Winner of the New Statesman SPERI Prize in Political Economy 2016

Friday, 1 May 2015

On mediamacro

What do I mean by mediamacro? I realised reading this post from Tony Yates that I had never really defined what I meant by the term, so when some people started implying that it was just a conspiracy theory I thought it was time I should. A formal definition could be a set of ideas about macroeconomics promulgated by the media that seem very different to the macro taught to economic students. A clear example would be the idea that the 2013 UK recovery vindicated 2010 austerity, which was my mediamacro myth number six. I wrote a post in the form of a tutorial to illustrate this some time back.

Although the term mediamacro might have been new, the idea was not. Paul Krugman has for some time talked about VSPs, or Very Serious People, and I think we are talking about much the same thing. In particular, a common feature is to argue in the immediate aftermath of a large recession that reducing the deficit should be the top priority. Why did I use a different term? I think part of the reason was that I felt this was not a problem about individuals, but about a system. As Tony says, many economic journalists are “clever and opinionated and fiercely independent”, and are hardly material for a grand conspiracy.

In any case I think mediamacro has much more to do with how political commentators rather than economic journalists interpret macro issues. This is one reason why the mediamacro problem is different from well known issues about the reporting of scientific questions. Political commentators rarely talk about science, but they are talking about economics all the time, because so much of politics is about economics.

Again any conspiracy theory would just be silly. If we were only talking about the output of the right wing press, there would be little to remark upon. However, the idea that reducing the deficit is the overriding priority (and that we were in crisis in 2010 because of it) seems almost universal among political commentators whatever their political leaning, which is why my first post title using mediamacro was about Jon Snow berating Miliband for not mentioning the deficit.

The contrast between political and economic journalists can perhaps best be seen on the issue of Labour profligacy. The idea that fiscal policy under Labour was profligate (as opposed to mildly imprudent) would not be something that most economic journalists would sign up to. They know that the 2007-8 budget deficit of 2.7% of GDP is only about 1% of GDP away from the sustainable deficit with a 40% GDP target, and 1% of GDP is very little given the errors involved in predicting deficits. They also probably recall that in 2007 the consensus view was that the UK economy was pretty close to trend. So the profligacy charge is nonsense. But you would not know that from seeing political commentators routinely allowing charges of profligacy to go unchallenged and asking for apologies from Labour politicians. Partly as a result, many members of the ordinary public just know that Labour was profligate, and accuse either Labour politicians or academic bloggers of lying when they suggest otherwise.

This leads to another point, which is the link between mediamacro and politics in a party political sense. When many people see me make the point above, they assume that I am doing so because I am being politically partisan. The reality is that fiscal policy is probably my main specialism within academic macro, and I have written an academic study of fiscal policy under Labour, so I feel it is almost a duty to point out the truth. If this were not the case, maybe I would just shrug my shoulders and let it pass. But there is a more general issue here: is mediamacro something that could only happen because it supports a particular political point of view?

This raises the issue of why mediamacro exists. I do not have a well worked out theory on this. In the UK it is natural to think the dominance of the right wing press is important, but that is less of an issue in the US, which suggests it is not a necessary existence condition. I have also talked about the influence of City economists in the reporting of macroeconomic issues, which is obviously true on both sides of the Atlantic. The absence of a clear locus for received academic wisdom on fiscal policy, in contrast to monetary policy and central banks, could be important. Is the fact that all three political parties in the UK are signed up to the unconditional importance of deficit reduction important? That depends a bit on whether you think Labour chose to go that way or were pushed by the media.

How important you think the mediamacro problem is seems to depend on how bad you think the 2010 austerity mistake was. But it should not be like this. Even if you think, as Tony Yates does for example (and there are many good macroeconomists who would take a similar view), that 2010 UK austerity was justified because of the particular situation of the time, the mediamacro problem is more generic. In the UK, all the major parties are currently committed to unconditional targets for deficit reduction, even though interest rates remain at their lower bound. That is just dumb macro, as Tony has argued elsewhere, but it remains unquestioned in the media. In a world where fiscal policy decisions are made by politicians, this matters.     

  

45 comments:

  1. I see Cameron is still waving that piece of a paper some Blairite left in the Treasury saying that the country had run out of money in 2010.

