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May 08, 2009

Financial Times: Gee Willickers, It Turns Out the Economy Depends a Lot on Psychology and Optimism

Really?

Note how the media is suddenly doing its patriotic job in trying to improve economic optimism:

An influential Democrat who was also one of the world’s top-ten, highest-paid hedge fund managers last year thinks he knows which book is at the top of the White House reading list this spring: Animal Spirits, the powerful new blast of behavioural economics from Nobel prize-winner George Akerlof and Yale economist Robert Shiller.

Judging by the upbeat economic message we have been hearing from the White House, the Treasury and even the Federal Reserve over the past six weeks, that is a shrewd guess. The authors argue that “we will never really understand important economic events unless we confront the fact that their causes are largely mental in nature”. Our “ideas and feelings” about the economy are not purely a rational reaction to data and experience; they themselves are an important driver of economic growth – and decline.

Since mid-March President Barack Obama and his team have mounted a sophisticated effort to brighten those “ideas and feelings”, reassuring the nation with “glimmers of hope across the economy” and the assertion that “we’re starting to see progress”. The much bally-hooed stress tests – whose comprehensively leaked results were fully unveiled after the markets closed on Thursday – are both an important example of this confidence-building campaign and its toughest challenge.

The sunnier rhetoric of recent weeks marked a sharp shift both from the bleak mood of the fin de regime administration of George W. Bush and from the first weeks of the Obama White House....


But once the stimulus bill was passed, the White House calculated that, as Mr Obama told the Financial Times, lawmakers and US voters had reached their limits. No new money to rev up the economy or revive the banks would be forthcoming until the president and his team could demonstrate concrete results from the first instalment.

Since then Americans have been hearing a decidedly more optimistic vibe from Washington. It has seemed to work. A Google search for the term “economic recovery” turned up 6,991 references to the term in January and 7,831 in February. In the first week of May the phrase occurred 24,443 times.

More traditional yardsticks show the same result. According to a recent ABC/Washington Post poll, Americans’ belief that their country is heading in the right direction has soared from 19 per cent, just before Mr Obama’s inauguration, to 50 per cent, the highest in six years. In what could be a textbook example of behavioural economics, the stock market has followed the same curve, recovering from what rightwing commentators were calling “the Obama bear market” at the beginning of the year to a healthy rally.

This is all obvious -- but why is the media suddenly willing to stop the drumbeat of negativity and (as Slu notes below) actually try to put a positive spin on the worst unemployment in 25 years?

The answer is obvious; they want to help Obama, and they wanted to hurt Bush. Note that while the same phenomenon applies to both Democrats and Republicans -- talking up the economy actually has tangible effects on growth, and talking it down has real effects on contraction -- Republicans aren't allowed to talk up the economy. The media won't let them. The minute they say something nice about the economy, the media says they're "out of touch" and then runs a package showing all the bad or worrisome indicators, pushing out the word that the economy is on the edge of a cliff (or actually falling into the cliff). Thus undoing the good that was intended.

A long time ago I came up with the idea of a "Republican tax" the media imposes on this country's economy when a president they don't like (a Republican, naturally, or Bill Clinton before he perjured himself). By constantly pushing a message of fear and uncertainty, the media actually restrains the economy under Republican rule. By how much? I don't know. At least a half percent of GDP growth, I figure, and maybe even 1 or 2 points.

Obama now presides over an economy showing the worst numbers since the Great Depression, and yet the media wants to push the idea of "economic recovery." No shooting down Obama as "out of touch" when he suggests we're coming out of this, no endless repetition of all the downward-pointing indicators. Instead, a very high unemployment rate is spun as surprisingly good, and indicative, if anything, of our emergence from the recession.

For the media, there's always a light at the end of the tunnel when their boy is in charge.

There's no problem with the media accentuating the positive. I just wish they'd do it when a someone they didn't vote for is running the country. Economic problems impose real consequences on people in those times, too.



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posted by Ace at 02:41 PM

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