Are Politicians Talking Down the Economy?
A few months back, Sen. Chuck Schumer was criticized (and threatened) for correctly predicting a run on IndyMac. The event offered an interesting window into the psychology of credit spirals. The basic question, highlighted by newly minted Nobel laureate Paul Krugman in a slightly different context, is this: how easy is it for speculators to spark a credit crisis?
I don’t have a good answer to that question, though I imagine the data will be immensely richer after the events of the last 18 months. But if you are tempted to think that the credit circulatory system runs largely by encouraging confidence in confidence alone, you would be worried by the following statistic:
Since August 1, across the House, Senate, presidential races, there’s been more than 600 separate campaign ads portraying the economy in a negative light.
The ads have aired 214,000 times at a cost of $95 million.
$49.2M of those ads have been run by the presidential candidates.
So what that means, in essence, is that that $95 million has been spent confirming for Americans the precarious state of the economy.
Before speculating further, I will caution that quantitative content analysis is really quite tricky to pull off. These data come from a marketing study, and the underlying methodology isn’t clear. I don’t know how they coded for “negative” ads, nor how they dealt with mixed messages.
That said, it seems likely that talking about this problem is making it worse. True, politicians want to take credit for booming economies. But where the economy is marginally expanding or contracting, then it is in politicians’ interest to fear-monger. Such messages create self-reinforcing negative spirals. Indeed, the effect is probably most evident in Presidential election years, because the stakes of the contest suck up so much media oxygen.