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Interview with Wayne Angell

March 1, 1994


David Levy Vice President
Interview with Wayne Angell

Fed Governor Wayne Angell's reputation as a maverick and an independent thinker was reinforced throughout his career at the Federal Reserve Board. Many times when a lone vote dissented on issues ranging from interest rates to Fed policy, that vote was Angell's.

With his unique style, Governor Angell established himself as a man with deep feelings about the pernicious effects of inflation.

Now, having completed his term as a governor, Wayne Angell reflects on the past eight years, and as would be expected, with candor.

Region: During your Senate confirmation hearings back in January 1986, Senator Dole said that he wanted agricultural interests represented on the Board of Governors, and he felt that would be accomplished by your appointment. Did you take that as a key responsibility of yours during your tenure?

Angell: Yes, particularly in the first years. When I was appointed, the agricultural regions of the country were in very serious difficulty, almost depression-like. It wasn't as long-lasting as some other depressions, but it really was very severe. Consequently, I was very careful to give some priorities to banking groups in states such as Iowa, where they were hit the hardest. I made some trips to Iowa and surrounding states because I wanted the agriculture community to feel that they had a voice and I wanted to sell them on my mission. I suppose one of the most interesting things to me was that they were very ready to be sold.

The story that I told basically was that the inflation that the Fed promulgated during the 1960s and 1970s is what drove up those land values and that high land prices are not in the interest of farmers. The American Farm Bureau was a group that in many cases I worked with, and they understood what I had to say.

I remember when [Charles] Shuman of the American Farm Bureau came into [then Federal Reserve Chairman] Paul Volcker's office with me and their Washington representative discussing the relationship between Third World debt and falling land values and falling commodity prices in Iowa and Illinois.

At that point in time I think Paul Volcker saw that monetary policy was causing commodity prices to fall and that if actual deflation of commodity prices continued it was going to disrupt not only the domestic banking system, it was going to disrupt international banks as well because many of our large money center banks would not be able to survive if we had a cessation of payments on all Third World debt. I think Paul Volcker saw that day that Third World debt is very closely related to commodity prices. And I think that was part of the moving together that Paul Volcker and I did in those early months. So, this agricultural background that led to my appointment was a responsibility that I took seriously.

Region: Would you say it was a consistent value of yours all the way through your term to be a champion of agricultural issues here at the Board?

Angell: I've always been ready to do what I think needs to be done in that regard, but in the latter four years of my term the pain has shifted to other regions, and we began to get some recovery in land values. A new quiet strong prosperity began to emerge in agriculture; then the message was: "Don't ever inflate again."

Region: In the same confirmation hearings you said, "I pledge to this committee and I pledge to the American people that in my time on the Federal Reserve Board I will be ever-watchful for any reemergence of inflation. I consider it the primary responsibility of monetary authorities to preserve the value of the dollar, and that is my pledge." Looking back to that day, can you say that the pledge was met?

Angell: I think there have been other voices on the Board and on the FOMC that have wanted this priority, and the chairman has certainly enunciated the priority in Humphrey-Hawkins' testimonies. Out of that I get some satisfaction in terms of this objective.

I was somewhat more explicit with a group of consumer advocates that came down to Howard University from Boston. And this meeting of inner city community groups reminded me somewhat of meetings with farmers when they were in a turmoil. I tried to explain to that group why price level stability was a populist program, that is, why the people benefit. I suggested that if we were successful that 30-year mortgage rates would get down to 7 percent. And I said, "that will be the test." You can tell whether we succeeded or not. So, yes, I do feel some satisfaction about the progress made by the Volcker and Greenspan Fed during this Volcker/Greenspan era in achieving as much of this objective as we have.

Region: You must feel good about your role in accomplishing that?

Angell: I don't feel comfortable evaluating my own role. I just tried to be a voice on a seven-member board and on a 12-member voting FOMC with 19 people expressing views. I've always felt that you must make certain that every perspective is heard.

Region: In your early days on the Board of Governors, the press put you with Preston Martin, Martha Seger and Manuel Johnson, dubbing the group the "gang of four." Some expected that as Reagan appointees you might become a conservative coalition within the System. Was there ever truly a gang of four—or a gang of any sort?

