First Thing We Do, Let's Blame All the Economists

BusinessWeek's cover story this week, "What Good Are Economists, Anyway," slams the economic industry for failing to predict and explain the economic crisis, which is weird because that's exactly what any non-economist could say about the business journalism industry. The piece prompted such a feverish online  response that economics editor Peter Coy took to the comments section to defend his argument, and his magazine:

"BusinessWeek did write lots of stories warning of trouble to come. We were more bearish than the consensus of economists."

Hmm. I was dubious. So I searched the BW archives for cover stories in the few months before the stock market peak in the summer of 2007. To be sure, BW has been all over stories before they mainstreamed (Peter Coy started reporting on the danger of exotic securities in 2002, so hats off to that). But there was also plenty to argue against the claim that BusinessWeek was a standardbearer of bearish scrutiny.

Warning? In "It's a Low Low Low Rate World" from 2007, the magazine predicted a future of easy money emulating the 1990s boom years. At the March pub date, the ten-year bond yield was around 4.5%. By June it was up almost a full percentage point, prompting a couple econobloggers to wonder whether there was BusinessWeek cover curse. It's also hard to beat the article's final observation for dramatic irony: "'Whatever shocks are ahead ... the markets are better positioned to deal with them than they've ever been.'" Yikes.

Bearish? When the boom market first began to bob in early 2007, BW reporter Roben Farzad wrote a front-pager calling "the outlook for US markets is surprisingly upbeat." He elaborated in a cheery podcast: "[The market drop] is chump change ... Of course it's going to sell off. Big frickin deal ... And it's healthy." He went on to explain why private equity giants like Blackstone and Carlyle Group can always come in and take over an eighth of the stock market if it begins to slip. Yikes, again.

A Problem Like Maria. Finally, CNBC's Maria Bartiromo front-of-the-book interviews can sometimes produce stenography when its subjects deserve scrutiny. Big example: on March 20, 2008, just after Bears Sterns went under, Bartiromo sat down with Lehman CFO Erin Callan to basically transcribe what we now know was utter nonsense. From the intro:

Thanks to the Fed intervention in the credit markets and the relentless efforts of Lehman's top brass, especially new CFO Erin Callan, Ugly Monday gave way to Reassuring Tuesday ... When BusinessWeek went to press on Mar. 19, shares were back down a bit, but Lehman was on much safer ground.

Three months later, Erin Callan resigned. Three months after that, Lehman folded.

To a certain extent, this whole exercise above is hypocritical. I'm selectively bashing a good magazine because it selectively bashed macroeconomic theory for failing to account for derivatives. So my point isn't to discredit BusinessWeek but to call into question the purpose of this unending exercise in selective blaming certain groups for the entirety of the crisis, which frankly get us nowhere, and slowly. BusinessWeek is right about a lot of things, and it also kind of failed to predict this economic crisis. That's OK! (It's in distinguished company!) But let's give the wagging fingers a rest. It cannot be all the economists fault, and all Barney Frank's fault, and oh yeah, let's also banish Larry Summers from civilization for praising free markets in the 1990s. BusinessWeek's mixed record actually looks a lot like, well, the record of the jumble of economists it's skewering.

So when can we begin to move forward? Toward the end of the podcast, executive editor John Byrne asks Peter Coy what "we" - business journalists - should do to fix the macroeconomic conundrum. "We?" Coy exclaims. "We shouldn't do anything! The economists need to get their act together."

Now that's just got to be wrong. He should do something. Coy is a economics editor. BusinessWeek is a business magazine. "Thinking forward" is its slogan, for heaven's sake. It should have ideas for solving the business and economic crisis it covers so thoroughly. If not, what good is business journalism, anyway?