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TEXT OF INTERVIEW
Kai Ryssdal: Until about Tuesday or so, there was some distinct economic optimism going on.
Things had been going pretty well in the markets. Earnings reports and economic indicators had been, if not good, then less bad.
But then, we learned consumers still aren’t spending. Foreclosures hit another record. And oh, by the way, a whole lot of car dealers were told they’ll have to close down.
So to help us do our Weekly Wrap of Wall Street and beyond, Megan McArdle from The Atlantic’s Business Channel is here. So’s Mike Mandel, chief economist for Businessweek.
Mike Mandel: Glad to be here.
Megan McArdle: Thanks for having us.
Ryssdal: Megan, I want to start with you and ask what seems to be the question of the day: Is it getting worse more slowly or is it just worse after the week we’ve had?
McArdle: I think that this week, the green shoots started to look a little brown and straggly.
You know, we’ve had a series of bad indicators. And it’s interesting, I was actually just at a lunch where I heard an economist say, “Well, you know, if you just take Chrysler out of the layoff numbers, then they look better.” It’s like, “Well yeah, if I throw out a lot of companies, it probably looks better.”
I think it’s hard to tell. And at best, I think what it looks now is a flattening out.
Ryssdal: Mike, let me through the indicator question to you. Obviously, there are the jobs numbers and there’s housing and there’s inflation and all that. When you start to try to think about this stuff, whether it’s getting worse more slowly, what do you look at?
Mandel: Well, what I do is I break out the different parts of the economy. I think the stock market is probably close to a bottom and we may see gains in GDP growth toward the end of this year.
But the housing market’s going to be dead for years. I don’t even look at the housing numbers; I just assume that we’re years away really from any recovery there.
The real question is the job market. And the fact is we’re in the middle of a total collapse of the professional, college-educated labor market that we have never seen before. And I think the labor market is going to be bad for quite some time. And that’s really kind of the big problem now.
Ryssdal: Megan, let me ask you about something you wrote earlier this week, and you were doing a little historical comparison with the Great Depression and where we are today. And you pointed out that if you look at where the Great Depression was 18 months into a recession, they had this little burble of life and then it kept getting worse.
McArdle: Right. And I think something that you have to remember is, all of these things they are mysterious and they don’t play along some script.
I think a lot of people have in their head the post-World War II recession model and that’s not the kind of recession we’re in. Financial crises, they look different. They’re a little bit more idiosyncratic.
But you know, the average recovery time from a financial crisis is that things get worse for at least two years. Well the financial crisis was last fall, which would seem to indicate that we’ve still got some run yet.
And I think you do see in Japan and in the Great Depression, these sequential things where people think ‘Ah, we’ve finally hit the bottom.” And then you get a little bit of optimism and then people realize that they still don’t have a job. And they’re still afraid of the future and they pull back again. And I worry that they may happen to us.
HOST: Mike, let me ask you about the inflation numbers that were out this week. Wholesale inflation and consumer prices not a whole lot of movement down, just a tad. I wonder what you think of this theory, that maybe what the economy can use right now is inflation. Prices may be creeping up just a tad?
Mandel: We’re in a financial crisis in part because we borrowed a lot of money overseas that we couldn’t pay back. We still are. We’re still running a trade deficient.
And so, Rather than looking at the CPI or the PPI, I keep my eye on whether or not the trade deficit numbers are shrinking. And the number that we got this week didn’t go down any further and that worries me a little. Because I want to see us stop borrowing from overseas before I think that we’re getting close to digging our way out.
Ryssdal: Yeah. Let me see if I can sum up the last minutes of our collective lives here.
Megan, you’re just gloomy, right?
McArdle: Well, I mean I think part of what you have to think about is when you think about a financial crisis and what the government does, I think I agree that what’s hopeful is that we’re not doing the things that were a bad idea about the Great Depression or about Japan.
But what we don’t know is whether just not doing the things that we have a pretty good idea didn’t work, is enough to get us out of this.
And one other thing to worry about is, politically can we keep this up. And one thing that you’ve seen in both Japan and in the Great Depression is that there’s a stimulus and then it starts getting withdrawn. Because politically the pressure, once things start getting a little better, politically, the pressure to withdraw the stimulus comes before, say, a sustainable recovery. And so I think there are still a lot of crowds on the horizon.
Ryssdal: Michael Mandel at Business Week magazine. Megan McArdle, she edits the Atlantic magazine’s Business Channel website. Guys, thanks very much
Mandel: Thanks very much.
McArdle: Thank you.
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