The Media's Top 10 Worst Economic Myths of 2008
Each year the Business & Media Institute looks back on the year's news and selects the top 10 worst economic myths. Here is our 2008 list:
10. Capitalism is dead or dying.
9. Gas at $4-a-gallon, blame the oil companies.
8. Fannie’s failure
7. Barack Obama sends stocks soaring, but not sinking.
6. Alternative energy: All gain, no pain
5. The economy has a fever and the only prescription is more bailouts.
4. Attack of the Killer Tomatoes
3. Oil prices will skyrocket to $200 a barrel, gas to $15.
2. Welcome to 1929: Great Depression II
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10. Capitalism is dead or dying.
Media myth: From Michael Moore to CNBC, people wondered about the end of free-market capitalism.
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A front-page analysis in the Oct. 10 Washington Post declared that “The worst financial crisis since the Great Depression is claiming another casualty: American-style capitalism.”
That story by staff writer Anthony Faiola accurately portrayed the potential government takeover of elements of the financial system as un-capitalistic, but incorrectly blamed capitalism for economic devastation.
“[T]he hands-off brand of capitalism in the United States is now being blamed for the easy credit that sickened the housing market and allowed a freewheeling Wall Street to create a pool of toxic investments that has infected the global financial system,” Faiola wrote. His story had no rebuttal from free market economists who say this was not market failure after all. It also claimed that countries have lost respect for the American brand of capitalism in the wake of
CNBC also worried Sept. 19 that capitalism “seems to be dead.” That was what former Bloomberg South Europe bureau chief Rob Cox told CNBC’s “The Call” viewers while talking about taxpayer funded bailouts “I don’t know what it means. I don’t know how we’re going to regulate. I don’t know how we’re going to legislate going forward but its dead.”
But not everyone took such a pessimistic tone. Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, and current senior fellow at the Hudson Institute said “reports of capitalism’s death are greatly exaggerated,” in an Oct. 16 column.
“Although
9. Gas at $4-a-gallon, blame the oil companies.
Media myth: Oil companies and CEOs were a favorite media target in 2008, but the monopolistic oil cartel that does manipulate oil prices was rarely scrutinized.
When gas hit 4 bucks a gallon, who got the blame? Not the oil cartels, that’s for sure.
When oil prices climbed to more than $100 a barrel, journalists were looking for someone to blame for Americans’ “pain at the pump.” They called “Big Oil” companies “thieves” and accused them of reaping “excessive profits” driven by “greed.” But the networks ignored one of the leading causes of high gas prices – the hostile leaders of the world oil cartel – the Organization of Petroleum Exporting Countries (OPEC).
On NBC’s May 15 “Today,” host Matt Lauer interviewed ExxonMobil (NYSE:XOM) CEO Rex Tillerson. Lauer quizzed Tillerson on oil companies’ profit margins and higher gas prices, but Lauer didn’t ask Tillerson about other factors that affect the price of gas, like the Lieberman-Warner climate-change bill.
“Most analysts say prices at the pump will get even worse during the summer driving season,” Lauer said, “but the oil companies are posting huge profits.” He noted that ExxonMobil, made a $10.9-billion profit in the first quarter of 2008, and asked Tillerson a question from “Today” viewer “Elaine in
“How can you justify the record profits you’re making when people can’t afford to put gas in their cars to go to work?”
In response, Tillerson pointed out that Exxon’s profits are not large because of high profit margins, but because of high volume. “[W]hen you take our profit of $40 billion [in 2007], that’s 10 cents on every dollar of revenue that we generate,” he said. “That puts us about in the middle of most Fortune 500 companies, so we’re not at the top in terms of profit per revenue; we’re not at the bottom.”
In truth, the law of supply and demand mostly determines the price of a commodity like oil. The rapidly growing economies of
But if the media must have villains, it could have looked to someone who actually does manipulate prices: OPEC. Western oil companies must rely on OPEC nations for much of their product. When OPEC meets and decides to curtail oil production, the price of oil to all those companies – and everyone else – goes up.
