In the old days, when cynics spoke of the street that affects so much of the nation and world, they liked to pierce rosy illusions about it with a mordant expression. Wall Street, they would say, begins with a cemetery on one end and leads a short distance away to the river on the other. Today it's more fashionable to define the center of U.S. capitalism in different terms. "Wall Street," one of its financiers was saying, high above the narrow concrete canyons at the end of Manhattan, "is supposed to be dominated by two emotions -- fear and greed."
Both are present now, along with a tangle of other emotions and concerns that illuminate much more than the immediate presidential election prospect next Tuesday. Wall Street, if you can generalize with any assurance, wants Ronald Reagan over Jimmy Carter, but that isn't what's important about attitudes here. While many on Wall Street see the practical prospects for a Reagan or Carter presidency as not that different, they believe that America and the world today face a crucial period. They also see this election as significant in showing which course the nation will take in this decade.
A member of a leading financial firm put it in terms the street understands best -- of bulls and bears.
"It used to be," he says, "that there was what you'd call a longtime bullish sentiment on the street, with short-term bearishness. The basic long-term outlook, springing from the post-war period on, was that the nation was marching along. I'd say that has been replaced now by intervals of bullishness but longer-term bearish sentiments."
In other words, the old sense of optimism that sparked so many ventures has been tempered, if not dissipated. And the people of Wall Streer reflect it in the way they look warily at the world and the performance of the American government in the 1980s.
Another analyst, Craig Drill of the First Boston Corp., poses the question this way: "If you're talking about the '80s," he says, "money really is your best indicator. Money represents the link between the present and the future. There's no better way to judge people's perceptions on the future than how they view their currency, and how they view inflation. The problem is this: The country is faced with a lower standard of living. Everyone has to have less. And the American dream is everyone wants more. They want to believe their children are going to have a better life than they had, and it's not going to be that way. Everyone's getting poorer. So to the degree the expectations, social and political, disagree with the reality -- particularly as the energy tax and the burden of military expenses get heavier -- and as the gap stays wide between them, that gap is filled by inflation. All this becomes more apparent when the pie doesn't grow as quickly. We had a few decades after the war where it grew very quickly. Now we're in the second decade of slow growth, the '70s and now the '80s. That's when the strains and the divisions became harder."
This isn't to suggest the people you meet are awash in gloom. But a strain of unease runs through the conversations. To an outsider, two major themes emerge -- a feeling that the United States stands at the end of an era, what one person calls a "40-year romance with the notion of what government can do," and that America's power has slipped ominously, presenting the possibility of harsh new tests in the immediate years ahead. When people who are experts in guaging currents, economic and political, both at home and abroad, express these concerns, they often concede they are uncertain about how it will turn out.
"On Wall Street our printing presses work overtime conceptualizing and theorizing," says one of the powerful insiders. "But who knows what to expect. I'm not so unusual. What I tell you mirrors a lot of what you'll hear all over: It's a helplessness. We'd like it to be better, but we're so damned big and lethargic. We don't know how to get it better, but we know something's wrong. It's the reverse of Bert Lance -- 'If it's broke don't fix it.' There's something broke and we don't know how to fix it."
What flows out of those kinds of remarks is a serious range of questioning that extends beyond the normal Wall Street concern with buying and selling. It's not uncommon to meet people of great responsibilities, giants of financial America, who now express doubts about the ability of America's political system to deal with the problems of late 20th-century life. A Special Breed
On Wall Street, two engines drive the stock market -- inflation and interest rates. In the brokerage houses and among the major institutional investors the person who makes key decisions affecting those forces is called the stategist. He's the expert who evaluates the socio-forces is called the stategist. He's the expert who evaluates the socio-political state of the world, assesses the near- and long-term prospects and arrives at fundamental judgements. It is he who decides how much of a company's assets will be placed into bonds, into stocks or remain in cash. Through his judgment stems the core of all investing.
Obviously they are a special breed, these strategists, part philosophers of Wall Street, part hard-nosed pragmatists. To be successful, they must have combined a number of unusual traits. They must be good abstract thinkers possessed with an ability to extract key pieces of information quickly. They must know how to set objectives and be unintimidated by large numbers and huge projects. They must constantly weigh contradictory opinions, sifting among often inadequate and inconculsive factors for evidence that makes them reach a vital dicision despite an incomplete set of information. They must see their latest achievements as a springboard for the next and be able to find acceptable alternate routes around obstacles in their paths.
