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Former Top White House Economist: Recent Stock Market Drop 'Doesn't Feel Like' 2008

Feb 6, 2018
Originally published on February 6, 2018 11:21 am
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STEVE INSKEEP, HOST:

This is the kind of time when investment advisers tell you to think long-term. A few down days on the stock market may mean nothing over the course of a year or a decade. Of course, if it's your employer's stock value or your retirement fund that just went down, it is hard not to look. And the volatility of the market this morning is making it especially hard not to look. Austan Goolsbee chaired the White House Council of Economic Advisers under President Obama, and when we reached him earlier today, we asked what he made of the stock market drop in recent days.

AUSTAN GOOLSBEE: You know, it's - you get that pit in your stomach. It feels like it's 2008 again or something. But, you know, everybody's got to remember that the markets go up and the markets go down. On average, they tend to go up, but there's a lot of volatility. You know, in 1900, the Dow was at 50. So over time...

INSKEEP: (Laughter).

GOOLSBEE: ...You're doing fine. But, you know, you've got to just try to - I don't know. It is a bit like the weather. You're going to have a whole lot of nice days in a row. The worst time to leave your house is to say, oh, my goodness, we're having a big storm, let's get out of here.

INSKEEP: You mentioned the financial crisis in 2008. There were broader, deeper, huge problems with the economy then. Do you see a problem with the economy now that we should be thinking about over the next year or two?

GOOLSBEE: I mean, it certainly doesn't feel to me like the kind of - we had such a big increase in consumer debt. We had a housing price bubble that was coming apart. There were a lot of things that led to a worldwide financial crisis that let's hope - and, it doesn't seem like that's what this is. We've had really a historic run-up. It's probably the second-longest bull market in history, or, at least, in the United States. So it seemed like stocks had gotten expensive by the - relative to earnings by historical measures. It doesn't feel like the fundamentals are the same as 2008.

INSKEEP: Let me ask a question a little bit more long-term. Even before the declines of the past week or so, people were asking, naturally, the question of when the next recession will arrive. Aren't we about due for one, given the sheer length of the economic expansion we've had?

GOOLSBEE: Yes and no. You know, as the economists say, recoveries don't tend to die of old age. So how long you've been going is not a great historic indicator that you're about to have a recession. That said, the stock market and the economy are not the same thing. And we saw a decent jobs number this last time, and we have seen in the last couple of years wages starting to inch themselves upward.

So what happens in the stock market does not have to be an indicator for what's happening to everyday people in the economy if you can just turn the knob off so that there's not the volume. If you can't help yourself looking and saying, oh, no, I'm losing my retirement money, you're going to have indigestion because when these drops and fluctuations go like this, there isn't really anything you can do. The No. 1 rule is don't panic.

INSKEEP: Well, let's talk about the guy who's supposed to do something when there is a crisis, Jerome Powell, the brand-new Fed chair - first day on the job. Is it way too early for him to be doing anything?

GOOLSBEE: Probably. Welcome to the Fed, Mr. Powell.

INSKEEP: (Laughter).

GOOLSBEE: You know, the thing is, you would hope that the Fed chair would not be primarily looking at gyrations in the stock market and certainly not day-to-day gyrations in the stock market when determining monetary policy.

INSKEEP: Austan Goolsbee, always a pleasure. Thank you very much.

GOOLSBEE: Thank you.

INSKEEP: He chaired the White House Council of Economic Advisers under President Obama.

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