Alpine Summit

Monday, December 05, 2005

Pessimism in the Media

(Via: Brain Terminal) The WSJ's Opinion Journal mentions the pessimism in the media on the economy and makes a good point:

During a quarter century of analyzing and forecasting the economy, I have never seen anything like this. No matter what happens, no matter what data are released, no matter which way markets move, a pall of pessimism hangs over the economy.

It is amazing. Everything is negative. When bond yields rise, it is considered bad for the housing market and the consumer. But if bond yields fall and the yield curve narrows toward inversion, that is bad too, because an inverted yield curve could signal a recession.

If housing data weaken, as they did on Monday when existing home sales fell, well that is a sign of a bursting housing bubble. If housing data strengthen, as they did on Tuesday when new home sales rose, that is negative because the Fed may raise rates further. If foreigners buy our bonds, we are not saving for ourselves. If foreigners do not buy our bonds, interest rates could rise. If wages go up, inflation is coming. If wages go down, the economy is in trouble.

This onslaught of negative thinking is clearly having an impact. During the 2004 presidential campaign, when attacks on the economy were in full force, 36% of Americans thought we were in recession. One year later, even though unemployment has fallen from 5.5% to 5%, and real GDP has expanded by 3.7%, the number who think a recession is underway has climbed to 43%.

This is a real conundrum. It is true, bad things have happened. Katrina wiped out a major city and many people are still displaced. GM has announced massive layoffs. Underfunded pension plans are being handed off to the government. Oil, gasoline and natural gas prices have soared. Despite it all, the U.S. economy continues to flourish.

The funny part is that everything he mentions regarding the mechanics is true. That's the way business and economics works. As economists say: "there is no such thing as a free lunch." Whenever one part of the economy gains, another loses simply because they're on opposing sides of the economy. As Evan Coyne Maloney says:

It sure isn't reported that way. If all you had to go on were the establishment media portrayals of the economy--as opposed to, you know, actual evidence--you would certainly be left with the same impression that the Democrats tried to impart during the last presidential campaign: namely, that we're mired in the worst economy since Herbert Hoover and the Great Depression.

It's funny, though. Just a few years ago, the general tone of economic reporting seemed a lot sunnier. Go back to the 1996 election and compare, for example, the unemployment data with that from the same point in the 2004 campaign. Notice any difference in the numbers? How about people's perceptions of those numbers?

I think it all depends on who is in the White House at the time that determines whether any numbers on the economy are portrayed as "good" or "bad" when, no matter who's in the White House, they're usually neutral.