The reporting of market ups and downs is not really a joke

It began as part of my undergraduate lectures. After teaching students about the key role of expectations in influencing exchange rate movements, I joked they too could now become one of those City economists who comment on market movements. X goes up and the market falls - you explain the fundamentals. X goes up and the market rises, appearing to contradict the fundamentals - you say the markets were expecting a bigger rise in X. There is no data to contradict you, so no one will question your wisdom.

Companies pay market researchers tons of money to find out why people do or do not buy their products, so the idea that an individual can know why the market moves within hours of it moving is just nonsense. Yet day after day we see City economists telling us just this. They hardly ever express any doubt or uncertainty. They know if they did the media would regard that as boring, and choose someone else next time.

In writing posts I talked about why the media used City economists for this kind of commentary, because academics would be hopeless at it. In my lecture I said an academic, if asked by the media to comment about why sterling fell by 1% yesterday, would give one of two replies. Either ‘oh, did it, I hadn’t noticed - too busy marking’ or ‘who knows, there could be lots of reasons, we have no evidence on this at all’. But as I said it during the lecture I realised that it some way this was not really a story about how hopeless academics are in talking about daily market changes, but a story about how the media treats knowledge. After all, the second response is the truthful one. Even the first conveys some truth: unless you are speculating on the markets why does one day’s modest market movement matter?

The media use City economists because they are used to telling stories. Stories that will impress clients with lots of money to invest. As I’m sure Chris Dillow has written, people are swayed by confidence, even if that confidence is completely unfounded. Put a climate scientist, who being a scientist knows about all their doubts and uncertainties and is honest about them, in a debate with a media savvy climate change denier, and you will see that many will find the climate denier more convincing.

So the fact that the media gets City economists to tell their stories day in and day out tells us something interesting about the media. They seem quite happy to allow people to tell stories as fact, because it appears that they are asking an expert who ‘knows’. Now I’m sure the response would be by both the media and the City economist that of course everyone really understands that these are stories and not knowledge, and they are worth repeating because they are plausible stories. They could be true, but everyone really knows they are just conjectures based on little solid evidence.

But does everyone really know this? I’m sure the City economist knows this. I’m less sure about the audience, and even sometimes about the person interviewing the economist. This is a game of pretend that has been going on for so long that what is pretend has become real. Wouldn’t it be a good idea to insist on these City economists prefacing everything they say by ‘Of course we do not know, but my hunch is that …’ Isn’t it better to properly inform viewers of what is going on here, even if it does become a little repetitive? Or is informing the viewer not what this is about? And does this constant repetition of false certainty not have something to do with how City economists can be regarded by some policymakers as high priests to the fickle god of the market. 

It was interesting that some of the reaction I got to Saturday’s post was ‘why don’t forecasters tell people about these uncertainties’. Why are they not more modest? But the better ones are, and any academic who knows about macro forecasting will tell you how uncertain unconditional forecasting is. The fact that this knowledge is not reflected in how the media (or politicians) talk about them has everything to do with the media (and politicians). It suits most of the media (not all) to exaggerate the certainty, and then to express shock/horror when forecasts are wrong. And in a way it is a perfect example about the dangers of treating the media as just a harmless purveyor of news: you end up blaming the forecasters for something which is not their doing.