The Business & Media Institute found that the networks ran 14 times more stories about oil companies’ profits than OPEC profits. Reporters also overlooked the anti-American hostility of some OPEC nations.
8. Fannie’s failure
Media myth: When it came to the demise of Fannie Mae and Freddie Mac, the network news never saw the trouble coming.
Print journalists had been warning of trouble at government-sponsored enterprises Fannie Mae and Freddie Mac since 2002. But in 2008 ABC, CBS and NBC were clueless when it came to the extreme risk the duo presented to taxpayers.
The NBC “Today” show hinted at problems with the two government-sponsored companies on July 14 when Andrea Mitchell reported Sen. John McCain’s (R-Ariz.) reaction to a bailout:
“John McCain also says the survival of the mortgage giants is essential, despite some of their past practices,” said Mitchell. Viewers were left to wonder what those “past practices” could have been. Here are a few hints: billions of dollars in accounting scandals, stock prices that have plummeted, connections to prominent politicians and a high-risk portfolio.
CNBC’s Erin Burnett shed almost no light on the situation in a “Today” segment the same morning.
When co-host Matt Lauer asked, “How did they get themselves in this situation?” Burnett explained that Fannie and Freddie guarantee mortgages for other lenders so that if the loan goes unpaid, they take the loss instead of the original lender. But she neglected to mention the enterprises’ government mandate to increase home ownership and the implied taxpayer guarantee that enabled the two public companies to dominate the market.
The media also underreported accounting scandals at Fannie Mae. In 2004, earnings restatements at Fannie Mae were $11 billion. That was 19 times bigger than Enron’s, yet Enron is the scandal everyone remembers.
Network reporters should have been reading The Wall Street Journal, which had been sounding alarms about the corruption and financial danger of the lenders’ practices for more than six years. The Journal has run at least 29 editorials or op-eds exposing the two businesses for political connections, preferential regulation, and Enron-like “cooking” of the books.
“The
The Journal wasn’t alone. The Washington Post said on July 14, “Though the implosion of investor confidence in Fannie Mae and Freddie Mac last week was sudden, the worries driving it have been the subject of countless warnings over many years.”
That Post article explained that the two entities had too much debt and not enough capital, operating “with financial cushions that were too thin to support their far-reaching financial risks.” This was something former Federal Reserve Chairman Alan Greenspan told lawmakers in 2004, according to the Post. Greenspan argued for “preventive action” “sooner rather than later.”
After Fannie and Freddie failed some in the media blamed free markets, but both Investor’s Business Daily and The Journal explained that it was socialism that created the problem: “We haven’t suddenly become socialists. What taxpayers need to understand is that Fannie and Freddie already practice socialism, albeit of the dishonest kind. Their profit is privatized but their risk is socialized,” said a July 12 Journal editorial.
7. Barack Obama sends stocks soaring, but not sinking.
Media myth: Journalists gave the new president-elect credit for an Election Day stock market rally, but when markets collapsed Obama got a pass.
As stocks rose on Election Day 2008, the media were more than happy to credit investors’ excitement over Democratic nominee Sen. Barack Obama’s chance of winning. But when stocks tanked in the days following Obama’s election, concern over Obama’s economic policies was the last possible culprit.
The Dow fell four trading days out of five following the election, and by the close Nov. 11 was still down more than 600 points from its Nov. 3 close. Stocks were also trading lower on Nov. 12 "after Treasury Secretary Henry Paulson announced changes to the government's bailout plan," according to BusinessWeek.com. The Dow had shed over 3 percent by 11:35 a.m. according to the article.
Yet, one global news agency trumpeted the biggest Election Day rally “in history” as an “Obama effect,” while many others declared that investors were simply “relieved” to see the end of the campaign.
But then the markets went into what CNBC’s Melissa Lee termed a “tailspin.” Nov. 5 and 6 losses became the worst two-day decline since the 1987 crash, but the three networks placed no amount of blame on Obama.
