More on Institutional Decay: The Business Section

Soon or later, every intelligent investor studies the work of enlightened economists and other social critics who have written about the causes of the turn-of-the-century bubble in stocks and the later real estate bubble. Their analyses commonly indicate that the mass media play a critical role in the development of irrational exuberance and market excesses that are bound to lead to eventual market collapses and the loss of middle-class wealth. Examination of stories from periods of excess shows reporters repeating the extravagant claims of Wall Street hucksters without applying critical thinking to the goofiness underlying the mob psychology on which the hucksters thrived. In the turn-of-the-century stock market bubble, virtually all the media expanded coverage of the stock market and thereby continually stimulated irrational behavior on the part of the masses who were misled into believing a "new economy" had been born which was unlike anything known by older investors. A sensible investor was thus confronted with mountains of data that could not be digested and the meaning of events was masked in avalanches of trivia concerning investments. Now we live in different times. Middle-class investors are in dire need of intelligent discourse about financial markets. They need information about corporate malfeasance, executive corruption, governmental incompetency and the undermining of financial institutions by a political ideology which has insisted that government has no role in regulating corporate life. One would think that the media would rise to the occasion and give middle-class investors what they need. Instead, the media are actually cutting back on their coverage of business news. Older readers can probably remember the hefty size of business sections in the paper in the late 1990s and the early 2000s. The business section was a good size on Friday and Saturday, really big on Sunday and papers all over the country produced large Monday business sections which reported on business developments and technology. Younger readers who are new investors might have no memories of those days. To illustrate the changes for them, I made a trip to my local library and inspected the business sections of two newspapers which were widely available in the Chicago area: the Chicago Tribune and the New York Times. I wish I had been able to see more papers that were available here, but the library had no microfilms of their issues. although I am not claiming that this was a scientific study of all media, but I remember papers from all over the country in that era and I am confident that my results will be similar to what you will find in your own inspection of your local archives. What I did was to examine the business sections for some significant weekends in terms of market performance: January 14-17, 2000 ,when the Dow Jones hit its then record high of 11, 723 September 21-24, 2001: the Dow had dropped to 8236 after 9-11 September 27-30, 2002: the Dow hit the low point of its crash at 7701 The size of the business sections for those periods were then compared to the size of the business sections of last weekend: March 28-31, 2008. The change in coverage is dramatic. For the New York Times, 33% of the business pages at their high point in 2000 had disappeared by 2008. From the Chicago Tribune's high water mark in 2000, 42% of the business pages had disappeared. What it indicates is a degrading of the press in regard to the coverage of business matters. When you were being overwhelmed by trivia that only stimulated you to behave more irrationally, the press was deluging you in uncontextualized facts and misrepresentations that you didn't need. Now that a deeper understanding of financial issues is critically important for dealing with your investment decisions, the press cuts back its coverage.