Innumeracy in financial reporting?
The economy, while better than it was . . . isn’t very good.1 And while I’m sympathetic to the efforts of Ben Bernanke and others to highlight potential “green shoots,” you’ll note that I’ve also sounded various notes of caution about overestimating the economy’s health.
My simple take:
Be ready for more of the bad,
even while looking and hoping for the good.
Despite all the evidence I see that the economy has a long way to go to get better, every day I encounter opinions — on television, on the radio, on Twitter, in the print media — from people who seem to need the news to be better right-now-this-instant.2
Well, today I read a long post from my friend Dave Livingston that tends to convince me that I’m right about the lack of robustness in the U.S. economy.3 And he pointed to a telling post from Barry Ritholtz,4 in which Ritholtz picks apart some of the sunny headlines around last week’s report on housing starts:
Housing Starts Fall 46%
Incidentally, much of the [positive] media reportage on this was simply innumerate — the numerical equivalent of illiteracy. Not just a little wrong, but totally, embarrassingly incorrect.
Ritholtz’s central point is that the numbers were given a positive gloss that was grossly inaccurate because it ignored the margin of error in the statistical report cited. He quotes the guilty parties, and his post is short, so give it a read.
What do you think? Are media outlets misreporting economic numbers? Are they putting an overly positive (or negative) spin on the state of the economy? And if so, why?
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Image by O. Taillon Photography live from MyrtleBeach, used under a CC-No Derivative Works license.
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NOTES:
- If it needs emphasis, all of this is just my personal opinion. Hoover’s doesn’t issue economic forecasts, just like it never makes investment recommendations. I’m just telling you what I surmise based on everything I’ve seen. ↩
- Maybe my psychologizing is unwarranted, but that’s how I see it: they can’t stand the thought that things are still bad-bad — maybe because they still feel unprepared for bad times? — and so they try to wish it away by an overly optimistic reading of the economy’s tea leaves. ↩
- I admit that this is a self-reinforcing cycle. Dave and I see eye to eye on a number of things, and we talk a fair bit about the economy, so it’s probably natural that I would tend to give a lot of credence to his views. ↩
- Pardon my ignorance, because I don’t read much across the econoblogosphere — what’s Ritholtz’s general philosophy? What do you think of him? ↩
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I don’t think it’s spin as much as a lack of critical thinking skills. This goes beyond innumeracy. It includes failure to define terms, the willingness to compare apples and horseshoes, and lack of even a nodding acquaintance with logic.
It would also be nice if some of the folks reporting on the economy knew something about economics and business history. Today I saw a headline that told me that “experts” feared that employment numbers would not turn up until after the recovery. Since that’s what happened in just about every previous downturn, it’s probably likely to happen in this one.
Well said, Wally.
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