Out of 23 stories on ABC, NBC and CBS only one asked about the “notion” that the election outcome could influence the stock market negatively.
Chris Cuomo was the only network reporter to ask about a potential Obama connection to the drop. On Nov. 7 “Good Morning
Golodryga dismissed the idea out of hand. “A lot of people are worried about that, “she said. “The fact that Obama won was something that was really factored into the market, going back a few months ago. Remember the market is a forward looking indicator. Right now, we’re just dealing with these really, really bleak numbers coming out regarding the economy. And there’s also profit-taking as well.”
Forbes.com was one of the only media outlets to analyze the situation differently. Steve Schaefer, Markets Reporter for Forbes was “Looking for the ‘Obama Effect’” in his Nov. 5 article. According to his analysis, the market’s dive was somewhat related to Obama.
“Wall Street tanked Wednesday, as investors fixated on weak economic indicators and pulled the prior session’s gains off the table. The market was also beginning to visualize what a Barack Obama presidency will mean for business, after the
But Schaefer cautioned against reading “too much into Wednesday’s trading.” Schaefer’s story admitted that certain types of businesses might be “at risk” under Obama, including tobacco, “Big Oil,” brokers, pharmaceuticals and others.
6. Alternative energy: All gain, no pain
Media myth: According to journalists, the only way out of high gas prices and global warming are expensive, impractical “green” fuels.
Rather than give an even-handed report on the oil supply situation, many journalists continued to push the “green” theme in 2008, calling alternative energies “a surefire way to cut fuel costs” and saying that a fuel other than gasoline would be “a welcome relief,” despite the trillions of dollars and number of years that may take.
In June, CBS “Evening News” stacked a story against drilling on the very night a poll came out showing public support for increased drilling. Correspondent Bill Whitaker cited “bipartisan” opposition to offshore drilling “in
NBC “Nightly News” consulted CNBC’s Erin Burnett on June 22. Burnett acknowledged the oil supply problem, saying “a lot of people want oil, and we don’t seem to have enough.” But she never mentioned increasing domestic supply by allowing offshore or ANWR oil exploration.
Instead, Burnett said, “We have to take our lumps, pay these prices and invest aggressively in alternative fuels that we can have right here in the
Burnett wasn’t the first journalist to cheerlead for alternative energy development.
“For anyone with a fresh idea, expensive oil is as good as a subsidy – with no political strings attached,” Wired.com contributing editor Spencer Reiss wrote in December 2005. “And smile when you see a big black $3 or $4 out in front at the gas pump. Those innovators need all the encouragement they can get. Shale oil, uranium, sunlight – there’s enough energy out there for a dozen planets.”
Alternative forms of energy are less efficient and usually less attractive to an open market than oil and coal.
NBC’s Anne Thompson noted on the March 12 “Nightly News” that higher energy prices would be good for alternative forms of energy like solar and wind power, which can cost two to four times as much as coal and oil.
Two scientific studies have suggested clearing land to produce biofuel ingredients will actually contribute more to “global warming” than simply sticking with fossil fuels. The shocking part is that someone in the media actually reported it!
The findings “could force policymakers in the
We’re talking about big differences, too. One study out of
Researcher Tim Searchinger estimated “it would take 167 years before biofuels would stop contributing to climate change.”
5. The economy has a fever and the only prescription is more bailouts.
Media myth: From the economic stimulus early in 2008 to the call for a Big Three auto bailout in December the media couldn’t find a bailout it disliked.
Bear Stearns, AIG, Fannie Mae and Freddie Mac. 2008 was the year of the government bailout and the news media supported such interventions time and time again.
One particularly vocal advocate for bailouts was CNBC’s Jim Cramer who warned that without a financial bailout the
When public opinion was turned against the $700-billion bailout CNN correspondent Carol Costello admitted that the network’s experts were confused. Costello said, “I talked to our own polling experts and they are perplexed by the numbers” which showed a majority against the bailout.
