to the days of the gold standard. <v John Dessauer>Is this a good idea or should we all be going our own way, let the currency go its own <v John Dessauer>way?

<v John Kenneth Galbraith>I have very little confidence in what central banks can do. <v John Kenneth Galbraith>Among other things, if they buy dollars and have to sell them later, they lose <v John Kenneth Galbraith>money. And central banks don't like to do that, oddly enough. <v John Kenneth Galbraith>And the uh extent of central bank intervention is small <v John Kenneth Galbraith>quantitatively in relationship to the much larger influences of <v John Kenneth Galbraith>trade and capital movements that affect the dollar. <v John Kenneth Galbraith>So while I appreciate the delight which my fellow economists <v John Kenneth Galbraith>have and talking about that matter, I don't take it seriously. <v Louis Rukeyser>Ken, we have less than a minute left. You have written acutely over the years about the <v Louis Rukeyser>instability of the stock market. We've had evidence of that fairly recently, but <v Louis Rukeyser>you in fact keep a large body of your own life savings there, do you not? <v John Kenneth Galbraith>I think the most- this is a good point to end on. <v John Kenneth Galbraith>The most important thing to know about the stock market is that theologically <v John Kenneth Galbraith>we must believe it is perfect. <v John Kenneth Galbraith>And in fact, there are large elements of lunacy there. <v John Kenneth Galbraith>And the recognition of lunacy is something which can be personally

<v John Kenneth Galbraith>quite rewarding. <v Speaker>[laughter]. <v Louis Rukeyser>And you invest for, one takes it, for the longer term. <v John Kenneth Galbraith>Uh I invest on the assumption of market imperfection. <v John Kenneth Galbraith>But, I don't get- I actually I- I- I leave much of my uh uh <v John Kenneth Galbraith>life accumulation, which is not all that great, to other people. <v Louis Rukeyser>Thanks very much, John Kenneth Galbraith. <v Louis Rukeyser>A pleasure, as always, to hear from you. <v Louis Rukeyser>Hope you'll be back next week. Then my guests will be one of Wall Street's most <v Louis Rukeyser>influential analysts, Robert S. Solomon Jr., who runs the stock research department at <v Louis Rukeyser>Solomon Brothers. And he's going to be giving us his forecast, which I assure you, <v Louis Rukeyser>everybody's brother and sister will want to hear. <v Louis Rukeyser>You might have seen Wall Street Week. I'm Louis Rukeyser. <v Louis Rukeyser>Good night. <v Speaker>[music plays] <v Narrator>Wall Street Week with Louis Rukeyser <v Narrator>has been made possible by the financial support of viewers like you and <v Narrator>by Prudential-Bache Securities, the investment firm with rock-solid resources and <v Narrator>market-wise thinking in the business of making money.

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