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Sunday, October 7, 2012

From Economic Scare Stories to the Other Side of Reality

Twenty years ago this month my colleague Bob Hall and I wrote an op-ed for the New York Times about how “in recent months press reporting about the economy has become so pessimistic that it has completely lost touch with reality.” (October 16, 1992). The Times editors headlined our article “Economic Scare Stories,” which captured our point perfectly and fit the Halloween season. In October 1992, economic growth was improving following the 1990-91 recession, but most reporting looked beyond good economic news and said that the economy was doing poorly. Amazingly, the frequently-reported view that the economy in October 1992 was like the Great Depression went unchallenged. So we challenged it, hoping that our article would in some small way result in improved reporting.

Today press reporting seems to have switched to the other side of reality. Compared to October 1992, economic growth is now slower, unemployment is higher, and tragically the long-term unemployment rate is twice has high. And reported economic growth has been declining rather than improving as it was in 1992. Yet, in recent months much reporting about the economy has turned so upbeat that it has again lost touch with reality. Many look beyond the tragic growth or employment news and say that the economy is improving, or that things could have been worse, emphasizing that it is fortunately nothing like the Great Depression.

When asked what caused the switch, I answer, facetiously, that people must have read our article, remembered it, tried to make a correction, but unintentionally overcorrected. That answer, of course, is out of touch with the reality that both October 1992 and October 2012 constitute the final days of a presidential election where the main issue is the economy, and, as Bob Hall and I wrote, “people’s perceptions about the economy affect elections.”