    It's only five years to see if a single journalist could manage to ask themselves 'what is money'.

    No, still no one.

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  2. Why does a low interest rate mean one should borrow more?

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    1. Concrete example:

      As taxpayers, we spend c. £20 billion a year on housing benefit for c. 5 million claimants.

      Assuming a 4% interest rate, that would support £500 billion of borrowing(!) - which at an elevated price of £100k per claimant means that the logical choice is to borrow the money, build the houses and use the HB savings to service the debt.

      Given that the above action would in fact remove the need for housing benefit long before completion, and the government can build houses for a lot less than £100k a pop, the question is more, 'Why do we NOT do this?'. It's a lot less of a commitment/risk than a private individual taking out a mortgage to buy a house, after all.

      Generically, borrowing for investment should be a no-brainer when interest rates are as low as they are now, and for the UK there is no shortage of easy targets (Energy and transport are also obvious).

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    2. That actually sounds very sensible.
      Should that money be additional though, or found via savings elsewhere?
      I suppose it could be done via a special purpose govt vehicle.
      Like it!

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    3. not so sure about transport, HS2 economics looks far more speculative and pretty horrific... broadband is probably another though.

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    4. The idea that we should borrow and spend because interest rates are low is nonsense. Additional net spending (i.e. an increased deficit) is warranted if there is an output gap, or put another way, if unemployment is above NAIRU. If interest rates are higher than normal, that is not a reason for not spending and bringing unemployment down. In that scenario, the best option is to cut interest rates! I.e. print base money and buy back government debt and/or print money and just spend it.

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    5. @Ralph

      Maybe you could explain why my post was nonsense, rather than just declaring it so. Does seem to be a habit with economists..

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    6. Ralph did not reply, bad manners.

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    7. Andy, interest income is spent too. Spending should focused on output gap.

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  3. Simon...
    Mr Sandbu in the FT has just taken yourself and Paul Krugman to task, discussing the 'holes' in your UK austerity arguments.

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    1. 1) The ZLB is where ever monetary policy makers think it is, because at that point they stop offsetting fiscal action. Osborne knew it was 0.5%, but carried on regardless.
      2) A self-fulfilling run is where the private sector is reluctant to buy debt, that pushes up rates which makes default more likely etc. That would not have happened in the UK, because the Bank was committed to keep rates low via QE. Sandbu says you couldn't trust the bank to do that. But you could, because they have an inflation mandate, and they needed low long rates to achieve that.

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    2. The FT seems to be determined to match, with its support for unethical economic quackery, the Huffington Post's support for unethical medical quackery:

      “The Conservatives’ economic record ought to provide a winning hand. The mix of a loose monetary policy and a tight fiscal policy has worked. Mr Cameron and his chancellor George Osborne, supported by Mr Clegg, showed political courage to tackle the public finances and shrink the state. The Tories have also driven two promising shifts in Britain’s political discourse: the challenge to the benefits culture and the re-introduction of much-needed rigour into the country’s schools.” [link]

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  4. "In the UK it is natural to think the dominance of the right wing press is important, but that is less of an issue in the US, which suggests it is not a necessary existence condition."

    You think that the US media is not strongly biased to the right?
    Really? Admittedly somewhat saner voices have been slightly more audible of late, but still...

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    1. I'm hardly an expert. Can you give me any hard evidence on this?

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    2. The dominant news sources in the US are Fox News (hard right and controls most of the TV market), CNN (the domestic broadcast is center-right - foreigners receive a different broadcast which is more centrist), MSNBC (*mildly* left of center), the New York Times (centrist), the Washington Post (center-right), and the Wall Street Journal (hard right). (The NYT and WP have liberal reputations, of course, but those are largely a product of the 70s and 80s. They haven't actually been liberal since at least the mid-90s.)

      If you want liberal/leftist news in the United States, you're stuck with ever-shrinking alternative local dailies, the Internet, and (recently) al-Jazeera, if you're lucky enough to get that.

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    3. Oh, and on the leftist/liberal side you also have The Daily Show - essentially the only prominent liberal news source in the US market is a *comedy* show.

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    4. Indeed - and even then, "center" understood as the center between the two dominant parties. But Democrats are hardly a left-wing party. They are probably to the right of the median ideology in a country that is very far to the right on any reasonable political mapping.

