Wall Street survives for the time being

I sat close to my computer all day last Tuesday awaiting a Wall Street crash that had been confidently forecast by the leading investment bank, Dresdner Kleinwort Wasserstein. New US productivity figures out that day would be shatteringly bad, its prediction warned: "Investing in the US miracle will in retrospect be seen as a sick joke. The markets will be forced to confront this harsh reality on 7 August," wrote one of Dresdner's top strategists. "Make a date in your diary!" Foolishly, I did just that.

It never happened. Whatever dire predictions are made about the US economy, the anticipated crash just refuses to come. Despite a deluge of pessimistic reports from companies, appalling earnings from giants such as Exxon Mobil, AT&T and Lucent Technologies, and profits plunging for the first time in a decade, the American economy continues to grow. In the second quarter of this year, it achieved a 0.7 per cent growth: snail-like progress certainly, but growth all the same. The dollar - and bear in mind that Boy George opines sagely that a strong dollar "has pluses and minuses" - last month reached its highest point against the Japanese yen since the Asian crisis of 1998, and the previous month it enjoyed its highest level against the pound for 15 years.

But one thing is strikingly clear about the current US economic situation: nobody in Boy George's administration has a clue what is happening. Dubbya himself assiduously talked down the economy at election time last November in order to inoculate himself against the crash then thought to be inevitable; now that it is yet to come, he is keeping decidedly mum about the economy during his month-long summer rest in Texas. His gem about the pluses and minuses alone triggered a sharp 3 per cent slide in the dollar's value against the euro.

This means fiscal policy is now in the hand of one Paul O'Neill, perhaps the most ludicrous of Boy George's appointments. Few had even heard of him when he was appointed the 72nd US treasury secretary last February: except for some middle-level experience in the Nixon and Ford administrations, O'Neill had been chairman of the aluminium company Alcoa from 1987-99 and, before that, president of the International Paper Company. He was Mr Corporate Man in Glasses: someone with little meaningful government experience, but a guy who had sure learnt to kick ass in industry. To Uncle Dick Cheney and Boy George, he was therefore ideal to kick more ass in Washington: not unlike Donald Rumsfeld, the 68-year-old defence secretary who Cheney also brought in from industry, he is now barely four years from his eighth decade.

But like most outsiders who come in thinking they can teach government specialists a thing or two, O'Neill is fast becoming the administration's biggest disaster - economic crisis or not. He is prone to explosively inapposite comments, leading his staff to refer to him as "Dr Strangelove". In reply to a recent memo from the White House, O'Neill ("a straight shooter", says Boy George) responded: "What kind of chicken shit is this?" And his views of nuclear power? "If you set aside Three Mile Island and Chernobyl, the safety record of nuclear [sic] is really very good." Er, quite.

He is a man responsible for an annual departmental budget of $389.8bn, but dismisses the US Social Security trust fund as having "no assets": in fact, it has $1trn of Treasury bills. And for a man who made more than $50m last year alone in pay and stock options from Alcoa, he has strong views on whether Boy George's tax cut has helped only the wealthy: "I think it is really corrosive to have this argument about the rich and the poor," the great man thinks. "It's not worthy of where we are in our development as a nation."

Because Alcoa employed 140,000 people in 36 countries, that makes O'Neill an expert on foreign policy, too. He thinks Argentina is a feckless, "laid-back" sort of country with "no export industry to speak of" - while Brazil is a "go-go, we-will-do-it kind of place". He says that the US tax codes are "9,500 pages of gibberish". And the poor old European Community is, well, "off the wall".

In short, O'Neill is a woefully unsuitable appointment; at least Clinton's latter two appointments at the Treasury, Robert Rubin and Larry Summers, were men of proven intellectual depth. But O'Neill had not only kicked all that ass in industry, he had also cultivated a long friendship with George Bush Sr. That, together with Uncle Dick's wink-and-nod approval from oil-services giant Halliburton Inc, meant that he was a natural to come and tell Washington how to run the country. After all, if he can run Alcoa so well, he can run the US and the world just as superbly, can he not?

I wish I could say I was making up or exaggerating parts of this column, but I am not. A crash of some kind will sooner or later hit the US economy; it is a case of when rather than if, and whether (to use the jargon) it will then proceed to have a soft or hard landing. The omens are bleak: the major US airlines are expected to lose $1.5bn this year, having made profits of $3.8bn in 1999. The airlines' revenue dropped 10 per cent in May and June, the most rapid decline for a quarter-century.

But fear not. The US economy, and thus those of most of the western world, is in the redoubtable hands of Boy George and his treasury secretary Paul O'Neill. And they are men of proven ability who make the rest of us seem like pygmies. We can all rest assured that they are on top of things, whatever economic misfortunes the likes of Dresdner Kleinwort Wasserstein say may be around the corner. Not, as all my young friends here would say.

Andrew Stephen was appointed US Editor of the New Statesman in 2001, having been its Washington correspondent and weekly columnist since 1998. He is a regular contributor to BBC news programs and to The Sunday Times Magazine. He has also written for a variety of US newspapers including The New York Times Op-Ed pages. He came to the US in 1989 to be Washington Bureau Chief of The Observer and in 1992 was made Foreign Correspondent of the Year by the American Overseas Press Club for his coverage.

This article first appeared in the 13 August 2001 issue of the New Statesman, The diva of Downing Street