Angell: There never was a gang of four. It was very unusual for two of us to be appointed at the same time. It was even more unusual about the background relationship that Manley Johnson and I had that became very quickly a close personal relationship of trust.

I received a telephone call from Professor James Gwartney of Florida State University in mid-October 1985 and he said, "A very unusual thing has happened to me; the president of the United States has announced that he is appointing my professor to the Board of Governors and he has announced that he is appointing one of my students to the Board of Governors."

Gwartney, who was a student of mine, became very active in politics in Kansas in addition to studying economics. So Gwartney and Manley Johnson and I shared a common theme, which meant that Manley Johnson and I felt very closely associated in regard to the way we viewed microeconomics and macroeconomics; both of us fit in to what some would call supply-siders. Even though I didn't call myself a supply-sider, others called me one because of my emphasis upon price stability and also on economic growth: the group that says you can have your cake and eat it too. As a result of that, a very close relationship developed between Manley Johnson and myself.

The so-called gang of four didn't come together other than that at that moment in time the four of us wanted the same policy results. If you will recall the Business Week article that mentioned the gang of four, it gave its own epitaph to the gang, saying that after all it's the FOMC that determines monetary policy and so the four would not be effective even though they were the majority of the Board.

I had voted for discount rate cuts, that is, for proposing a discount rate cut at the board meetings of the Federal Reserve Bank of Kansas City in November and December of 1985. Recognizing the serious commodity price deflation that was under way, I was quite certain that our economy would be on the jagged edge in regard to economic growth if that deflation continued. I was quite clearly in the camp of stopping that commodity price deflation. But I wasn't as comfortable with some others with whom I was temporarily aligned regarding their full commitment against inflation. I did not want to be a part of anything that would cause Paul Volcker to resign, and yet I made the motion in the Board room to cut the rate. We knew the vote would be decisive. We also knew that if we voted the discount rate down with the reserve targeting era that was in place, that there would be no question but that the fed funds rate would decline. So this vote had a kind of historic proportion to it because the FOMC had just voted to maintain reserve pressures.

I don't want to overstate this because I have a high regard for the FOMC arrangements that provide stability and provide continuity in regard to political change, and I wouldn't want to do anything that would diminish that long-term role of the FOMC and the presidents. But if you have members of the Board who are, indeed, somewhat bold and somewhat confident in regard to what they're doing, who wish to take that action, then I think it's appropriate that the Federal Reserve System accommodate itself to that wish. Because in the discussions that Manley and I had before the vote we clearly walked through a decision tree concerning these events and we said, "If we do this, then what will Paul do? And then after we do this, what will Paul do?" And it was always clear in my mind that Paul would end up working with us. I thought Paul wouldn't resign. I thought he would bluff to resign, but I also thought he wanted to be chairman and I knew I wanted him to be chairman.

Well, going back to the gang of four speculation—it worked out just about like Manley and I were confident it would work. I had a great deal of respect for what Paul Volcker had done in 1979 and what he continued to do in 1981 and 1982. I always believed that he was helped by having a president who really said that this is my agenda too. But, I had a lot of respect for Paul Volcker and I knew that his mission, in a sense, was my mission. So, it was not surprising that Paul called me into his office before that vote was announced. You see, we put the action off for 10 days to enable Japan and Germany to cut their rates on the same day, which satisfied all of our objectives. It satisfied Volcker's and it satisfied mine and Manley Johnson's because we wanted to stop a worldwide commodity deflation.

Now, the interesting thing about that was that as new members of the Board, Manley and I knew the ultimate test is whether we are right or whether we are wrong. If two new members of the Board come in here and do this and if subsequently we are deemed to have been wrong, we might as well pack our bags and go home. It was a bold step that we were willing to take.

Region: In the Senate hearings, you described yourself as a hard money populist. In terms of your political philosophy, how much importance would you give to "populist leanings"?

Angell: Populism is a big chapter in Kansas history just as it is in Minnesota history. I am a believer in democracy—a believer that the people's well-being is what it is all about. No economic system should serve any other master than the people. That means all the people. Populism has this notion that everyone counts. The farmers, in a sense, in the 19th century were being severely harmed by that stop again-go again transition back to the old pre-Civil War gold rules.

