Money Angles

By Andrew Tobias

Oh, gosh, a depression. It's something more and more people are talking about (but not too loudly, for fear of causing one). "Dark mood," announced a recent Wall Street Journal story. THE ABYSS, read a New Republic cover.

How to avert it? My recommendation would be to spike the water with Prozac. Just mix it in with the fluoride. I'm serious! Highly diluted, of course, and tapering off after just a few months, as soon as we get off this gloom-and- doom kick. Because more than we'd like to think, economic and financial swings are creatures of fuzzy, nonquantitative things like psychology, confidence and the national mood.

Vietnam and Watergate left us guilt ridden, acting almost as if we deserved punishment, and look what we got: 10 years of inflation and stagflation, three recessions and a stock market lower in 1982 than in 1972. Today we feel guilty about our '80s binge. We've been bad; send us to our room.

Not that our problems aren't real. We're too deep in debt. Total American debt -- government, corporate and personal -- stands at a record 190% of our gross national product. Historically, 140% would be a more reasonable level. But the best way to cut the debt isn't necessarily to lay everybody off and have a depression. Massive bankruptcies would wipe out a lot of debt but also make us a lot poorer. No, muddling through is a better idea, working down the debt over many years. By making things for export rather than for our own consumption, by spending more on infrastructure and less on shopping centers, and by spending less on the elderly and more on preschoolers, we could gradually strengthen our national balance sheet.

But this is easier said than done, especially when people are feeling glum (and when the elderly vote and preschoolers don't), so I say, spike the water.

O.K., forget that. But we've got to do something to restore the normal tension between greed and fear, which admittedly got out of balance in the 1980s but has now -- not-withstanding last week's stock market up-tick -- swung too far toward fear. A few more recommendations:

-- Do the UAL deal. Remember the $300-a-share United Airlines buyout that fell through? The stock closed at 99 3/4 last week. Federal Reserve Chairman Alan Greenspan should whisper to the chairman of Morgan Guaranty Trust, "Do it at $160." It's just one deal, but it could affect psychology. The crazy '80s are over, it would say ($300 a share was preposterous), but the world is not going to end, and deals can still be done at other than fire-sale prices. If investors saw UAL shoot to 160 in a deal backed by America's most highly respected bank, greed would stir.

-- Enact a rifle-shot capital-gains break -- a zero tax bracket that would apply only to gains on the purchase of newly issued shares (including founders' stock in new ventures). It would cost little or nothing, as it would apply only to the first owner of the shares (not all those who subsequently traded them), yet it would encourage investment, new enterprise and expansion.

-- Loosen bank regulation a little. Examiners, too lax before, should not become too zealous now. And capital requirements do need raising, but not "consequences be damned."

-- Ease interest rates. Fed easing could raise inflation fears; but, ironically, that might even be good. After all, it's primarily the drop in real estate prices that threatens the banks and makes 60 million homeowners feel poor, and that thus underlies the whole scary mess. If people thought inflation might accelerate (as it one day may), real estate prices might firm or bounce a bit. End of financial crisis.

To be sure, it's a balancing act -- too much inflation worry would drive up long-term interest rates, hurting investment and real estate. Still, "significant but prudent easing" is in order.

-- Cap real estate commissions at 5%. Hey, why not! Price controls stink, but real estate agents already have their own unwritten 6% price control. If we knocked it down a peg, every property in America would instantly be worth 1% more. Real estate agents would earn less, and their numbers might shrink. But would it be bad if the real estate profession became less attractive relative to, say, teaching or nursing? Why do we have so many of our best people employed showing off cedar closets?

Of course, this is even less likely to go anywhere than spiking the water, because while there are 60 million homeowners to vote for it, there are 70 million real estate agents -- in Los Angeles alone -- to vote nay. Still, it's a good idea.

-- Emphasize the positive. Sure, gas prices are up temporarily. But why not mention that even at today's rates, adjusted for inflation and improved fuel efficiency, the cost of driving a mile is about half what it was in 1957? Sure, Iraq is a nightmare. But isn't it better to have a world united against a single not-quite-yet-nuclear nation than to have a world split into two meganuclear blocs?

A University of Michigan poll last week showed that consumer confidence suffered its sharpest drop in 44 years. But the fact is, there's plenty of sunshine. Interest rates are headed down. Oil prices will plunge once the Middle East crisis ends, as it will. And technology races ahead, giving us everything from bantamweight cellular phones to laser surgery to, perhaps most amazing of all, fat-free ice cream (Simple Pleasures Toffee Crunch is not to be missed).

On top of this, what the pessimists generally ignore is the possibility that the President and Congress, imperfect though they clearly demonstrated themselves to be in the budget fiasco, may take some sensible steps to help. Last Thursday the President acknowledged the possibility of a mild recession, and anonymous aides said a variety of unnamed stimulative measures were under review. One even suggested the possibility of cuts in Social Security benefits to the affluent as a means of lowering taxes on the middle class and poor -- which, to a politician, is a bold idea.

And if that's not enough to avert a national funk, have I mentioned this notion I have about spiking the water with Prozac?