A 'historian' looks at today's mixed-up economics

You never took an economics course. You think John Maynard Keynes is a hairdresser. And, even President Reagan's explanation of our economic woes goes over your head.

Then, meet "Adam Smith," contemporary economic historian.

About three years ago Mr. Smith had this skidding feeling about the economy. He had just gotten some change -- very little change -- from the grocery clerk. And then he had listened to the radio and thought about interest rates. And when he was all through counting his change and listening and thinking, he wrote a book about it, called "Paper Money," (New York: Summit Books. 335 pages. $13 .95).

Although too early for the book to make it on the best seller list, it already has become popular in some parts of the country where readers still remeber Mr. Smith for his lively accounts about the stock market, called "Supermoney" and "The Money Game."

Now Mr. Smith, whose real name is George J. M. Goodman, has written a book for the 1980s. It's not about the stock market although there is a chapter about it. Rather, he endeavors to give us "an account of how we got to where we are and a sketch of some events that may lie ahead." Among the topics he tackles are inflation, California real estate, the dollar, OPEC, Saudi Arabia, and the stock market. It is not so much an advice book as a contemporary history. It already has netted Mr. Smith a trip to the "Today" show -- which is as contemporary as you can get -- where Tom Brokaw tried to compress Mr. Smith's knowledge into a bite-sized package.

Unfortunately, as Mr. Goodman notes over a lunch, the ingredients that make up the book are not the stuff that make up fast food -- although it is fast reading for economics. Instead, he notes, it is like a Julia Childs meal: "One day we chop the vegetables, chop, chop, chop . . . and the next day you get his chicken stock and you boil it and this goes on for a week . . . and on Saturday night it turns into this thin little sauce that goes over meat and everyone says it's good."

How do you turn economics into sauce? By reading over 40 full length energy studies, for example, and boiling them down into six paragraphs. Energy, in fact, fascinates Mr. Goodman, and he spends a considerable amount of time explaining how OPEC got started and why it was successful.

As Mr. Goodman explains it, "I was just fascinated by all this money we were sending out week by week without it seeming to bother anybody. I just couldn't believe it could keep going. This was back about 1976. Oil had gone from $2.69 per barrel to $11.80. I could just feel the country going under and it was a very lonely feeling because no one else felt that way, but it was that feeling that led me to do all the traveling and investigate the things I did. I saw all the pieces fitting into something although I didn't know what."

In his travels, Mr. Goodman meets a lot of interesting people. For example, he talks with the Sheikh Rashid's wife, the Sheikha Sana, about whom he writes: "She says, of her early years, that her experiences made her strong, and she has now built up a thriving taxi fleet." What experiences did she have that made her strong? She once shot her husband's fourth wife.

Maybe this doesn't relate to the number of barrels of oil floating around in the world, but it does give characters like the Sheikh, whose income is over $1 billion per year, some life.

Mr. Goodman also touches some familiar ground: the houses everyone lives in. As readers of the book are likely to find out, he believes the dynamics of the real estate game are gone.

Why? Mainly because of the changing structure of mortgages. "All the tax subsidies in single family housing are still there," he notes, "but the interest rates have turned positive to the lender and the cost of carrying the house and the cost of speculating is so great that the great big margin has gone away."

And, he adds, "Even though the demography [the population statistics] are working for you at the moment, the point at which they will begin to work against you is visible and markets tend to anticipate that." Still, he doesn't see a great apocalyptic crash coming in real estate -- rather just a shakeout. "There are $1.6 trillion worth of paid-for houses out there," he explains, "and people will continue living in them."

So, where will investors make money?

Nimble ones may make money in the stock market, Mr. Goodman says, if they remember the old French adage, "Buy on the cannons, sell on the trumpets." The cannons are the enemy artillery pounding the city walls and the trumpets signal the defender's successful rush, he notes.

Mr. Goodman's somewhat optimistic view of the stock market has already antagonized one reviewer, William Wolman, an economist with Business Week. Two years ago, the business magazine published a cover story entitled, "The Death of Equities," which it still is trying to justify. Thus, it's understandable that Mr. Wolman takes issue with Mr. Goodman about the prospects of stocks doubling or tripling over the next ten years. In fact, since the Business Week article was published, many stocks have done this, prompting Mr. Wolman to note that Wall Streeters either choose to ignore or not remember Business Week's thesis that inflation is bad for stocks.

In spite of this reputation as a savvy chronicler of Wall Street's antics, Mr. Goodman says his new book is not intended to advise people on where to put their money. In fact, Tom Brokaw, seeking to solicit stock tips for his viewers quickly found out Mr. Goodman, wouldn't give any. "Giving advice is not my business," states Mr. Goodman, adding, "I have the luxury of being able to deal with the great big picture."

When Mr. Goodman began his book, he talked about his "skidding feeling." Does he think we can get things under control and stop the skid? In his own enigmatic way he answers, "You know I don't think its entirely a rational affair. . . . We certainly have the ability or the resources to solve almost anything, but something isn't pulling together. So, the answer is on two levels; one is rationally, it's all possible to do but, but then you are getting into a murky area that has do with the temper and 'propellsiveness' of the people -- their ability to pull in now and propel into the future." Yes, that's the big picture.