May 2, 2005

Kudlow Doesn’t Understand Biased MSM Business Reporting (So I Will Explain)

Larry Kudlow, looking around in sheer exasperation at the MSM’s hysterical “soft economy” mantra triggered by the first quarter’s preliminary 3.1% annualized GDP growth estimate (which will probably be revised upward), asks:

What is it about the mainstream media and the American economy? Why are they always looking for slowdowns, soft patches, double dips or whatever?

…..Core private growth in the U.S. is actually over 5 percent in the past year. Today’s personal income report shows another big gain. Year-on-year, wages and salaries are rising nearly 6 percent. Entrepreneurial proprietors’ income is up 9 percent. And the core inflation rate is only 1.7 percent. Meanwhile, profits are rising at 19 percent in the first quarter, compared to a consensus estimate of only 10 percent.

….I don’t know what the media has against the American economic machine. But once again, I’m here to report that the state of our low tax, low inflation, deregulated, high productivity, and technology-streamlined economy is quite healthy. And is likely to remain so for a good long period ahead.

I know why, Larry, and it’s in the Bizzyblog Manifesto (near bottom, 2nd item under “Why Are You Doing This?”):

The business press, which used to do a pretty decent job of telling people what is going on in the financial world, has really dropped the ball during the last 20 years or so. This is due to a combination of ignorance about and bias against the free-market system.

Now, I’ll get a bit more specific, and refer you to an excerpt that made up most of a business column I wrote in late 2000 for a startup Internet news site that never really got off the ground. The column fully explains the historical origins of business news bias (links added for those who wish to verify the facts–oh, to have had WordPress in 2000!):

(begin Dec. 2000 column excerpt, slightly revised from original)

Tom Blumer’s
Biz Bias and Ignorance Report
December 29, 2000

….Despite having better tools, smarter people, faster computers, and instant communications, business journalism, and business journalists, have indeed become less credible and trustworthy. This has occurred because the business press has been co-opted by the “hard” newsrooms, who have infected it with the liberal bias virus.

I trace the onset of the virus to the late 70s. Until the late 70s, even as the newsroom journalists at the “papers of record” (who I will call the “Newsies”: The New York Times, Washington Post, and LA Times) worked diligently to convince us that Richard Nixon was a hardened criminal and that Jimmy Carter was really a competent president, we could count on their business reporters (who I will call the “Bizzies”) to accurately report what was really going on in the economy, even if the news wasn’t good or didn’t fit the liberal template.

That changed with the election of Ronald Reagan.

First of all, during the 1980 campaign, the Bizzies quietly and accurately did their jobs and reported on the economy’s ongoing slide into unprecedented stagflation. Even though the news tended to be buried in the business pages, the American people found it and paid sufficient attention, largely because things were so bad it was hard not to. The economy was by all accounts a major reason for Reagan’s triumph.

As far as the Newsies were concerned, it was bad enough that Reagan won. What made it worse was that while Mr. Carter was burning the midnight oil adding more than 20,000 pages of regulations through Executive Orders (starting with EO12251-ed.) between Election Day and Inauguration (which the Newsies failed to report), the new Reagan Team immediately began a very visible effort to promote the cornerstone of their campaign, the supply-side tax cut.

A critical part of the Reaganites’ pre-inauguration tax-cut campaign was an emphatic belief that the economy was in deep trouble, and that it was getting worse. They were even whispering “we may be on the verge of the C word” (Crisis) to describe economic conditions.

How bad was it? If you’re under 30 or so, you don’t have a direct memory of this. So you probably will have a hard time believing the numbers recited here, but they are accurate. In 1978, 1979, and 1980, inflation was 9%, 13%, and 12%, respectively (source: Ibbotson), the worst three-year run in the 70-plus years from 1926 to 1999. The Prime Interest Rate reached 20% in 1979. Mortgage interest rates were 13% just before the election (they would rise as high as 17% during Reagan’s first two years). Unemployment soared to over 8% during Carter’s last two years, and the Reaganites knew that statistic and others would only get worse during their first year in office no matter what they did. In Washington, a spendthrift Democratic Congress was running out of control, and Mr. Carter was not up to the task of exercising discipline over his own party members.

And the mood? Mr. Carter himself, in an infamous speech at Notre Dame in July 1979, opined that America had fallen victim to an economic and moral “crisis of confidence” (though he never used the word in the actual speech, it was characterized as his “malaise” speech), and thought America should adapt to a “new age of limits” (PBS characterization at link).

That sure sounds like “on the verge of a crisis to me,” and having lived through it, I can tell you that very few people during that time (left, right, or center) would have disagreed.

Except, of course, the Newsies, with the help of some of the outgoing Carter Administration officials. They ridiculed the “verge of crisis” talk and called it irresponsible, even as the Prime Rate rose to 21.5%! Some Newsies even complained that such talk in and of itself could cause the economy to get worse (sounds familiar, doesn’t it?).

The Newsies, who had never really concerned themselves with what the Bizzies were saying and doing, expected backup from them on this important political issue. But to the Newsies’ horror, the Bizzies by and large agreed with THE REAGAN TEAM! While the economy-saving Reagan tax cut eventually passed for a number of reasons, the lack of sustained opposition to it from the business press was certainly a factor working in its favor.

