Arnold Kling  

Common Sense Macroeconomics

Bond Market Bubble?... Comment of the Week, 2003-06-1...

Robert Solow favors common sense over exotic theory. On the concerns about deflation in the U.S., he writes,

If you look at the hundreds of prices that are tracked by the Bureau of Labour Statistics as elements of the consumer price index, you can list them in order, from fastest rising to steady to fastest falling.

In the middle of the list are goods and services whose prices are rising at about 2.6 per cent a year. Half of all prices are rising faster than that, and the other half less fast.

In comparing Japan to the U.S., he writes,

Its stock market bubble was bigger than that in the US and was matched by a giant real estate bubble...

the ministry and the bank suffered from obsolete economic analysis and ideology and because they were unwilling at the time to reveal how deep in the tank Japanese banks had fallen under the burden of bad loans and evaporating collateral.

On comparing Germany to the U.S., he writes,

Not so long ago, there would have been an obvious remedy: a devaluation of the mark to get German costs in line with European prices. But mark is no longer there, and the value of the euro affects all European countries equally.

Solow concludes,

If the economy recovers next year of its own accord, it is a fair bet inflation will soon be the panic of the month.

Thanks to Stephen Kirchner for the pointer to the article.

For Discussion. Solow suggests that economic pundits have an incentive to predict disaster, because even though they are unlikely to be right, they "win big" if the unlikely disaster happens to transpire. Do you agree that this is a factor in economic journalism?

COMMENTS (8 to date)
Jim Glass writes:

My rule of thumb is that the real effect of any hotly debated economic policy is about 10% of what the two sides say it is, if that. Everybody has incentives to exaggerate.

Anybody with an interest (private or political) in any marginal policy change has an incentive to say it will save the world while the opposing side's policy would destroy humanity. And think of the children! The children! While the press wants a good story to grab an audience to make money. No editor is going to let a story open with "this doesn't really matter much to you".

(OTOH if a policy action is routinely taken largely uncommented upon, slipping by under the radar -- like rent control currently being renewed in NYC -- it may have much more significant consquences that the forces that be bury from popular sight for their own convenience.)

Think back to NAFTA and all the fury about whether it was going to either create or destroy vast amounts of jobs. Economists from Friedman to Krugman were out there saying it wasn't going to have any net effect on the number of jobs at all -- but who wanted to interview them to hear that?

Back then I tried to imagine Charlie Rose interviewing Krugman and Friedman to get the economic experts' views from left and right on NAFTA.... Q: "So learned gentlemen, will this create or destroy American jobs, and how many?" A: "No effect." "Correct, none." Q: "Um, I still have 59 minutes to go here..."

So instead he had show after show with people from the UAW and The Nation and the Chamber of Commerce and Forbes all bashing each other interestingly and entertainingly. Who could blame him?

Jim Glass writes:

BTW, doesn't "Blinder's law" fit in here? The more economists agree about something the less they are listened to, and the reverse.

It sure describes the total current lack of public discussion about rent control renewal here in NYC (except for a little bit about whether controls should be expanded).

David Thomson writes:

"Economists from Friedman to Krugman were out there saying it wasn't going to have any net effect on the number of jobs at all -- but who wanted to interview them to hear that?"

This is a subtle reminder that Paul Krugman once upon a time had sensible things to say. He was not always a stark raving lunatic. This might suggest that the liberal culture of the New York Times does terrible things to one's intellectual life.

David Thomson writes:

Arnold Kling is indirectly commenting on why newspapers will continue to decline in importance. I personally could care less what the Houston Chronicle or my local TV stations have to say about economic matters. At the very best, the typical journalist is well meaning but overwhelmed by topics requiring extensive research. I purchase the Sunday Chronicle edition primarily for the TV guide. It is far more rational to visit blogs such as this one to learn more about economics. And yes, journalists are often seduced into embracing conclusions that will attract the highest audience numbers. Mr. Kling is less likely to be under such enormous marketing pressures.

PS: my guess is that within the next five years---the dead wood TV guide will no longer be relevant. We will access the listings in another way entirely.

Eric Krieg writes:

The first aspect of economic journalism is ignorance.

Journalists as a group are the only profession to have lower SAT scores than teachers, which should tell you something.

I can't think of any group less qualified to speak about economics than journalists. A journalist education is simply no preparation for any subject, much less economics.

But economists shouldn't feel bad, because economics coverage is no worse than coverage of science, or politics, or even movie reviews!

The biggest problem with journalist's coverage of economic issues is that there are no consequences to their predictions. They can scare monger all day long, but at the end of the day when nothing happens, they just walk away dumb and happy, to start all over the next day.

David Thomson writes:

Journalists could be the most brilliant people on this planet and it wouldn’t make much of a difference. No generalist, however brilliant, can normally compete with specialists. Many internet blogs are hosted by economic experts. These folks, like Arnold Kling, have much more to offer than someone who floats from one subject to another on a daily basis.

Deene W. Lindsey writes:

Does anyone have a copy of the Solow interview that they could forward by e-mail? (It's already been deleted from the Straits Times' site, and Steve Kirchner did not keep a copy.)

If so...please send to
Thanks !

David Thomson writes:

Your wish is my command:,0,505828.story?coll=ny-opinion-archive

In the future, however, please learn how to do searches on I merely copied and pasted the following sentence, “If the economy recovers next year of its own accord, it is a fair bet inflation will soon be the panic of the month.”-----and instantaneously found the article on Google!

Sigh, you have insulted the gods of Google. I suspect that they will minimally demand you cut off a finger. Now go and sin no more.

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