Fairly Unbalanced
Brian Wesbury, chief economist for First Trust Portfolios, LP and a regular on talking head television about the economy, has an interesting op-ed in today's Opinion Journal. He looks at how talking head television tries to balance debates when talking about the economy, pairing an economic bull with an economic bear. That makes for a livelier debate. Unfortunately, it also badly skews the public's perception of how the economy is really doing.
For example, the most recent Wall Street Journal economic forecasting survey, from July, shows that 49 out of 60 forecasters expect real GDP to grow at an average annual rate of 2%, or faster, in 2007. Of the remaining 11 forecasters, only two expect growth of less than 1%, and only one expects a recession. For 2008, the forecasters are even more optimistic, with none expecting recession.
There are at least a half-dozen other institutions publishing surveys, and all of them report very similar results among the 100 or so active professional forecasters. Except for two well-known economists (Nouriel Roubini at New York University, and Gary Shilling of A. Gary Shilling & Co.), who are not in many surveys, a super-duper majority of professional forecasting economists believe the economy will continue to expand during the next year and have believed so for the past four or five years.
Despite this, an NBC News/Wall Street Journal poll taken in late July found that 68% of Americans thought that the economy either was in recession already, or would experience a recession sometime during the next 12 months. Interestingly, this is not much of a change from the past. This same survey question has been polled at least five times since September 2002. Each time a robust majority of between 65% and 85% of respondents thought a recession either was under way or would occur within the year. Americans have been bearish on the economy for quite some time.
When television producers book guests they want tension between the people appearing. Because there actually is a high level of agreement between the leading forecasters, the producers are forced to bring in what might be called second stringers (I'm sure those people would take exception to that description.) All this is giving the average person a distorted view of what real experts are thinking, though.
While this is entertaining, and may bring in eyeballs, which sell commercials, this idea of "fair and balanced" debates leaves an impression that the experts are split 50/50, when in reality it's more like 80/20, or 90/10.
After all, the economy is closing in on six straight years of growth and the stock market is up more than 80% since its bottom in October 2002. It is true that the number of shares sold short on the Nasdaq rose to a record of 9.3 billion last week, but this only equals the number of shares that change hands on the Nasdaq (on average) every 4.9 days. There are way more bulls than bears. It's not a 50/50 world.
But if all the public sees is an endless stream of 50/50 debates, then it is really not that much of a surprise that people think the future is basically a coin toss. And a coin toss, especially in a time of war and terrorism, is not very good odds.
What a fascinating insight. Many of us have long wondered how the public can completely ignore some stunningly good economic data – record low unemployment, etc. and still believe the economy is tanking. This goes a long way to explaining that. Wesbury is not arguing that forecasters are always right. He actually pokes fun at the entire profession about accuracy. But if the public always sees everything as a 50-50 situation, is it any wonder they form the opinions that they do? Here's a thought experiment: how much does this same phenomenon impact political opinions? Interesting, no?
By TimF, August 9, 2007 @ 10:40 am
And this forced 50/50 split differs from the American justice system how? Maybe that explains the randomness of the outcomes.
Next time I get called for jury duty, can I just suggest during voir dire that we flip a coin? Would save everybody a lot of time…