Summary: this is a follow-up to the many comments in Making us dumber, chanting “Dude, where’s my recession?” , which discussed another way the Internet can make us smarter — or dumber. Google “Dude, where’s my recession” for a splendid example. Thousands of hits for what might be the dumbest tagline of 2008. That post discusses why accurate economic forecasting is difficult, what we know about current conditions, and recent warnings from one of our top economists.
This post discusses economists’ forecasts and media bias. A theory is developed to account for the frequent but undocumented allegations of media bias in their reporting about the economy.
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I have learned a lot from the comments to Making us dumber, chanting…?” , as usual. Two issues surfaced. First, have professional forecasters been predicting a recession during the past year (if so, incorrectly)? Second, has the mainstream media been tilting their coverage during the past year to convince Americans that the economy is in or near a recession?
I do not know how to test the second theory. Bias is largely subjective, and so difficult to measure. Also, since people get their information in many different ways, your experience with media might differ from mine (in fact, having last watched a TV show in 1973, your experience is probably not mine).
The first is testable. We can examine surveys that measure the consensus forecast of major economists. The best known are the Blue Chip Financial Forecasts and the Wall Street Journal’s Economic Forecasting Survey. The latter is available to non-subscribers here.
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These surveys frame the economic coverage of the major mainstream media: Wall Street Journal, NY Times, LA Times, etc. Not that they follow it slavishly, but in my experience they seldom stray far from these consensus forecasts. Also, the major economists they quote seldom stray from the consensus forecast. So what did economists forecast for GDP last year, and how has their forecast evolved (using the WSJ data)?
Estimate the probability of a US recession in the next 12 months (by month of the survey)
Aug 2006 26% Nov 2006 26% May 2007 26% Aug 2007 28% Oct 2007 34% Jan 2008 42% Mar 2008 64% May 2008 63%
Now that most economists see a recession coming, how bad will it be? An Apocalypse? As of the May survey, the consensus forecasts for the change in real US GDP were:
2008 +1.2%
2009 +2.2%
Pretty mild.
Evidence of media bias
What I did not see in the comments were any actual quotes from the media to support the terrible things said about them. Like…
The point of that tagline is that the MSM and a lot of lefties are slavering, hoping, pining, praying for there to be a recession RIGHT FREAKIN’ NOW, so that they can try to hang that around McCain’s neck.
I think that’s the context, responding to media doomsayers that seem all too eager to jump the gun, albeit without any ideological motive of course and without a looming presidential election having anything to do with it. Today when I opened Google I saw three headlines predicting economic disaster. It’s like the media’s Katrina coverage all over again.
There have been two camps on diagnosing the economy: the US is going to end, or things are not as bad as you are being led to believe.
Reader Chris Baldwin emails: “While the tag line is somewhat recent, it is disingenuous to claim that this is all about Q1 and Q2 data. We’ve been told that we’re already *in* a recession for going on a full year now, when it is clearly nonsense. He’s right when he says that we might be in a recession in Q2, but we weren’t 10 months ago when all this doom mongering really kicked into high gear.”
— from the Instapundit; note the above table shows no sign of doom mongering 10 months ago
Is it possible — just a theory — that what we have here is bias by these people than the by media? Selective perception: they believe the media to be biased, so they remember those bits from the media stream that confirm their bias. Comments are welcome about this — especially comments with citing actual bias.
Even better would be studies showing serious media bias. The plural of anecdote is not data. We know the mainstream media has biases (how could it not?). There is well-documented bias against conservatives (although coverage of the Iraq War suggests that may have changed since 9/11, at least with respect to national security). Far stronger is their bias towards bad news over good. The media exists to sell advertising, so reports of babies picking flowers on a sunny day get little attention. “If it bleeds, it leads” sells papers.
Other posts about the Internet: does it make us smarter or dumber?
- Cable Cut Fever grips the conspiracy-hungry fringes of the web (7 February 2008)
- Resolution of the Great Submarine Cable Crisis — and some lessons learned (8 February 2008)
- What do blogs do for America? (26 February)
- The oddity of reports about the Iraq War (13 March 2008)
- Euphoria about the Bakken Formation (10 April 2008)
- The Internet makes us dumber: the Bakken euphoria, a case study (15 April 2008)
For more information about geopolitical implications of current economic trends
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A brief note on the US Dollar. Is this like August 1914? (8 November 2007) — How the current situation is as unstable financially as was Europe geopolitically in early 1914.
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The post-WWII geopolitical regime is dying. Chapter One (21 November 2007) — Why the current geopolitical order is unstable, describing the policy choices that brought us here.
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We have been warned. Death of the post-WWII geopolitical regime, Chapter II (28 November 2007) — A long list of the warnings we have ignored, from individual experts and major financial institutions (links included).
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Diagnosing the eagle, chapter I — the housing bust (6 December 2007) — What the housing bust shows about America’s fitness to survive.
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Death of the post-WWII geopolitical regime, III – death by debt (8 January 2008) – Origins of the long economic expansion from 1982 to 2006; why the down cycle will be so severe.
