I’m not a crook, a president once insisted.
The nation didn’t believe Richard Nixon.
Last week, Mark Vaughan several times told a full room at the Kelley College of Business at Hardin-Simmons University that he wasn’t a politician.
“I’m an economist,” he said, when questions to him and his subject directed him into a gray area.
While the Federal Reserve is not political, he said, “you do have to think about politics.”
He has opinions, which he shared with an appreciative crowd during and after a talk titled “History may not repeat, but it does rhyme.”
“Economic history is a passion of mine,” he said.
Vaughan was this year’s Ray Lewis Lecture guest speaker. And while his experience and expertise qualified him for the noon-time event, after he spoke to students in class, there was another reason why he was in Abilene on this rainy day.
He taught HSU economics professor John Hill at Baylor University. His class in 1985, with the scintillating title of “Principles of Macroeconomics,” is responsible for Hill setting a career course.
Hill proudly introduced “my professor” to the group.
There is, Vaughan said, no greater honor for a teacher to hear a student say he or she was influenced by their instruction.
Vaughan has returned to teaching, now at American University in Washington, D.C., as well as working as an economist at the National Credit Union Administration.
He spent years with the Federal Reserve in St. Louis and Richmond, Virginia, (assistant vice president) and in Cleveland (senior economic adviser).
His doctorate is from Washington University in St. Louis, where his research was supervised by Douglass North, who shared the 1993 Novel Prize in economic sciences.
With that resume, Vaughan would have a fairly good handle on economics in the U.S. And he would know that a luncheon talk quickly could sail over heads as well as bore the icing off the chocolate cake for dessert.
After all, his wife, he said, took three economics class, including one he taught. She dropped his.
He was professionally offended, he said, smiling.
“You’re interesting,” she said. “Economics is boring.”
So, with some humor and the intrigue of history, he compared the Great Recession of 2008 and 2009 to the Great Depression. There are similarities, he said, but there are great differences.
Before diving in, he talked about how World War II launched health care.
While soldiers were fighting abroad, the work force back in the States was hampered because wages could not be raised due to a government price ceiling. So, to attract workers, businesses offered a fringe benefit — health care. By the end of the war, he said, that became “too big to touch by big government. The health care system today has spiraled out of control.
“It is screwed up,” he said.
So, wage price control in 1942 has an impact on health care 75 years later.
That is historical perspective.
He began his comparison with a political cartoon that proved hyper-partisanship has not just recently arisen but was alive and well in 1934. President Franklin D. Roosevelt’s group was depicted throwing bags of money off a wagon, much to the delight of Russian Marxist Leon Trotsky, who urged the United States to spend, spend, spend.
Vaughan said both the depression and the recession began similarly (his slides began with an image of the grim reaper):
- Each followed good economic times
- The Fed was highly regarded
- Banks were into new lines of business
- Innovations in consumer finance put people in debt
- There was a big economic, or asset, bubble
- The problems of the U.S. moved globally
- High profile failures (Bank of the United States, DOA 1930, and Lehman Brothers Holdings Inc, bankrupt in 2008) were a trigger
- Bank/financier bashing (Secretary of the Treasury Andrew Mellon in the 1930s and the whopping bonuses of the 2000s)
Vaughan said he has a framed blank check from the Bank of the United States, which was not government affiliated. He bought it for $80 on eBay, then spent $200 to frame it.
The recession was “bad,” Vaughan said. The depression was “apocalyptic.”
The recession lasted 18 months, industrial production dropped about 15 percent, unemployment rose 5.7 percent, 400 banks failed, consumer prices rose 1.6 percent and stock prices fell almost 54 percent.
By contrast, the depression lasted 43 months, industrial production dropped about 52 percent, unemployment rose 19.3 percent, 9,000 banks failed, consumer prices fell 27 percent and stocks lost more than 89 percent of their value.
The recovery nets that exist today did not exist then, he said. There was, for example, no unemployment insurance.
What began with the stock market crash took until 1957 to regain 1929 levels.
“This was apocalyptic,” he said.
Three things caused the Great Depression, he said — a hike in interest rates in 1928 discouraged discretionary spending, the Crash of ’29 and the four bank panics that followed. People pulled money out of banks to keep from having their possessions taken.
“There was no liquidity to stop the panic,” he said.
What helped bring the U.S. out of the Great Depression, he said, were taking the U.S. off the gold standard (where the value of currency/paper money is based on gold), creating the FDIC (Federal Deposit Insurance Corporation, to protect money put in banks) and reopening banks only after licensing them to ensure they could stay in business.
An “accidental” spark to growth in the economy? World War II, but before production revved up it was gold coming into the U.S. from countries under attack.
“Hitler ended the Great Depression in the United States,” Vaughan said.
When the Great Recession hit, the country had ways in place to deal with it, from stimulus packages and a wealth of data to a guy named Ben Bernanke, a George W. Bush appointee, heading the Federal Reserve, Vaughan said.
So, while the U.S. emerge from the Great Depression on a roll, why has the recovery from the Great Recession been so sluggish?
Vaughan offered several reasons by others that included bad luck and the lack of recent innovation.
Vaughan personally points to a demographic change and policy uncertainty.
The United States has a large aging population and slow population growth, and without a clear direction on policy, many businesses have put plans on hold.
That brought Vaughan to a crossroads, where politics meets economics.
He believes in immigration at a time when that is a hot political issue. What Vaughan wants, however, is a plan to bring in people who will contribute to the American economy.
“It’s in our interest to take those desires seriously,” he said. Charge a fee to come to the U.S. and make sure they are contributors to and not drainers of the economy.
The ruckus over immigration is “a political problem, not economic.”
The U.S. needs a labor force. Without it, he said, the country will grow at a rate of 2 percent a year, not higher.
“Change is important,” he said. “We need them.”
Treading more into the political muck, Vaughan said Americans need to make a choice of doing with less “free stuff” or paying higher taxes. Slow population growth is putting a strain on financing Social Security, he said.
“I am not anti-Trump,” he said, before he added, “Trump doesn’t have the political skills to make big changes. He is not quite Ronald Reagan.”
And so, instead of solution, the U.S. could stay mired in its “culture wars.”
On a more positive note, Vaughan said Texas is “doing well” economically. That’s important to him because he will retired someday to the Hill Country to chase a golf ball.
And with that, class was dismissed.
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