The AP’s Ignorance Helps To Foster A Last-Minute Deal

The Associated Press (AP) is a very powerful news organization, which syndicates articles to thousands of local newspapers all across the country. Given this responsibility, one would hope that AP staff writers have at least a basic understanding of economics. Unfortunately, that appears to not be the case, as evidenced by an AP-syndicated article on yesterday’s consumer confidence numbers.

The article notes:

“U.S. consumers peering over the ‘fiscal cliff’ don’t like what they see. Fears of sharp tax increases and government spending cuts set to take effect next week sent consumer confidence tumbling in December to its lowest level since August.”

While the overall consumer confidence index did fall, the drop was driven entirely by the expectations component, which has a horrible track record of predicting future consumption spending. The present-situation component, which correlates much more strongly with current consumption spending, actually increased on the month to its highest level since the housing collapse tanked the economy. If consumers are truly worried about the upcoming austerity bomb, which begins on January 1, those worries are not showing up in the data.

It’s important that we understand what’s at stake here. Since the recovery began, there have been two opposing views on the economy: one that has attributed sluggish growth to emotional factors – Our consumers aren’t confident enough! And our business managers are too uncertain! – and one that has attributed sluggish growth to the demand gap created by the housing collapse.

The recent fiscal-cliff scare story, which media companies all across the country are doing their best to propagate, has been yet another attempt by those holding the former view to influence public policy. The story, we’re told, is that if we don’t get a deal on the fiscal cliff before January 1, the economy will collapse. This narrative is, of course, false – whether we get a deal in the next few days or by the end of January, the effect on the economy will be almost indiscernible – but that hasn’t stopped the confidence-uncertainty pundits from making their case. Their thinking has been that if they can scare enough of the public into believing that a deal needs to be made before January 1, then they may be able to push one through that preserves tax cuts for the ultra rich and that slashes income security benefits for millions of retirees.

By failing to understand the importance of yesterday’s consumer-confidence report, the AP has helped the confidence-uncertainty pundits make their case. And if we get a deal in the next few days in accordance with their demands, news organizations like the AP will be partly responsible.

Leave a Reply