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Geopolitical implications of the current economic downturn (24 January 2008) – How will this recession end? With re-balancing of the global economy, so that the US goods and services are again competitive. No more trade deficit, and we can pay out debts.
- A happy ending to the current economic recession (12 February 2008) – The political actions which might end this downturn, and their long-term implications.
- What will America look like after this recession? (18 March 208) — More forecasts. The recession might change so many things, from the distribution of wealth within the US to the ranking of global powers.
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The most important story in this week’s newspapers (22 May 2008) — How solvent is the US government? They report the facts to us every year.
To see the all posts on this subject, go to the archive for The End of the Post-WWII Geopolitical Regime.
Much better than the MSM for getting a clear picture of what is happening is to read the editorial opinion page of various industry specialty magazines. These specialty mags, Chemical Engineering, EE times, Manure Matters, (I shit you not), are focused professional enterprises which survive by knowing what’s going on in a given specialty. The Editors are necessarily knowledgeable, and smart guys. When they call bullshit, or shenanigans, you can believe that’s a fair claim. When they defend their industry, it’s equally heartfelt, and justified, in my experience. The editor of Food processing magazine just called for the end of ethanol as fuel by burning food, which is what sugar fermentation to ethanol is. A well reasoned editorial.
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Fabius Maximus replies: Agreed! Aprox 1987 McGraw Hill attempted to knit together the output of their many industry publications into a business new service competing with Dow Jones. It was a brilliant concept (for the reasons you mention), but fell victim to internal corporate politics.
I think there has been a slavish re-focusing of the MSM’s attention away from Iraq since violence began to subside there (in contrast to the MSM’s reporting and forecasting) and to something the MSM thinks is more likely to prevent a Republican President from being elected in 2008: the economy.
Since the MSM’s economic doomsaying began, there has been relatively little change in the actual condition of the economy – the mortgage lending meltdown was contained with startling speed, and the volume of foreclosures remains relatively insignificant. The cost of gasoline is high but consumer spending seems relatively unaffected by that, although gas prices are beginning to shift consumer behavior.
MSM, with the admirable exception of USA Today, continues to ignore the underlying economic crisis – unsustainable social welfare commitments and the demographic tsunami of the retiring Baby Boomers. Growth has slowed. Until this month, unemployment had not jumped – but one must take careful note of MSM’s panic-mongering “biggest jump in two decades” rather than the more relevant but less compelling “unemployment remains low by historical standards and stellar by comparison to the EU states we want USA to emulate.”
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Fabius Maximus replies: Perhaps your analysis is correct. Perhaps it is just business as usual, if it bleeds it leads.
If anything, I believe the major media have underplayed the economic deterioration. In economics the trend is usually more important than the absolute levels. For example, the increase in the unemployment rate probably has great impact than its absolute level (athough this is not one of the more useful metrics).
As for the housing cycle, I suspect that the mortage lending “meltdown” has not been contained, and the level of foreclosures will reach astonishing levels before receeding. These things are still in motion, so confident statements should be avoided imo.
These questions — underplayed or overemphais — can only be answered when we see if we have a recession, and if so, know its length and magnitude. Until then, I recommend caution in making these accusations.
I think the only valid way we are going to evaluate the situation is in retrospect. That is, check back with the actual figures in a year or 18 months and see who was right and who was wrong. Donald Luskin asserts that reporting on recessions happen most frequently after they are over: “Recession Rumblings“, National Economic Trends, St. Louis Federal Reserve Bank (May 2007)
Frankly, we don’t know and won’t know until it is over. Live with it.
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Fabius Maximus replies: This is similar to what I have been saying, but overstated. This report concludes: “Second, recession stories seem to peak toward the end of the recession, or shortly after, and then fall sharply — which suggests that this indicator might be useful in helping identify troughs, though perhaps less so for peaks.”
There are more useful indicators to see the state of the business cycle. The leading economic indicators are the best known, although other (more esoteric) ones also do well (e.g., the ratio of coincident to leading indicators, the shape of the yield curve). While these have only short-term forecasting ability and are far from perfect, they indicate periods (like today) with high odds of sliding into a recession.
Nothing tells us the duration or magnitude of pending recession. Recessions are like forests: after entering, one cannot tell its extent.
Thanks for the rational discussion of this topic. While I don’t have a direct study of bias in the media, I think the following poll shows what the public is picking up, I assume from the media. ( and I acknowledge that it is just an assumption. )
Now obviously the precise start and end of a recession can only be determined in hindsight, but at this point it is pretty clear that we were not in one before December of last year. However, in October 40% of the people thought we were. The poll, by American Research Group, Inc, asked (among other things) is the National economy in a recession.
Month Yes No Undecided
May 2008…57%…25%…18%
Apr 2008…68%…18%…14%
Mar 2008…66%…12%…22%
Feb 2008…47%…29%…24%
Jan 2008…35%…24%…41%
Dec 2007…07%…28%…65%
Nov 2007…34%…41%…25%
Oct 2007…40%…38%…22%
Sep 2007…25%…52%…23%
Aug 2007…31%…38%…31%
Jul 2007… 29%…37%…34%
Jun 2007… 22%…41%…37%
May 2007…36%…38%…26%
The poll can be found at “George W. Bush’s Overall Job Approval Up to 28% As Half of Americans Say Economy Will be Better in a Year“, poll by American Research Group, Inc.
