A political bull market (7/27)

Amid Wall Street chaos, journalists and politicians try to pin specious blame on their foes
By Brendan Nyhan
[First published on Salon.com (Salon Premium subscription required)]

As Washington scrambles in the wake of recent stock market declines, too many politicians and pundits are trying to simplistically blame their ideological counterparts for voters' withering 401Ks. Clearly, economic news has an impact on the markets -- good earnings reports generally boost prices and vice versa, for example. But the effect of political news on the markets is harder to interpret, and it creates a kind of ideological Rorschach blot for amateur prognosticators.

Take President Bush's corporate responsibility speech on July 9, with which his advisors said he "hoped to hearten traders and investors with harsh plans to crack down on corporate fraud -- and perhaps spark a rally," according to the Washington Post. When the market declined later that day and the next, it was therefore widely framed as a reaction to -- or a verdict on -- the speech. Rep. Ed Markey, D-Mass., went so far as to say on CNN's "Crossfire" that if Bush had asked for the resignation of Securities and Exchange Commission Chairman Harvey Pitt, "the market would have gone up instead of down. As the marketplace looked today at the reforms that were being proposed by the president, they didn't see enough teeth in them, and as a result, the market plummeted again."

But others framed the decline in the opposite way -- that Bush's speech portended a stampede to meddle in the markets, which scared traders fearful of over-regulation. The Wall Street Journal editorialized on July 10, for example, that "as if investors weren't already frightened enough, the politicians are now offering to help. This was worth 180 points off the Dow yesterday, but then stock prices aren't the point." Are either of these views right? Were other factors the cause? No one knows.

Some administration officials did their best to counter this view of the markets. Treasury Secretary Paul O'Neill tried valiantly (if incoherently) to argue against the notion of a causal link after Bush's corporate responsibility speech on July 9, saying, "To attach a speech to what movements in the markets, I think frankly, that's garbage." Presidential spokesperson Ari Fleischer echoed this in his July 12 White House press briefing, commenting that "[t]here seem to be a trend in Washington to attribute market behavior ... to speeches given by leaders in Washington. My point is, that's not the case." On the July 16, he attacked "part-time analysts" in Washington who think they can understand changes in the market better than Wall Street professionals. But the temptation to deviate from the official line evidently overcame Commerce Secretary Don Evans, who said on July 10 that "[s]ome people even surmised that the market was going down some because of the partisan politics being played with this issue."

When Bush gave his next speech about the economy on July 15, the cable news networks ran live graphics and video of stock market averages next to him. The juxtaposition was absurd -- is the market judging each paragraph of his speech? Bush's words were again linked to the performance of the market, even though other factors were almost surely more important. Analyzing the day's decline and late rally, for instance, a New York Newsday writer found, "Financial analysts said Bush's speech had little impact on either trend. They said the selloff was triggered by a general pessimism fed by reports of new federal investigations into energy traders, while the late rally was the result of bargain-hunting." But this kind of sober-minded reporting was all too rare.

As Howard Kurtz reported in the Washington Post, Fleischer rightly denounced the split-screen coverage, calling it "a troubling new development that sensationalizes and distorts what makes markets go up and down. It suggests to viewers there's a causal connection between a president's speech and minute-by-minute market shifts, which is a misleading representation ... It's economic nonsense." Fleischer is now claiming that "the White House policy is we do not and will not comment on day-to-day fluctuations in the market."

More common, though, was a viewpoint pushed by CNN "Crossfire" liberal co-host Paul Begala, who blamed three Bush appearances for a week of market declines on the night of the second speech, July 15: "The Dow Jones Industrial Average fell steadily as he spoke, eventually dropping more than 400 points before a last-minute rally. For those of you scoring at home, this little chart will tell you how our president is doing as an economic steward. On Tuesday of last week, Bush spoke out against corporate abuses. The speech was panned and the Dow fell. On Friday, Bush had a photo-op to boost investor confidence, and the Dow kept falling. And today, more losses. So far, the Dow dropped 634 points, 7 percent of its total value, since our president began trying to reassure us."

This week, everyone seems to have jumped onboard. On Monday, Julian Epstein, the former Democratic counsel for the House Judiciary Committee, turned this approach into jargon on "Crossfire," saying that "[e]very time [Bush and Vice President Dick Cheney] open their mouths, the stock market tanks. Why is that? Part of the reason is that they have become the poster children for the corporate malfeasance that's been occurring." Columnist John Kelso, writing in the Austin American-Statesman, says "My 401(k) cringes every time President Bush opens his mouth." On Tuesday, Fox News' "Hannity and Colmes" co-host Alan Colmes picked up on the line, saying that "every time President Bush gives a speech, the markets go down." And California Democrat Oliver Phillips told the Guardian, a British newspaper, that "Every time Bush opens his mouth on this issue, the stock market finds a new bottom." Democratic officials are also getting into the act. House Minority Leader Dick Gephardt, D-Mo., also advanced the notion Monday, with the Associated Press reporting that he "noted that stock market dips have now accompanied Bush's economic comments three times in a row." "The president continues to speak -- that isn't helping us," he said. "In fact, it may be hurting us because what people want is action, not words." Sen. John Kerry, D-Mass., made a similar comment to the Congressional Quarterly.