The $25 billion housing bailout of Fannie Mae and Freddie Mac was also embraced by the media. “CBS Evening News” called the bill a “lifeline” for the government-sponsored enterprises, but correspondent Jim Axelrod didn’t explain that the “unlimited capital from the government” would come from taxpayers.
But Jerry Bowyer, the chief economist for the Benchmark Financial Network, criticized the Fannie/Freddie bailout: “It’s bad in the short run, unless you are either a highly paid Fannie executive or currently a staffer for any Democratic member of a Congressional Banking Oversight Committee, in other words, a future highly paid Fannie execute [sic],” Bowyer wrote. “In the long run, this will be a huge transfer of wealth to a corrupt bureaucratic and inefficient bureaucracy from the rest of us tax payers.”
Bowyer and other free-market economists have criticized the many bailouts, but their perspective was rarely included in bailout stories.
4. Attack of the Killer Tomatoes
Media myth: A salmonella scare frightened everyone and upset one CNN anchor so much that he called for the impeachment of President Bush – but it turned out peppers were the culprit.
CNN’s Lou Dobbs, host of “Lou Dobbs Tonight,” called for the impeachment of President George W. Bush on June 19, 2008 – but this wasn’t about the Iraq war or some sort of atrocity. It was over tomatoes.
Dobbs placed the blame for the salmonella outbreak that had sickened 383 people by April 2008.
“You know, I have heard a lot of reasons over the years as to why George W. Bush should be impeached,” Dobbs said. “For them to leave the Food and Drug Administration (FDA) in this state, its leadership in this sorry condition and to have no capacity apparently or will to protect the American consumer – that is alone to me sufficient reason to impeach a president who has made this agency possible and has ripped its guts out in its ability to protect the American consumer.”
The media spread fear of tomatoes to the public. In the first four days of the scare – June 8 through June 12 – the three broadcast networks aired 20 stories hyping the salmonella outbreak and pointing the finger at tomatoes.
Ultimately, the misplaced blame cost the tomato industry at least $100 million according to an Associated Press story. The Food and Drug Administration later cleared tomatoes and found the true culprit of the
3. Oil prices will skyrocket to $200 a barrel, gas to $15.
Media myth: Journalists warned of super-high oil and gas prices, but then the bubble burst.
Journalists predicted skyrocketing oil prices in 2008 up to $400 a barrel.
NBC News chief foreign correspondent Richard Engel warned on the July 1 “NBC Nightly News” an attack by Israel could send oil prices soaring – sending gas prices into territories never imagined.
“I asked an oil analyst that very question,” Engel said. “He said, ‘The price of a barrel of oil: Name your price – $300-$400 a barrel.’”
What would oil at those levels mean? A June 11 Time magazine story by Robert Baer put the price of a gallon of gas at $12 if oil goes to $300 a barrel. In May, Management Information Services Senior Energy Advisor Robert Hirsch told CNBC’s “Squawk Box” the oil at those prices could mean $15-a-gallon gas.
NBC “Nightly News” asked CNBC’s Jim Cramer about those $12-15 predictions. Cramer said “I think that $12 isn’t in the cards. I do see $5 to $6-a-gallon by end of the summer.” But even that prediction turned out to be wrong. Gas prices peaked at $4.11 on July 11 and have since fallen to $1.68 according to AAA.
The news media didn’t anticipate the end of the oil bubble with prices sinking from about $147 at its peak to around $45 Dec. 10.
But there were experts who disagreed.
Equidex President Phillip Gotthelf pointed out on Bloomberg TV on Oct. 7, “I think that the commodities really outlived their, their useful rallies because they’ve exceeded the elasticity of the consumer.”
“And commodities are consumables, they’re not investments. They’re speculative equals sometimes, but they’re certainly not investments.”
According to Gotthelf, those commodities include oil, which he said was poised to go to $40 a barrel or lower in the wake of the global economic turmoil.
