A few days late with this one but wanted to capture it for the archives. Kevin D. Williamson writes about economic ignorance in journalism (and elsewhere):
“Ignorance” is a word with deeply pejorative connotations that it does not deserve. Ignorance is the natural state of human affairs, and all of us, from addlepated reality-television enthusiasts to theoretical physicists, are almost entirely ignorant of almost everything. The sum of human knowledge is far too vast for any of us to truly master more than a few bits of it. But we feel inadequate when we are confronted with a question that is beyond our range, and the anxiety is so intense that we frequently ignore Abraham Lincoln’s advice that it’s “better to remain silent and be thought a fool than to speak out and remove all doubt.” …
When the markets tanked on Monday, one of my Wall Street friends wrote me a quick note early in the day, as he sometimes does when, being solicitous of my well-being, he fears that I might write something stupid. (He never puts it that way.) He had some interesting insights, arguing that the popularly despised practice of high-frequency trading was probably keeping the dip from being much worse than it was, because most high-frequency-trading programs respond more strongly to momentum than to price in the expectation that dramatic shifts in any direction will revert, at least partially, to the trend. That’s a long, wonky piece for a different day, but I am very much persuaded by his argument about why high-frequency trading is held in low regard rather than welcomed as an innovative step toward more efficient markets.
His argument is that in the minds of journalists and the general public, “I don’t understand this” ends up being abbreviated as “wicked.” Thus derivatives, hedge-fund strategies, high-frequency trading, etc., are regarded with suspicion at least, if not outright hostility, while the public longs sentimentally for a model of finance that is barely distinguishable from stuffing cash into mattresses, as though banks were vast storehouses of shoeboxes with their customers’ names written on the lids in Magic Marker.
That fellow at Occupy Wall Street didn’t know what derivatives were, but he was sure that they were evil.
He then turns to a specific sub-genre of the species:
Realities are complex. But the shape of Professor Fleischer’s argument — “Here is dollar figure X, which is greater than dollar figure Y, and I disapprove” — is powerful if you don’t think about it too hard. I sometimes see billboards reading something like: “It costs $6,500 a year to keep a kid in school but $65,000 a year to keep him in jail,” as though schools and jails were interchangeable expenditures — as though the solution to a problem like Jeffrey Dahmer or Omar Abdel-Rahman were a full ride to MIT.
These kinds of arguments are especially effective when it comes to matters of finance because most people don’t understand very much about the field but are convinced that there is something rotten at the core of it. Harry Reid lied about Mitt Romney and his taxes with impunity because the typical American voter — and certainly the typical knucklehead Harry Reid voter — couldn’t tell you what a private-equity firm does, but many of them resent the fact that private-equity managers make so much money doing whatever it is they do. You see variations on this with the issue of CEO pay: “The CEO of NastiCorp. makes 700 times the average employee’s income at his firm, heavens to Betsy!” as though the receptionists and parking-garage attendants and mail-room guys would be paid more simply because the chief executive were being paid less.
Is the CEO of IBM being paid too much? Too little? What about the hedge-fund guys or the people managing Harvard’s money? I don’t know. Chances are you don’t know either. That doesn’t always stop us from having an opinion, but it probably should.