As governments around the world work to prevent their economic houses from collapsing, a group of distinguished Penn faculty came together Feb. 17 to assess the situation and begin imagining what the world will look like after the recession ends.

Moderated by Penn President Amy Gutmann in Zellerbach Theatre, “After the Fall: A World Transformed?” was broadcast live on C-SPAN 2 and via satellite at the Penn Club of New York. The event was the Inaugural David and Lyn Silfen University Forum, made possible by Penn Trustee David Silfen, senior director of The Goldman Sachs Group, and his wife, Lyn.

Gutmann began the forum by asking, “How did we get here?”

Harold Cole, a professor of economics, blames the “democratization of housing” for the economic downturn.

“We started to think everybody should be able to buy a house, which generates, with low interest rates, kind of a housing bubble, which eventually peaked in about 2006,” he said. Declining housing values then wreaked havoc on Wall Street, bringing down banks and other financial institutions last fall. Richard Marston, the James R.F. Guy Professor of Finance in the Wharton School, noted housing prices are down 25 percent across the country and 40 percent in places like Miami and Las Vegas.

The dire circumstances have led some to compare the current crisis to the Great Depression. In fact, shortly after the November election, President Obama told “60 Minutes” he was reading “The Defining Moment: FDR’s Hundred Days and the Triumph of Hope,” by Jonathan Alter.

Gutmann asked the panel about these comparisons between FDR’s crisis and the one Obama inherited. Opinion among the panel was split.

Don Kettl, the Robert A. Fox Leadership Professor, said there are fundamental differences between the two crises, but noted, “the economics of the [current recession] are putting tremendous political pressure on Obama to act in very similar ways to what has happened to FDR.” And David Skeel, the S. Samuel Arsht Professor of Corporate Law, said that, just as during the New Deal, American financial services and securities regulation proved to be too lax and inadequate.

“It was clear that in the 1930s, our banking and securities regulation was not up to the task of overseeing the problems of the time,” he said. “We’re in exactly the same kind of position now.”

But Cole called comparisons to the Great Depression “ridiculous.”

“In the comparisons of employment, the numbers are just much, much bigger during the Depression,” he said. “It was a decade disaster.”

A more useful comparison, says assistant professor of political science Jennifer Amyx, is the Asian financial crisis of the 1990s. Like the current American crisis, she says Japan had a non-performing assets problem, an equity market problem and a plunging stock market.

Gutmann also asked the panel the question everyone wants answered: “When will this crisis end?”

Answered Skeel: “None of us know how long it’s going to last. But I think the consensus answer is nobody thinks it’s going to be over soon. It’s not going to be two or three months. It’s going to be a year or two, three years, four years. I think we’ll be in this for awhile.”

Cole, following the lead of other economists, predicted the economy would turn around by the end of the year—but added, “there should be a lot of uncertainly with that forecast.”

Kettl predicted the economy will rebound within two years, “but the consequences will occupy all of the first Obama term.”

Addressing students, Marston quipped: “You want to hope that you’re a sophomore.”

The audience laughed. But the Wharton professor was serious.
“As far as jobs are concerned, jobs always lag behind the end of the recession,” Marston said. “I think it’s going to be a bad job market through 2010. Be a sophomore.”

Originally published March 5, 2009