As a result, Republicans are now fighting back. Rep. Tom Davis, R-Va., who heads the National Republican Congressional Committee, said on "Hannity and Colmes" Tuesday that Democratic rhetoric was keeping the markets down. "Confidence in the markets is very, very critical for us to restore at this point," he said, accusing his opponents of "literally talking down the markets, talking about stirring this thing for another three months." But when challenged by Colmes, he partially backed down, saying only, "I, frankly, don't think the rhetoric is helpful to restoring confidence in the markets." And on Wednesday, Rep. Tom DeLay, R-Texas, who serves as the House Majority Whip, gave a speech that accused Democratic leaders of having "talked down the market," among other things.

In the end, what's happening on Wall Street may be extremely difficult to explain or predict, but one thing is certain: There will always be a bull market in spinning the markets in Washington.

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Related links:
-Looking for a silver lining (Ben Fritz, 7/23/02)

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7/27/2002 10:00:13 AM EST |

Social Security silliness (7/26)

by Bryan Keefer

The race to demagogue Social Security continues with a championship-caliber entry from White House Press Secretary Ari Fleischer. According to the Associated Press, Fleischer suggested on Wednesday that "Right now, under Social Security, [younger workers] have the option of paying taxes and getting nothing in return." He repeated that assertion during the on-camera White House press briefing that day:

Q Ari, when you talk about Social Security, you keep saying younger workers will put money in and get nothing back from it. That would be true only if future presidents and future Congresses do absolutely nothing and simply allow the demographic train wreck to occur somewhere -- some decades down.

MR. FLEISCHER: Correct.

Q Nobody who's ever looked -- nobody who's looked at this problem thinks that that's going to happen; they agree that -- they disagree over the options, but everyone thinks that something is going to be done. Isn't it deceptive to be saying to younger workers, as you say repeatedly, "You're going to get nothing out of this system"?

MR. FLEISCHER: Well, under current trends, they will. It's a accurate statement.

A simple understanding of the Social Security system shows this to be false. According to a summary of Social Security's finances written by two of the system's trustees, expenditures will exceed revenues beginning in 2017. This shortfall will be met with Treasury bonds from the Social Security Trust Fund (which represent claims on general revenue) until those bonds are exhausted in 2041. Given the political importance of seniors, it is almost certain that the system's financial problems will be resolved through some combination of changes in the system and general revenue transfers. And even if nothing is done -- an implausible assumption at best -- Social Security revenues at the current rate of taxation will still be able to pay 73 percent of promised benefits in 2041 (declining only to 66 percent by 2076).

Implying that young workers would receive nothing out of the current system as it is structured isn't simply wrong - it's a rhetorical device to scare workers into supporting the president's proposals to change to Social Security system. Certainly, the system faces looming difficulties. Fear-mongering, however, is not a creative contribution to the debate.

Update 7/26 2:12 PM EST:

Here's another Fleischer fallacy from the discussion of Social Security during Wednesday's briefing:

Q But in reality, it's extremely unlikely [that younger workers will get nothing out of Social Security].

MR. FLEISCHER: Well, the reality is that there are three options available. One is to raise taxes, which was done before and hasn't worked. The second is to cut benefits, which is something the President doesn't support. And the third is exactly the President's proposal, to allow younger workers to right on a voluntary basis to put a portion of their Social Security taxes in other investments, whether they're fixed-income investments, bond investments, equity investments, as younger workers see fit. This is for more choices for younger workers, and I think that's something that younger Americans are looking forward to, and they understand the value of a long-term investment.

Fleischer is setting up a false choice between tax hikes, benefit cuts and private investment accounts as the only possible solutions to the shortfall in the Social Security system. However, the reality is that individual accounts incur a major transition cost by diverting revenues needed to meet Social Security's obligations from current retirees to individual accounts, thus worsening - rather than solving - the system's financial shortfall.

The two major individual account plans from the President's Commission to Strengthen Social Security illustrate the complexity of this issue. The Commission's final report (12.9 MB PDF) acknowledges that the version of individual accounts it endorses actually worsen the actuarial balance of the system over the next 75 years (p. 127). The two plans restore actuarial balance in large part by switching from indexing benefits to average wage growth to indexing them to increases in prices, which would reduce benefit levels relative to current law (but keep them even with today's adjusted for inflation).

As a result, according to an analysis by the Center on Budget and Policy Priorities, the Commission's plans still require "the transfer of extremely large sums from the rest of the budget to make up for the losses that Social Security would bear because of the private accounts.  The transfers would equal two-thirds of the entire existing Social Security deficit over the next 75 years under one of the Commission plans and 80 percent of the Social Security deficit under the other plan."

Again, Fleischer's representation of this complex and important issue is simply false.

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-Spinsanity on Social Security spin

7/26/2002 01:33:19 PM EST |

Looking for a silver lining (7/23)

Republicans: Democrats want the economy to fail! Democrats: Republicans made it fail! They're both wrong.
By Ben Fritz
[First published on Salon.com (Salon Premium subscription required)]

Based on a single disputed story about House Minority Leader Dick Gephardt, D-Mo., and how he thinks his party might take back the House of Representatives in November, Republicans are accusing Democrats of intentionally trying to hurt the economy. Democrats, in return, are taking the anti-regulatory bent of the GOP's 1994 "Contract with America," and one related statement by Rep. Tom DeLay, R-Texas, to claim that Republicans caused the current corporate problems.

Both are guilty of overreaching.

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7/22/2002 09:20:28 PM EST |

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