The deflation would not have been so bad if it had been predictable. But, it had not been predictable because we had the silver people get in there, and it was unanticipated deflation in that period that did such harm and gave rise to a populist movement. To me a hard money populist is exactly the right kind of populist to be. As I said to the people from inner cities at the Howard University program, it is the person that does not have much wealth that is the most defenseless in regard to bad economic policy. The wealthy and the knowing can always, in a market system economy, escape the ravages of bad policy. But, the people cannot. So, yes, I am a hard money populist.

Region: Most agree that small town bankers see you as a consistent ally. Do you see yourself that way?

Angell: A member of the Board of Governors has a very broad responsibility to the people, and any relationship with any one group really should only be thought of as a temporary means to the appropriate ends. Washington is a political town. To accomplish what you wish to accomplish, you need a support group. So, there are alliances in the political arena. Those alliances, it seems to me if one keeps an eye on the ultimate goals, are temporary.

Region: Given that at times, at least, there is a strong relationship between you and the community bankers, does that feed into your general opposition to the liberalization of interstate banking?

Angell: Well, that's one of the few impressions about me that is incorrect. I have never opposed the movement toward interstate banking as a member of the Board of Governors. I haven't been a strong proponent partly due to the temporary alliances, but I have never advocated that interstate banking would lessen competition.

Anyone who understands competition knows that interstate banking poses more opportunities for improved competition than it does for restraint on competition. So, that just isn't a position that I have ever taken. I can't claim to be a populist who has been concerned about the pricing of loans and the spread between loans and the prices banks make on CDs without being in favor of competition in the banking arena.

Region: Here in the Ninth District, you have tended to vote against bank consolidation efforts. Of course each request is considered individually, but have you an overriding concern about concentration in the banking system?

Angell: I have an overriding concern about public policy that would appear to be indifferent in regard to concentration and about a public policy that would ignore the law of the land.

My view is that the government isn't out of the business. And it is not out of the business for two reasons. First of all, in 1866 we imposed that 10 percent surtax on the issuance of state bank and private bank notes. We effectively outlawed private banking. In outlawing private banking we said there are rules to entry, and those rules to entry are that you get a franchise. We have let our concerns about safety and soundness misguide us to impose heavy capital requirements for new charters. So, when the government imposes these barriers to entry like high capital requirements, like a million dollars of capital to get a charter in an agricultural community, as a result, the new bank will not be viable and its managers will also be tempted to engage in unsound banking. The only way such a bank can meet its servicing of such a huge capital is to grow too rapidly, which is the most dangerous way for new charters to behave. If we lowered the gross capital requirements for new charters, I could accept additional mergers.

I did vote against some merger opportunities. I would strongly prefer the option of lowering the barriers to entry. But, I'm not prevailing in that arena.

If the Fed is seen as being indifferent to competition, we then lose our moral authority to do what needs to be done. There are many reforms in banking we need to be a part of, but we cannot carry that out, it seems to me, while blinding ourselves, or shielding ourselves, from evidence that exists.

Now, here again, the staff of the Board of Governors have worked very hard as well as the staff of the Federal Reserve Bank of Minneapolis on these issues. And, very capable scholars differ on some of these questions. But, it is one of the most refreshing parts of the Fed to see staff have some disagreement which has come to the table. And, the Minneapolis Federal Reserve Bank has been willing to bring their analysis and stand toe-to-toe here at the Board of Governors. In some sense, my votes in the Ninth District merger cases have also been votes of encouragement to Reserve Bank staff to do their own thinking.

Region: Before you came to the Federal Reserve, yours was a particularly diverse background: professor of economics, farmer, politician, banker and economic consultant, among others. All this experience proved to be a nearly perfect background at the Fed. In fact, one of your earlier political opponents said of you, "He's in his element at the Fed. He's got to be one of the world's happiest people." Have you been?

Angell: Well, I think that is kind of a compliment. Yes, I have been happy. But, I was also happy when I was in the state Legislature and I was also happy doing many other things. I was happy when I was farming. The Fed has been an extraordinary opportunity, sort of an unbelievable one. I'm very thankful for the opportunity to do it.

Region: It shows. It seemed as though it was a mission of yours, or at least a special interest, to focus the FOMC on reacting to changes in commodity price levels. Did you make progress in your tenure toward that end?

Angell: Yes, in the 1960s and 1970s I was a monetarist—a real fan of Milton Friedman, Anna Schwartz, Karl Brunner and the whole group. They played such an extraordinary public policy role in the 1960s and 1970s in this country. They identified the problem.