“I’m somewhat amused. Goldman Sachs (NYSE:GS) was forecasting $200 a barrel for oil,” Gotthelf said. “I see that their forecasts are getting more and more conservative. I said $200 a barrel was ridiculous. Even $150 I thought was ridiculous. We were looking at $24 a barrel in 2004. Everybody is now making comparisons in the financial sector to the implosion of stocks in 2002, 2003 – the last stock recession. Why shouldn’t we see oil return to $40, maybe even below $40 a barrel?”
2. Welcome to 1929: Great Depression II
Media myth: The news media drew hundreds of parallels to the Depression, despite economic data that is not even close.
According to network reports,
But that parallel doesn’t hold up, particularly when looking at daily coverage of the stock market crash in 1929. The difference between how the 1929 and 2008 media handled a crisis was profound – with modern journalists hyping every event and their predecessors expressing calm optimism. A scholar of the Depression, Federal Reserve chairman Ben Bernanke said Dec. 1 that there is “no comparison” between the two situations.
In actuality, the economic struggles of 2008 couldn’t really compare to the Depression. At its peak, unemployment skyrocketed to more than 24 percent. Gross domestic product actually dropped four straight years – 1930-1933 – and took until 1941 to again pass 1929 levels. “It was the worst slump in history, and the most protracted,” wrote Paul Johnson in the introduction to Murray Rothbard’s book “
Yet negativity abounded in 2008, outnumbering positive stories 6 to 1 according to BMI’s recent study The Great Media Depression.
CNBC’s “Mad Money” host Jim Cramer went further than most journalists actually warning that the country was in danger of “Great Depression, No. 2.” On “Street Signs” Sept. 11 Cramer excitedly warned that unless the banking system was bailed out, a second Depression could be in the future.
“It’s obvious the bank system is falling apart,” Cramer said. “Let’s save it before it goes to zero.” Two months later on Nov. 11, Cramer again cried for a bailout -- this time for General Motors.
Cramer responded to criticism saying, “I don’t care– for the same reason that AIG was in the business of a criminal conspiracy – big deal,” Cramer said. “It’s like look – we got to bail them out. We have to. We have to keep the Great Depression off the table.”
Ironically in December, Cramer chastised people using Great Depression warnings calling them “scare tactics.”
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Media myth: Time magazine and other media outlets pushed the idea that Obama must be the next FDR, but they are misrepresenting the impact of the New Deal.
Imagine the classic image of FDR sitting in his car grinning, with a cigarette perched from his mouth. Now imagine it had the face and hands of president-elect Barack Obama instead of FDR.
No, it wasn’t a dream – it was the cover of Time magazine on Nov. 24 which made it clear the media had crowned Obama the new FDR and wanted him to institute a new New Deal.
The photo illustration of Obama and FDR came with a headline that declared: “The New New Deal: What Barack Obama can learn from F.D.R. – and what the Democrats need to do.”
But even before Obama was elected, journalists were looking for FDR. CNN’s Wolf Blitzer asked before the election, “who’s gonna be FDR as opposed to Herbert Hoover?”
In a discussion of economic stimulus packages, ABC’s George Stephanopoulos said on Oct. 19 that he thought Obama “would want to do something like what FDR did in 1932.”
Guests and experts also sounded the call. On CNN, Jeffrey Sachs of the Earth Institute at
But what news reporters, anchors and guest didn’t tell viewers is that according to several economists FDR’s New Deal actually prolonged and deepened the Great Depression.
In a 2004 study, two
Another free-market economist who has written about FDR’s negative impact on the economy is Robert Higgs. Higgs told the Business & Media Institute that a new, New Deal would be disastrous. “I cannot imagine a worse course of action, short of outright socialization of the entire economy. The measures comprised in a new New Deal will not hasten general economic recovery, but will only bulk up the power of government and transfer income to privileged interest groups at the expense of taxpayers and consumers,” Higgs said.”
