Tall stories about the economy

The latest Edelman Trust Barometer was released at the World Economic Forum in Davos (AKA Woodstock for Capitalists) and captured some disturbing trends which, while not new, are accelerating.

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Most profoundly, polarisation of society is deepening while trust in institutions which should act in the interests of society as a whole, including government and the media, is declining.

“Some journalists seem to feel instinctively that debt is simply bad, full stop, and don’t appear to realise this can be contested and contestable.” - The BBC, Michael Blastland & Andrew Dilnot

Regional cuts of the barometer are now being rolled out. The Australian version released last week confirms many of the global trends, including around government, the media and economic confidence.

The Edelman work always attracts fascinating debate and, even for those who dispute it, a base line of data and trend analysis now stretching back two decades.

It is a profound and necessarily complex phenomenon Edelman attempts to quantify but there’s one tangent, not explored directly in the barometer, which touches on both economic confidence and trust in the media.

Inevitably, and speaking as someone who’s been a business journalist for more than three decades, the economy is treated in the media as a contest, at least a sporting event, at the extreme a battle between good and evil.

When evil is winning, economic confidence declines. And evil in the media is defined as higher interest rates, higher debt levels and lower GDP. In Australia you could add house prices.

But even superficial analysis reminds us these things are neither good nor bad. Debt, because it gives us the opportunity to invest today in an asset which may appreciate in value but we can’t afford, is often good. Higher interest rates, while making debt more expensive, make the price being paid for risk more explicit – and benefit savers. And higher real estate values, obviously, are not good for would-be buyers but deliver a wealth affect to property owners.

Indeed, while it is not a hard science in the sense physics is, economics is empirical, a description of cause and effect, not a value system.

That’s why media reporting of economics in value laden terms – often amplified for political debate – creates a false impression of the world we live in and ultimately undermines confidence (and further erodes trust in the media which mischaracterises it.)

The behavioural economist Robert Shiller, who won a Nobel Prize for his critique of what’s called the ‘efficient market hypothesis (EMH)’ talks about the power of “narrative economics” – essentially stories about the economy. His criticism of EMH is markets are not rational and so patterns are erratic. Critically though, he argues efficiency improves as more information and context is provided.

So rather than cold data and research, markets – and hence economies - are driven by “the prevalence and vividness of certain stories, not the purely economic feedback or multipliers that economists love to model”. These stories have real world implications – and that’s what we see today when too many economic stories are value-laden, simplistic, falsely adversarial and yet shift the psychology of society.

To assess this, the BBC in the United Kingdom has started to commission reports into its impartiality, a welcome endeavour which aims to go beyond looking for superficial bias to implicit and subtextual distortions in its coverage.

Perceived and actual media bias is obviously something analysis like Edelman’s is picking up but much of what the media is doing – particularly in this current environment of lusting for clicks – is not so obvious.

The BBC had a good, hard, 50-page look at itself when it comes to economic coverage with its “Review of the impartiality of BBC coverage of taxation, public spending, government borrowing and debt” by Michael Blastland and Andrew Dilnot.

One of its key findings was around unfounded value judgements and lack of context.

“We think too many journalists lack understanding of basic economics or lack confidence reporting it,” the report found. “This brings a high risk to impartiality. In the period of this review, it particularly affected debt. Some journalists seem to feel instinctively that debt is simply bad, full stop, and don’t appear to realise this can be contested and contestable.”

Nor were the value judgements or oppositions established necessarily consistent.

“Others that outsiders observed in BBC coverage were: ‘more public spending is good’ and ‘tax cuts are good.’ Whilst these views might seem to make intuitive sense, all favour some interests above others,” the report said.

“Above all they hide the trade-offs. You can’t be impartial between competing demands for resources if you don’t ask whether more over here means less over there. These trade-offs can seldom be known or specified completely, but they could be more explicitly acknowledged.”

The report is a great read and it contains findings applicable far beyond the BBC and the UK to business and economic journalism everywhere. And again, given how central economic decisions are to our lives, the reporting, this journalism, has real word impacts.

The economist Simon Wren-Lewis, who writes an insightful blog called “mainly macro”, has in turn analysed the BBC critique pointing out one of the greater dangers is faux impartiality – what’s called “both sides-ism”. We’ve all seen this, where the media sees the need to offer up an alternative view even if the opposing view is ludicrous and the original proposition comes from genuine experts and is supported by data and research.

Wren-Lewis argues cogently around the damage done by these notionally impartial stories when it comes to media and political obsessions with “reducing the deficit”.

“Why did most economic journalists adopt the media consensus that reducing the deficit was more important than ensuring a swift recovery from the deepest recession since WWII (after the 2008 financial crisis)?” he asks. “As I have pointed out in my own book, the evidence suggests the majority of academic economists always disagreed with austerity, and by 2015 that majority was a consensus.”

So too with Brexit which has been catastrophic for Britain and which will do multi-generational damage.

Edelman’s findings around a growing lack of trust in the media and falling economic confidence are, of course, more pervasive than this “if it bleeds, it leads” approach to economic journalism. Yet given the economy is so central to our lives, the stories we tell about it need to have context and rigour and not sloppy “she said, he said” reporting.

In the world we find ourselves in today, with inflation and the cost of living rising, of interest rates trending back away from the abnormality of near zero, with difficult policy decisions being made, society needs properly good economic story telling.

As Robert Shiller has demonstrated, the stories we tell about the economy are vital in determining economic outcomes and our livelihoods.

Andrew Cornell is Managing Editor at bluenotes

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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