Critiquing the current state of economics reporting

TALKING BIZ NEWS EXCLUSIVE

Dean Baker is not a big fan of the overall current state of economics reporting.

Baker, the co-director of the Center for Economic and Policy Research in Washington, D.C., writes a regular blog called “Beat the Press” in which he exposes problems with economics coverage, often pointing to specific stories that are just plain wrong in their economic assumptions.

He is frequently cited in economics reporting in major media outlets, including The New York Times, Washington Post, CNN, CNBC, and National Public Radio.  He writes a weekly column for the Guardian Unlimited (UK), the Huffington Post, and TruthOut.

His analyses have appeared in many major publications, including the Atlantic Monthly, the Washington Post, the London Financial Times, and the New York Daily News. He received his Ph.D in economics from the University of Michigan.

Baker talked by e-mail earlier this week with Talking Biz News. What follows is an edited transcript.

What’s your overall take of business and economics reporting in this country?

I think the general state is quite bad. Reporters do not understand it as being their jobs to explain key economic and policy issues to their audience. Rather, they see it as sort of ritualistic process where they talk to the right people and transmit what they say. Often this will leave readers more confused or misinformed than if they had not seen an article.

For example, when reporting on the budget. It provides readers with virtually no information to report on spending levels for a particular program or even the overall budget, without putting the numbers in context. If the reporter just substituted the words “big number” for whatever numbers actually appeared in the piece, it would provide just as much information to the vast majority of readers. Only a tiny fraction of even well-educated readers will have enough familiarity with the budget and the economy to assign any meaning to something like “$190 billion over the next 6 years.” Sometimes reporters are too lazy to even report the time-frame for spending.

Reporters also should know that they are being spun. When Alan Greenspan gives an interview to a reporter he is not telling that reporter his views of the world. He is telling the reporter what he would like to see in print. The same applies to the other political figures that reporters speak with. Remarkably, reporters do not seem to understand this point, which should be the first lesson in reporting 101.

Finally, most economic reporters seem to have very little understanding of the way the economy works. There are many areas that are subject to dispute among economists, but there are areas where they can no dispute — for  example accounting identities.

My personal favorite is the identity that net national savings is equal to the current account surplus. This means that a country, like the United States, that is running large trade deficits MUST have negative net national savings. In other words, as long as we have a large trade deficit, we must have either very low private savings, a large budget deficit, or some combination. There is no way around this fact.

Economists can dispute the direction of causation (i.e. does the trade deficit lead to low savings or do low savings lead to the trade deficit), but the relationship is not in dispute. Nor is the mechanism in adjustment. In a system of floating exchange rates, like the one we have, the adjustment for eliminating a trade deficit is through a lower value of the currency (i.e. the dollar).

While no serious economist could dispute this point, my guess is that less than 1 percent of the listeners to NPR or the readers of the New York Times understand this. That speaks to an incredible failure of economic reporting.

Are there particular media outlets or journalists that you think do
an excellent job?

The New York Times is markedly better than anyone else. They often do in-depth reporting on important issues. Steven Greenhouse is an excellent labor reporter. Gretchen Morgenson has done outstanding pieces on financial issues. Floyd Norris also has done some very good  pieces as well. David Leonhardt is also a serious reporter. David Cay Johnston, a former NYT and now freelancer. does outstanding work, as does Lou Uchitelle, who is freelancing for the NYT after working there for decades. Eduardo Porter, who in now an editorial writer at the NYT, also  had done very good work when he was a reporter.

There are some people at other outlets that occasionally do good work. ProPublica has done some good investigative work on financial issues. Also the Huffington Post has some outstanding young reporters. Its economics division is headed by Peter Goodman, who had done some very good  reporting at the New York Times.

What’s the biggest mistake reporters make in covering the economy?

Reporters really need to stand back and ask what the story is that they are telling and why it is important. This would allow them to put in a context  where they can actually convey meaningful information to readers.

In some cases this might be pretty straightforward. For example, the meaning of the fourth quarter GDP report should be pretty clear. However, for many other issues (e.g. a report on home prices or the battle over the  proposed cuts to domestic spending), the importance may not be immediately evident. However, it is a safe bet that if the reporter does not understand the importance of the issue they are writing about, then they will not be able to convey this information to readers.

What topic do economics reporters just not understand clearly enough?

I would say basic macroeconomics leaves most reporters confused. Few  reporters understand the dynamics of the economy and the standard  assumptions that economists use. For example, the standard assumption in most macroeconomic modeling is that the economy is almost always at full  employment.

In this context, when we lose jobs it is because workers opt not to work at a  lower real wage. This would be the story in models that show environmental regulation costing jobs.

In effect, these models show that the regulation may make the economy less  efficient, thereby lowering real wages say by 0.5 to 1.0 percent. At a real  wage that is 1.0 percent lower, there may be 1 million fewer people willing to work. While the line might be that the regulation would cost a million jobs,  the real story in these models is that 1 million more people opted not to  work.

Economists also get confused about the relationship of wealth to the economy. The stock market is a claim to wealth, it is not the economy. If the stock market rises relative to the size of the economy, it means that people who own stock and especially those who own large amounts of stock, are richer at the expense of the rest of the population. (The economy can produce no more than previously, but stockholders can now claim a larger share of the pie.)

I find that very few reporters understand these basic economic relationships.

Have you seen economics coverage improve or worsen in the past 20 years?

It has gotten better at some outlets. The New York Times reporters today are definitely better on average than the ones who were there 20 years ago.  Huffington Post and ProPublica did not exist 20 years ago. NPR is probably about the same in being a very mixed bag. Most large regional papers have  gotten worse as they have gutted their reporting bureaus leaving at most one to two hugely overworked reporters.

You don’t seem to have any problems finding issues with  coverage. How hard is it to find mistakes?

Every couple of days or so there is an outright mistake in one of the major news outlets. This is most frequently because the reporter does not understand how the data is gathered.

For example, it is common for reporters to comment on how the weather in a particular month affected existing homes sales in that month. As a practical  matter, the weather will have almost no impact on existing home sales in the month for which it is reported, since most contracts are signed six to eight weeks before closing.

Bad weather may discourage people from going out house hunting and therefore reduce the number of contracts that are signed in a month. But, if a homeowners has closing scheduled for a given month, it is unlikely that the weather would be so bad as to keep that closing from taking place.

Do any of the journalists you write about ever respond with, “You know, Dean, you were right?”

Yes, I know many of the reporters whose work I write about. I often have some back and forth with these reporters. In many cases, I have gotten them to agree that I was right. They sometimes persuade me, too.

What could journalists do to improve their understanding of economics and economic policy?

I think that economics reporters really should have some basic economics.  They don’t need PhDs in economics, but they should feel comfortable that they know and understand the basic models. Reviewing one of the major textbooks could go a long way.

It would also be useful to study the area on which they report, where they have the luxury of just covering a relatively small area. For example, a housing reporter should have decent background on the historical pattern in house prices, mortgage interest rates and other key variables.

A budget reporter should be familiar with the major trends in the budget over the last 70 years. This could go a long way towards improving reporting.