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Fabius Maximus replies: This is fascinating data; thank you for posting it! But what does it mean? Here are a few thoughts.
(1) How accurate is this?
(a) The headline and questions suggest that it is funded by a political group of some sort. Bias?
(b) Based on “1,100 completed telephone interviews” — telephone interviews are increasingly inaccurate methods for polling, for obvious reasons.
(2) The short baseline does not show the “normal” range for these numbers. Perhaps 20% – 40% is the usual range of folks believing the US is in a recession, no matter what the economy is doing.
(a) People may extrapolate from their own circumstances, and 1/5 to 1/4 might be having bad luck at any given time.
(b) Recessions are national conditions, weighted by money. CPI is an easier example of this dynamic. The national CPI gives a roughly a 15% weight for food and beverages. So food goes up so that the national CPI rises 10%. But this depends on ones income. Food might be .0000001% of Bill Gates’ spending, but 30% of spending for a poor person in NY City. A 10% rise in average CPI might mean a 20% rise for a poor person. Similarly, national GDP numbers do not reflect what a numerical majority of households are experiencing.
(c) There probably is some degree of normal seasonality in these numbers (perhaps many folks are depressed during the winter or by the holidays)
” they believe the media to be biased, so remember those bits from the media stream that confirm their bias.”
“Poll: Three-quarters think U.S. in recession“, CNN, 17 March 2008.
I’m sure that the populace, who learned in economics 101 that the DEFINITION of a recession is two consecutive quarters of negative growth, quickly realized that the textbooks were wrong. Perhaps they decided to read the NBER report, which also fails to state we are in a recession, despite the director’s belief, and realized that a recession cannot truly be defined and have turned to the philosophical side of examining it.
or the Occam’s razor answer: they heard an abundunce of negative coverage, not balanced by skepticism, and chose to believe what they heard.
You have to ask yourself, do people get news from financial experts, or the political talking points, largely from democrats?
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FM reply: The “official” definition of a recession is not “2 quarters of negative gdp.” That was invented by a journalist, and propagated by fellow journalists. The NBER defines it as
“which also fails to state we are in a recession, despite the director’s belief, and realized that a recession cannot truly be defined and have turned to the philosophical side of examining it.”
What is your basis for these absurd statements? The NBER always defines the start and end dates after long delays, required in order to use the final (revised multiple times) economic data.
Interesting question, but I think there is some validity to the claim that the media have emphasized problems in the economy. I base this on my personal experience with a discussion group I meet with twice a month. Most of the people in the group are moderate to liberal, and do not seem to see the media as generally biased, except for Fox News. Several people have regularly mentioned the “recession” for at least a year, and maybe longer than that- I don’t keep records. The response among the group is general agreement that the economy is really bad, and any data that contradicts that perception is looked at with skepticism- lies, damned lies and statistics sort of skepticism. To the best of my knowledge, no one in the group has personally experienced any financial hardship as a result of the nation’s economic woes, but they are certain that times are very bad indeed.
I did a quick Google search to look for articles about the economy from 2007. The articles I found seemed accurate and even optimistic in some cases, but the headlines kept using the “R” word, and that’s probably what people focus on. For example, on Dec. 26, 2006 USA Today ran “Growth or Recession in 2007?”, and “Has the US Economy Dodged a Recession” appeared on June 3, 2007 on MSNBC. My personal favorite is from Nov 16 2007 in the Atlantic Free Press “US Economy- Recession, Depression or Collapse?”
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Fabius Maximus replies: Given the severe events in the financial markets during 2007, with few precedents in the post-WWII era, why is this unusual? What would you expect?
If you work for any of the major media, you are in a perpetual real recession. Every day you come to work, business isn’t too good but is the best it will ever be. If that’s your work environment then it’s easy to believe that the recession is real because for you, it is.
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Fabius Maximus replies: That is an interesting perspective! So the downbeat economic coverage is a new phenomenon, then?
I guess you haven’t read the Boston Globe in the last year or so. Nobody predicted a recession, the Globe just declared that we were in the middle of one. Today’s top story carries the headline “More dip early into funds for retirement”, which alternates between vacuity and tendentiousness. Economists and other “experts” are notoriously sensitive to the suggestions of the media, since they would rather be approved of than right.
I haven’t talked to a single actual working person who thinks that the economy is bad in their area, but many of them are convinced that there are problems somewhere else, because that’s what they’ve heard in the media.
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Fabius Maximus replies: No, I do not read the Boston Globe. I am, however, familar with the data on withdrawals from retirement accounts. This is a disturbing trend, and one of a large number of indicators showing that many households are under severe economic distress.
