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On the latest episode of GoodFellows, Senior Fellows John Cochrane, H.R. McMaster, and Niall Ferguson, as well as moderator and Distinguished Policy Fellow Bill Whalen, are joined by their former Hoover colleague Tyler Goodpseed, now Chief Economist at ExxonMobile. Goodspeed has a new book coming out soon on economic recessions, which sends the GoodFellows on an entertaining tour across fields full of Biblical agricultural pests and the pirate-plagued coastline of early-eighteenth century America.
Below are some of the key moments and insights from this surprisingly entertaining foray into some of the low points of economic history.
Quote of the Day
Tyler Goodspeed on the right literary references for economic expansions and recessions:
A lot of people think that economic expansions are rather like The Picture of Dorian Gray, that even though the subject appears to be superficially healthy and exquisite and youthful, locked away in the attic is this hideous picture bearing all of the blemishes and disfigurements of each hedonistic excess until it can only be restored to its exquisite beauty with a very instrument of those hedonistic excesses. But I find that in contrast, economic expansions are more like Peter Pan. They never grow old, although they can be killed if they lose a battle with Captain Hook.
The Central Issue: What Causes Economic Recessions?
John Cochrane summarizes the leading economic wisdom:
It is clear that recessions come from different shocks and different constellations of shocks, so there’s not a unit, same shock theory, but recessions are very similar in many other ways. . . once we get to modern economies where you’re not just looking at crop failure and everything falls apart. In modern economies, what’s interesting, there is something [about recessions] that smells of demand, not supply, if you will. And that is that all parts of the economy fall at the same time, and many regions fall at the same time. So if it was just locusts, you’d expect Kansas to go down, but California, well, there’s no locusts in California. We should be doing fine. There was a Great Depression in California as well. Investment falls more than consumption. People around the country lose their jobs.
Niall Ferguson offers his own literary take on Goodspeed’s argument:
Your recessions remind me of Murder on the Orient Express. There’s always more than one killer. And so you had these agricultural shocks happening at the same time as the more familiar causes of the [Great] Depression: the fact that agricultural and industrial prices had been falling for some time, that the problems of debt deflation, the banking crisis that [Milton] Friedman and [Anna] Schwartz wrote about, the monetary policy errors, they’re all there in the drama. But because recessions need to be induced by more than one cause, they’re nearly always multi-causal events. You need these combinations of shocks, especially with the modern US economy. It takes a lot to stop this thing because there’s so much momentum and it’s much more diversified today than it was, say, in 1929.
Tyler Goodspeed remarks on a quality that many recessions share:
A common feature of your median or modal recession is that they are characterized in the first instance, not by a sudden increase in the rate at which firms lay off workers, but rather a sudden decline in the rate at which they hire workers. And then you have workers, and you can extend that to capital and other inputs. You have inputs into production that are remaining unemployed for longer, then their demand, their income goes down, their demand goes down.
Key Takeaways
The Longest US Recessions, and the Role of Pirates
Goodspeed: “In the United States, outside the Great Depression, the longest recessions ever endured were during the American Revolution and during the chaotic period of the Articles of Confederation, when you had armed conflict with indigenous Americans, you had an armed uprising with Shay’s rebellion, [and] you had financial chaos with the legacy of wartime debts and ambiguity as to who assumed those debts.
And then tied for longest recession in US history was my favorite, and [the] most fascinating recession in the entire book, which was a depression level event from 1717 to 1720, unmistakable in the historical economic data. And the source was a rather unlikely one, but an unambiguous one: namely, pirates, the predation of pirates on the American coastline and American shipping that brought commerce to a standstill.“
What’s Going on In Iran?
Former National Security Advisor H.R. McMaster says: “President Trump is, I think, trying to influence markets, trying to communicate to the American people [that counter to] all the doom that you’re hearing on certain cable news stations, we have a grip on this. He’s trying to reassure people. Sometimes it’s not effective when he does it in kind of a fragmented way, but also what you have to recognize is, hey, the Iranian regime is fragmented. So he is talking maybe through the Pakistanis or through other interlocutors to elements of that regime, but it is an incoherent regime. . . I think that the Pakistanis. . . are trying to work their way in to the good graces of the United States, maybe partially in recognition that, hey, China’s maybe not the best sponsor. They haven’t done a really great job for Venezuela or for Iran for that matter.”
