I had the pleasure of attending the morning sessions of Anya Schiffrin's "Facing The Fracture" conference yesterday, and got to watch some smart people wrestle over the media's failure to predict the 2008 economic crisis.
There was a lot of furtive debate over whether the business media can, or even should attempt, to get out in front of a fiscal calamity. Reuters' Chrystia Freeland, for example, wasn't sure that "crystal ball" reporting was even possible. At the same time, she -- and many others -- pointed to the idea of "cognitive capture" as a chief problem with the business press.
I think there's a lot of merit to the argument. When I talk about what it was like to live through both the dot-com collapse and the recent real estate disaster, I sort of liken it to watching the late innings of a baseball game on television -- as you watch the starting pitcher slowly start to fade, an anxious knot grows in your stomach as you start to wonder why the manager hasn't yanked the guy. Why can't he see the signs that I am seeing? As an audience member, I'm casting a critical eye on what I'm seeing. But the participants are experiencing the same situation differently, and more importantly, their actions are guided by their expertise, which I cannot claim to have. And so, the eighth inning becomes an existential race between my "horse sense" and the manager's expertise, to see who is right.
I'm pretty sure that in addition to the dot-com and real estate bubbles, I've just described the experience of watching the Atlanta Braves lose all those World Series games back in the '90s. It seems to me that there's an element of cognitive capture at work, and what really becomes clear is that sometimes, the "experts" become so enthralled with their expertise, they tend to lend far too much credit to their furthest flung theories and articles of faith. And if you're out on the margins of the story, trying to plant your "expert" flag, you tend to miss what's actually going on.
Weren't there signs that preceded these two bubbles? You tell me! In the 1990s, when all sorts of zazzy dot-com companies were pissing away venture capital on nebulous products and promises to revolutionize corporate culture, forever, with foosball tables and lavish company parties, wasn't this pretty clear evidence that something unsustainable was occurring? Unless you were an avid Suck.com reader, you probably had no reason to believe it!
Similarly, while the collapse of the real estate market and the economic collapse it engendered was principally rooted in the supremely complicated financial instruments that the boom time yielded, doesn't the whole story really start with, say, a row of dilapidated row houses in Northeast Washington, DC, selling for insanely high sums of money?
To me, see, these are what you call "signs of the imminent collapse of something." But let's be fair, given the benefit of hindsight, it's easy for me to make these calls, circa now, from 30,000 feet in the air over the historical narrative.
Chrystia Freeland is probably right: it's too much to demand "crystal ball" clarity from the media. But to impose a better psychic metaphor, it's not impossible to do a better job reporting out the position of the tea leaves at the bottom of the cup. It seems pretty clear to me that the looming disaster in the credit market might have been unwound if greater attention had been paid to massively overvalued real estate, but the unwinding requires reporters to find out some basic things about what's going on, like who is paying these insane sums for urban shanties, why they are doing it and how they are paying for it.
(Also, we needn't be so esoteric here. Are the price to earnings ratios ridiculously out of whack? Are the best selling books on the subject crazy in their triumphalism? Is every single MBA student attempting to mine the same crowded field? If the answers here are "yes," then something terrible may lurk just around the corner.)
Not every glitch leads to a larger disorder, but just about every disorder starts with one. I think the rational response to the media's larger failure to cover the 2008 economic crisis is to commit more on-the-ground resources to those glitches. Once you are going door-to-door on that block of overpriced hovels in Washington, DC, it's easier to disconnect from cognitive capture and the tyranny of expertise. Unfortunately, resources are very scant to support this kind of reporting, and even if they were, it's not clear that anyone would be very interested in doing this.