Meet, then, some of the strategists: The Senior Man
From his office in One Battery Park Plaza, Greg Smith can look out over the harbor that helped make New York the world's greatest trading center. A few feet away, down the corridor, stands its modern counterpart -- the crowded room where E. F. Hutton brokers are keeping track of a range of stocks and bonds, all tabulated by the constantly changing green figures flitting across their computer terminals. Smith, a young man originally from Oklahoma, who looks equally at home behind a desk or a tennis net, is Hutton's senior strategist. He studied engineering, mathematics and economics at the University of Oklahoma and Columbia. As he says, he purposely didn't go to business school: "I decided I wouldn't learn anything in business school, just get older; I figured most of what you learn doesn't apply in the real world, so I might as well have some economic credentials that I could use to ferret out what was right and wrong in the real world." Smith has been on Wall Street since 1969.
"If you start with the very broad picture of the economy," he begins, "I think it's pretty clear we've spent the last 30-odd years -- and specifically the last 15 years -- trying to find ways for the federal geovernment to come up with answers to problems. And the general answer was to define the problem and then try to spend our way out it. In terms of the history of our country, that's pretty reasonable -- if you can just create an economic structure, you can solve anything. When it came to social problems it was logical for us to try to engineer a solution, and for it to turn out not to work.
"At the same time, we started to realize we were part of a very broad and large economic world. In the mid-'70s the Arabs introduced oil as the new thing to think about. For the first time, some of us started to think maybe there were some limitations on our abundance of inputs for which we could create economic growth. A little more recently, I guess you could trace back to Watergate the idea that maybe a lot of people's faith that someplace in a town on the Eastern Seaboard called Washington, D.C., there were some very clever people that always had the answers.
"I grew up in Oklahoma, and there is a sort of subtle feeling that, well, maybe we don't understand everything, but there are people who do. As you get involved, you find that's not true at all. It's very frightening at first, but you adjust. What settled in after that is Congress found it had a lot more power in filling a vacuum. As we read it, we reached a point where in 1978 political and economic logic were coming together. Simply stated, that meant that a political solution to a problem had to take into account the economic impact. Before, with our tremendous cushion of debt capacity and lack of inflationary problems, we really didn't have to worry about the economic impact of enacting a government program to solve a political problem. Certainly by the late '70s, with persistent and large deficits and inflation, that was no longer true.
"If you want to get into where the real issues are going to be, I think you can get the drift that there are some real powerful structual changes coming on domestically -- demographics and economic patterns of growth are part of it -- and as a political overview, there's very little that's going to be done that wouldn't be done under any individual. So the die is cast. Getting to the presidential election specifically, my observation is that increasingly people are concluding that the outcome will have very little impact on domestic policy. The options don't exist anymore. First off, we are already into fiscal year '81, so no matter what you want to hypothesize, it won't happen until 1982. We're constrained, regardless of who's elected, by an increasing commitment to defense. And events in the Mideast make it clear we have no choice but to commit more to defense. With government inflation and budget deficit constraints, that leaves almost no room for any new social programs.
"One of the great surprises of the past five or six years has been the ability of the economy to absorb tremendous numbers of new people coming into the economic system. It's both the final rundown of the baby boom as well as the social and economic pressures to put the female to work. Another factor going on is this growth of new industries. Electronics is a prime example. As recently as six years ago this was considered a toy. Electronics primarily went into watches which had digital read-outs instead of sweep hands. pWhile all this was cute and fun to have, the world could have gotten along just fine without it.
"Now we're finding that one of the great answers to inflation is to make things work electronically better than they have in the past, even things as mundane as the internal combustion engine. You take a diesel motor that's been going since the late 1800s, use an electronic ignition system on it, and all of a sudden it becomes fuel-efficient. It's a product for today. You take a butterfly valve, which was invented by the Romans at least 2,200 years ago, you put some of the new miracle coatings on the inside, and a disc can close a valve by making a quarter turn. All of a sudden you can automate a lot of things you never thought about before by a simple change. So in terms of our plastics and coatings and electronics and things, applications are opening up new markets for this.
"And of course energy itself is something you can't ignore because a lot of the push toward the Southwest, the Far West and the Rocky Mountains -- which I think is going to be the next boom area, absolutely bar none, like the West Coast never saw -- has very major economic implications. You can see it in the pattern of the business cycle. The recession, in fact, in Youngstown and Detroit gets worse and worse as time goes on. Yet this is a shorter and less severe recession that the last one, but you can't prove that to anyone in Detroit or Youngstown. And in Texas and the Silicon Valley they say, 'What recession?' Up to two or three months ago people were actually being paid bonuses to bring in friends for job interviews. And that's in the middle of a recession. There are numerous implications to this. One obvious one on the political side is that beyond the 1980 census we are goijg to have complete redistribution of the voting pattern. By and large the voting habits of the Far West and the South tend to be more conservative. That can change with large migrations of minority groups, but by and large I think it's fairly safe to say we're moving people to areas where they tend to mix in, and they become economically more conservative. The guy that pulled himself up by his bootstraps and has made a million bucks in the Silicon Valley tends to be a pretty conservative guy."