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    5. Redwood has a good overview of how center right news media in the US is, except it's more influenced by the right than he says, for economics reporting. 92% of voters get their news for voting vote from television, which takes its lead from the economics reporting in the major newspapers. There are more and better funded think tanks and economists on the right, influencing economics reporting, even if the non-economics reporting of the New York Times or Washington Post for example, is centrist or center left.

      Simon Wren-Lewis pointed out how the mediamacro has the UK public just "knowing" labor was profligate. Mediamacro in the US has the public convinced that conservatives are fiscally responsible, that President Obama is a spendthrift, unaware of the damage done from agreeing deficit reduction at the lower bound is top priority, that it is safety nets ruining budgets while spending on security must increase, that dysfunctional culture causes unemployment and low wages, etc. The reduction in funding for non-profit public news and repeal of standards like the Fairness Doctrine has even non-profit Public Broadcasting Service's Newshour funded by Goldman Sachs, and others.

      So Redwood is correct that the marketplace of ideas, where good predictors and evidence should become more influential, is less and less in the press for anything that costs real money, and more in blogs. Most voters will never even hear the term mediamacro, but are informed by mediamacro and very serious persons.

      Mediamacro is no less an issue in the US, unless you are a Nobel prize winning economist editorial writer in the newspaper of record, and there is just as big an industry to counter him as anyone else. All Simon Wren-Lewis has to do to see US mediamacro is peruse economist Dean Baker's blog, BeatThePess.

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  5. Labour profligacy is still in people's memories.

    The circumstances are important. They were the sustained rise in government spending as a % of GDP up to the GFC, ie a strongly pro-cyclical fiscal policy. That is what people remember, that is what the Question Time audience in Yorkshire remembered. And it was Gordon Brown ably assisted by Ed Balls what done it.

    Not forgetting that the (then) challenger banks were also adding fuel to the fire, NRK, RBS and HBOS, all strongly backed by Labour.

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    1. James, really, you are forgetting your own economics. It does not matter what fiscal policy was doing to demand if monetary policy can offset it, which it could. What matters for profligacy is the deficit. I think what people 'remember' is mediamacro.

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    2. It certainly felt good at the time, especially those 130% LTV mortgages from Labour's favourite challenger bank, Northern Rock. Their second and third favourite challenger banks were HBOS and RBS. It's easy to forget how mad it all was.

      Fundamentally, I agree it was hopeless US/UK/ECB monetary policy that caused the GFC, not realising that the various economies had all begun to correct in 2007 and that easier or at least neutral monetary policy was required rather than the unprofessional focus of our central banks on temporarily higher headline, oil price-driven, inflation.

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  6. Labour profligacy is a myth, as SW-L has shown here only a few days ago.

    Yet still, we have the BBC's political Editor Nick Robinson shading what was said on Thursday's Three Leaders' Question Time:

    "The Labour leader said nothing he has not said repeatedly before - explaining *his view* that the deficit resulted from the financial crash and not from over spending by the last Labour government."

    Of course, Nick Robinson should be expected to favour the Tory line, after all he was leader of the Young Conservatives at Oxford University. The two words "his view" are totally unnecessary here unless it is intended that the reader should doubt what Milliband was saying.

    Now, it's quite possible that Robinson is the Political Editor and not the Economics Editor because he just isn't that good at Economics, but his reporting is a clear example of what SW-L is complaining about with mediamacro and it's just plain wrong.

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    1. Classic 'views on shape of the earth differ' stuff. The profligacy line has been peddled unchallenged for so long it becomes 'one view', and the facts become 'another view'.

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    2. Yes, and that is the depressing thing. Robert Peston actually IS an Economics Editor at the BBC and while his piece today was more informed than Robinson's yesterday, he still said this:

      "What's more the debate remains lively (ahem) about whether the scale of cuts made by the current Tory and LibDem government in its early years was too great, and imposed too much hardship in the cause of regaining fiscal credibility."

      No mention at all of how interest rates could not be lowered any further to offset the hardship; no mention at all of the timing being bad; just the standard journalistic habit of "We have to write what people will react to emotionally so we can sell more copies!"

      What are these 'more copies' the BBC is trying to sell more of?