The Newsies’ response to having been “betrayed” by their own Bizzies was to assign liberal reporters and columnists to the business beat. Just as reporting on social and cultural issues changed for the worse during the 60s and 70s when the Newsies decided those areas were too important to the success of liberalism to be left to chance, business journalism went downhill during the 80s because of the politicization that occurred. Newsies became Bizzies. Bizzies who didn’t go along went elsewhere.

The changes were profound. In the summer of 1985, The Washington Post, with a straight face and the backing of their Bizzies, told us that the economy was in the middle of a “slump” (Living in Metro DC at the time, that editorial stance positioned as “news” on the front page caused me to cancel my subscription in favor of the McPaper, USA Today. Desperate times call for desperate measures). I defy anyone to look at the economic statistics for 1985 and find anything except continued prosperity. And of course, the 80s were given the false and libelous tag of “Decade of Greed” without significant objection from the Bizzies. During Bush The Elder’s administration, the business press clearly exaggerated the degree of the downturn that occurred in 1990, which barely qualified as a recession (see second paragraph-Ed.). Mr. Bush, of course, did not help himself at all by breaking his no-new-taxes pledge and giving in to the 1990 tax increase.

So by 1992, the Democratic candidate for President could brazenly tell us that we were going through “the worst economy in the past 50 years,” even though the growth rate for that year ended up being 3.3%! None of the Bizzies (really Newsies now) challenged this statement, which, when you consider the Carter-era statistics cited earlier, was by far the biggest lie of that campaign.

The blinders have stayed on during the Clinton Era. You wouldn’t know from today’s Bizzies that the average growth rate in GDP during the Clinton administration has been less than that during the Reagan Era (the final score was 3.8% for the last 7 years of Clinton, 4.4% for the last 6 years of Reagan after shaking the Carter recession-Ed.). You wouldn’t know that the 90s “boom” has been more of a “rich get richer, poor barely advance” prosperity than any this century, while all boats were lifted in the 1980s (scroll down about 3/4 of the way for eye-popping median income statistics). You wouldn’t know that what’s left of the Reagan-era tax cuts has propelled the 90s economy, not (as claimed by today’s Bizzies, for crying out loud) the counterproductive tax increase of 1993.

(end of Dec. 2000 column excerpt)

There’s your answer, Larry, and here’s proof from 1988 that the liberal takeover of the business pages was complete by that time. Among the findings: In 1988, Democrats in the business newsroom outnumbered Repblicans 54%-10%, and (at the height of the Reagan boom!) 52% of Bizzies thought Reagan’s performance as President was poor or below average, while only 17% said it was excellent or good.

Somehow, economies in Democratic administrations are always “booming,” or “performing well,” or at least “growing nicely.” Economies in GOP administrations are somehow always “dead in the water” when performing adequately (look at the GDP graph!), recovering in a “jobless” way when truly on the rebound, or “sluggish” even as the unemployment rate trends down:

Source: US Bureau of Labor Statistics

Thank goodness for the blogosphere, talk radio, the Internet forums, and the business reporting at Fox News (and sometimes CNBC). Just as the “if it bleeds it leads” reporting from Iraq still negatively affects many people’s perception of its objectively stunning success, even in the face of the growing strength of other alternative news sources, MSM business reporting on the economy still unfortunately largely shapes the perception of how well, or how poorly, the economy is doing. If anyone still has the ability to “talk the economy down,” they do. Because of their slant, the average person in the US today probably does not have a favorable impression of where the economy is, even though on balance he or she should.

I’m not Pollyannish about the near-term performance of the economy. It seems like it will be a struggle to get the unemployment rate close to 4%, I think the personal credit bubble has a potential to burst and leave lots of damage in its wake, and it’s hard to stay totally upbeat with the serious problems in Detroit. But I’m not going to sit here and try to claim, as the MSM does continually, even in the face of two-plus years of obviously positive evidence, that the economy hasn’t been performing well.

UPDATE: The Wall Street Journal’s take (link requires paid subscription):

Perhaps it’s age, but we can remember when 3.1% growth was considered pretty good. Certainly France or Germany would take it. Yet last week’s first quarter GDP report has been widely panned as “sluggish” and a sign of worse to come — and this from the same people who forgot to tell us last year how good we apparently were having it.

Dig into the first quarter report, however, and it’s better than advertised. Imports knocked about 1.5% off the growth number, which means that U.S. consumers and businesses were still buying with gusto. That foreigners supplied many of these products only continues the pattern of the U.S. as the main engine for global growth.

UPDATE 2: Betsy’s Page links to an abstract from John Lott and Kevin Hassett that quantified MSM coverage of the economy in newspapers in GOP and Democrat administrations: “Our results suggest that American newspapers tend to give more positive news coverage to the same economic news when Democrats are in the Presidency than for Republicans.” I would bet that the TV bias on the economy is more than a “tendency.”

UPDATE 3: Welcome to Instapunditeers.

UPDATE 4: MarketWatch reports that “Layoff announcements by U.S. companies fell to their lowest level since November 2000.” See if you hear that at the top of the hour on your radio news today.

The MSM’s ability to influence thought on the economy is clearly shown here:

Americans have grown gloomier about the economic outlook, according to a new survey that suggests high gasoline prices, moderate job growth and rising interest rates are taking a toll on consumers’ view of the future.

In a USA TODAY/CNN/Gallup Poll conducted April 29 through May 1, 51% of the 1,006 adults surveyed said the economy would be “very good” or “somewhat good” a year from now. That was down from 60% in a survey taken in mid-December and was the lowest percentage since the question was first asked in October 1997.

That may deserve a post of its own.