But in 1983, it became apparent to me that the money stock itself was not going to be the forward-looking indicator that it had been, largely because of this sharp swing to double-digit inflation and the sharp swing back. If you look at M2 in 1983, you would say the Fed is way too easy, and yet commodity prices were dropping. I said, if commodity prices are dropping, how can it be that the Fed is too easy? Yet, M2 says we are too easy. So, M2 has to be wrong. When I first came here, one of the staff members said to me that they were given the assignment of writing a memo saying what a silly idea this was to pay attention to commodity prices. But, over the years, this institution has been willing to devote resources to a critical examination of these ideas. I've been fascinated with the willingness of the organization to put scholars to work on something that, at first, not many thought would prove that helpful.

That first meeting that I talked about with Shuman and Volcker, in Volcker's office, I recognized that Paul also watched commodity prices. I sometimes jokingly called him a closet commodity price watcher. Remember that the price of oil fell to $9 a barrel—while only a year earlier it was at $40 and many thought it was going to $100. That's really quite a difference to have the price of oil go to $9 when people thought it was going to go to $100. Monetary policy, of course, did that.

There were some who thought that Ronald Reagan was lucky, you know he never had any oil price problems. Well, Ronald Reagan wasn't lucky, he had Paul Volcker. The Federal Reserve controls the price of oil more than OPEC does. So, we were in an easily demonstrated commodity price deflation and monetary policy had to respond, and we did. There was then a kind of assessment of that. And in recent years M2's puny growth has certainly overstated the monetary restraint. I think there are others who agree that we cannot run monetary policy on a Phillips curve, or on a looking-back- over-our-shoulder basis. We must have some forward-looking indicator. I think the most skeptical person outside or the most skeptical person on the FOMC is in an arena now in which the commodity prices are in front of them.

Region: Speaking of commodities, Milton Friedman and Anna Schwartz, when you traveled to the former Soviet Union, you urged that they adopt a gold standard. Do you still feel that same way?

Angell: Well, that was the proper way for me to approach the Soviet Union as they had a serious problem. Those who had the naive view that deregulating prices prior to fixing the value of money did not realize that it would throw the Soviet Union into a depression and jeopardize democracy. I mean it really has been criminal for us in the West to advocate commodity price liberalization—that is, freeing prices—and at the same time not fixing the value of money. In a sense, the dog is chasing its own tail to the death of the people, and the death of economic growth and democracy. You must first fix the value of money and then you can let prices go to their equilibrium level.

But to turn oil prices loose without first constraining the money stock simply meant that you were on an oil standard with constant devaluation. And, as I said to them, the Soviet Union was intact at that time, in September 1989, "If you will take aggressive steps in regard to the value of money, then you will find the transitional market system will work. If you do not," I said, "you will then end up with a rate of inflation of 1,000 percent and your country will divide itself into a thousand pieces." I have no regrets with regard to the straightforward call.

I was looking to Russia's history. I could have easily said, "Tie the ruble to the dollar." But, I thought that would be inappropriate advice for a great power and so I said, "Tie it to gold." They said, "But gold and the dollar may fluctuate." I said, "Watch gold and the dollar, their volatility will become less and less as we approach price level stability." Yes, I advocated for them, not a gold coin standard, but a gold targeting standard. I'm very sorry that they weren't willing to listen and make that hard choice. But, it was a very hard choice.

Region: Hard choice. Region readers always enjoy a good pun. Within the institution, you headed the Bank Activities Committee. Some would say that you have become as well known for chairing this internal administrative committee as for some of your more visible public policy activities. Do you agree with that and does it surprise you?

Angell: Well I don't know that that is all that surprising. In March 1986, I had just been here a month, Paul Volcker called me in and asked me to chair the committee. I said, I hadn't even attended the committee yet. He said, "Well, I know that I need you to chair it." From earlier conversations Paul knew of my legislative experience and that I had been on the Appropriations Committee and been an Appropriations Subcommittee chairman for five years. He knew that I had a conservative bent regarding the public sector spending. One must be careful not to appear to be grand in our spending of money because the people won't understand, they will misjudge us. Paul and I shared a kind of conservatism. That meant, to some extent, that there would be somewhat an increase in constructive tension, I hoped not destructive tension, between the Board of Governors and the district banks.

