Tuesday, December 17, 2013

Doing a Number

Journalists, as a rule, don't do numbers. They're words people - topped the class in creative writing; struggled in maths. And in most areas of reporting, that's not a huge disadvantage. But when it comes to economics, it can leave them open to being conned.

Take the Mid-Year Economic and Fiscal Outlook. That News Corp would run this set-piece through its lazy and deliberately misleading partisan filter ('Labor's Debt Bomb!') was not surprising. But when the ABC recycles the official spin you have to wonder at journalists' competence:
"The Abbott Government's first budget statement has revealed an economy in dire trouble with historically deep deficits, more people out of work, slower wage growth and massive revenue write-downs."
This is how the public broadcaster's 'chief political correspondent' spun the fiscal update. An economy "in dire trouble"? Deficits that are "historically deep"? Says who? The banks? Nope. The credit ratings agencies?  Nope again. In a statement after the release of MYEFO, New York-based Moody's had this to say:
"The Australian government has very low debt levels as a starting point and the larger deficit in the current fiscal year--while leading to a rise in debt--is not likely to change Moody's thinking about the Aaa rating of Australia." 
But a deficit of $47 BILLION (shouty emphasis added)?  It's a big number, yes. But one rule in journalism is that just reporting big numbers in relation to nothing else is meaningless ('The road toll was 350 last year'. Yes, but what was it the year before?) The fact is in an economy with annual output of $1.5 trillion, a $47 billion deficit is not so big at all.  If the MYEFO projections are correct (and remember it is in a new government's political interest to paint the worst possible scenario early in its term), this still represents only 3% of GDP, which is close to the average for the past four decades. And it comes after a period which included a global financial crisis.

Whether it is due to ignorance, incompetence, under-staffing or lack of time, the depiction in much of the media (with some honourable exceptions) of the state of the Australian economy is a disgrace. Political journalists with little grasp of economics casually recycle the sly talking points of cynical spin doctors seeking an easy splash. And a frightened public is left to make sense of idiotic statements that we are "going the way of Greece" or "heading for an IMF program".

Sydney-based business journalists like Michael Pascoe and Ross Gittins (away from the Canberra hothouse) can see the self-serving spin. But the bloodhound political journos, the ones who should have the 'BS' scent detector on full, roll over on their backs at the first sight of forward estimates. Of course a new government - particularly one as ideologically opposed to public programs as this one - is going to throw open the cupboards and declare them bare. Talking up a crisis justifies an austerity program that conveniently gives it an excuse to lay the boot into its political enemies. And making it seem as bad as possible sets it up as the fiscal saviour when things don't turn out to be that bad after all. Well, duh! Who knew? So why don't the geniuses in the press gallery point that out?

Yes, Australia does face real challenges. Ross Garnaut in his recent book has nominated a few - like a replacement for the commodities boom as a driver of growth, an unsustainably strong Australian dollar and a lack of investment in the skills and infrastructure to drive future productivity gains (the latter problem  partly due to politicians' propensity for paying permanent tax cuts out of temporary revenue gains). But the utterly dishonest depiction of our public finances and the infantile political point scoring around this in the media ('will you rule in; will you rule out?') robs of us of the capacity to deal with these challenges effectively.

In my view, the problems arise because the media has convinced the public that the budget is the economy and that any deficit - regardless of the global economic circumstances - is a policy failure.  But perspective, please. Australia's net public sector debt is about 12% of GDP. This makes us one of the least indebted developed economies, a fact reflected in our Triple-A credit rating from all the major agencies. Arguably (and no less a figure than NAB's CEO has said this), our debt is TOO low. And that's one reason the $A has been killing industry - because foreign lenders needing to diversify away from the relative basketcases of Europe and the US are attracted to a rare ÁAA borrower. In the chart below, Australia's debt position is in red, ranking us just ahead of the Scandinavians.

What's more our public debt is dwarfed by the nation's much more substantial household debt. Australians have leveraged themselves up to the eyeballs, largely by chasing their own tails on the property ladder. But in the Alice in Wonderland world of our media, this debt is fine, while governments that allow the budget to play its legitimate role as automatic stabiliser in the world's biggest recession since the 1930s are deemed to be reckless. Just think for a moment how big the deficit would be had the Rudd government allowed the economy to go into recession and ignored Treasury's advice to throw cash at consumers. In the meantime, this "public debt crisis" is dwarfed by the massive debt burdens owed by individual Australians financing their own consumption and chasing a  property bubble. (The graph below, courtesy of Professor Steven Keen, compares government debt - in black- with household debt - in red)

