The latest Netflix hit, Stranger Things, features a dark alternate dimension controlled by a horrible monster. That makes the show similar to the coverage of Donald Trump, the Republican Party’s monstrous nominee for president, who is repeatedly cast as a serious contender to win the White House despite overwhelming evidence to the contrary. Trump likely never will get to implement his isolationist trade agenda, but there is reason to think he already has hurt the U.S. economy by putting a chill on investment. The mainstream press could have contained the damage, but it didn’t. Editors and reporters probably made it worse.
Several academic studies have documented the media’s ability to frame investors’ perceptions of the economy and markets. In April, economists William Goetzmann and Sasol Kim, with the help of Nobel laureate Robert Shiller, showed in a paper published by the National Bureau of Economic Research, that the financial press tends to emphasize the negative over the positive, distorting perceptions of the likelihood that bad things will happen.
Specifically, the authors used survey data dating back to 1989 to determine that market participants’ sense of the likelihood of a one-day crash in the stock market (defined as a decline of at least 12.8%, the magnitude of the “Black Tuesday” loss on October 28, 1929) was 10 times greater than the actual probability of such an event occurring. Goetzmann, Kim and Shiller cross-referenced the survey data with the Wall Street Journal’s reporting of the markets, and found the Journal tended to spend several days writing about slumps in the stock market, while the coverage of rallies tended to last only a day. They concluded the tendency of the financial press to write more about “crashes” than “booms” affected investor attitudes and the future.
If the media can influence subjective opinions about the potential for catastrophic market events, then surely it has the ability to do the same for politics. The mainstream media helped Trump win the Republican nomination by providing him with an unprecedented amount of free publicity, according to a study by Harvard University’s Shorenstein Center on Media, Politics and Public Policy. More recently, leading journalists and publications have taken to constructing alternate realities in which Trump reigns supreme. The Economist in May imagined a chaotic world in which China, Mexico and Russia have turned on the U.S. and its companies. Paul Wells of the Toronto Star wrote at the end of July that Canada should be ready to fight a trade war, “as soon as a Trump presidency stops being hypothetical.” The Globe and Mail created a fiction in which Trump is celebrating the end of the North American Free Trade Agreement. “A far-fetched scenario? Perhaps,” the author of this terrible vision wrote. “But few experts expected Brexit to happen. So Amexit might not be such a long shot after a wild and unpredictable lead-up to the U.S. election in November.”
Scared? Mandy Rennehan is. “We certainly are not going to put any more capital investments into the U.S. until we see how the election pans out,” Rennehan, chief executive of Oakville, Ontario-based Freshco, which builds and maintains retail spaces for clients such as Apple and Nike, told the Globe in a separate article published this month. There are surely others like her. Business investment is stagnant in the United States and has declined sharply in Canada. Bank of Canada Governor Stephen Poloz told reporters on July 13 that the U.S. election campaign likely was among the factors causing executives to hoard their profits. Narayana Kocherlakota, an economics professor at the University of Rochester and the former head of the Federal Reserve Bank of Minneapolis, reckons the U.S. economy is suffering from a severe lack of optimism.
Rennehan’s wariness of Trump is sincere. Numerous psychological studies show humans tend to emphasize the negative. But her fear isn’t rational. A Trump victory in November would be a black swan event; something that is possible, but extremely unlikely. Statisticians, political scientists and data journalists have become pretty good at forecasting election outcomes. Nate Silver, the editor in chief of FiveThirtyEight.com, rose to fame after he correctly predicted the outcomes in 49 of 50 states in the 2008 presidential election. As of Aug. 12, Silver had the odds of Trump winning at less than 14%. For a few days at the end of July, FiveThirtyEight’s model, which combines polling data, economic indicators and historical voting tendencies, said the race was a coin flip. Trump got a boost in the polls from all the attention put on the Republican convention. Then the Democratic Party held its convention and Hillary Clinton retook the lead.
The Upshot blog at the New York Times, which has a predictive model of its own, never gave Trump more than a 40% chance of winning the election. (Upshot currently is aligned with FiveThirtyEight puts; the blog says Clinton is about as likely to lose as a kicker in the National Football League is to miss an attempt at a field goal.) Sabato’s Crystal Ball, the forecasting blog run by Larry Sabato, director of the University of Virginia’s Centre for Politics, has Clinton winning 347 electoral college votes to 191 for Trump. That prediction is unchanged from Sabato’s first in May. “We care about only one thing, the big picture: Who’s going to be elected?” Sabato wrote on August 4. American politics have become hyper-partisan and voters don’t shift sides anywhere near as often as mainstream media coverage suggests. “Most things really don’t matter, or they just reinforce the fundamentals and partisanship already in place,” Sabato said.
Rarely does any of this sober analysis of the U.S. election make it into the coverage of Trump. Like any boxing promoter, the press hypes every election, exaggerating differences between the parties and hyping each candidate as a legitimate contender, Matt Taibbi wrote in an article on the Republican convention for Rolling Stone: “Otherwise, why watch?” At the same time, Taibbi observed that the press this time was struggling to apply that frame to Clinton vs. Trump; “the illusion that both sides have a compelling chance at victory is now a tougher sell,” he wrote.
That hasn’t stopped editors, reporters and columnists from trying. Publications such as the Financial Times and the Globe and Mail routinely write about Trump’s candidacy with more dread than it deserves. Yes, almost 13.7 million Americans voted to make a misogynistic and xenophobic liar the Republican nominee for president. That’s a lot of people, and worthy of exploration. But the Trump army is nowhere near big enough to propel him to the White House, especially since he has made no effort to unify the party behind his candidacy. (Susan Collins, a Republican senator from Maine, wrote in the Washington Post that Trump is “unworthy” of the title of president.) More than 13.2 million people voted for Vermont Senator Bernie Sanders in the Democratic primary, and Clinton received almost 17 million votes. Unlike Collins, Sanders endorsed his party’s nominee and pledged to do whatever he can to help Clinton get elected.
Stories on the U.S. election tend to focus on national polls, ignoring the fact that the president is chosen through the electoral college, not a popular vote. The presidency will be determined by a handful of swing states such as Florida, Ohio, Virginia and Colorado. The United Kingdom’s vote to leave the European Union is an even weaker indicator of “Amexit.” The contest between “Leave” and “Remain” was close from beginning until the end. Math and logic shows Clinton is running away with the U.S. presidential contest. The Democratic nominee and her supporters had raised almost $390 million through late July, compared with Trump’s $94 million. Fundraising is an ugly indicator of electoral strength—it also is a very reliable one.
The shock of Brexit likely messed with the minds of journalists. Combined with Trump’s unlikely conquest of the Republican Party, it felt like something big and scary was happening. Psychologists and behavioural economists have known for decades that humans tend to make predictions about the future based on top-of-mind events. This era of financial crises, repeated terrorist attacks, extreme income inequality and hyper-partisanship provides little reason to feel good about the future. But none of that is especially useful when it comes to predicting the future. If Rennehan has the money to expand in the U.S., she should disregard what she has read about the election and do it. The U.S. unemployment rate is less than 5%, borrowing costs are extremely low and wages are rising.
Oh, and Hillary Clinton will be the country’s next president. NAFTA is safe.
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