Many economists thought the country was already in recession in early 2008, thanks to a credit crunch caused in part by the collapse of the housing market. But nothing could have prepared Americans for this fall’s economic drama, which will surely be hashed out in history books for years to come. In October, even after Congress passed an historic $700 billion bailout package and agreed to buy $250 billion worth of stock in American banks, the Federal Reserve chairman Ben Bernanke—himself a student of the Great Depression—warned that the economy was headed toward an extended slowdown. 

We sat down with Nickless, who recently won the Economic History Association’s Jonathan Hughes Prize for excellence in teaching economic history, to get her take on what to expect.

What does the current economic crisis have to do with us here in WNC?Have you heard of the Great Depression? The collapse started not with the crash of ’29 but with the meltdown in banking. Between 1930 and 1933, 45 percent of the banks in the U.S. went out of business. The Federal Reserve and the Treasury, under President Herbert Hoover, believed that this was a natural market reaction that would correct itself.

That argument sounds familiar. Yes. After 1933, the banks ran themselves so conservatively and sat on so much cash that they slowed the recovery. At the height of the Depression, unemployment was nearly 25 percent. By 1937, it had only recovered to 12 percent. We’ve been there. We’ve done that. The market “fixes” itself by shutting down credit, letting short-term interest rates rise, letting unemployment go up and wages and prices fall.  

How do you explain all this to your students? I showed them the movie It’s A Wonderful Life. The bankers are panicked in that movie, and not just the people on the street. That’s the problem now.

Will the various government bailout plans work?  These are not really bailouts. We prefer to call them rescue plans, and they’re already working. The interest rate on commercial paper was up around four percent in late September and early October, now it’s now down to around one percent—below where it was before the crisis. That means commercial paper—an important part of the short-term credit market—is already unfrozen, and overnight lending between banks has even started to unfreeze. 

Should we trust Treasury Secretary Henry Paulsen? I think we can, but what I really want to know is, who’s going to be the Secretary of the Treasury in January? 

Warren Buffet?  No. I can’t imagine Warren Buffet would even consider it. I can’t imagine Meg Whitman would either. Whoever is elected should try to put someone in there who has a lot of credibility on Main Street and on Wall Street. Robert Rubin, in the Clinton administration, had credibility on both sides. Really, I have no idea. If they made me queen, I’d pick Paul Volcker—he was chair of the Fed [under Jimmy Carter and Ronald Reagan]. Everybody respects him. 

What’s the first thing the new president can do to help spur the economy? The first thing is to pick a Treasury Secretary who’s well respected. Then his inaugural speech has to be a lot like Roosevelt’s was in 1933—it has to remind people that nothing’s really changed. The fundamentals of the economy are still sound. This is a panic. We just have to calm down, look around and move on. 

How has WNC’s economy changed since the 19th century? The biggest change in the 20th century is the rise of the service industry. Beginning in the 1930s, jobs in the service sector began to expand more rapidly than jobs in other sectors like manufacturing and agriculture. Because the service sector had traditionally employed women as clerical workers, sales clerks, teachers and office workers, opportunities for women expanded. In more recent decades, we have seen the expansion of health care services and financial services—also big employers of women.

And how will those sectors be affected in a downturn? Traditionally, in a downturn, in a service-heavy economy like ours, employment doesn’t go down right away. It takes a while. And then once it does go down, it takes a while to come back. In the last 25 years, we saw these slow declines that weren’t very deep but it took a long time to get the jobs back. In 2001, we had a short recession but it took a long time to get the jobs back. That seems to be true of economies dominated by services…Still, hospital workers will keep going strong. 

In the short term, how should people prepare for a depression? Plant vegetables?On an individual level, it makes sense to cut back on frivolous expenses, but if you lose your job, that’s cold comfort. People who live paycheck to paycheck, they were in trouble before, but they’re really in trouble now.  

What do you tell your female students about their career choices these days?If you want to make a lot of money, go into a male-dominated field. It’s still true. Medicine, economics, political science, business, accounting, computers, engineering, chemistry.  Also, get as much education as you can. The more education you have, the more likely you are to be employed. Unemployment rates among PhDs are always low, no matter what the economy is like. 

Why did you become an economist?When I started college in 1968, I thought I was going to be a chemistry major. The chemistry class I was in had three women in it, and we all got Ds. All of us. We realized later that the guys all had study groups they had been invited to and we hadn’t. Later, I chose to major in economics because it was easy and it used all these math skills I had. I thought about being a literature major, but I didn’t want to take a class on Chaucer.

Your first teaching jobs were in business schools. Why did you switch to a liberal arts school? I did not belong in a business school. In graduate school, I found mathematical models very boring. I wanted to teach economic history and I made the move here to a liberal arts school where I could do that.

Will the economy get worse before it gets better? It’s probably 100 percent certain that unemployment will get higher. It’s a lagging indicator. The economy has to be in recession a while before that number changes. So, we’ll see more unemployment. But for how long? That will depend on whether the stimulus packages work. 

Do you think they will? I think they are working. Economic historians have spent the last 50 years saying: during the Depression, here’s what the Fed did wrong. Because Ben Bernanke is such a great scholar and studied the Depression, we all think he’s going to do a great job. He’s the right man in the right place at the right time.