Veteran economist remains bullish on American business

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conomics has a reputation as the “dismal science,” but you wouldn’t know that talking to the loquacious forecaster James F. Smith.

“He who lives by the crystal ball better get used to the taste of broken glass,” he likes to joke.

Smith has been a fixture for UNC Asheville’s annual Crystal Ball Economic Forum for 28 of its 30 years. David Berson, chief economist at Nationwide Insurance, joined the lineup 26 years ago. Together, the pair of economists has become an April institution on campus, offering insights on where the economy may be heading, which can affect the nest eggs of investors in the audience.

Smith and Berson will be back Thursday at Lipinsky Auditorium, polishing off their economic prognostications. Over the years, their forecasts at the annual UNCA event have been more right than wrong.

For example, the Great Recession.

Early on, in all the data that can overwhelm casual investors and experts, Smith saw a phenomenon called the inverted yield curve. Short-term rates were outpacing long-term Treasury bill rates for about four months, starting around 2006. Historically, that’s signaled a recession within about a year or so.

The economy began to contract in December 2007.

“What stands out in my mind is how these guys have been right on the big calls, not necessarily where the Dow Jones was going to stand in 12 months, but where the economy will be,” said Joe Sulock, UNCA’s Owen Professor in Economics and organizer of the Crystal Ball.

Slow recovery baffling

Smith admits he didn’t foresee how deep the Great Recession would go, and like other economists, he’s somewhat baffled by how slowly the economy has been recovering.

“No one alive has ever experienced such a slow rebound in the U.S. From 1921 through 2013, through the Great Depression and World War II, the gross national product on average has grown by about 3.2 percent a year. We haven’t had a year over 3 percent growth for almost a decade.”

Over his 35-year career, he’s been an economist and analyst at the Federal Reserve Board, the National Association of Realtors, Sears and Roebuck, and Union Carbide. Anyone coming through UNC Chapel Hill and the Kenan-Flagler Business School in the 1990s would have to pass through one of Smith’s classes.

He’s had his share of politics, getting unceremoniously dismissed from an economics bureau at the University of Texas in Austin. The offense: upsetting then-Sen. Lloyd Bentsena Democrat, by arguing that the free-trade agreement that would become NAFTA would likely benefit the U.S. economy.

“Imagine that: an economist advocating for free market,” Smith joked.

While Smith admits he’s not politically liberal, he considers himself a pragmatist and middle-of-the-road economist. He worked very briefly as a consultant in the Reagan administration in the early 1980s, when supply-side economics was all the rage, but was never vetted as a true believer. “I try to avoid the people who say they have all the answers. True believers bother me.”

“The idea that cutting taxes will cure every social ill is nonsense, but the other half of supply-side — removing a lot of the regulatory burden would help — is definitely true.”

Regulation is excessive

Smith figures that excessive government regulation represents about $2 trillion of dead weight on the economy.

“We all agree that we need clean air and water, safe food and drugs, but how much regulation do we need to achieve that? You can spend a lot of money trying to remove the last 1 percent of a problem.”

Smith couldn’t predict he would ultimately live in Asheville, but thanks to his annual spring trips for the Crystal Ball, that’s exactly what happened. Looking for a cheaper retirement area than Chapel Hill, Smith and his wife scouted Texas and then thought, “why not Asheville?”

During the house-hunting visit, Bart Boyer of Parsec Financial and other partners took Smith to lunch in the Grove Arcade. The financial firm with $1 billion in assets to manage needed a part-time chief economist.

So Smith landed a new job as well as a new address. Parsec remains a longtime sponsor of the Crystal Ball forum.

He retains his position as adjunct faculty at UNC Chapel Hill, and maintains a monthly newsletter he had started in Chapel Hill at the direction of then Gov. Jim Hunt.

“I wouldn’t have guessed that these guys would have come back for so long, but I think a lot of it is the audience. They genuinely like the audience who ask good questions,” Sulock said.

The audience can grow in size depending on how dismal the economy appears, Sulock said, but they can count on both Berson and Smith to buck them up.

“When people were worried about the Great Depression 2.0, these guys kept saying ‘Come back next year and you’ll feel better.’ And they were right,” Sulock added.

Bullish on the economic future

Smith remains bullish on the economy. Looking at the numbers over the long run, Smith said he believes that betting on better times ahead is a no-brainer. Over the 20th century, the U.S. economy has been growing 10 times more often than it’s been contracting. The average of the 11 recessions from 1945 through 2001 has only been 10 months.

While the rebound from the Great Recession has been abysmally slow, the good news, according to Smith, is that we may finally have reached a “virtuous cycle.”

Rising demand should create rising unemployment which creates more demand, more tax revenues for local governments, more investment by business and higher incomes.

“We should see many new economic records set in the U.S. and around the world in 2014 and 2015,” Smith said.

IF YOU GO

The 30th annual Economic Crystal Ball Seminar will be Thursday at UNC Asheville’s Lipinsky Auditorium, next to Ramsey Library. Speakers are James F. Smith, chief economist for Parsec Financial, and David Berson, chief economist for Nationwide Insurance.

The reception is 6:15-7 p.m. and the talks begin at 7.

This event is sponsored by Parsec Financial and UNCA's Department of Economics.

For information, call 251-6550