Smith puts political change in a personal context. Recently he watched a rerun of an old Edward R. Murrow telecast with John Kennedy. It was done at a time when Kennedy was just beginning his race for the presidency in 1960. "The interesting thing," Smith says, "is I remember seeing that show and being very impressed with what Kennedy had to say, as I guess we all were. But in the playback his answers seemed so ridiculously simple. It was very deflating in terms of the perception I have today. But I think that provides an insight. I think all of us then were relatively naive, and if a politician had any knowledge at all he sounded brilliant. Today a politician doesn't have that edge. We all know more. A politician may know 20 percent more than he did then; the rest of us, 120 percent more. Somebody gets up and says 'I'm going to increase defense spending, cut taxes, and balance the budget.' And somebody says, 'How are you going to do that?' Twenty years ago they'd say 'That sounds great to me.' We're a little sharper now, and it makes politicians look less attractive. Part of this is not because they're not smart. It's because we're smarter." The Power Broker
"In that chair," he said, gesturing to where his visitor was sitting, "I have three or four major foreign investors each week. I just had a guy from the Bank of Switzerland in." He was not boasting, nor was he being coy when he asked that his name not be used nor his prestigious firm identified. It was simply a case of his feeling more free to speak his mind bluntly. And he did.
"Being numbers oriented," he said, "I guess from an economic framework, I really believe we're becoming a second-rate nation. And it's very disturbing. Worldwide our competitive situation has deteriorated markedly. From 1973 to 1979 our output per manpower -- productivity -- has grown at an annual rate of about 1 1/2 percent, compared with about 4 percent in Japan and about 5 percent in West Germany. Capital spending as a percentage of GNP (Gross National Product) is eight percentage points higher in Japan than in the U.S. and five points higher in Germany than in the U.S. And if you look at age of equipment and plants in Japan and Germany, it is substantially less than here. As a measure of all this, our percentage share of world exports of manufactured goods has slipped from about 22 percent 10 years ago to about 17 percent in 1979. So I see us losing out in world markets. And if you accept the premise that the American worker is no less able than a foreign worker and you assume that the American manager is no less ingenious than the foreign manager, it clearly rests in policies of government dealing with industry and it also rests in perhaps tax legislation that is confiscatory in nature. So I find that disturbing.
"If you look across this nation, you have prosperity in Palo Alto and New England around Boston, and you've got disaster in industrial America. As a loyal American, I feel very disturbed by it. I think the whole trend in taxation is confiscatory. You cannot tell me a financial instrument today available to a taxpayer that has a real return after inflation and taxes. What has happened is the consumer has discovered the best form of investment is consumption and there is no incentive to save. Our savings rate is 4 percent; Germany, 15 percent; Japan, 20.
"So, I'm frustrated on the economic side; I really have not seen today appropriate policies; I'm frustrated with our inefficiencies in the industrial sector, by our lack of leadership and a basic distrust for Carter. So I see a certain malaise, a morass. But I'm a longterm optimist because I'll never forget what Russell Long [the influential Democratic senator and leading Washington operative from Louisiana, son of the late Kingfish] once told me about 2 1/2 years ago: 'No matter how hard we in Washington try to screw the country, the country survives.' I guess it's the thing to do to poke fun at the machinery down there.
"From another aspect, I see us as basically being ripped off by the Russians left and right -- North Africa, Middle East, Afghanistan -- and we really are not reacting. We really are weak. I look at what's going on in Central America, and there's tremendous instability. It could very well influence the attitude of Mexico toward the United States in a negative and hawkish way. We're told the Spanish Sahara could lead to a toppling of the Moroccan regime -- and somebody cynically said we'd agree to give arms to Morocco right after they fell. Look at the Middle East. It's very unstable.The hostage situation has to be resolved. I find it very difficult to believe that a second American president can tolerate the holding of the hostages. If it's Reagan who's elected or Carter who's reelected, I don't think this thing can go on. We'd better hope somebody gets sane and releases these poor people. I'm not advocating military intervention, but what's the solution?