Manley Johnson said, "Wayne, why do you want to do that job? I mean, there are enough troubles out there without doing that." But, my regard for the Federal Reserve System, my concern for it, has been such that I wanted to ensure its future by being seen as a very well-disciplined institution that maintains some real care about how money is spent. I hope I have been as conservative as my reputation.

Region: One of the responsibilities of the Bank Activities Committee is to maintain the System's physical infrastructure. In some cases patch and repair was no longer the answer and new buildings had to be built. Finally, with the new building project under way in Minneapolis and others within the System complete, would you now say that the overall infrastructure of the Federal Reserve is in pretty good shape?

Angell: Yes, I think it is. The buildings should have some aesthetic quality in their design so that people like them. When people sometimes make fun of marble palaces, I think about the Seattle branch. The sandstone used at the Seattle branch has gone through a discoloration that takes place over time. It is always difficult to maintain and is not always the best choice. So, sometimes marble, such as is in the Eccles and Martin buildings which house the Board of Governors, is the lowest cost way to go in the long run. I have always wanted to take a long-run view.

My only criticism about the present value cost minimization test we use is that under our Pricing Policy Committee we take all the fixed costs and throw them into one big pot. In recent years, the committee has moved to the position that any new building must be justified as if its fixed cost has to be borne by its priced services. I think that test has to be there.

Region: Considering your personal style and not your politics, the comparison has been made between you and Ross Perot. That is, you are both usually quite certain about your positions, both project your ideas forcefully and both have a populist message. Do you find the comparison apt, odious or something else?

Angell: Well, I think I find it interesting more than odious or apt. I don't think it is that flattering because in some ways claiming always to be wise may make you end up being a fool. I think there always needs to be self-restraint in regard to playing such a role. Apparently, I have not exercised enough self-restraint.

I have been willing to be a maverick, if you like, when most others are playing the mainstream role. I'm willing to raise an issue and advocate it as if I thought it was right so that the debate can take place. But, I'm very open to that debate process of exposing any foolishness that might get in the road. Manley Johnson chaired the Payments System Policy Advisory Committee and I sat on the Committee and then when Manley left and I became chairman, some said, "What a difference" [in your approach]. Well, there was a different role to be played and I believe that it is important for me always to be able to shift in terms of consensus and in terms of broadening the vision. I guess there is no question but that I have been willing, in my public life, to play a contrarian role and to be that messenger if no one else was willing to raise the question.

Region: In response to those who would label you "maverick," you have said that due to a strict Baptist upbringing, such behavior only comes naturally. It's doubtful that a measure of contrariness has been the principal manifestation of a world view so directly conditioned by religion. What has been the effect of your deep faith on you as a policy maker?

Angell: Well, I don't think there is any necessary link-up between the strict upbringing and being a maverick. Maybe some people would claim that if people are brought up with a very strict background, individuals are really afraid to think for themselves. Somewhere early in my life I found it okay to think for myself. It's hard to pinpoint that, but I have always had some willingness to strike out on my own. Frankly, when I was an officer in the American Baptist Churches, I think they thought I was as much of a maverick as anyone did. I don't know that it's a religious manifestation. In regard to my own faith, when I became a Christian I started out reading the Old Testament. I didn't really realize that Christians didn't read the Bible. I thought they did. So, I read through the Old Testament before I read the New Testament. I suppose that the God of the Old Testament and the characters, the heroes of the Old Testament, saw themselves as having to speak out. This was steeped into me early in my life.

Region: So much has happened during your term. Can you point to any decisions or outcome that was most gratifying? One of the true high points?

Angell: Well, there really have been so many. It really is so difficult to pinpoint any one. My friendship with Volcker was a very important personal one. I'm always grateful that that worked out the way it did; it could have been quite different. Alan Greenspan has provided me an additional opportunity to sharpen my monetary policy thought process and my tennis game. It has been a growing relationship and a good friendship.