I am happy that the people you know have not experienced this, but the data is clear that the number of such households is increasing. Perhaps the most significant, just to mention two, are:
(a) the steady rise of continuing unemployment claims — people who have been unable to find a job.
(b) the number of home mortages past due, in default, or foreclosed. The % of all mtgs pst due is at a record high, since records began in 1972. The number in foreclosure is 2.5%, another record since 1972.
a) Isn’t it the joke that Paul Krugman, since 2000, has successfully predicted 9 of the last zero recessions? I don’t think it would be too hard to find liberal leaning commentators who have been talking down the economy for the last 7 years, in defiance of the fact that for the most part things haven’t been that bad.
b) I don’t think you can make an easy case for liberal bias in the economy post the housing meltdown (that pretty much everyone saw coming) as I think that the news is, if easily overblown by poor comparisons and wild claims, at fairly grim. So while I don’t know if we are in a recession, we are due for one if history is any guide and the housing meltdown is a key sign. If you can make a case for bias in the press, I would point more to the press’s regional bias – NY (plus vacation home in FL) and CA – than to thier ideological bias. Of course the housing meltdown looks more grim to them. It’s happening to them and around them. If it looks less grim to the red staters, its because for the most part they aren’t effected.
c) While its not easy to make a case for liberal bias in the reporting of this economy, the same is not true for bias in reporting the slowdown of the economy in 1992. That was a true case of ‘Dude, where is my recession’ which was vastly overreported in the press. In particularly, I can remember watching alot of really doom and gloom reporting in the week leading up to the 1992 election, and then the day after Clinton won the election watching a literal entire broadcast of the evening news devoted to positive feelgood stories about the economy. I wish I had tapes of it.
d) On the lines of ‘c’, I think the easiest way to demonstrate liberal bias in the reporting of the economy is to watch for the positive spin boost if Obama wins the election. I think it would be very instructional to tape the big three networks in the week leading up to the election, and then tape the followup newscasts after Obama wins (assuming that he does).
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Fabuis Maximus replies: I agree on all points. Krugman was a brilliant economist before becoming a Spiro Agnew-like attack dog for the Democratic Party. And the bias in the economic coverage of the 1992 election was astonishing — the last hurrah of the pro-Democratic Party monopoly of the media.
Hey there,
It may be hard to prove media bias on this issue, but one of the clear indicators which is rather new (Last 4 years or so) is the polls consistently showing people believe our economic situation is very bad (Like 80% believe our economy is bad) while (80% believe their own situation is good). I do not have the surveys handy but they should be easy to find if you are a doubter of media bias. I have seen these for years. The only explanation is people are receiving information from somewhere that things are really bad but they are not experiencing it.
How does this happen? If the U.S. economy has been bad over the last 5 years, then we have very few worries indeed. The economy could continue a slide for the worse in the near and long term, but right now we are riding through a series of bad storms without taking on significant water, but that could change with one big wave. I hope we can replicate the bad economy of the last 5 years.
Cheers.
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Fabius Maximus replies: The recovery from the 2001-02 recovery was slow and anemic, but even so these studies suggest something beyond this. Pass the link on if you find any of these; they should be intersting to read.
Fabius Maximus,
You’ve got a very well done blog here; I’ll be back. As for the topic of the recession and its reality, I’d agree with poster no. 6. The MSM is in serious trouble because most conservatives and many liberals no longer trust them to report even an approximation of the real truth. I would not accept a subscription to the NYT, Newsweek, or Time if you offered to PAY me for doing so.
The decline in the NYT’s stock price and the layoffs at Newsweek are just the beginning. Those dinosaurs will be extinct before too long and there are many of us who will be cheering when they disappear. It couldn’t happen to a more deserving lot.
Because of their collapsing economic performance and the undoubtedly all-pervading fear of layoff in their offices, for them the economy truly is in terrible shape. This perception will only strengthen the tendency toward crying doom and gloom that their leftist ideology inspires any time a Republican occupies the White House.
“I don’t think it would be too hard to find liberal leaning commentators who have been talking down the economy for the last 7 years, in defiance of the fact that for the most part things haven’t been that bad.”
Not bad I guess if you think living by consuming the countries captial isn’t all that bad. Sort of like the guy who thinks he’s doing good because the credit card company has let him increase is borrowing this year to spend beyond his income, as his income, savings, and equity shrink.
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Fabius Maximus replies: Agreed. In fact, it is worse than that. We have borrowed fantastic sums from foreigners with no thought of how we will — or even can — repay them. The links at the end of the post reference many studies of and warnings about this.
Hello All:
Insightful analysis as usual on your site, FM. Many thanks to the respondants also; I am not an economist so I appreciate the analysis in this area a great deal.
Regarding post #10, the fate of MSM publications such as the NYT, Newsweek, and Time, I could not agree more. I have refused to subscribe to these publications for nearly a decade now, not because I oppose their slant (thought I often do), but because so much of what they report is opinion and speculation dressed up as fact or well-established theory. I say this with little pleasure, because I am a bibliophile and lover of newspapers and magazines. Further, the 4th estate is a critical component of our republic, or used to be at any rate. It has been painful to watch the decline of these once-proud publications into their current state.