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    3. gastro george3 May 2015 at 06:32

      Peston also continually peddles the "nation's credit card" and potential bankruptcy myths.

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  7. In the UK it is natural to think the dominance of the right wing press is important

    The dominant news organisation in the UK is the BBC.

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    1. Which is totally uninfluenced by the press?

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    2. No uninfluenced, no, but the right wing press simply is not dominant in UK news provision. To me the BBC is the most puzzling aspect of mediamacro, but whatever the explanation for this is, I don't think you can blame Murdoch.

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    3. The newspapers with widest circulation in the UK include The Sun, The Daily Mail, The Times and The Telegraph (who are are markedly right wing). Centre newspapers such as the Independent are owned by a conglomerate of wealthy elites. There are only two leftist newspapers in the UK: The Guardian who a centre left at best and have left tackling the profligacy myth unil the last week of the GE and the working class left The Mirror. Right wing is dominant in the UK and the BBC with more and more right wingers in positions of power have also lent to the right. This has been proven in several articles demonstrating this effect. Although it could be argued that the BBC merely side with the current regime. Saying that whenever the BBC do try anything that would be considered 'leftist' it is tarred with the comments of always being 'left wing' which it is not.

      The only economists who spread the myth of profligate labour government are those who work in the market and are therefor bound to the positive effects of austerity to the market itself. The same goes for the Financial times who's readership and ownership is bound to the success of the FTSE.

      Reputable financial organisations who collect quantitative data on the issue of fiscal austerity prove that is has failed and bearing on mind that the primary argument for fiscal austerity was Lavour profligacy it discredits this too.

      All we have seen is idelogical austerity against Keysian economics aided and abetted by the British Media.

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    4. Which UK newspaper do you think the BBC orders more of than any other? The answer surprised me: the Daily Mail.

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    5. That surprises me too! Still I struggle to see the BBC as a bastion of small-state fundamentalism.

      And of course the Guardian is free online...

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    6. The following data is taken from the The [i], Monday, 27th April, 2015
      Media section (sorry, forgot to record the author's name), 'analysis by Loughborough University's Communication Research Centre . . . . [found that ]Even in television news, where parity between the parties is the subject of stopwatch measurement, Conservative "speaking time" exceeds their opponents by 6.6 per cent. And when The Sun alighted on the discovery that Ed Miliband's home had two kitchens, it dedicated 1,025 words to the matter over six days, compared to just 51 in The Mirror. [30 March and 20 April]. The article also gives additional data for newspaper coverage, which shows them to be much more pro-Conservative. P.S. It does not give the T.V. channels used by the study.
      Shaun

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  8. It's so offensive and elitist to think people get their opinions from the papers, rather than the papers appealing to the instincts and likes of the people. If you don't trust the people you are lost. But then you don't trust the market's either, so it's all of a piece. All things must be controlled by a self-appointed know-it-all elite. It's a horrible, Marxist-Lenist vision, cloaked in oh-so-reasonable Guardian-style paternalism. If you win it's only natural, if you lose it must be a "mediamacro" conspiracy. And, if you do lose, then next time you think you need your own "mediamacro" conspiracy. What a lovely world!

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    1. James, I spent the first 20 years of my life working on building sights, but after an accident had to go to university, which gives me a somewhat rare insight. Most of those I worked with bought the Sun newspaper for its excellent sports coverage (a technique utilised by Sky Media to gain traction in the U.K. T.V. market, i.e. sole coverage of the Champions' league), which they read first. Then, after reading the sports section, and if there was time, they would skim through the news section. Only if they knew those around them would they comment on its contents. Another way of putting this is that they would start to read the back page first, finish the football section and then go to the front page. They had, at most, a 30 minute diner break. However, it is by no means certain that most watched T.V. news when they got home. Very recently my son-in-law, a deputy head-teacher, was tempted to move from Virgin media to Sky because of its sport coverage. He did not and suspect you guess why.

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  9. The basic problem is that journalism in general stinks more than usual and isn't getting better. It isn't limited to economics or even politics. That's not to say that there is no good journalism, just not enough of it.

    Celebrity triumphs over real news. Factual information is balanced with crazy.

    The Surgeon General's Report on Smoking and Health was issued 51 years ago. But it was decades before meaningful action came and journalism can take no credit. The big shift was due to litigation.

