October 04, 2013
The New York Times committed an astounding blunder when it took at face value a release from the Obama Treasury Department showing how the 2011 debt ceiling standoff hurt the economy. The three pieces of evidence for the standoff imposing a large price is a plunge in the consumer confidence index, a sharp fall in the stock market, and a big rise in an index measuring investors’ expectations of the volatility of the S&P 500.
These measures in fact tell us little about the economy. None of them is a direct measure of economic activity. Any analysis of the actual components of private sector demand (investment and consumption) would show little evidence of any falloff during the period leading up to the crisis.
Instead, these are all measures of perceptions about the future. The consumer confidence measure is especially misleading. It actually has two components, a current conditions index and a future expectations index. The current conditions index is fairly closely correlated with current consumption. The future expectations index is far more volatile and has almost no correlation with current consumption. Most of the plunge in the consumer confidence index during the crisis was in the expectations index.
The other huge problem with the NYT charts is that they actually ignore the main factor moving these indexes. Italy joined the list of euro crisis countries in the week where the debt ceiling crisis hits its climax. Since a default by Italy could have led to a collapse of the euro, this created enormous fear in financial markets. That caused world stock markets to plunge.
Interestingly, the price of U.S. Treasury bonds soared and interest rates plummeted. (Why doesn’t the NYT have a chart showing interest rates on 10-year Treasury bonds for this period?) That is the direct opposite of what we would expect to happen if investors were losing confidence that the U.S. government would pay its debt.
NYT reporters should learn that the Obama administration is not a public information service. It has an agenda. That means that its releases should be scrutinized carefully and not just reprinted without comment. Reporters have the time to evaluate releases from the administration and determine if they are accurate and complete. Readers do not.
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