Don't Panic About Stocks. It's Not 2008 All Over Again, Economist Says

Transcript

ARI SHAPIRO, HOST:

At the start of this crazy day on Wall Street, we asked all of you on social media, what do you want to know about what's happening today? We got a lot of great questions, and joining us to answer some of them is Austan Goolsbee. He chaired the Council of Economic Advisers earlier in the Obama administration, and he's now at the University of Chicago. Welcome to the program.

AUSTAN GOOLSBEE: Hey. Thanks for having me back.

SHAPIRO: Let's start really simple. We got a question from Michelle Tevelow Grybowski, who asks, should I panic?

GOOLSBEE: Michelle, no. When's the right time to panic - never. You will regret the decisions you made in the panic when you come back and say, oh, man, I wish I hadn't sold when everything was at the bottom or even worse. So if it were up to me, I would tell you, do not, under any circumstances, go try to cash out your retirement account at a penalty because you're afraid the stock market's going to go down. That's the kind of panic-induced thinking that you will very likely regret.

SHAPIRO: Well, here's a perhaps counterintuitive question from Ann Feigl Johnston. She asks, what should we be buying?

GOOLSBEE: You got to like that there's people like Ann out in the world. That's what stabilizes the world and we think, over the longer term, can get it closer to fundamentals, is that if stuff goes down a lot, there are a bunch of people who are like, wait a minute; if things are down, it's probably cheap; I'm going to go in here and start buying. And that can break the back of a panic. You know, economists tend to not be stock pickers or asset...

SHAPIRO: (Laughter). You're not going to tell her what to buy.

GOOLSBEE: We just buy everything. I'm not going to tell - you know, they - we buy the market by - try to diversify as much as you can. I would be careful for Ann jumping too quickly back into buying up emerging-market stocks or any of the stuff that's really getting hit the hardest.

In China, many people thought they were in a bubble. The prices start going down quite significantly. The government just starts intervening and buying up stocks and telling people, nothing to look at here; we're not slowing down faster than we said before; just pay no attention to what's happening. And as the government buys up the stocks, you just can't tell.

The market's trying to tell them they don't think this stuff is worth what it was three months ago, but they don't want to take that pricing. So until you know, A, what is the real situation and let's get some information content back in these prices - and the other thing to think about is, in some of these situations, the government has, in the past, said they wouldn't have a problem - there wouldn't be a bubble, and now a lot of their credibility is kind of in jeopardy.

SHAPIRO: Austan, we have a question here from Helen Bentz Ferguson, who asks, why should the average person even care about the stock market? I have no extra money to put in stocks. Neither do most of the people I know. We're just trying to pay our bills, she says. So Austan, why should somebody like Helen care?

GOOLSBEE: Well, you know, maybe Helen shouldn't care. And even maybe people who are in the stock market should care less than they probably care as they look at the TV and that line is just going down and down, and they're like, oh, my goodness, this is 2008 all over again. I think not getting too worked up about gyrations in the stock market - not only is it not a bad idea. It's probably a good idea not to get worked up about that. And if you have less ownership of the stock market, like it sounds like Helen has, that's even more reason not to really get worked up.

SHAPIRO: You said people might look at the television screen and see that line sinking and think this is 2008 all over again. Can you assure people that it's not 2008 all over again?

GOOLSBEE: OK. I'm not in the assurance business. Economists can't even agree on predictions of things that already happened. So never make predictions of the future. But there are several things that at least make me feel better now than I felt in the fall of 2008. The first is, the root of this crisis is not events happening in the United States.

Number two, there's, in the U.S., way less borrowing involved in this. It's just an equity bubble. It's just things moving around with stock prices. And we have seen, really, over and over throughout the world, if it's just an equity bubble popping, it's bad for the people who own those shares that are going down. But the destroying of banks leading to credit crunch and the what the economists call systemic events largely don't happen just from equity bubbles. You've got to have a lot of borrowing for that to happen.

Then I'd say the other thing is that the economy has been going modestly well for a long steady period of time. We haven't been in an environment of a whole lot of volatility on the real side, so hopefully that's a little better than it was in 2008.

SHAPIRO: Austan Goolsbee is former chair of the Council of Economic Advisors. He's currently an economics professor at the University of Chicago School of Business. Austan, thanks a lot.

GOOLSBEE: Great talking to you again, Ari.

AUDIE CORNISH, HOST:

And you can join this conversation about today's stock market tumbles by going to Facebook. You can search for me, Audie Cornish.

SHAPIRO: Or me, Ari Shapiro. Transcript provided by NPR, Copyright NPR.