February 17, 2008

Business Reporting

Guido is entirely right in this post: he is right both as the substantive issue which is the way that Newsnight misreports the market results, and more importantly right on a broader issue which is the way that the media reports about economics and business. I am not an economist nor am I a mathemetician: but I'm underwhelmed by the way that I see reporting on economics done- I think it turns people off and doesn't help them understand and often perpetuates bad ideas. (There are obvious exceptions). Lets take some basic starting points. The media's reporting about economics is often jargon filled and explanation light. So for example at the moment we have had many reports about the Governor of the Bank of England's statements that interest rates may have to stay high in order to diffuse inflationary pressure. We have almost no explanation though of why it is neccessary to stop inflation rising too fast, no explanation of what interest rates do to inflation and why they do it. I've never seen a journalist really explain that inflation isn't a measure of the level of prices but a measure of the rise in prices: when we talk about inflation rising or falling, we are talking about the speed of the rise in prices quickening or slowing. And this permeates right across economics: for example, we seldom hear about the real debate over council tax which is between those who are capital rich and income poor (pensioners with houses) and those who are capital poor and income rich (new entrants to the labour market often), or about the principles which underlie the concept of free trade.

It strikes me that this is important. As politics becomes more technocratic, more coded in vocabulary, and less about class conflict as it has become over the last twenty or thirty years, its vital that to remain democratic, we still understand what's going on. I often think that the real problem with politicians and levels of public trust in them, is that often politicians of all parties seem to be speaking in code. And people only speak in code when they want to fool you. Or politicians speak in simplicities which everyone knows they don't really believe. Compare say the debate over Northern Rock with the debate over Iraq: whatever your views on both issues, I think that the public were much more informed about Iraq than about Northern Rock. And it wasn't just that they were more interested (for obvious reasons) in Iraq. Whatever you think of the debate, the debate was conducted in simple terms and using profound ideas. Economics strikes me as one of the areas in which governmental practice and what people imagine government does diverges radically. Take regulation, the Financial Services Authority which regulates banks (but not credit cards??????) applies a 'principles based approach'- there are good reasons why they do that- but its not what I think most people think a regulator does. The FSA doesn't walk around with a code, like a Banking parking inspector, pointing to yellow lines. It regulates in a different way but I doubt that many members of the public know that.

If it matters, then why is economic literacy a problem? Firstly I do think that political literacy is a problem. I've said before that I'm not sure how far the population can run the country if they don't understand what it is that they are running. But I do think that there are bigger problems in economics. Partly its because in a broad sense the economic arguments are over: there aren't many communists left, and most unabashed capitalists at least pretend that they want a welfare state. The argument is over levels and degrees, its over principles but principles which are in some sense shared on both sides. Economics has a scientific aspect, as well as a normative underpinning. You can't have a good economic viewpoint unless you get the morality right: but once you have done that you do need to do mathematics, and particularly calculus (which is the study of the gradients of graphs) in order to turn that viewpoint into policy. Mathematics terrifies people in a way that most other subjects don't. And its a subject that has been particularly affected by jargon: partly because it is the abstract depiction of human beings rendered as integers. Economics aspires to be a kind of physics of humanity- seeing humans as particles and measuring their interraction.

I don't think that there is neccessarily a solution to this: but it opens up a political problem. Increasingly politics is becoming less democratic because the population doesn't understand the government: that's what I think distrust in politicians is really about. And that has damaging ramifications, take the rising protectionist sentiment in the United States or the absense of public discussion about pensions in Europe, we risk inventing problems and ignoring them and we risk the stability of our political system when we do that.


tyger said...

I agree.

Going by some of the retarded economic insight exposed by some of the Tory blogs today - on the NR scandal, I too think economic illiteracy is a bigger problem than people think.

Iain Dale stating it's worse than Black Wednesday is woeful. It disregards NR's assets and value as an on-going concern, and doesn't take into account the fact that £10 billion in 1992 is not the same as £10bn now. And, as for Dizzy's piece... what a load of ill-informed twaddle.

Gracchi said...

Thanks Tyger.

I haven't read all the pieces about it- I have read Dizzy's- I have no idea what I would do about Northern Rock because I'm not intimately involved. I do think its odd that Dizzy disregarded the fact that according to the Governor of the Bank of England, letting go of Northern Rock could have led to a mass of banks in trouble and perhaps the collapse of the UK banking sector. That was his opinion on Radio 4 sometime ago- I can see Dizzy's argument about moral hazard but equally the Governor of the Bank is a fairly knowledgable figure on these things.