My Colleague Casey Mulligan in The Times: There Is No Reason to Panic

I love the Op-Ed piece by my colleague Casey Mulligan in today’s New York Times. He very clearly lays out economic arguments as to why things are just not that bad.

He concludes as follows:

So, if you are not employed by the financial industry (94 percent of you are not), don’t worry. The current unemployment rate of 6.1 percent is not alarming, and we should reconsider whether it is worth it to spend $700 billion to bring it down to 5.9 percent.



It is an extremely irresponsible article at a critical time in this crisis.

He thinks we are going through a market "gyration"

But there is a real risk of a global systemic failure. This is beyond serious to everyone.

Luckily, I have a cave and some seeds for planting. My suits I can always burn for fuel.


Casey is very wrong.

Regarding how corporations don't really need banks (They can just cut their dividends!), this is just totally flawed. Cutting your dividend in the current stock market climate is about as helpful as cutting your wrist in a shark tank. Cutting dividends: Definitely not in the shareholders' interests. Expect rampant short-selling and capital flight from any company so hard-up for cash that it must cut dividends.

I guess in one respect Casey is right... a bankrupt company doesn't rely on the financial system to support it.


If a bear craps in the woods does it still stink? If people have no confidence in the economy, does it really matter what economic theory and historical financial facts tell us? Investors pulling money out of good investments and buying small losses on treasuries is almost as telling as going to the movies on a friday night for a first run movie and being one of only 12 in a 200 seat theater.

So Mr/Dr Mulligan may be right. In theory. Of course, in theory, swap options have value. except when they don't.


plz give me an A in your class, casey!


Part of the problem is the tendency of the media to use overly broad language. Is the economy currently in recession? Technically no. GDP growth was 2.8% in Q2, and we haven't had a single quarter of negative GDP growth yet. Unemployment, while significantly higher than last year at 6.1%, is just fine overall (traditionally, unemployment during a recession is around 8%).

That said, certain sectors of the economy and parts of the country are almost certainly in localized recessions. Any businesses that either depend on discretionary consumer spending and/or are dependent on short-term credit for day-to-day operations are probably struggling.

However, larger businesses which have ample cash on hand and/or derive a significant amount of their revenue from abroad are likely doing just fine.

So while certain sectors of the economy are probably in recession, the economy as a whole is not, at least not yet.

While the decline in the stock market over the last month is certainly hitting people hard, let's not forget that when sentiment changes, the market will recover almost as quickly. Most of the selling of the last month has been pure panic. When the market finds it's bottom and starts to rise again, everyone who is so negative right now will pile back in so as not to miss the rally. While the S&P probably won't make it back to 1576 for a few years, I'm guessing that it's back in the 1200-1300 range by next summer.


Nancy Jane Moore

I'd be a lot less worried if I thought the unemployment numbers were anywhere close to accurate. And let's not forget that more and more of the people who are actually working are making minimum wage and have no benefits, as the better paying jobs were outsourced. Even before food and gas prices went up, a full time job at minimum wage wasn't enough to support one person in this expensive world.


Yes, it is a valid point to look at the financial crisis separate from the economy in general or the actual production side of the equation. The fact remains that consumption is equally important and it is being been hampered by unemployment and losses in home equity and retirement portfolios. The third major component of the economy is the government and it is running record deficits due to the wars and tax cuts. So if the economy is a car, we have an engine that is starting to seize due to the lack of financial "lubrication", consumer demand transmission "out of sync" and government "steering" aimlessly, we are indeed heading for a potential crash.

The advice not to panic is well taken but human behavior, especially in times like these, tend to take an irrational turn as they do when the market is going up. It is a dynamic relationship much like a pendulum that swings from one extreme (fear) to the other (greed). The good thing about a market economy is that it is self-correcting and adjustments are made at the cost of unemployment and/or business failures. Resources will be allocated properly in the adjustment process as we are seeing now in the physical commodities market. Just to cite an example, look at oil prices now compared to earlier this year and it reflects lower effective demand and supply that is higher than expected, hence, lower prices.



Let's fix this like we fixed the farm crisis in the 80s: pay home builders not to build homes for a year. Market values for existing homes go up, allowing their mortgages to be liquid again. It's a little stupid, but not any more stupid than having the government buy the worthless mortgages.

(In exchange for this novel idea, I only ask that SL proclaim it to be "interesting". Thanks!)

Jasmine Van Pelt

Our economy (with globalization, the world's economy) is based on mass consumption. When the great mass of consumers no longer has the means to consume, the economy goes down in flames.