Having watched the breathless and gullible reporting on ABC television today, I turned back to a research note from Macquarie Bank about the fiscal outlook statement. The tone from economists there was calm, measured, non-fussed and just a little aghast that the media had so readily swallowed the doom and gloom spin from the government PR machine. It says something about the state of journalism when an investment bank gives a saner and more nuanced account of a conservative government's economic statement than does the media itself. The Macquarie take:
"Given that the release of the government's Mid-Year Economic and Fiscal Outlook update has been accompanied by dire headlines about a massive blow-out in debt and a need to cut spending dramatically to get the budget back on track, one could be forgiven for thinking the MYEFO reflects an economy that is listing badly and that fiscal policy is set to become very contractionary. In our view, however, this would be completely erroneous."
Is it any wonder the public feel confused? Is it any wonder our democracy feels broken? And is it any wonder that our Fourth Estate seems more and more like a Failed Estate?

(Further Reading From the Fifth Estate):


  1. Very well put. Personal debt driven by successive failures in housing and taxation policy designed to serve spivs and dealers over people who want a roof over their head. Public debt that is trivial but will be used as a boogeyman to entrench current power structures and driver ideological agendas. The media's failure on the debt and deficit con is possibly our most spectacular. You expect it from News Ltd, its their job to drive the agenda of the rich, but not from the ABC.

  2. <

    "Whether it is due to ignorance, incompetence, under-staffing or lack of time," ...... you're getting close there Jim.

    Great watching Hockey at the Press Club address .... his head goes up and down when he talks about the Labor party ........ and Hockeys head goes from side to side when he talked about his own parties policies and how they were going to be delivered ..... strange that.

    And listening to Hockey ... "mess", "no free lunch", "can't get rich taxing", "inherited", "doing nothing is not an option" ... repeated ad nauseam is it any wonder the Journalists have nothing to work with.

    The charade continues ...... whoops ! a 3 word slogan.

    1. Good point about the body language. Have a look at Pamela Meyer at TED Talks on "How to spot a liar": http://www.youtube.com/watch?v=P_6vDLq64gE

    2. <

      Even Joe "don't know" Hockey's quote "no country has ever taxed itself into prosperity" quote wasn't picked up as coming from American shock jock Rush Limbaugh ( http://www.brainyquote.com/quotes/quotes/r/rushlimbau153262.html ).

      Of course News Corpse is still running with it.

  3. <

    Apparently the Treasury boffins have a dire sense of humour and originally told Joe "don't know" Hockey that the projected deficit was $666,666,666,666 but even Joe saw the subliminal message there and made an "Executive" decision to go with $6.7 billion.

    After all whats a bit of small change when one is trying to hoodwink the public.

  4. The ABC, more now than most of the other media, presents news in terms of crisis and sensation.

    1. The ABC as a whole still has some people that know what they're doing. Sadly, none of them are in the press gallery. That being said, if I had my way, the entire press gallery would be tossed out on their arses (with maybe the exception of Bernard Keane)

  5. "Australians have leveraged themselves up to the eyeballs, largely by chasing their own tails on the property ladder" (snip)

    'Australians have leveraged themselves up to the eyeballs, largely through the banks bidding up the price of residential real estate.'

    FIXED! ;)

  6. I disagree that "the media has convinced the public that the budget is the economy". It's more true to say that the budget is the facet of the economy journalists understand best, and that when politicians claim they are managing the economy through the budget no journalist questions them.

    Information-providers should be thriving in an information age. The idea that the media do things based on some deep knowledge of the country as a whole is at the core of the delusion that is sending the MSM down the drain. If they lack perspective on their own business, their capacity for having perspective on the various facets of government is more sharply limited than the jack-of-all-trades ideal of journalism.

    Who decides that this or that individual journalist is appropriate to report on federal politics? Is acting as a relay station for press releases or a jukebox of political cliches really the most appropriate use for the investments that media organisations make in journalists? The assumption that those who manage media organisations have considered these matters and have the issues in hand needs more investigation than most journalists can or dare do.

    Finance house researchers do far better journalism than in-house hacks at the newspapers. If newspapers could get over themselves they'd realise this, and adjust they way they operate accordingly.

    1. Agreed Andrew. The media is extraordinarily slow to recognise its own obsolescence. It can't survive as a relay mechanism, because that function is now redundant. It CAN survive by providing insightful analysis (and some do), but you don't need to be sitting in the press gallery to do that.

      I've never understood why economics is reported out of Canberra or why the media tacitly accept the premise that governments "manage" the economy. Well actually I do understand. It's because participants in the media-political complex all have a vested interest in keeping that illusion alive.

  7. I have been pointing out for years that most journalists, including even the economist/financial scribblers are functionally innumerate.
    Not just slips of tongue or typing to mix B & M dollars but an utter failure to understand the implications therein.