Economics reporting and gloom

Steven M. Warshawsky
Republicans frequently complain that when a Republican president is in the White House, the mainstream media goes out of its way to report bad news about the nation's economy, whereas when a Democratic president is in the White House, the MSM suddenly discovers the enormous and widespread prosperity we, in fact, enjoy in this country.  Perhaps the most notorious example of this discrepancy is reporting about the number of homeless people on our city streets, which invariably skyrockets after a Republican is elected president and declines just as miraculously when a Democrat is elected.

However, the lack of accurate and reliable economics reporting goes much deeper than mere political spin doctoring.  The people who write about economics plainly lack the ability to place economic ups and downs into a larger, more complete picture, or even to maintain logically consistent positions regarding the state of the American economy.  Reporting about the stock market is the perfect example.  It also happens to be the most frequent example, as keeping track of the day-to-day movements in the Dow Jones Industrial Average has become a national obsession (in my opinion, an unhealthy one).

Case in point:  Yesterday the Dow Jones average went down (or in the words of Reuters, "sank") by 387.18 points, apparently due to concerns about the "subprime" mortgage market.  (For an explanation why these concerns are exaggerated, see here.)  This left the Dow Jones average at 13,270.68.  Reuters described  the situation thusly (via Fox News): 
"Evidence the U.S. mortgage market crisis was having a global impact and spreading to other markets hammered financial stocks." 
So the Dow Jones average "sank"; the U.S. mortgage market is in "crisis"; and financial stocks were "hammered."  The entire tone of the article was doom and gloom.  I'm confident that tomorrow's newspapers will offer the same interpretation.

Now flashback just a few months, to April 2007, when the Dow Jones average ended the day above the 13,000 mark for the first time.  At that time, Reuters reported  that "13,000 means things are good."  Similarly, the San Jose Mercury News reported  that the Dow Jones average "rocketed past the 13,000 mark" buoyed by strong corporate earnings.  The SJMN further reported that "it's obvious that the upward momentum of stocks reflects a broad investor confidence in equity markets as a whole" and that there is "good reason to trust the underlying economy."  Clearly, this was very positive reporting.

In short, just four months ago, when the Dow Jones average was lower than it is today, the economics reporting was much more positive than the pessimistic assessments that are being made in reaction to today's decline in the Dow Jones average.  Yet if a Dow Jones average of 13,000 means "things are good," how can a Dow Jones average of 13,270 mean that things are bad?  This is utterly illogical, and bears no meaningful relationship to the actual condition of the nation's economy, which remains strong.  Indeed, the routine use of the stock market as a barometer for the overall health of the economy is woefully inadequate, and as we see from this particular example, often misleading.

The lesson, as always, is to be very skeptical about what the media reports about the economy, or anything else for that matter.

Steven M. Warshawsky  
Republicans frequently complain that when a Republican president is in the White House, the mainstream media goes out of its way to report bad news about the nation's economy, whereas when a Democratic president is in the White House, the MSM suddenly discovers the enormous and widespread prosperity we, in fact, enjoy in this country.  Perhaps the most notorious example of this discrepancy is reporting about the number of homeless people on our city streets, which invariably skyrockets after a Republican is elected president and declines just as miraculously when a Democrat is elected.

However, the lack of accurate and reliable economics reporting goes much deeper than mere political spin doctoring.  The people who write about economics plainly lack the ability to place economic ups and downs into a larger, more complete picture, or even to maintain logically consistent positions regarding the state of the American economy.  Reporting about the stock market is the perfect example.  It also happens to be the most frequent example, as keeping track of the day-to-day movements in the Dow Jones Industrial Average has become a national obsession (in my opinion, an unhealthy one).

Case in point:  Yesterday the Dow Jones average went down (or in the words of Reuters, "sank") by 387.18 points, apparently due to concerns about the "subprime" mortgage market.  (For an explanation why these concerns are exaggerated, see here.)  This left the Dow Jones average at 13,270.68.  Reuters described  the situation thusly (via Fox News): 
"Evidence the U.S. mortgage market crisis was having a global impact and spreading to other markets hammered financial stocks." 
So the Dow Jones average "sank"; the U.S. mortgage market is in "crisis"; and financial stocks were "hammered."  The entire tone of the article was doom and gloom.  I'm confident that tomorrow's newspapers will offer the same interpretation.

Now flashback just a few months, to April 2007, when the Dow Jones average ended the day above the 13,000 mark for the first time.  At that time, Reuters reported  that "13,000 means things are good."  Similarly, the San Jose Mercury News reported  that the Dow Jones average "rocketed past the 13,000 mark" buoyed by strong corporate earnings.  The SJMN further reported that "it's obvious that the upward momentum of stocks reflects a broad investor confidence in equity markets as a whole" and that there is "good reason to trust the underlying economy."  Clearly, this was very positive reporting.

In short, just four months ago, when the Dow Jones average was lower than it is today, the economics reporting was much more positive than the pessimistic assessments that are being made in reaction to today's decline in the Dow Jones average.  Yet if a Dow Jones average of 13,000 means "things are good," how can a Dow Jones average of 13,270 mean that things are bad?  This is utterly illogical, and bears no meaningful relationship to the actual condition of the nation's economy, which remains strong.  Indeed, the routine use of the stock market as a barometer for the overall health of the economy is woefully inadequate, and as we see from this particular example, often misleading.

The lesson, as always, is to be very skeptical about what the media reports about the economy, or anything else for that matter.

Steven M. Warshawsky