it recently occurred to me that one of the most interesting things about this current financial crisis is the way it has been reported in the media. If you for example flick on CNN or BBC or any other mainstream news, you are more than likely to encounter a plethora of talking heads, each of them pretending to offer an in depth analysis of what is going on in terms of the financial crisis whilst in reality serving up some of the most banal and facile description (not analysis) of the crisis ever seen (this incidentally is why it's brilliant that the Professors, such as Professor Wyplosz in this radio interview, are getting in on the act to offer some cogent analysis of what is going on).
I find this of particular interest because during my recent internship at the Australian central bank, I ended up developing a passionate loathing of the way the media (mis)reports happenings in the financial and economic world. That is, through going to to a whole bunch of internal meetings where various data series were discussed and analysed, and comparing this discussion with what was written in the newspapers, I became thoroughly convinced that even some of the most 'respected' financial / economic journalists literally had no idea what they were writing / talking about, to the extent where they seemed at various points to inhabit a completely different universe to the one in which economic events were actually happening. Moreover, in Australia, in news articles which reported on economic outcomes, you would never see an academic economist talking about what was happening, rather it would be left to some guy from a private investment bank to explain things (these investment banker guys have been doing great recently haven't they? - as if they have any where near the legitimacy and gravitas that academics do).
Another surprising thing about Australia is the way that the place would go absolutely nuts on the first Tuesday of every month when the decision about what to do with the policy interest rate would be announced. On these days, you couldn't move without hearing what has happened to the interest rate, there is absolutely saturation coverage. And what is written is not objective reporting of the policy rate move, rather it is completely subjective editorialising about what happened, why it happened, what should have happened, etc. And more often than not, this sensationalist 'sexing up' of monetary policy movements and economic events in general was absolutely dead wrong.
I have tried to rationalise the above two outcomes as simply a byproduct of the uniquely feral nature of the financial press in Australia. The former Governor of the Australian central bank, Ian Macfarlane, maintained that Australia had the highest per capita ratio of financial journalists in the world and that the press in Australia therefore devoted more space to financial / economic events.
This above contention was backed up some firm empirical evidence. In this speech, entitled 'Economic News: Do We Get Too Much of it', Governor Macfarlane describes the following survey:
'......So far I have made a lot of generalisations without any empirical support. I would like to remedy that deficiency by reporting on a little survey we conducted about a year ago in the Reserve Bank comparing media coverage in Australia, the United States, and the United Kingdom.
- We looked at newspaper coverage the day before, the day of and the day after monetary policy announcements by their respective central banks over two consecutive policy meetings. In each country interest rates were raised at least once in these two meetings.
- We chose three newspapers in each country – one financial newspaper and the other two quality dailies.
- In the United Kingdom it was The Financial Times, The Times and The Independent.
- In the United States it was The Wall Street Journal, The New York Times and The Washington Post.
- In Australia it was The Australian Financial Review, The Australian and The Sydney Morning Herald.
- We added up the number of articles mentioning monetary policy that had appeared in the three newspapers in each country in the days surrounding these two consecutive policy meetings.
- In the United States there were 35 articles.
- In the United Kingdom there were 46 articles.
- In Australia there were 131 articles, (In case you think we are exaggerating, we have a copy of each one.)
- The equivalent for the number of front page articles:
- In the United States there was 1.
- In the United Kingdom there was 1.
- In Australia there were 14.
So to summarise, in Australia, the reporting on interest rates decisions is around 3 to 4 times as intense as the reporting on equivalent decisions in the UK and USA (this is particularly surprising given that in world terms, Australia could best be described as an economic backwater). I reckon that this must have as its consequence that there are so many more column inches to fill, and that the only way they can be filled is with utter rubbish.
In case you are wondering, the above diatribe simply wasn't a rant just for the sake of it - there is actually an important message behind it. That is, isn't a media that is either ignorant, that willfully distorts economic information / events in order to get a sensational headline, or that is simply out of control, a highly dangerous thing? When so much importance these days is placed on central bank communication, is it not a problem that the media gets the reporting wrong (perhaps on purpose for a sensational headline)? During my internship I saw so many instances where the media would generate the most stupid and ridiculous expectations in the markets about the direction and magnitude of the next interest rate decision, and then when the decision didn't go the way it was 'expected' to and economic agents were 'disappointed', markets would move in an adverse fashion, which in turn affected people's wealth.
Just a bit of food for thought - does anyone see this as a problem, or is it completely trivial??
Oh, and here is my entry into the 'Best Central Bank Logo Competition' - the logo of the Reserve Bank of Australia. Just don't ask me what it means........