There has been a great deal of satisfaction that I have had in the payment system area because in terms of focusing tactical expertise, this has probably been the primary focus. Monetary policy has been my primary reason for being here. The Bank Activities Committee has taken up a great deal of my time. But, in regard to innovative and constructive thinking and leadership, the moves we have made in the Federal Reserve and in the G10 in regard to the payment system have been personally very, very gratifying. It's a technical kind of work that if we do it right, no one will ever know we did it. Yet, it is so necessary. Many mistakenly concentrate on certain kinds of risk, like the holding of derivatives, which isn't the problem at all, because the financial world will innovate one way or another. They will do it offshore or onshore, but they'll do it.

What needs to take place is to move the payment system ahead to the 21st century. I'm very pleased in what we have done with regard to our netting studies. I'm very pleased with where we are with regard to the daylight overdraft reporting system. I think the progress that will be the crowning achievement for me in this area will be the achievement of a daylight value of money which will enable the Fedwire to be in operation maybe 20 hours and enable the dollar to function as a delivery vs. payment currency in all regions of the world.

Region: What's your biggest criticism of the Federal Reserve as it stands today?

Angell: First of all I want to say how much I like the Federal Reserve System. What I like about it is so large in comparison to any minor criticism that I want it to be in that context. There are times that Reserve banks or Board staff may tend to want to be so careful in regard to formulating ideas that there is an insistence on consensus before it is brought to the board of directors or before it is brought to the Board of Governors.

If the board of directors are to function in the way that they need to function, and if the Board of Governors are to function the way they need to function, we must be more willing to bring different perspectives and points of view to the Board of Governors and to the board of directors.

One of the most surprising events for me was after Manley and I played that somewhat lonely role in regard to the first two months we were here, that one of the staff directors from Monetary Affairs, Mr. Axilrod, left. He said to me on leaving that he had thought that we should have cut interest rates. And I thought, thanks again. I mean, why could no one have provided a minority staff view.

At times, we may have too much fear that someone will see divisions within the System. We must never be afraid of good solid constructive debate. That's my greatest hope for the Fed, that we can continue this movement. I think the Board has led the way for that debate to exist and for it to be constructive. I hope that the staff and Reserve banks can feel free to increasingly participate in that debate. The St. Louis Fed, for example, in its lonely pursuit of monetarism in the early 1960s was in many ways derided by Board staff. But, that persistence of a perspective was a contribution. I hope that each Reserve bank will feel free to bring its own distinctive views to the table.

Region: What do you think the Fed will look like in five years?

Angell: I don't have any particular insights into that. In the payments system area, I feel quite certain that we will have extended Fedwire and that we will be offering delivery vs. payment globally.

Undoubtedly, we will restore the property rights of the banking community in regard to their daylight reserves. The market isn't failing. We have taken the property rights away, and consequently we end up with a great deal of hoarding of intra-day reserves. And just as the peak reserve overdrafts run to $120 billion, at that point in time there is $120 billion of excess reserves in other banks that is being hoarded. Why is it being hoarded? Because the property rights have not been restored. We clearly need to move to a system in which we count reserves on a minute-by-minute weighted average toward the two-week reserve maintenance requirement. And when we do that, then money will have its time value during the day. Then Treasury bills will be delivered vs. payment in the Japanese market and not just at 5:30 [p.m.] New York time.

Region: Apart from dropping its vigilance on inflation, what would be the greatest mistake the Fed could make?

Angell: Well, the greatest mistake we could make is to yield to the pressures, whatever they might be, whether it is in banking regulation or structure or what monetary policy the Fed should be following. We should carefully and openly debate what we do and then we should be willing to be forthright and stand tall.

Our independence will be assured by our making that independent judgment and staying with it and not worrying about the political consequences. If we worry about the political consequences of our action, we will be weakened and lose our independence. If we do with clarity and concern and education what needs to be done, then our independence becomes our shield and we become stronger.

Region: Thank you, Mr. Angell.

More about Wayne Angell

Federal Reserve Board governor, 1986 to 1994

Chairman, Board's Committee on Federal Reserve Bank Activities, 1986 to 1994

Chairman, G-10 Committee on Payment and Settlement Systems, Basle, Switzerland, 1988 to 1994

Director of the Federal Reserve Bank of Kansas City, 1979 to 1985

Member, Kansas House of Representatives, 1961 to 1967

Active partner in a 3,300 acre farm in Meade County, Kansas, 1950 to 1986

Past president, Kansas Baptist Convention

Past vice chairman of the board, International Ministries of the American Baptist Churches

Master's and doctorate degrees, University of Kansas