    Everytime a new study on the hazards of health was published, reporters were usually forced to "balance" what should have been a factual story with an industry spokesman with made up science. That's largely abated in developed countries, but the tobacco merchants are now peddling the same weird stories in third world economies.

    In the United States today, there is a climate change denial industry which seeks to cast doubt on the real science facts. It is an article of faith in most of the Republican Party.

    The connection to the Macromedia is not just about economics and political journalism.

    in a very real sense, all of this is interconnected. It's certainly not a vast conspiracy. Mostly it's a vast collection of nitwits without any sense of real priorities.

    No matter what the economic realities are they will be filtered through a news media that is sometimes malicious, sometimes vain, sometimes maniupulated, sometimes just clueless.

    But what we're looking at is a conflating of significant issues that really matter and what we usually get is ignorance or a juicy story/picture about a royal with her skirt blown up by the wind or a similar story about some actress showing a nipple.

    That obviously appeals to some people, a lot of people, but somehow I think we all wish for a better media. I don't know if better journalism would offset the craven behavior of our political classes, but it can't hurt.


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  10. Simon, though sorely tempted to begin with gratuitous kicking of an execrable media, to which you are overly charitable (Chris Giles? [insert epithet here]) let me focus instead on your key question: why mediamacro exists? This, I suggest, should be rephrased. Of interest is not why mediamacro exists (in the sense of K-Thug's VSPs, who, sadly, will always be with us) it is why it performs particularly badly under times of economic depression.

    To begin with an answer, the tyranny of the wing-nut media (on both sides of the Atlantic) is an on-going reality but a diversion. The fundamental answer to your question relates to demand considerations, not supply.

    What public sentiment bubbles up and dominates in times of economic hardship? The very sad fact is that it is not receptivity to the intuitive argument that one person's income is another's expenditure, what recognizes government expenditure as a solution to the problem at hand; rather, it is the toxic "government as household" fallacy. And this view, apparently hardwired in the DNA of homo economicus, is in turn reflected in media mediocrity. Let there be no doubt, we have met the enemy...

    Too parsimonious a theory? Perhaps, but it crucially explains a key fact, observed on both sides of the Atlantic, one that "supply-side" theorizing about the existence of mediamacro cannot: why is it that the center-left opposition parties have been unwilling to publicly embrace, with full-throat, the economic solutions that it is known they believe in?

    Fear of mediamacro in the UK? Not a satisfying argument at all. Labour has not exhibited any desire to curry favor with Rupert Murdoch and his fellow-traveling media magnates; in fact, the contrary is more correct.

    What this leaves are the underappreciated facts on the ground: not only aren't Tory and LibDem and all other persuadeables amenable to arguments about fiscal policy supporting AD, but indeed, a non-trivial fraction of Labour's base isn't either. Recognizing this basic fact (that, of course, politicians do) things clarify.

    You see the Shadow Chancellor, at political risk and pain, more or less quietly having carved out a distinction between balancing the current and capital budgets, so as to have political space to do the right thing if elected. And you have Labour fighting the election on "fairness" and redistribution issues - what has a consanguinity with the preeminence of "government as household" considerations.

    It would be nice were politics a bit more high-minded and arguments more direct, but, alas, one goes into an election with the electorate one has, and their deep-seated fiscal preferences are pro-cyclical.

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  11. What's the woman in the street to think when she sees so much state failure around? So many useless state schools, or overcrowded and poor state GP surgeries and state hospitals. Is more money really the answer? Economists preaching about market failure need to look at the alternative, and see that falling short. Government as household has a lot of meaning to the poor bl00dy foot soldiers on the receiving end of government "services".

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    1. gastro george3 May 2015 at 06:38

      "Is more money really the answer?"

      The simple answer is yes. The complex answer is to remove market mechanisms from health and education (because the US is just so successful ...) and let the professionals get on with the job.

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  12. I am shocked to learn that you passed up an opportunity to entitle a post "You Know Nothing Jon Snow" . How can you hope to defeat mediamacro when you don't use pop culture references ? https://www.youtube.com/watch?v=fKgCgnLl8k8

    Now you might ask "what have pop culture references ever done for us ? " but you know better.

