I tend to enjoy Jon Stewart’s The Daily Show immensely, especially as Stewart calls out politicians of all sides for hypocrisy and disingenuousness. However, Stewart was at his best Wednesday when he took on CNBC, a network focused on business. He showed clip after clip of CNBC analysts and pundits predicting the Dow would rise, and saying just days before Bear Stearns collapsed that there was no way it would collapse. Similar pronouncements of health and vitality were made about Lehman Brothers or AIG before they went into crisis mode. Watch it here! The continuous optimism about the future, as people like Jim Cramer told viewers to BUY BUY BUY stock, was common amongst the economic punditry up until September 15th. Cramer in fact said he’d buy Bank of America at $60 a share in a heart beat. Friday it closed below $4.00. The cause of Stewart’s epic attack was CNBC reporter’s Rick Santelli saying that no help should be given to “loser” homeowners who can’t pay their mortgage. His point: CNBC certainly has been proven a loser in its advice. Or as Stewat said, “if only I’d followed CNBC’s advice I’d have $1 million today..that is, if I had started with $100 million.”
Stewart effectively takes apart CNBC and especially analysts like Cramer, who back in March 2000 when the Nasdaq hit 5011 claimed that he saw the probability of Nasdaq at 8000 by the end of the year. That turned out to be Nasdaq’s high as the dotcom bubble was soon to burst. The pundits were wrong in 2000, and didn’t see this coming either. But really, with exceptions (especially The Economist) from more serious analysts, the class of economic punditry was simply cheerleading the bubble economy, believing that the good times could not end.
Why? Why did those who were watching the economy every day, talking to the insiders, observing the trends, not see this coming? Hell, I’ve been predicting this kind of thing for over a decade (at times thinking perhaps I was wrong given how resilient the markets seemed to be) and I don’t follow business news closely or play the markets. They should have seen this coming!
The reason can be found in psychology. Part of it is a form of cultural groupthink. A lot of people on Wall Street and in the business world were doing very well in the heady party times of the nineties and aughts, and they didn’t want to think that this wasn’t simply the way business was meant to be. They didn’t want to question the idea that they deserved their bonuses and profits, or that the party could end. That creates a huge incentive to find and believe interpretations that predict the good times will keep rolling. Those who develop those theories are celebrated, those who don’t are mocked — this clip shows Peter Schiff continually predicting the coming crisis spot on, and being mocked and laughed at by others. It didn’t matter that he was right and he better explained why, the majority didn’t want to believe him, and thus marginalized his view. Please watch that Schiff clip, it is priceless, he is ignored, even mocked and laughed at as he predicts the housing market will collapse and credit becoming very tight. The Laffers and Ben Steins look like utter fools, saying that at 13,000 the Dow was a “buying opportunity” and financials were “cheap.”
The pundit class is part of a group of people who fell for the myth that capitalism was functioning in America in a manner that meant continual prosperity. It was the economic equivalent of arrogance that many had when the US went to war in Iraq and people were predicting Iraq would be a model, Iran and Syria would wilt under the pressure, and the US would shape the 21st century.
“Pride goes before destruction and a haughty spirit goes before a fall.” (I think that’s from the Bible, but I’m remembering it from the Joe South song “Children.”) The US after 9-11 reacted to the terror attack with hubris and arrogance. When France and Germany questioned the wisdom of that war, they were dismissed as “old Europe,” with East Europe rising and the US certain to be proven right by events. Economically there was a cockiness that our deregulation and pro-business policies were the cause of a massive creation of wealth. The pundits that predicted that nothing was wrong with the US economy were also praising Irelad and Iceland for being models for Europe — embracing the same kind of deregulation that fed the US boom. Now those two states (and East Europe) are the hardest hit, Iceland in bankruptcy and Ireland near that point. The rest of Europe was hit too, but mostly due to contagion from the US, thanks especially to AIG.
The pundit class and many Americans wanted to believe we’d found the key to easy prosperity, and avoided cognitive dissonance at all costs. It was social-psychological. People avoided dissonance, fed into each other’s wishful thinking, and marginalized and mocked those who sang a different tone. This was reinforced by arrogance, an emotion that serves to buttress ones’ inability to see weakness or error in ones’ point of view.
You expect better from the politicians, media and pundits on TV to whom you turn for advice on how to invest and what the future will bring? Well, from the President to the reporters at CNBC, we’re all human and prone to the same human failings, both as individuals and groups. The glitzy television studios or marble buildings of the nation’s capital may create an illusion of superior knowledge and understanding, but it’s still humans involved. However, some people did get it right. The people at CNBC for the most part weren’t really experts and thus easily fed information by insiders who wanted people to buy. They became tools of the elites, as did economic pundits for magazines and news organization across the country. Ultimately publications like The Economist and The Financial Times, both based in the UK, fared far better than the average US pundit. Sometimes the stodgy traditional sources deserve the respect they get.
Moreover, this happened all before. If you read John Kenneth Galbraith’s The Great Crash of 1929 it sounds familar. The details are different, but skeptics are silenced and mocked in favor of those theorizing that things can’t go south. Scandals by respected insiders come into the open once things crash. When times are good it’s easy for schemes to succeed and appear indetectable. Once things start to fall apart, the schemes crumble. It’s happened all before.
And it will happen again. And perhaps there’s comfort in that — this isn’t anything we haven’t overcome before. But Jon Stewart put in an eight minute clip the clear errors, hypocrisy and incompetence of the economic pundits. It’s clear that if we learn anything from this, it’s don’t listen to folk like Santelli, Jim Cramer, Ben Stein, or Arthur Laffer. The pundits were simply serving the corporate power elite who didn’t want their party to end.