What Are the Current US War Aims? And What’s the Likely Economic Fallout?
Niall Ferguson, always an astute observer of geopolitics, says: “The United States went to war ultimately to disarm Iran with the possibility of regime change, though I don’t think that that was the main goal of the war. The disarmament has largely been achieved, and this is important to recognize, the capability of the regime to launch missiles has been drastically reduced. Its military infrastructure has been gravely damaged, [but] even though there’s still some uranium on the loose, it will be a very long time indeed before this Islamic Republic would be capable of building ballistic missiles and equipping them with nuclear warhead. So in that sense, much of what he set out to achieve, he has achieved.
The problem is that despite such drastic military success, the Iranian regime is still capable of keeping the Strait of Hormuz closed. It doesn’t need to do much to do that. It just needs to threaten shipping with drones, missiles, and potentially also mines. That deals a very heavy blow to the world economy, including the US.
And so we now have a shift in the aims of the war from disarming the regime, and possibly changing it to getting the Strait of Hormuz reopened before we end up in one of the recessions that we just talked about with Tyler Goodspeed.
Because currently, the energy shock that we are facing, if it is prolonged for really any length of time, is highly likely to lead to a recession and cause all kinds of other adverse consequences like increasing the rate of inflation and causing all sorts of damage to economies that are more exposed to oil and natural gas coming from the Strait of Hormuz.”
What Can We Learn from the Oil Shock of the 1970s?
“Grumpy Economist” John Cochrane finds: “The big question is whether the economic damage in the 1970s came so much from the oil itself as from the horrendous policies that we followed after the oil price shock. Nixon quickly put in price controls and we had gas lines. The oil couldn’t go to where it was most needed. The price signal to bring other stuff online was not available, windfall profits, taxes, and so forth. So this is the larger debate that I hope to have with you, will it necessarily be so bad? Now, on the other hand, it looks like both [we in the US and] Europe are getting ready to do all the silly policies that we did in the 1970s as well, which I think would make it bad.”
Recommended Reading
Recession: The Real Reasons Economies Shrink and What to Do About It by Tyler Goodspeed
Colossus: The Rise and Fall of American Empire by Niall Ferguson
Iran Is Trying to Defeat America in the Living Room by Karim Sadjadpour
Parting Wisdom
Looking beyond the current public and media focus on the war in Iran, Niall Ferguson wonders whether 2026 might conclude with a return to greater attention on energy and the climate.
I think a great many of the alarmist predictions about climate change have already been proven wrong. On the other hand, I think one of the kind of curious features of human life is: just as an issue begins to fade from public debate, it has a tendency to become relevant. I mean, I can’t think of a better way of accelerating the problem of climate change than to have a full scale war in the Persian Gulf in which carbon dioxide and other things are emitted in vast quantities in the course of the conflict. So I’m expecting some climate issues later this year for us to talk about, mainly because Bill Gates said we should stop worrying about climate change. And as soon as he said that, I thought that’s probably time to start worrying about it, isn’t it?
That wraps up this GoodFellows conversation guide. If you like this companion to the show, or have any recommendations for future conversation guides, please let us know in the comments below.
John H. Cochrane is the Rose-Marie and Jack Anderson Senior Fellow at the Hoover Institution, Stanford University. An economist specializing in financial economics and macroeconomics, he is the author of The Fiscal Theory of the Price Level. He also authors a popular Substack called The Grumpy Economist.
Niall Ferguson is the Milbank Family Senior Fellow at the Hoover Institution, Stanford University. He is the author of sixteen books, including The Ascent of Money, Civilization, and Doom; columnist with the Free Press; founder of Greenmantle; and co-founder of the University of Austin.
H. R. McMaster is the Fouad and Michelle Ajami Senior Fellow at the Hoover Institution, Stanford University and distinguished visiting fellow at Arizona State University. He is author of the bestselling books Dereliction of Duty, Battlegrounds, and At War With Ourselves.