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  13. I am shocked to learn that you passed up an opportunity to entitle a post "You Know Nothing Jon Snow" . How can you hope to defeat mediamacro when you don't use pop culture references ? https://www.youtube.com/watch?v=fKgCgnLl8k8

    Now you might ask "what have pop culture references ever done for us ? " but you know better.

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  14. Mediamacro is simply the story that media live by. It is how they think the world works and should be evaluated. It is to some extent their assessment of how the bulk of the population think and operate. To me, it is no different to the way politicians think and act. They have a framing story that drives their actions. They believe it is true and argue for it. Those that disagree have the story wrong.

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  15. Journalists tend to be more liberal on social issues than people at large and strange as it might seem much more conservative than the population as a whole on fiscal issues and government.

    The average journalist outside economic specialists (with appropriate background) is inclined to distrust government , have a negative view of public officials and to see corruption in every corner.

    It wouldn't be such a bad thing, except that most of them don't have any comprehension of national level economics, their view is short range and limited and they tend to bring their kitchen table economic views into coverage of people with strong ideological bents conceal behind misleading "common sense" rhetoric.

    An example is the NHS where Cameron has been trying to push the UK more in the direction of the United States and making the NHS better by cutting its budget.

    But the NHS with whatever problems it produces significantly better outcomes than the US at less than half the cost of the United States in terms of GDP percentage. How much more expensive? 17.9 percent of GDP for the US, highest in the world. 9.40 percent for the UK.

    How much better?

    The UK ranks 29th in life expectancy, a commonly used measure. The US is 42nd, roughly a year's difference. In first rank Monaco, it's 10 years difference. Macau and Japan five years.

    In infant mortality, probably a better indicator, 55 countries do better than the United States, including most of Europe and many Asian economies, e.g. Singapore, Japan, Macau, South Korea. (168 most of them undeveloped or poor countries do worse)

    Impoverished Cuba spends only 8.60 percent of GDP on Health Care, yet outranks the United States on infant mortality, i.e. the US rate is 6.17 while Cuba's rate is 4.70. And in some states in the US South, the infant mortality is triple that of Cuba. (The UK is 4.40).

    Those are not statistics that are weighted to make the United States look bad or the UK (among others look good). They're from the CIA World Factbook,http://1.usa.gov/1JK9pnH where you'll want to look at "people and society."

    Cameron says he supports the NHS etc., but even the Telegraph reported earlier this year that sizeable stealth cuts were made. http://bit.ly/1E7hbAg

    There are constant misstatements, including false claims of Labor profligacy, little more than a cover for bad policy. Any organization, government or private, can be tweaked including the NHS, but in Cameron's time not much has been accomplished there.

    Reporting on political economics from a political standpoint has been dismal.

    Labor may have a credibility problem, but given the results of the last five years, so should Cameron.

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  16. As a chemist I find this deeply intriguing. Funny how people obfuscate the facts to suit their own needs. Then pass on conjecture as "the thing." No wonder few scientists ever enter politics. Thank you for this. As a Jamaican, all we hear about is reducing the deficit and nothing else...

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  17. In Britain, on weekdays, about 350 people read a (printed) Conservative newspaper for every 100 who read a Labour one. That's around 16 million Tory newspaper readers and around 4.6 million Labour ones. Another 3 million read The Metro which is said to be apolitical, even though it's published by the Daily Mail group.
The British, who now live in the third-most unequal democracy after the USA and Portugal, love reading Conservative newspapers and the impressions they leave in people's minds about things like immigration (a bad thing), benefit claimants (all scroungers) and companies leaving the country because of its high taxes (in a word they don't leave, by the way).
There is also a large online readership, though it's said to be unrepresentative of a particular newspaper's views. For Tory trolls looking to post anti-Labour material there's only The Guardian or The Independent. Labour trolls looking to do the opposite are spoiled for choice: there's just so many Conservative newspapers.

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  18. I say there must be a cognitive bias at work that leads people to a false application of the law of parsimony / Ockham's razor. Or, to quote H. L. Mencken: 'For every complex problem there is an answer that is clear, simple, and wrong.' Counterfactuals and macro concepts are fuzzy, so one reverts to Swabian pseudo heuristics (you can't spend what you haven't got) and subordinates the rest of the facts to that initial belief. Macro concepts just aren't intuitive which is why they're politically so hard to convey.

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