Does government skepticism influence the way the media reports on austerity economics being practiced in Europe and the U.S.?
I participated in a panel at the Minsky Conference this week in New York City, sponsored by the Jerome Levy Institute and the Ford Foundation. The audience brought up this important question. We now have a lot of evidence that austerity economics — cutting spending and raising taxes when economies are weak in order to reduce budget deficits — almost never works. For those who still have doubts, please consult convincing, important studies from the International Monetary Fund, an organization not known for a progressive bias, that essentially prove the point by correctly analyzing failed historical attempts at creating growth through austerity.
Look no further than Britain for an example. Britain is a non-eurozone country, has had very accommodative monetary policy and a falling pound, but its economy is weakening and it keeps falling behind its deficit reduction promises. Why? Austerity economics in the form of harsh spending cuts and higher VAT taxes.
On top of this, perhaps the two most widely read economic columnists in English, Martin Wolf of the Financial Times and Paul Krugman of the New York Times, have been loudly and repeatedly making the argument that austerity will fail — that is, will make matters worse.
Why, then, do reporters on the beat give so much credibility to austerity economics? This is, of course, a subjective view of reporting, but it is widely shared. When rates go up for struggling eurozone periphery countries, reports usually seem to agree with eurozone ministers that it is because these countries are not tough enough on themselves in terms of cutting spending.
One reason is that government officials talk this way and an unadventurous press simply goes to a couple of sources and gets its story. Most Democrats in Washington talk this way, and of course almost all Republicans, though there are a few extremist supply-siders. Financial market participants also often talk this way. And maybe members of the media have their own biases. CNBC has a parade of blindered anchorpeople and reporters.
But all of this is prejudiced by the widespread skepticism of government that often warps political debate in America (and much of the West these days). There is a bias in favor of cutting spending or blaming it for economic ills. It may be that simple. It affects reporters. It certainly has little to do with the facts.
I do also see a break in the clouds. The pieces summarizing the blowout in the Spanish bond markets on Monday in the New York Times, the Financial Times, and the Wall Street Journal all suggested that austerity was the problem, not a lack of it. In other words, Spain and others can’t meet their deficit targets because they are pushing their economies back into recession. Traders on Wall Street apparently know something that resembles the truth. One of them was quoted as calling this eurozone austerity policy, led by Germany and with considerable support from Sarkozy of France, “daft.” Pretty extreme language for these polite papers. And so welcome, because the policy is daft.
But this was only a spot of blue in a gray sky. By the end of the week, some reporters and editorial writers were back to their old ways, not clearly distinguishing between not enough austerity and too much. The stakes in this poor reporting are very high. Reporting should at least be balanced. It should be focused on how we get growth in the rich world again. Growth should be the dominant subject. But it usually isn't.