AP’s “Contrarian Economists” on Falling Energy Prices Aren’t all Economists, and Aren’t All Contrarians
In a clear attempt to throw cold water on the potential positive economic impact of falling energy prices, an Associated Press article yesterday got sloppy with the credentials of those it sought out for quotes. It also conveyed a false impression that all of those quoted were not impressed with what falling energy prices might do for the economy.
Here is the headline and first paragraph of the article:
Economists Wary of Falling Energy Prices
WASHINGTON (AP) — It should only be this simple: Oil prices plunge 20 percent, leading businesses and consumers to ramp up their spending, which gives a nice jolt to the economy. That seems to be the conventional wisdom on Wall Street right now, where the pullback in energy prices is being cheered by investors. But some contrarians think that view could be missing the point.
But not all of those quoted are economists, and not all of those quoted are contrarians.
Here is the roster of the quoted (not in the same order as the article):
- David Resler, “chief economist at Nomura Securities in New York” — so far, so good.
- Peter Schiff, “president of Euro Pacific Capital, Inc. of Darien, Conn.” His bio at Euro Pacific says that he is “began his investment career as a financial consultant with Shearson Lehman Brothers, after having earned a degree in finance and accounting from U.C. Berkeley in 1987.” He is also described as “An expert on money, economic theory, and international investing ….” Whether that makes him an “economist,” usually understood to be someone who has a degree in economics, is debatable at best.
- Ken Hoexter, “Merrill Lynch trucking analyst” — Economist? That would seem doubtful — Google searches indicate that in setting where economists are present, Hoexter is still described as an analyst.
- Sheryl King, “Merrill Lynch economist” — the fact that King is labeled an economist makes it more likely that her co-worker Ken Hoexter above isn’t one.
- Nariman Behravesh, “Global Insight chief economist” — He’s an economist all right, but he can’t fairly be described as “wary” or “contrarian.” In fact, Behravesh predicts a positive impact on Gross Domestic Product growth as a result of lower energy prices:
Still, Nariman Behravesh sees reason for optimism.
He acknowledged that the anemic housing market is like a dark cloud hanging over the economy, but said it is all the more reason why the drop in oil prices should be seen as a ray of light.
“It helps to cushion the blow, in terms of the impact on the consumer,” Behravesh said.
With oil at $65 instead of $75, Behravesh sees U.S. gross domestic product getting one- to two-tenths of a percentage point bump over the next year. A chunk of money that had flowed to foreign oil-producing nations will now go to American companies, he said.
In sum, AP headlined an article about “economists” that quoted non-economists. It also implied in its headline, and stated in the first paragraph, that all of those to be quoted were “wary” and “contrarian” when they are not. Other than that, the article’s fine (/sarcasm).
What I believe AP is hoping for in this instance is that readers read the headline, plus perhaps the first paragraph, get the point that this gas-price thing they’re so happy about isn’t all that it’s cracked up to be, and move on to something else without reading further.
Cross-posted at NewsBusters.org.
What I don’t like about this article is that the AP is making the wrong assumption about the effect of the price of crude on interest rates. If anything, crude price increases (ostensibly) lift the CPI and the discount rate.
Comment by Kevin Irwin — September 20, 2006 @ 10:44 am
#1, From the second para of the article (not posted), I think AP is assuming the higher interest rates and a “stagnating” real-estate market are already in place and doing their damage, not that the Fed would react to this by raising rates more.
Comment by TBlumer — September 20, 2006 @ 11:31 am
I do not need a degree in economics to figure out that saving a few bucks on gas will not offset the impact of rising ARM payments and vanishing home equity.
Lower gas prices will be the economic equivalent diet soda in an ice cream float. It’s better than regular, but do not expect to lose any weight drinking it.
Of course, lower oil prices are only temporary, but higher mortgage payments and lower real estate prices will be far more lasting.
Comment by Peter Schiff — September 20, 2006 @ 3:38 pm
Welcome, Mr. Schiff. It’s the AP’s fault you were called an economist. BTW, you’re obviously very capable, or you wouldn’t be where you are.
Your worries are of course very legitimate. My focus in the post was on AP misrepresenting the credentials of who they talked to, and misrepresenting that everyone they talked to was relatively gloomy. I would think you’d be relieved not to be an economist, as they’ve predicted 10 out of the last 3 recessions. :–>
IF gas comes to $2 and stays there, someone driving 500 miles per week and getting 25 MPG saves $80-plus a month compared to $3 gas. That’s not salvation, but it probably does save a few people on the margins of the home-loan ARM mess.
Comment by TBlumer — September 20, 2006 @ 3:54 pm
Saving $80 per month on gas will not offset paying $1,000 more per month in mortgage interest. Nor will it off-set the loss of $10,000’s if not $100,000 in home equity. The U.S. economy is headed for a severe recession, and lower oil prices will do about as much good as life jackets did on the Titanic.
Comment by Peter Schiff — September 20, 2006 @ 4:12 pm
#5, OK, there’s no doubt where you stand. We’ll just have to see. I’m not as pessimistic as you are. I think the other sectors are picking up the slack in the housing industry, and that there won’t be a big drop in home values. Leveling, yes. Probably trailing inflation for a while, yes. Big drop? No.
Comment by TBlumer — September 20, 2006 @ 5:19 pm