By Molly Parker
mparker@scbiznews.com
Published Jan. 22, 2009

If we could be so lucky, the economy will flatline in 2009, but it’s not likely headed upward anytime soon, said College of Charleston economics professor Frank Hefner.

But the Great Depression? Not even close, he said.

“Imagine (Hurricane) Katrina and the Mississippi (River) flooding today, combined with these banking issues, that’s probably close to what a depression would look like today,” Hefner said.

As he spoke this morning at an Atlantic Occupational Health business seminar in North Charleston, Hefner displayed a black-and-white Depression-era picture of people standing in line at a bank trying to get their deposits out.

“My students think this looks like happy hour,” Hefner said.

The audience laughed. The point was clear: We aren’t there yet.

He flashed more numbers onto the screen. Between 1929 and 1933, the gross domestic product fell 29%. One-quarter of the nation’s work force was unemployed. Consumer prices dropped 25%, and 7,000 banks collapsed.

“Everyone is saying this is looking like a Great Depression, but it doesn’t if you look at the numbers,” Hefner said.

But this is a recession, to be sure, he said, and it might be a lengthy one. Fixing it will require addressing of the structural problems in the financial industry that created the mess, Hefner said. To make his point, Hefner recalled a speech he gave recently in which he said to the audience, “If greed is the problem, why not line up all the Wall Street executives on a wall and shoot them?”

The audience stood up and burst into applause, he said. It wasn’t the reaction Hefner was going for.

“As long as we focus on the emotional issue of the problems, we don’t address structural problems,” he said.

Besides, he said, if we make greed the central issue, it might paint more of us into a corner than we’d like to admit. Hefner said a nontraditional student in his class was complaining recently about interest rates resetting on his subprime mortgage. He asked the former military student why he hadn’t opted for a traditional loan. The student told him he had on his main residence but not on the two investment condos he’d purchased.

That made sense, Hefner said, as housing prices grew a whopping 15% in 2005 and the expectation was that real estate values would continue to inflate.

“What works in booms may not work in busts,” he said.

Americans are comfortable with inflation and think in terms of increasing values, Hefner said. For instance, if you have an item worth $100 and sell it for $102, you feel good because you made a profit, even if you had to buy it back for $110. But if you have an item worth $100 and sell it for $98, that is a disappointing loss, even if you could take that $98 and buy two of the same items elsewhere because prices had since dropped.

“That’s the difference between real economics and finance,” Hefner said.

Reach Molly Parker at 843-849-3144.