Stumbling and Mumbling

Trade and compensation

I'm risking stepping on Biased BBC's toes here, but the BBC's report on the Archbishop of Canterbury's sermon about world poverty is rather woeful. It tries to drag Dr Williams into a crude anti-globalization camp: "Dr Rowan Williams said a naive faith in free trade is stripping some countries of their economic power and hampering efforts to overcome poverty."
In fact, his sermon was - aside from some twaddle about trust - more economically literate. He said:

Universal trade liberalisation may offer fresh markets and promise overall increases in wealth. It also forces choices on vulnerable countries, whose effects may be – in the short to medium term – very costly indeed to a whole generation of workers, to the environment, to political stability...in the long term ‘free trade’ promises greater benefits, but in the middle term its costs are immense unless there are clear mechanisms for compensation – unless the benefits are put to work for all.

This is surely right. No serious economist pretends that every single person gains from free trade immediately. If an autarkic country opens up to trade, its more inefficient producers wil go out of business. That's a cost. Economists don't say free trade is an actual Pareto improvement, in the sense that everyone gains immediately - that's absurd. They merely say it is a potential Pareto improvement: everyone would benefit from it if the winners could compensate the losers.
And this is exactly what Dr Williams is saying - although he emphasizes the costs whilst economists usually emphasize the benefits. Sure, he goes on to say that "the answer is unlikely to be a simple recommendation for a universal and instant end to protection or preference." But if we read "simple" to mean "unaccompanied by compensation," few economists would argue with him.
As for how such compensation could be paid, this sort of thing is far too radical to attract the attention of the statist conservative BBC.
A better headline - although it might err towards being over-generous to Dr Williams - would be: "Archbishop calls for free trade accompanied by compensation."
But of course, the BBC can't recognize opinions like this. The debate about globalization is between compassionate opponents of free trade and callous advocates of it. Intelligent and humane positions aren't allowed, are they?

Media bias

In my day job (subscription required), I say investors should not worry about the fall in the dollar. Such a view is obviously the consensus in equity and bond markets; if you were to look at just these in the last few months, you’d never guess the dollar were in trouble at all.

But it’s in sharp contrast to the language of newspaper stories. Plunge, slide, slump and even crisis are the descriptions of choice for the greenback.

This difference has set me thinking about the nature of media bias. Not obvious political bias, but slightly subtler selection biases, that can discolour our view of the world. Here are five such biases.

1) News meeting bias. A journalist who offers his editor the line “dollar falls a little but no-one cares” will get a boot up the jacksy. One who offers “dollar slump spells end of the world” is offering a story, even if it’s nonsense. In this way, there’s a selection bias towards exaggerated stories; Matthew Parris (my favourite of the old media columnists) touches on this point here. Most of us, most of the time, don’t care about most things. Newspapers don’t represent this fact.

2) Illusion of knowledge bias. Journalists are selected for their ability to exaggerate their knowledge, to create a story from a few facts, or less. This has two unfortunate consequences. First, ignorance and doubt gets under-reported. The fact that even experts know little about lots of important things is only reported, if at all, as a “crisis”, not as a normal state of affairs. Second, when journalists write comments and leaders, they overstate the case for state intervention, simply because they underweight the contrary argument – that governments cannot foresee the consequences of their actions.

3) Availability bias. Journalists report from where they are. Murders in Baghdad therefore get more headlines than murders in, say, the Ivory Coast. I don’t know many people are being killed there, but how bad do things have to be for people to seek refuge in Liberia? Equally, would you really have worked out from day-to-day reports that almost 100,000 people were killed in Algeria in the early 1990s, or millions in the Congo, where fighting might be about to increase again?

4) Anecdotes over statistics bias. Journalists prefer the vivid anecdote to statistical information that may (notwithstanding my previous post) be more representative. No journalist in history ever said of anything: "it's only a half standard deviation event - not worth reporting."  There are many ways in which this can mislead us – for example in the reporting of job losses. Here’s another example. A numerate news editor (an oxymoron) considering how much attention to give to murders in Baghdad could logically reason as follows: “The murder rate in Colombia or El Salvador is over 50 per 100,000. We don’t consider death rates of this magnitude important, because we haven’t reported them. If such a murder rate existed in Baghdad, with a population of 5.8 million, there’d be around 250 killings a month. So I’ll only report deaths in Baghdad if they rise above this rate.”

5) The party politics bias. Journalists still think party politicians are worth reporting. This gives exaggerated coverage to one narrow strand of political thinking – centrist managerialism – and insufficient coverage to more philosophically sophisticated ideas. You’d never guess from newspapers that there’s a millennia-old discipline known as political philosophy. And you’d never guess that two-fifths of the population, among them me, didn’t vote in the last general election.

I’ve made no effort at completeness here. No doubt there are other biases. My point is simply that there’s a trade-off between news and truth. And this exists not (just) because individual journalists are stupid, but because of the nature of journalism itself.