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Get ready: The 1990s depression is at hand


THE GREAT RECKONING: How the World Will Change in the Depression of the 1990s. By James Dale Davidson & Lord William Rees-Mogg. Summit Books. 473 pages. $22. THERE HAS BEEN no shortage in recent years of books predicting economic catastrophe. So is there any reason to pay serious attention to another one? In this case, yes.

For "The Great Reckoning," James Dale Davidson, an investment adviser and founder of the National Taxpayers' Union, has again joined with Lord William Rees-Mogg, former editor of the Times of London, to argue against the expectation that inflation will continue forever.

In their previous collaboration, "Blood in the Streets," the two predicted the 1987 Wall Street crash, the real estate bust and the downfall of communism. Now they muster an argument that the most likely economic scenario for the 1990s is a world-wide deflationary depression.

Drawing on a wide variety of thinkers who have pondered the waxing and waning of economic fortunes over the centuries, the authors build their case with impressive logic. They show how we have lived through the longest period of sustained inflation in history. Since 1945 we have had just one year, 1959, without prices rising, and in that year they barely declined.

The nations of the industrialized world have spent trillions on weaponry and the people to wield the weaponry. That game ended, the authors say, with the collapse of the Soviet Union, which fell apart more rapidly than any empire in history. The Cold War bankrupted the communists and put the West deeply in debt.

Wishful thinkers look at reduced military spending and see a "peace dividend," money freed from the clutches of the Pentagon and therefore now available for social uses. Those familiar with how things really happen look at how periods of widespread disarmament tend to coincide with deflationary depressions. Disarmament turns loose large numbers of young, well-educated, highly motivated workers into the civilian economy. The result is a depressing of wage levels. Furthermore, these workers displace ill-educated, poorly motivated workers.

Those who think inflation must be never-ending argue that governments can always resort to the printing press to forestall deflation. The refutation of that hinges on what hyper-inflation can do to a society, how it leads to the revolutionary overthrow of governments. Stable nations historically will bite the bullet and accept deflation rather than let the devaluing of their currency destroy their financial asset markets.

"If lavish spending accompanied by inflation could have prevented economic decline," the authors write, "Rome would still rule the world."

The authors hope what they predict won't happen, but they demonstrate at considerable length why major change is underway in the world -- and why they consider the already breathtaking events of the last few years merely the first installments of a broader upheaval in human affairs. The social costs will be immense, with increasing violence as the welfare state contracts out of economic necessity, no longer able to buy off the potentially violent underclass.

"The Great Reckoning" is somewhat Spenglerian in its analysis of the rise and fall of great nations and the cultures that spawned them. It talks of the crumbling of centralized power and the growing threat of terrorism. There is also a compelling look at Islam and how its doctrines may be uniquely suited to the world of the 1990s.

No, this is not cheery bedtime reading, but it is an extraordinary, hard-eyed look at the causes and likely results of the social disintegration we see all around us.

Included are hundreds of investment tips and forecasts that are designed to help you not only survive the turbulence to come, but to actually thrive during it. The trouble is, after reading such a persuasive thesis, it's difficult to believe in a happy ending.

Ron Smith is a talk-show host on WBAL.

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