Tuesday, December 18, 2018

What causes market bubbles, and are we in one?

An all-star group of media economics experts gathered at the University of Navarra Dec. 13 and 14 to exchange ideas and research results on the role and behavior of media during periods of economic or financial boom and crash.

Their approaches were varied: historical, media effects, content analysis, journalistic practice, political economy, etc.

(The full program is here.)

Many of the presentations centered on media coverage of the global financial crisis of 2008-2009 and its impact in countries including Ireland, England, Greece, Spain, the U.S., the Netherlands, Germany, and Denmark. The papers provoked lively debate among the participants, since there was significant time between presentations for questions and comments.

The studies used ingenious research methods and rigorous statistical analysis to tease out surprising insights. I had the unenviable task of providing a summary at the end, on a Friday night, in just 10 minutes. So here is the cheeky result, with apologies to my learned colleagues:

Cause of bubbles: audiences
    •    Overwhelmed by complexity
    •    Uninterested in economics
    •    Ignorant
    •     . . . even willfully ignorant
    •    Lazy, complacent
    •    Delusional

Causes of bubbles: journalists
    •    Overwhelmed by complexity
    •    Lacking training in economics
    •    Excessive sourcing from handful of public officials and financial industry experts
    •    Excessive sourcing from charlatans posing as experts
    •    Overworked, underpaid, forced to write click bait
    •    Self-censorship, serving ownership interests
    •    Uninterested, ignorant
    •    Lazy, complacent
    •    Unethical
    •    Sometimes corrupt

Causes of bubbles: politicians
    •    Ignorant of economics
    •    Opportunistic
    •    Manipulative
    •    Unethical
    •    Corrupt

Causes of bubbles: media owners, bankers, experts, charlatans
    •    Opportunistic
    •    Manipulative
    •    Unethical
    •    Corrupt

Workshop participants. Front, from left, Steve Schifferes, Angel Arrese, Sophie Knowles, Alyt Damstra, Julien Mercille, Yiannis Mylonas, James Breiner, Anya Schiffrin, Peter Thompson, Laura Basu. Back row, Alfonso Vara, Henry Silke, Chris Roush, Joseph Weber, Mike Berry, Robert S. Wells.
This led to two (tongue-in-cheek) research questions: Is God dead. (Given the behavior of all of the actors involved, one hypothesis could be that human beings are simply fallen creatures, in the Judeo-Christian moral sense, and therefore inclined to immoral behavior, making bubbles inevitable.)

Second research question: Is Truth dead. (Given the mechanized, militarized use of algorithms to manipulate public opinion, this is a hypothesis that could be investigated.)

Questions, issues, and problems for further research

The papers raised many questions, and there was lively debate among the participants. Could journalists do a better job if they were trained better in economics? Would better training make them rely less on so-called experts and do more of their own investigative work? Is the business model of traditional journalism, which has led to cuts in business staffs generally, one of the causes of the weaknesses identified in business coverage?

Several researchers pointed out the almost total absence of viewpoints from homeowners and potential home buyers who experienced the bubbles firsthand. Would bubbles in the housing market have been identified earlier if more journalists had talked to ordinary homeowners and renters? Popular anger against the tone-deaf elite helped drive voters to extremists on both the left and the right, the researchers found.

Several of the papers demonstrated how the history of the 2008-2009 financial crisis was rewritten by conservative parties in both England and Ireland to blame the problem on excessive spending by the liberals. And this resulted in polemics by the pro-Brexit forces against supposedly idle immigrants flooding in to drive up the cost of welfare.

Similarly, the media in Germany and Denmark portrayed the Greek debt crisis that followed the global financial crisis as an extreme example of flaccid Mediterranean societies--Portugal, Italy, Greece, and Spain, with Ireland thrown in for good measure, the PIGS--with lazy people feeding at the trough of an overly generous social welfare system funded by too much debt. The severe austerity measures imposed by the European Central Bank led to populist revolts in all those countries.

The concentration of ownership of the news media in a few hands has led to the promotion of viewpoints and agendas of the business elite, bankers, and other financial enterprises, several papers showed. Independent digital media have emerged in several countries with a low-cost business model, often free of advertising and dependent on subscriptions, memberships, or foundation support, suggesting that here is a market among the general public for economic news--De Correspondent in the Netherlands, eldiario.es in Spain, ProPublica and the Texas Tribune in the U.S., among them.

Several of the papers advanced the conversation about some burning questions: How the news media can reverse their steady loss of credibility in the developed world; how economic journalists can explain the difference between an economic boom and a bubble; and how journalism researchers and educators can help prepare the way for economic coverage that better serves the public and our representative democracies.

In the video below, Alyt Damstra of the University of Amsterdam explains her research, about how economic news is constructed and its effects on people's daily lives, on public opinion, and their expectations from government officials. 

Chris Roush of the University of North Carolina at Chapel Hill interviewed leading business journalists in the U.S. to identify trends and recommendations for how to improve the profession. (Videos by Camila Angulo, University of Navarra.)

Angel Arrese, organizer of the workshop, explains the topic of market bubbles and the goals of the event (Spanish).


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