The Media and Markets: How Systematic Misreporting Inflates Bubbles, Deepens Downturns and Distorts Economic Reality

Stefan Theil

Stefan Theil

Joan Shorenstein Fellow, Fall 2013
Business Journalist, Former European Economics Editor at Newsweek

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Excerpt:

Just as a vibrant press plays a crucial role in a healthy democracy, the media also have an indispensable watchdog role in business and economic affairs. At their best, journalists make sense of complex economic issues, dig into scandals that would otherwise go unseen, and shine light on government economic policies and their effects on businesses, jobs, consumers and taxpayers. Without smart and critical economic reporting, society would have far fewer defenses against special interests from Wall Street on down.

This paper goes beyond the usual anecdotes of stories mishandled by the press. Instead, I use data from media content analysis to highlight the systematic mistakes that editors and reporters repeatedly make when they cover the economy. These deeply ingrained biases and distortions are categorized into five major types. First, I will look at the media’s role in inflating bubbles, where uncritical bandwagon reporting plays an indispensable role in creating destructive crises in the market economy. Second, the same focus on personalities and dogfights that we know from political news systematically distorts business reporting as well. Third, media are drawn to big companies and well-known consumer brands like moths to a flame, at the expense of a substantial invisible economy that flies under the media’s radar. Fourth, an obsession with short-term market movements and company numbers conveys more noise than signal, gives us dots of mostly useless and backwards-looking data instead of connecting the dots to a larger context, and takes company accounting at face value when experience teaches us not to place too much trust in those numbers. Last, a preference for bad news and worst-case scenarios often leads to doom-mongering, especially in times of crisis.

By focusing on these systematic mistakes and the “newsroom mechanics” that lead to distorted reporting on the economy, this paper both avoids and goes beyond the usual fixation on the media’s alleged liberal or conservative political bias. In a final section, I will discuss some of the implications for journalism and propose some ways we could improve.

Read the full paper (PDF).