"Then you have the Middle East outside Iran. Israel is a very hot issue. As the oil countries build their power base, they start therefore identifying with the attitude of European powers toward the United States, identifying with their self-interest.
"And you can see factionating, destruction of NATO, an every-person-for-himself kind of philosophy. When you look around the world, there're tremendous hotbeds of instability, of problems.
"As far as the election, I saw a great cartoon when I was in Europe: a cowboy with two guns drawn, and somebody posed the question to him, Reagan or Carter. The answer was, 'Shoot.' I don't think it makes a hell of a lot of difference. I'm sure you've heard this trite analogy ad nauseum, but the old story about how Wilson ran on a platform of peace and he got us into World War I; Nixon ran on an anti-communist platform and then went to Russia and communist China and put on controls; Carter said I'll never, never go for a reduction in capital gains taxes -- it was a ripoff on the poor perpetrated by the rich -- yet for the first time in 40 years it was cut a rather significant 40 percent. So what happens is the president proposes and the Congress disposes. Events shape the man as opposed to the man shaping the events.
"But I think the major difference between Reagan and Carter is that Reagan believes what he says and Carter is an opportunist. I don't really believe Carter will do what he says, while I think Reagan has a high probability he will try to do it.Whether he can get it through Congress, it's very hard to say.
"I frankly have nothing but contempt for what I see down in Washington. It's an island surrounded by reality. I look at good people that try to come into government. They are raked over the coals in these various committees, little picayune stuff over credentials. I don't think they can get anybody good down there. People get full of themselves, full of their importance. I get the feeling it's just something that doesn't work. It's over-burdened, the machine -- it breaks down. I don't have enough knowledge of the inner workings of the government to have the power to say what I would change. One thing I would do would be to make it blatantly clear to the population at large that the way to raise your standard of living is to raise your productivity. I think one of the big problems of government is we overpromise. And one of the refreshing things about Anderson, even though he doesn't have a chance, at least he's honest about what he says. He's a damned impressive guy.
"The real question is whether we are perceived as having a crisis. If you say leadership, it's really leadership under crisis. My guess is there will be a pulling together of government, business and labor if there is perceived to be a legitimate crisis in this country." The Trend-Watcher
When he worked in the White House, for Gerald Ford, Jim Connor was one of those who shunned the capital's social scene. He found the perfect excuse in a Maryland farm he had purchased; it gave him both an escape from the rigors of decision-making and a perspective on what he was doing. Today, he still has that farm, although it takes him a little longer to get to it from his Wall Street office, and he keeps a bucolic picture of it, adorned with blue ribbons to remind him that other things are important, too. And Connor still retains a valuable perspective in his work as strategist for The First Boston Corp.
"I'm not sure Wall Street's perspective is very sane," he says, "but probably there are a few things you can say. The '80s promise to be a pretty damned interesting time because there are a whole bunch of problems that we've lived with for a long time that are, for demographic reasons, likely to be altered during the decade. Unemployment is a good example. In a recession of similar mangnitude the kinds of levels of unemployment we've seen this time probably would have one or two percentage points higher until you were really close to 10 percent numbers. We didn't see them. I think we're going to see a lot more of this kind of thing. As the age mix for the population shifts, the kinds of unemployment statistics we've seen in the past are going to be different. That doesn't mean political leaders will see the difference quickly enough. But they will be different, and the implications of that for social policy, government policy, are enormous.
"You have a couple of other things that arise from that. Ever since the postwar period, state and local governments have had the hell beat out of them in such things as expenditures for schools, hiring teachers, building schools, getting equipment. The burden of expenditures was enormous and increasing; now it's slowing down and going the other way. The same thing probably holds true for crime. To the extent that crime is statistically related to age, we're going to see our criminal figures begin to drop as the pool of criminally prone juvenile classes shrink relative to the rest of the population. It's predictable.
"Other things are predictable, too. For example: This probably is going to be the election with the lowest voter participation. But that's a statistical phenomenon that was clear as soon as we gave 18-year-olds the vote and the baby boom moved into the voting group. You got more young voters. One of the great things we will discover in the '80s will be that voter participation will increase. People will say there's a sense of citizenship in the United States. They will develop marvelous theories about it. That has no relationship to reality except that as you get older you tend to participate more. It's just going to happen. So much for what I call the predictably optimistic trends of the '80s.
"There are other problems that are causes of concern. I don't know how we're going to meet the military manpower needs. You sure as hell aren't going to meet them with the volunteer army in 1985. And again, precisely for the reasons we're talking about, you've got a shrinking pool of eligibles. No matter what price you have to bid for them, it's a smaller and smaller pool. It's going to be very serious. If there's a critically predictable problem for the '80s, that surely is going to be one.
