Monday, March 28, 2005

How the U.S. Media Exaggerates America's Economic Strengths


Right-wingers are constantly blasting the U.S. media these days, charging that it is driven by a "liberal" agenda. Of course, such charges cause progressives to laugh out loud.

Conservatives believe they are insulting the media when they accuse it of a liberal bias. In reality, such charges actually dignify what the media does these days.

The fact is, it's impossible for the mainstream media to have a political bias unless it actually covers real news stories with substance.

A glance at today's mainstream media indicates that the press falls short on this count. Instead, the media is dominated by cheap, sleazy, sensational "news," instead of covering issues of real substance.

On the increasingly rare occasions when the media does cover issues of substance, it often falls short of serious, objective journalism.

I believe that most people these days, including many educated progressives, are unaware of just how distorted the "serious" media is on many issues.

One issue that has gotten zero coverage in the press is how the media tends to exaggerate the strength of America's
economy these days.

And one of the major ways the media exaggerates America's economic prospects is via the widespread usage of
a bizarre economic statistic called "purchasing power parity" (PPP) in its coverage of the U.S. and the global economy.

PPP is a yardstick that has been used almost exclusively by the U.S. media since around 1985.

Up until that time, the media simply used the current values from the world's currency markets---a much more logical and
honest approach.

(Interestingly enough, the mid-1980s was also a period during which other nations, including Japan and Germany, began
overtaking the U.S. in per capita income levels for the first time).

Although at first glance, it might seem like PPP is an obscure topic, best left to specialized economic
journals, the truth is the exact opposite.

In a nutshell, the media's use of PPP misleads the American public about a number of important issues,
not least of which is that it gives the public an exaggerated sense of U.S. economic clout these days.

If you look at any story these days in the media that discusses issues like American GDP or U.S. income levels,
the PPP figure is always used.

As a result, most Americans are under the impression that per capital U.S. income levels are the highest
in the world. (In reality, the U.S. is surpassed by 12 other nations in per capita income these days).

PPP is basically an artificial creation of economists. It simply does not exist in the real world.

Many economists believe that the U.S. dollar is unfairly valued by world currency markets. Thus, under PPP, (as an
an example) they assign a value of 140 yen to one dollar, instead of the true market value of 104 yen/dollar. This would be not that big a deal were PPP relegated to obscure academic journals.

But virtually all U.S. mainstream media outlets these days rely solely on PPP values when they discuss issues like U.S. GDP
or income levels.

This is highly misleading to the American public. For a start, it gives the impression that U.S. economic strength is much
stronger than it really is. Another problem is the fact that few, if any readers, understand exactly what PPP is, or how
it is calculated.

A final major problem is that readers are completely unaware that the figures they see in the media are vastly inflating the value of the dollar.

One major irony in economists' embrace of PPP is that it is an artificial creation. I find it bizarre that economists (who're always rambling on about the supposed perfection of the "free market") reject the market's own value for the dollar these days.

Another irony is that, far from being overvalued, as PPP advocates argue, currencies like the yen are actually greatly
undervalued these days. (The Bank of Japan does its best to suppress the value of the yen by buying billions of dollars
in world currency markets).

The time has come for the U.S. mainstream media to stop misleading its readers about the strength of today's U.S. economy.
For starters, the media needs to examine the following issues:

1. What, exactly, is PPP and how is it calculated? Is this methodology flawed? (A growing number of dissident
economists believe this is indeed the case).

2. Why does the U.S. media rely solely on PPP when it discusses issues like U.S. GDP and income levels?

3. When including PPP figures, shouldn't the media inform its readers that PPP artificially inflates the value of the

4. When including PPP figures in a story or a chart, shouldn't the media, for balance, also include world currency market values for the dollar?

5. Indeed, is it not highly misleading to readers for the media not to do the above?