For the last three decades, the real wages of 90% of the US population stagnated, while all economic growth was channeled into the pockets of the wealthiest 10%. Since the great mass of consumers could not afford to grow their consumption, they borrowed to pay for it. The economic growth of the last three decades was illusory, because it was based on borrowing, not earning. It is now going to disappear, because too many people have seen through the illusion.

We will not be able to pull out of the resulting depression until we change the rules of the marketplace so that the great mass of consumers benefits just as much from economic growth as the wealthiest 10%. Then they can actually afford to consume, and growth can be real and not just make-believe.

Bottom line? In a capitalist economy, the rich can be richer than the poor, but the rich can't just keep on getting richer and richer while everyone else stands still. When we redistribute your income to ourselves, dear capitalists, we will not be doing it because we hate you, but just in order to save you from your own greed and folly.



That's funny, because some other economists consider this piece of Mulligan's to be proof of his incompetence and a waste of the Times's space:

Joe Smith

Alex at #3 said "At the Across the Curve blog it is mentioned how top-credit organizations such as GE and IBM are paying 350+ bps above Treasuries to receive funding."

I saw something similar in an article that said that cities could not sell their muni bonds unless they were willing to pay 5% interest.

We are coming out of a period of artificially, unsustainably, low interest rates. Long term real risk free after tax returns have to be about 3% (they always have been and probably always will be). With inflation where it is, and treasuries where they are, everyone better get used to the best risks paying 5 to 7% for money and plan accordingly. The only government intervention that could reduce nominal rates are policies to reduce inflation or reduce risk so that risk premiums go down. Nothing can get real risk free medium and long term rates below the 3% range.


while not employed in the financial sector, i´m biting my nails. we had a business, it went down like the titanic this year which means we have no income. i´m voting the government bail out other boats not the financial industry that put citizens globally in jeopardy. i don´t have credit cards, i bought only when i could afford, now i can´t afford anything. the credit crunch is going to impact, has impacted, workers outside of the realm of the financial industry, it´s foolish to think otherwise.

Imad Qureshi

This is an incorrect conclusion. Because of unavailability of credit, cost of doing business (no matter what business)will go up (has gone up). Did your colleague saw the rate of A2/P2 lately? Yesterday just about when you wrote this, Oracle CEO announced that his company will be taking advantage of this economy to buy cash trapped small software firms. Everyone is affected. My 401(K) is 20% down to what it was a month. I am glad I am not retiring anytime soon.


The real problem with the economy is that so many of us lived a lifestyle above our means through the sham of credit. Our entire economy was said to be booming because millions of Amercians were purchasing freely with plastic. The security felt from the housing boom only intensified the credit spending. I do not pretend to understand all of the factors involved with the bail out. What I do know is that our grandfathers purchsed things when they had the money for it. It's time we as Amercians suck it up, quit crying because the Mercedes we bough two years ago is no longer affordable and start saving for our purchases. No one is entitled to a lavish lifestyle. Especially when it is borrowed. If major companies counted gains from credit spending when evaluating their profits, they deserve to suffer. Any business owner knows that your collections not your sales or production dictate your net gains/losses.

The Bail Out is garbage. These companies should be forced to sell their assests for .22/dollar because that is what they are worth. The bail out is only delaying/encouraging the eventual outcome of devastation caused by frivolous spending from everyone.



I'm employed in the financial industry.

I'm also taking a job with a different financial institution in phoenix. The company I currently work for is scaling back their employees in states with strict labor laws I.E. California. The job I'm taking is with a company leaving SF to move here.

Seems like the "recession" is only in certain parts of the country.


The news media seem to focus primarily on the stock market, specifically the DJIA, as an indicator of how bad our economy is.

I used a Google DJIA charting tool and went back to 1970. Taking into account our recent significant decline in stock values, the index has grown 944% which annualizes to 24% and change per year growth.

Though we have significant problems, the problem lies not so much in the economic market but in our collective brains. It is human nature to more easily react, worry and panic than to sit down and think things through for a bit.

Jeff Thompson

I in turn love your graphic. 94% of the iceberg is below the sea, but nevertheless the Titanic was 100% sunk.


Everything will become apparent when the christmas shopping season fails to materialize.


The tone of his piece is eerily similar to a column by the publisher of the Pittsburgh Post-Gazette on November 15, 1929:

Joe Smith

The underlying loss on housing is probably somewhere in the 1 to 2 trillion dollar range and these days that is just one bad day on Wall Street.

Burn down a few million houses and the markets might revive nicely. If buying and dumping milk works for farmers why not burn houses for the construction industry?