Can the Media Cause a Recession?

1992’s Sneakers is a very underrated movie.  It’s got intrigue, laughs, clever quips, cool hacks, utterly improbable uses of technology, and some great quotes… what’s not to love?  Here’s one of my favorite quotes (I couldn’t find the actual clip, but this one’s pretty good too):

Cosmo: Posit: People think a bank might be financially shaky.
Martin Bishop: Consequence: People start to withdraw their money.
Cosmo: Result: Pretty soon it is financially shaky.
Martin Bishop: Conclusion: You can make banks fail.

I believe this concept, in its entirety. Most financial analysts and economists agree that the market is in many ways based on confidence (here’s a decent article on it).  When confidence in a company dips, so does its stock price.  When confidence in the market itself dips, so do prices dip across the board.

For almost a year now journalists in virtually every publication have surmised about an imminent recession ready to hit the US economy.  Some take it to the point where they assert it as a fact, not just a possibility.  Now I’m all for speculation, and there’s a pretty good justification to help people out with the financial equivalents of “winter storm warnings”, but I believe the media has taken it too far.  Here’s an excerpt from an article I read this morning:

the government reported Thursday the economy did shrink in the summer, sending the strongest signal yet that a recession may have already begun.

Now believe it or not, that was actually fairly accurate reporting.  With a 0.3% drop in GDP, we actually just saw the first possible sign of a recession. Yes, the “credit crunch crisis” is real, and yes there are many unsound financial practices going on.  But by and large these problems were either exacerbated by a sluggish economy, or sharply accelerated due to panic attack (or both in some cases).

But here’s the real question – if we hadn’t been reading about imminent recessions since last November, would spending have slowed?  Would this have been a mild “correction” to fix up the messy mortgage problem? Would Heroes season 3 been quite so disappointing? There’s no real way to answer these questions of course, but its pretty easy to think consumers and enterprise decision-makers alike have been preparing for the storm for a little while now.

Posit:  The media create a constant, non-stop “the theater is on fire” style of alert about an imminent Recession or possibly even Depression.

Result: People panic, markets tank, banks fail. The rest is to be determined.

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One Response to “Can the Media Cause a Recession?”

  1. Dave Zatz Says:

    Season 2 of Heroes was pretty bad too. As was they way they modified the original plot line for a revised Season 1 finale to ensure these characters live on.

    And yes, I do believe in self-fulfilling prophecies. And panic selloffs are what led to spectacular failures and government intervention. But it also reinforces that the system is a flawed house of cards in that real businesses are so over leveraged that they can break when confidence falters. Reminds me of how airlines used to oversell seats with the assumption that some folks would miss the flight… The way some folks might not request their cash from a bank.

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