I need accurate information about the world around me as much as ever, but the MSM no longer views old-fashioned reporting and journalism as a worthy endeavor; informing your readership about the world is no longer enough; parisanship and advocacy of specific positions are the order of the day.
Equally disgusting to me is the prevailence of celebrity culture, which is seemingly everywhere. When did it become legitimate for comedians and other entertainers to be taken seriously as commentators on world events, the environment, the economy, or the war? Forgive me, but it takes years of serious study to comment intelligently on many of the problems now facing the world – and even then it is no easy feat. Why should anyone take the opinions of Rosie O’Donnell and the like seriously? These “celebrity analysts” – if one can call them that – crowd out better-qualified but less-famous authorities, and curtail even more the time devoted to hard news.
In other words, the news has become “infotainment,” which is a waste of time, and a detriment to public discourse. I’d much rather read a book.
Hey Fabius,
Here is just one link: “Fair but Unbalanced“, BRIAN S. WESBURY, op-ed in the Wall Street Journal — ” How the media promote false pessimism about the economy.”
One of many after a single simple search on Google. I would send more but need to go to bed. Read this and if you need more, email me. Cheers
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Fabius Maximus replies: This op-ed just restates the results of the American Research Group (ARG) poll discussed above. While interesting, it is a thin reed on which to draw conclusions.
I try not to pay too much attention to the mainstream media, but I don’t think there is lots of talk about recession. Instead the media are focusing on negative news, such as home foreclosures, layoffs, high gas and food prices, etc. But I think news is always biased to the negative, preferring disaster, explosions, war, and murder to drive ratings. Therefore, to truly prove bias, you have to show the media being optimistic. I definitely believe left-wing economic commentators are more political than the right-wing commentators, which causes bias. Right-wing economic commentators are more likely to keep economic commentary based in reality, and if they are making money, they are happy.
Everyone feels the pinch of higher gas prices, which makes them feel worse about the economy even though it has a small effect. I think conservatives may be over-reaching by claiming bias, turning into the opposite of liberals who have called for recession since 2006. Housing and banking are in trouble, and if it causes a recession conservatives will look as stupid as liberals have for the past 2 (7?) years.
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Fabius Maximus replies: Increased commodity prices, esp food and fuel, have a serious effect on the lower-income (bottom 40%) of American hosueholds, for whom these are a large chunk of their after-tax spending.
It is a misnomer that papers get there revenue primarily from advertising. Much of the revenue of the newspaper industry comes from the wantads. Having worked for the Chicago Sun-Times I had first hand knowledge. Craigslist & Ebay are killing the papers.
“The ‘Recession’ Is a Media Myth“, By John R. Lott, Jr., Fox News — Excerpt:
There are many links contained within the story.
Objectively measuring something like media bias is difficult. However, I can suggest some objective metrics that should work for any story.
(1) Quotations: Who get’s quoted and how much. For example, in the New York times I once measured that over a period of 3 weeks, political stories quoted Bush opponents extensively while they merely summarized the Presidents statements in the NYT’s own words. Since being able to publicize one’s ideas in one’s own words grants a considerable advantage,
(2) Lede and ending paragraphs: People remember the information in first and last paragraphs in a news story more than information in between. One can measure how of often particular points of view are represented exclusively in the lede and ending paragraphs.
(3) Burying the lede: How often does the headline emphasize particular information in the body at the expense of more important information. As the old newspaper joke goes, the headline says, “Boy Finds Nickel in Backyard,” while the body says “Boy finds nickel in backyard next to a giant pile of gold”. Instapundit routinely runs examples of such stories in which the editors choose a headline that doesn’t reflect the actual story.
There was an actual study done back in the mid-90’s that looked at media bias in economic reporting during the ’92 presidential election. (No link, sorry) The media consistently reported a recession until after the election when it suddenly changed its mind.
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Fabius Maximus replies: Yes, the 1992 election reporting was one of the classics in the American history of media bias.
I have seen seen a few powerful qunatitative studies of media bias using NEXIS that using the factors you mention. Some others are the use of descriptors for people: right-wing used more often than left-wing (they are liberal, a activist, or progressive), frequency of ideological identification (more frequent for conservatives than liberals), the frequency of party identification.
The last has become well-known as the “guess the party” game. In major media stories presenting politicos in a bad light, their party is either “Republican” or not mentioned. OpinionJournal.com of the Wall Street Journal frequently posts examples of this, followed by “corrections” adding in the party affiliation.
The mass media’s being in the tank for the Democrat party is a matter of historical record and I strongly disagree that it ended in 1992. For those who do not know the story, George HW Bush was bedeviled by massive negative reporting on the economy and derision when he suggested that we’d already turned the corner. The economists eventually agreed with President Bush but President Clinton had long before been inaugurated. When President George W Bush suggested in 200/2001 that we were at the bow wave of a recession during their shortened transition period prior to inauguration, they again were pilloried by the mass media for trying to talk down the great Clinton economy. If you look back, you’ll find that many economic indicators had already turned negative at that time.
