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New York Times Death Spiral Watch (Casey Mulligan Edition)

Why oh why can't we have a better press corps? The New York Times thinks it's good to use its space to let Casey Mulligan tell us that the Great Depression was a figment of our imagination. Memo to everyone: if you are ever tempted to make an argument that implies that the Great Depression simply did not happen, stop.

Here is Casey Mulligan:

Casey Mulligan: THE Treasury Department is now thinking about using some of the $700 billion it has been given to rescue Wall Street to buy ownership stakes in American banks. The idea is that banking is so central to the American economy that the government is justified in virtually nationalizing much of the industry in order to save us from a potential depression....

[S]aving America’s banks won’t save the economy. And... the economy doesn’t really need saving....

The non-financial sectors of our economy will not suffer much from even a prolonged banking crisis, because the general economic importance of banks has been highly exaggerated. Although banks perform an essential economic function — bringing together investors and savers — they are not the only institutions that can do this. Pension funds, university endowments, venture capitalists and corporations all bring money to new investment projects without banks....

When a bank or a group of banks go under, the economywide demand for their services creates a strong profit motive for new banks to enter the marketplace....

The stock market crashed in 1987 — in 1929 proportions — but there was no decade-long Depression....

John McCain, who was widely mocked for saying that “the fundamentals of our economy are strong,” was actually right.... One important indicator is the profitability of non-financial capital, what economists call the marginal product of capital.... Since World War II, the marginal product of capital, after taxes, has averaged 7 percent to 8 percent per year.... And what happened during 2007 and the first half of 2008, when the financial markets were already spooked by oil price spikes and housing price crashes? The marginal product was more than 10 percent per year.... America’s non-financial companies are still making plenty of money....

And if it takes a while for banks and lenders to get up and running again, what’s the big deal? Saving and investment are themselves not essential to the economy in the short term. Businesses could postpone their investments for a few quarters with a fairly small effect on Americans’ living standards. How harmful would it be to wait nine more months for a new car or an addition to your house?...

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.

I don't know which is remarkable: that Casey Mulligan does not know that the non-financial corporate profit rate was high in 1929, that Casey Mulligan thinks that university endowments make construction loans, or that the New York Times thought this was worth its readers time.

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