Economics reporting without any economics

Mike Berry explains in this articlehow the UK media began to see the increase in the deficit in 2009 as a serious problem, and sometimes as a crisis. The government were “court[ing] disaster by borrowing too much”. In terms of basic economics - the economics that anyone doing Econ101 (a first year undergraduate course) would know - there was nothing surprising or problematic about a rising deficit in a recession. It is what you expect to happen. The UK deficit hit record levels because it was a record recession. There was no evidence whatsoever that financing this deficit might be a problem: again basic Keynesian economics shows how in a recession an increase in the supply of government debt is accompanied by an increase in the private sector’s demand for financial assets. [1]

It was a case of economics reporting without any economics. It is a bit like a weather forecaster who reports the weather without any reference to the time of year. (In the Autumn they say ‘Its getting colder and colder - at this rate in nine months time all the rivers will freeze over’) Add politics and you have a dangerous mix, particularly when the partisan press has a significant influence on the non-partisan media.

I have sometimes put this down to a lack of economic knowledge among most political journalists. Of course political journalists talk about economics a lot, yet there seems to be a curious lack of interest in what those that study the subject have to say. I find the story of our ‘lost’ Brexit letter, which I summarised in this piecefor The Conversation yesterday, rather scandalous: the mission to educate and inform thrown out of the window. [2]

Which I guess is one reason I started writing a blog. I say I guess because it all happened rather accidentally, so I never had any clear plan. Its success really did surprise me, and I soon realised that I had multiple audiences: many economists in the big economic institutions, but also many interested non-economists. It makes writing challenging and I know I often fail to adequately explain, but I was encouraged by whoever wrote the commentary on my blog in this knowledgeable listof the 100 top economics blogs.

But the people who most need to read economics blogs are I suspect one group that fail to do so: political journalists who talk about economics all the time, and the people who write and research economic news. It is not who appears on Newsnight debates that concerns me, but the unwritten assumptions of those who decide what is news, and write news bulletins. It was these people who decided that the growing deficit in 2009 was ‘courting disaster’, and made the tragedyof austerity possible.

[1] One comment I often get when I say this is that a good part of that deficit has proved to be structural. But if that is the case it is because a large part of the fall in GDP relative to trend following the recession seems to have been permanent. That means you do need to worry about the deficit at some point (afterthe recession is over), but your immediate focus should be on why GDP has departed from previous trends.

[2] In case you are unconvinced of this: the economic cost of Brexit is critical for most voters, the Remain campaign says this cost will be large but Leave dispute this, and who knows most about the basis and validity of the large cost claim?