Now we have another election and once again we’re in an awful economy according to the media. You can’t properly call them on it based on facts because the numbers are so much in flux but would Fabius Maximus care to put any money down on how economic reporting will be in February 2009 in an Obama administration? I would suggest that economic reporting would be quite a bit more sunny at that point.
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Fabius Maximus replies: I will take a shot at the issues you raise!
(1) As a general rule I do not do short-term forecasts or play the “blame game.”
(2) I have written (see links at the end of this post) that the US has entered a painful transitional era, in which the foolish policies of the present (e.g., massive sustained borrowing by households and governments) end.
(3) President Bush Jr will probably be blamed for this, with some justice — as his Administration presided during the two prior terms. Blaming Bush will also be convenient for the next President, no mattter if McCain or Obama.
(4) Even more responsible imo is Chairman Greenspan. Even more responsible are the American people, as not only were we repeatedly warned that these policies were insane — but also knew it without being told. That was common sense, known to every child.
I believe that the economy is in trouble (but isn’t that why people like yourself have solutions to solving the world’s problems) but I also believe that the media has sold the public the impression that Economists see nothing but a recession. I stumbled on a number of articles on the US recession and media bias that got my attention, excerpts of two of them are below:
“Although the economy started shrinking in July 2000, most Americans through the entire year thought that the economy was fine. … A Nexis search on news stories during the three-month period from July 2000 through September 2000 using the keywords “economy recession US” produces 1,388. By contrast, the same search over just the last month finds 3,166. Or, even more telling, take the three months from July through September last year, when the GDP was growing at a phenomenal 4.9 percent. The same type of Google search shows 2,475 news stories.” Article published Monday, March 31, 2008, at Fox News, John R. Lott, Jr.
The media does at good job of making a problem look a million times worse than it really is. But what are the economists really saying?
“the Department of Commerce’s advance first quarter GDP reading showed the U.S. economy expanded by a larger than expected amount. First quarter GDP rose by 0.6%, topping the consensus estimate of 0.5%. Although growth remains sluggish, this reading shows the economy is not deteriorating rapidly as many pundits have claimed… The April real personal consumption expenditure (PCE) data were disappointing. The level was unchanged from March (down 0.02%) and rests only slightly above the first quarter average. As a result, we have lowered our second quarter GDP forecast to +1.5%. Real PCE is likely to rise at only a 1% or less annual rate in the second quarter, essentially matching the 1% rate of increase in the first quarter. That isn’t down, but it isn’t strong either…” http://www.briefing.com
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Fabius Maximus replies: Please read Making us dumber, chanting “Dude, where’s my recession?” before drawing any conclusions.
GDP is a quirky metric. No one number can tell the full story about the US economy, esp one with a history of large revisions many months after the fact. The data clearly shows that the US economy has been slowing since mid-2007. Now almost all economic indicators are near or below levels typical of recessions. The US economy is a massive $13+ trillion/year engine, and usually changes speed slowly.
The US economy is a complex engine, and so we can only guess at the length and depth of the slowdown. It is too early for the confident “I just talked to God” forecasts so loved by pundits.
The worst part of the recession will be afterwards, listening to pundits boasting “It happened just as I predicted (even if I never said so).”
Just for the record, I agree with Prof Nouriel Roubini — this slowdown will be far deeper and longer than almost anyone imagines. I have said this for the past two years. Since this is an unusual slowdown — driven by credit defaults and slowing consumer spending (unlike anything seen in the US in the post-WWII era) — the timing and nature of the slowdown are unusually difficult to forecast. But, like the first snow of winter, we can prepare even without knowning the exact date.
For more on this see the links at the end of this post.
“When did it become legitimate for comedians and other entertainers to be taken seriously as commentators on world events, the environment, the economy, or the war? Forgive me, but it takes years of serious study to comment intelligently on many of the problems now facing the world – and even then it is no easy feat.”
American history is full of opinionated, sarcastic mudslingers who incessantly comment to anyone who will listen. Mark Twain, Ambrose Bierce, Will Rogers, even H.L.Mencken get known for being witty, but their humor is in fact just a socially acceptable way to discuss how much they hate the situation.
So it’s been going on for centuries. This is not to say that bile-filled humorists are competent to *understand* the situation — but they are capable of getting their bile out to an audience.
Although Will Rogers and Mark Twain made it look easy, in fact the humor and political commentary gig is difficult.
This was written as a trial for the Fabius Maximus political comedy magazine: “Top Secret US Government Documents about Iraq” (Feruary 22, 2006). Although hilarious, the email reviews were of two types:
(1) those that did not get the joke,
(2) those that did so, but did not find it funny.
The pilot for the FM Political Commedy TV Series remains in development.
“note the above table shows no sign of doom mongering 10 months ago”
Note, your data is not what was reported in the press but what economists that were responding to a survey said. Please don’t move the goal posts.
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Fabius Maximus replies: The first four paragraphs of the post described the difference between economists’ forecasts and the media’s presentation of this information. I assumed that readers would still remember this important distinction three paragraphs later.
