From Boom to Doom?

Every boom spawns its prophets of doom, and the current bull market is no exception. Right now the most visible naysayer is a previously little-known economics professor named Ravi Batra. His eye-catching book, The Great Depression of 1990, has jumped to No. 4 in its sixth week on the New York Times' nonfiction best-seller list. At $17.95 a copy, it has been snapped up by some 175,000 buyers who are either curious or concerned -- or both -- about just how high the current boom can go before it turns to bust.

The Indian-born Batra, 44, who teaches at Southern Methodist University, begins his book by raising the specter of the Great Depression of the 1930s: "I believe a disaster of the same, if not greater, severity is already in the making. It will occur in 1990 and plague the world through at least 1996." He details parallels between the Roaring Twenties and the Soaring Eighties: feverish speculation, financial deregulation and a shaky banking system.

The main culprit, in Batra's view, is extreme concentration of wealth. As was the case in 1929, he says, 1% of American households control about 35% of the nation's assets, compared with as little as 21% in 1949. Because the lower and middle classes now have a smaller proportion of the assets, they rely heavily on borrowing and thus become overextended. That puts at heavy risk the banks and other institutions that have loaned them money. Meanwhile, as the rich grow richer, Batra says, they become enamored of speculative investments. As a result, goes Batra's theory, the financial house of cards will topple. The stock market will crash, the banking system will collapse, and the American economy will be forced to its knees.

Batra's thesis turns on his highly questionable contention that an inexorable cycle brings a depression every 60 years or so. To be sure, Batra is not alone in his gloomy outlook. Many other thinkers, including Economist John Kenneth Galbraith, have drawn comparisons between the perils of 1929 and today. Few of them would agree, however, with Batra's position that an uncontrollable calamity is inevitable.