"These are the kinds of things you can talk about the '80s without any reference except to a few basic demographic facts. But I think if you miss those, you're going to miss some of the most significant events of the period. That's a relatively optimistic picture, but there is another series of concerns. They take place against a more somber background.If we're going to set an agenda for the '80s, it's going to be very difficult.
"I'm trying to figure out the right words. It has nothing to do with trust in government, although that's a phrase that's been used. It has something to do with a total disenchantment, both with what government can do at home and abroad. I don't think it's a matter of being liberal or conservative. I think it's the end of an era, the end of a four-decades romance. In the '20s and '30s -- maybe even before that -- we built up a storehouse of intellectual capital in the social sciences -- about what human beings were, how they were motivated, how they could be affected, how they could be educated or improved. It took us a very long time to apply that knowledge to the governmental system. In the Johnson presidency the dam broke, the flood waters came, and the effects on the governmental system have not been particularly outstanding, to say the least. The problem, though, is there is no more intellectual capital behind it. There's kind of a bankruptcy. And it's not just with the liberal policies. It's in the social sciences that ultimately underlie the political framework. We don't have many more interesting views about what can be done about mankind. You're not going to see many new views comparable to what was coming out in the '20s in sociology, in political science, in psychology and the like.
"There's another aspect. At the risk of appearing partisan, the United States is not taken seriously in world affairs. That is a relatively recent development. There is a sense of the United States as an inconstant country or as a frivolous country or as a naive country or as a perfidious country. Europeans particularly want to look for deeper motivations. They want to think you're a knave, not a fool. But most importantly, there's a sense this country is not a serious player in world affairs. It doesn't necessarily perceive what its interests are; it doesn't perceive its obligations. And these beliefs stretch from the obvious ones -- national security, the effectiveness of alliances -- to financial ones. Do you take your currency seriously? Currency is a promise by a nation. It says I'm going to pay you something. It's going to be worth something. There's a real sense abroad the United States does not understand what its interests are, or if it does, it's incapable of figuring out how to effectuate them.
"I think that probably is going to be the biggest risk of the '80s. As really serious national problems arise, there are misperceptions -- maybe even accurate perceptions -- about the will of a country. It's two questions -- military ability and the will behind the military ability. I think we're in a period of high risk. I don't think you have to play the statistical game vis a vis the Soviet Union. The '80s are going to be a time when there are going to be a continuous series of tests." The Election
The views expressed about the election are both consistent and contradictory. It's not that important, but it really is . As one person said, typically:
"It's not so much the election, I guess, but I think we're at a watershed in American politics from the standpoint of getting at the roots of these basic problems. I say the election per se isn't important, but it's important that the leadership in this country grasps the serious reasons for the deterioration of our society. I mean, inflation is stabbing us. Did you read the article in The Wall Street Journal about the underground economy that's going on now? It's getting like Italy, everything in cash and everything hidden. What's happening is inflation if breaking down the fabric of this society."
While the Wall Street people you meet are far from despairing, that attitude he expressed was common. Wall Street, no less that any place visited this fall, wants a renaissance of American leadership. The cry for strong leadership sounds everywhere. But not everyone subscribes to this political prescription so readily. Greg Smith, for instance, sees the clamor for a strong hand as disturbing, if not frightening. It's a device for people to turn farther away from their own political responsibilities, and place more power in an already swollen central authority in Washington. He'd like to see a rebirth of old-fashioned individual initiative.
Lest you think that characteristic has disappeared from America, I offer a personal example. Waiting outside the World Trade Center was a young taxi driver with curly black hair and a sharp look. As we swung out into the traffic, he struck up a conversation. He liked to talk to his passengers, he explained, in an accent. He learned that way.
His name was Ozhyra Aminov, and he came to the United States a year ago from Russia by way of Israel, one of many Soviet Jews to make it to America these past few years.It had been a hard year, he was saying. When he arrived he didn't speak a word of English. Now, he was quite fluent.He had taught himself. But he was impatient and critical of his speaking skills. He spoke five other languages -- Russian, Turkish, Hebrew, French and Italian -- but felt his English not adequate. It wasn't. His goal is to go to college and, of all things, become a political writer. At this point, he's concerned that time is racing away from him. He's 19, he said, and that's getting too old to do all he wants. "But if you work hard enough, I believe you can do it," he said, threading through the traffic. In minutes he was gone, leaving one American feeling both elevated and slightly ashamed at all the talk of difficulties.