“the underlying economic crisis – unsustainable social welfare commitments and the demographic tsunami of the retiring Baby Boomers.” (David Schlosser)
That’s not related to the present trouble. This is stuff that will hurt in a slow pace in the next decades, not as easily visible crisis. The present crisis is almost entirely due to the too high consumption = not enough industrial production = in the sum a horrible trade balance deficit
To heat up domestic consumption created bubbles and was no good policy. The same goes for the recent tax refunds. The USA need to increase industrial production – or it will experience a permanent breakdown in consumption simply because it’ll be impossible to pay for the goods.
You cannot pay for the high consumption by simply printing money any more. That worked only as long as the USD was trusted. The USA exploited this trust and lost it – start to work again for your wealth or lose it. The present level of industrial production is too small by a big margin. That’s why the “recession” thing is very short-sighted. You should not care about recession or not, but about the development of the industrial capacity and output.
You might have a recession and get over it in not time – nobody should care about it. The terrible problem will persist in the short term. I’d clearly prefer a recession + right steps towards industrial revival over no recession and return to high consumption levels.
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Fabius Maximus replies: Overspending our national income is part of it. “Not enough industrial production” results largely from overvaluation of the US dollar (as it did for the UK after WWI).
For better analysis of the situation see “We have been warned. Death of the post-WWII geopolitical regime” — it has links to many of the major studies about the causes and possible solutions.
You replied- “Given the severe events in the financial markets during 2007, with few precedents in the post-WWII era, why is this unusual?”
Are the events of 2007 really that different from events of the past 60 years? Perhaps to an economist they are, but as someone with little knowledge of economics (other than making sure I pay my bills, save for retirement, save college money for the kids, etc) it seems that there have been numerous “severe events” in the financial markets reported in the news during my adult life- the Savings and Loan crisis, the drop in the Asian economy that was going to create a world wide economic disaster, the Enron scandal, various housing crises, etc.
My point is not that all of these events had the same significance for the economy, but that the news reports at the time created the impression that the events were unprecedented and could well be the harbinger of a national economic crisis. To me, a headline suggesting that the economy is headed toward depression or collapse is way overexaggerated, just like so many headlines I’ve read before. Do the events in today’s market justify the headline?
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Fabius Maximus replies: So far nobody has shown a “headline suggesting that the economy is headed toward depression or collapse.” Can you cite any? Or might we have here an urban legend, like UFO’s — many reports of sightings, but no actuals?
I do not recall seeing anything like that, but I get information electronically so might easily miss such things.
Fabius Maximus,
You seem to be a little negative in your analysis of the prospects of a recession. I think because of computers, and advancements in other communication technology even though our economy is huge, it is able to react faster then ever before. Also you must remember the real estate crash is almost 3 years old and is likely over (http://online.wsj.com/article/SB121003604494869449.html). Although there is still likely to be some of the after-effects of the mortgage crisis, I don’t think they will be large enough to plunge us into two quarters of negative growth.
In one post where you reference the unemployment as a possible indicator of a future recession, you don’t seem to take into account the effects of a minimum wage with lower growth. Raising the minimum wage was probably something that was OK to do while the country was still growing at a good pace, but when that growth slows it provides an inelastic floor, that must increase unemployment (actually I am quite comforted that it hasn’t risen more).
In another post you mentioned the over-valuation of the US dollar. I think that has more to do with a bubble in China while they peg their currency to ours (http://www.nytimes.com/2007/08/19/business/yourmoney/19view.html?_r=2&oref=slogin&oref=slogin). By the way I love this passage from the times article “Economic growth rates can be inferred from electricity consumption. In every country in the world, electricity use has generally grown faster than the G.D.P.” … “But if China’s official numbers are to be believed, there are provinces in China where the G.D.P. has been growing faster than energy use. That is unlikely, since the central government’s statistics also say that energy use per unit of G.D.P. is going up — not down, as claimed in provincial G.D.P. statistics.”
One last thing about the US debt/weak dollar, I tried to Google the debt to equity ratio for the Federal government, but I don’t think I can find it (maybe you can have better luck). However, I did found out that just one aircraft carrier costs the government around $13.5 Billion (http://www.history.navy.mil/library/online/navycvn21.htm). I know that they’re used and have had a few miles put on them, but they’ve been well cared for, we could make someone a deal. OK, selling aircraft carriers probably isn’t the best solution, but basically the Federal government has a huge amount of assets, and like I said before I can’t find a debt to equity ratio, but just the value of all of it’s carriers ought to be around a trillion (or one tenth of our total debt). What would Yellowstone be worth?
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Fabius Maximus replies: Perhaps you are right, but I suspect the way you are framing this analysis tends to create misleading results. Economics, like medicine, requires a holistic perspective. One cannot lift our facts and draw conclusions without considering its effect on the full system.
(1) The economy is larger and more complex, with offsets some of the advantage of improved communication and data processing. Plus, the economy moving faster makes its management more difficult, just as increased speed does for driving. The net effect of these changes is not simple to determine.
