Financial news media fail not only their readers, but society as a whole, when they report events so incompetently that public understanding of vital issues worsens rather than improves.
Reporting of inflation is such a case and one that is at odds with journalistic practice in the past. The error is in a primary focus on year-over-year price changes with little mention of current rates of change.
To understand this, imagine you are in the backseat of a car rocketing past corn fields in southwest Minnesota. You ask, “How fast are we going?”
The driver replies “We have gone 15 miles in the last hour.” The information is correct and reflects the fact you idled for over half an hour while emergency personnel cleared up a violent crash ahead of you. But it really does not answer your question about the rate of speed right now.
Ditto if you are on a long road trip north and happen to hit the Twin Cities at 5 p.m. on Friday of a Memorial Day weekend. If you spend 15 minutes on 35W crawling between Hwy 36 and 694, knowing you have gone 60 miles in the last hour means little.
Yet that seems to be the attitude of the New York Times writer who reported that, “prices continued to climb at a brutally rapid pace in September.”
Well, perhaps. But if one takes the one month change in the consumer price index from August to September and calculates what the increase would be if it continued at this rate over 12 months, one gets 4.7 percent. That is high inflation, but less than the 12 months looking backward. And in the lifecycles of baby boomers, at least, 4.7 percent is not “brutally rapid,” especially in comparison to just earlier this year. Moreover, month-to-month changes jump around. If one takes the July-to-September change and annualizes it, it is 3.1 percent. The annualized rate for the June-September span is 1.9 percent.
This is not to say that price changes from a year ago to now are irrelevant. They are, but taken in isolation they are incomplete and misleading.
Consider a hypothetical example. A nation’s CPI stands at 200 and stays there for 11 months. In the 12th month, it jumps to 218 and stays at that level going forward. There would be no further increases in price for months 13 through 24, yet the year-over-year figure would show a 9 percent rate every month for months 12 through 23 and a fall to zero in month 24. Does this scenario show a full year of “brutally rapid inflation?” No!
Again, don’t just look at any single month’s increase converted to an annual rate. This can be just as misleading as only making a comparison to the rate of 12 months earlier. Combined, the two are useful. Individually, each is treacherous.
Now the New York Times is not alone in this incompetence. But it claims to be the leading newspaper. And you would not see this bone-headed approach in London’s Financial Times, or Paris’s Le Monde or the Frankfurter Algemeine Zeitung, nor even the Estado de Sao Paulo from Brazil, all of which claim similar status in their nations.
Nor would one have found it in the Times or other major U.S. newspapers in the 1970s, the decade famed for inflation. The near-universal practice in that era was to report the most recent annualized monthly rate and then the change from a year earlier. Why that sound practice fell out of journalism’s institutional memory and was abandoned is a mystery.
Reporting federal spending associated with new legislation is another common area of journalistic malpractice, albeit one also rooted in misleading rhetoric by politicians. The error is to cite the name of the legislation together with a dollar amount of spending without specifying the number of years or even which years to which the amount applies.
If some bill supposedly entails $400 billion in spending, is that for the next fiscal year? Over five years? Ten years?
Nowadays, such legislation cost usually is an estimate for 10 years as current congressional rules require such projections. But sometimes it is for an actual appropriation for the next budget. It might even be for the fiscal year that we are three weeks into. But that is seldom clear. Sponsors of the legislation brag to their supporters using the largest numbers possible as do opponents playing to their own audiences. But the press seldom tells the public what will be spent — or not spent — in 2023 or 2024. So, when politicians or journalists say “such-and-such” will add “this much” to inflation, or the federal deficit, or whatever, they really don’t know that if the projected spending is 10 years out.
Clearly, the opposite situation exists, and is equally bad, when only the initial outlays caused by the new legislation the first fiscal year were mentioned. The media and politicians’ extrapolating out the continuing effects of a bill for a decade or more is a good idea as long as everyone makes clear that the further out one makes an estimate, the rockier it becomes. But the immediate impact should remain central and reporters and editors must always ensure that it is clear to readers and viewers the exact period to which their reports refer.
Then there is the problem of reporters adopting the general attitude that a “strong” currency, one that it takes a lot of some other currency to buy, is unequivocally good for our nation as a whole and everyone in it. My column two weeks ago explained the pitfalls of that.
And finally, there is ineptness in reporting labor force indicators. The “U3” unemployment rate gets the biggest headlines, and it should. But the number of people with jobs, which is measured in at least two different ways by two different monthly surveys, is equally important. And one cannot always understand what is going on with the first two indicators — rate of joblessness and number of people with work, without also examining the labor force participation rate, a measure of what fraction of the population has jobs or is looking for them. Those who have dropped out don’t count.
All this is not to beat up on journalists. There is much good financial reporting, although current coverage of inflation and exchange rate changes is dismal. There are differences between our nation and many other industrialized nations in how people become economic reporters. In most of Europe and major industrial nations in South America and Asia, newspapers hire people with good economics degrees and teach them economics. Hence Britain’s The Economist and Financial Times are world leaders in quality of reporting as is Germany’s Frankfurter Algemeine Zeitung.