(2) “there is still likely to be some of the after-effects of the mortgage crisis, I don’t think they will be large enough to plunge us into two quarters of negative growth.”
This is just a guess, both the predicate and the conclusion. There is no evidence that the real estate downcycle (the “mtg crisis” is just one facet of the larger cycle) is ending, or even slowing. Weighing its effect is something that can only be done at any reasonable level of reliability using one of the large macroeconomic models — and even then with large error bands.
(3) The causes of the US dollar decline are many and varied. The Bretton Woods II “system” (or policy set) adopted by many emerging nations (like China) is a factor. But the US Dollar has been in decline since the mid-1960’s, so China or BWII are clearly not the major drivers. The quote from the NYT is just another guess. Little in the way of such detailed and confident conclusions can be drawn from China’s economic statistics. However, energy intensity (e.g., energy input/gdp) can vary wildely — and China’s gov’t has stated that improving this is a major policy priority. Global GDP increased nicely between 1979 and 1993, with zero increase in oil consumption.
(4) Yes, we can sell off the United States to pay out debts. Do you really believe the US would be better off if we gave our carrier fleet to China as payment for our debts? How about giving them Nevada? Even consideration of that as a desirable option indicates the seriousness of our situation.
Fabius,
{Fabius Maximus replies: Due to the complexity of this comment, I have put replies after each section.}
1. Your car analogy isn’t a good one, because increased data processing and communications don’t create less control as in higher kinetic energy. Instead they should act like a faster feedback loop in the system.
*** As TE Lawrence said, analogies in human things are fudge. But your comment seems to deliberately miss the point. With increased speed one’s reaction time grows less, which was my point.
2. Taking into account point 1 it makes sense to say that the mtg crisis will not last very long. Then look at the percentage of the US economy (GDP of $13 Trillion) that is affected by the mtg crisis. I saw something like there was around 6 Trillion in home debts in the US. This isn’t very accurate, but if you take the percentage of foreclosures in the US (~1%), and do the math it seems like there will be somewhere around 0.5% of the economy affected negatively by the mortgage crisis directly (if you assume that all of the value in that 1% is completely lost which shouldn’t be the case).
*** Your numbers are a bit off. Mtg debt is aprox $10 trillion, not $6T. Per the Mortgage Bankers Association, the delinquency rate (at least one payment past due, but not in foreclosure) for mortgage loans on 1 – 4 unit residences was 6.35% at the end of Q1, and 2.47% of all mortgages were in already in foreclosure. Also, the primary effect of the mtg crisis is reduce availability of future loans, which aggrevates the construction downturn.
2.5 You wrote: “There is no evidence that the real estate downcycle … is ending, or even slowing.” Show me a study that says that. I showed you a link saying it had bottomed in April 08, and distinctly referenced the mtg crisis as a different issue because it could continue to have some legs.
*** You gave a link to an op-ed by a hedge fund manager — not even anyone in the real estate business or an economist. That is hardly evidence. Look at the current data on Calculated Risk (they give excellent long-term charts), which continues to trend down.
3. The quote from the NYT article talks about specifically electrical production and doesn’t mention oil anywhere in the article. So your example of oil consumption really doesn’t address the article at all.
*** Again, this seems deliberately obtuse — ignoring my substantive point and commenting narrowly on the illustration. More info: the relationship b/ China’s GDP and energy use has long been disputed. The best-known work about this was done by Prof G. Rawski in the early 2000’s, see this: “What’s Happening to China’s GDP Statistics?”
4. The carriers are a very small part of the US federal governments assets. Clearly they can’t afford to sell their military assets, it was an example to make you think. I still have not found an estimate of the value of all of the assets of the federal government, but I would just hazard a guess that the debt equity ratio is probably pretty favorable compared to a lot of companies.
*** If you believe that selling the silverware is a good solution, fine. When you put America up on the “for sale” block, remember that China will want something with economic or strategic value. If you see Yellowstone, consider how the Chinese will extract value from it.
1. Yes the economy is large and has a good deal of inertia. I was trying to make the point that the decisions that drive the economy can occur much more quickly with the advances of technology. Old models of the economy probably need to be changed.
2. Taking into account just the foreclosures rate of 2.47% which doesn’t mean they will be repossessed (I just bought a property out of foreclosure and got a hell of a deal). You only get around 1.9% of negative growth due to the mortgage sector and that is if the bank has to write down 100% of the value of all of the foreclosures (which should never happen).
2.5 Nice… Attack the source not the content (by the way he used to work for Morgan Stanley do you think he might stay in touch with some of his old colleagues). Anyway from the post on calculated risk: “After a record burst of activity between March and April…” It is likely this is probably an if it bleeds it leads type of story, and if you averaged the three months we’d still be ahead. Also it is localized and not a national trend.
3. I was not being deliberately obtuse. Most of the sentences in what you wrote were about China. However I will concede that you were correct when you said: “The causes of the US dollar decline are many and varied.”
4. FYI we are selling America right now. There’s a new Honda plant in Indiana as proof, why can’t the government get in on some of the action.