Gramm is Largely Correct

Former Senator Phil Gramm, who had an excellent career in the US Senate fighting for the prosperity of Americans, recently spoke his mind about the economy with candor and intelligence. Sen. Gramm is not only a former member of the House and the Senate with over two decades experience, but also has a PhD in economics from the University of Georgia. He may very well be the "Dr. Phil" of economics.

In an interview with the Washington Times, Gramm stated:

You've heard of mental depression; this is a mental recession," he said, noting that growth has held up at about 1 percent despite all the publicity over losing jobs to India, China, illegal immigration, housing and credit problems and record oil prices. "We may have a recession; we haven't had one yet."

"We have sort of become a nation of whiners," he said. "You just hear this constant whining, complaining about a loss of competitiveness, America in decline" despite a major export boom that is the primary reason that growth continues in the economy, he said.

"We've never been more dominant; we've never had more natural advantages than we have today," he said. "We have benefited greatly" from the globalization of the economy in the last 30 years.

He goes on to point out that "Misery sells newspapers. Thank God the economy is not as bad as you read in the newspaper every day."

These themes have been a part of my mantra, with titles such as Economist on the Media and Recession, Bad News Means Big Business for CNBC, and others with similar titles for the last two years, the criticism against Gramm seems to me to be unfair.

But criticized he has been and practically thrown under the bus by Sen. John McCain for whom he has served as an economic advisor. Threatening to send Gramm to Eastern Europe as an ambassador if elected and if they would have him, McCain is using the harshness he has become famous for in his ability to turn on a friend.

It is true, there are people in this country who are suffering at this time. However, most of those are the same people when are economy was incredibly hot a few years ago. Gramm's statements are largely true but probably too honest in an election cycle. The media lives off of bad news and the people are beginning to buy the headlines.

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Kevin Price is Host of the Houston Business Show (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at HoustonBusinessShow.com. Visit the archive of past shows here.

Economist on the Media and Recession

For quite some time I have been telling readers of this blog and listeners of my show that the media has wanted a recession. Furthermore, the media has reported an economy in decline while it reflected numbers reminiscent of a strong economy. Now a serious leader in academia has recently validated this assessment.

Economist John Lott, Jr. of the University of Maryland was cited on Fox and Friends as quantifying the distorted views purported by the media about the economy. In an article by Lott on FoxNews.com, the scholar noted that:

A Nexis search on news stories during the three-month period from July 2000 through September 2000 using the keywords “economy recession US” produces 1,388. By contrast, the same search over just the last month finds 3,166. Or, even more telling, take the three months from July through September last year, when the GDP was growing at a phenomenal 4.9 percent. The same type of Google search shows 2,475 news stories.

Over 78 percent more negative news stories discussed a recession when the economy under a Republican was soaring than occurred under a Democrat when the economy was shrinking.
A little perspective on the economy would be helpful. The average unemployment rate during President Clinton was 5.2 percent. The average under President George W. Bush is just slightly below 5.2. The current unemployment rate is 4.8 percent, almost half a percentage point lower than these averages.

Therefore the economy was seen as healthy and vibrant under Clinton with higher unemployment than it is today under Bush at level that is .4 percent lower. The comparison doesn't stop with unemployment, however:

The average inflation rate under Clinton was 2.6 percent, under Bush it is 2.7 percent. Indeed, one has to go back to the Kennedy administration to find a lower average rate. True the inflation rate over the last year has gone up to 4 percent, but that is still lower than the average inflation rate under all the presidents from Nixon through Bush’s father.

Yet, again, the news tends to describe the economic situation in this economy as dire and you would think we were at the brink of economic ruin. Lott goes on to quantify other areas.

The issue I would love to see discussed more thoroughly are the reasons why this is happening. All I can do is speculate, based on approximately two decades of being involved with the media on several levels, but the causes could include:

* The liberal bias in the media. According to the Pew Research Center, there are five liberals for every one conservative in the media. This would certainly lead to the media giving Conservatives a negative spin.

* I personally believe that the media benefits from a bad economy. Much of what we have seen and heard has reflected "wishful" thinking. Why? When the economy is hot, businesses simply don't need as much advertising. A soft economy makes businesses more inclined to invest in marketing.

* Finally, bad news equals big ratings. There is a belief that if all news was good news, people would not be nearly as interested in watching TV, listening on the radio, or reading stories.

I'm impressed with Lott's work and am eager to find more who contribute to this debate.

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Kevin Price is Host of the Houston Business Show (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at HoustonBusinessShow.com. Visit the archive of past shows here.

Are We Now In A Recession?

You probably didnt ask for it, but it has been shoveled down our throats, we are being told that we are in a recession. I have said quite often in this blog, that I'm not buying it, and the economic statistics supports my optimism.

According to the Bureau of Labor Statistics (BLS), we maintain a ridiculously low 4.9 percent unemployment. Economists call 4 percent zero unemployment (factoring in seasonal employees, those creating their own business but still cited as unemployed, illegal business activity, etc.). There has never been a recession with this low of unemployment.

On the same BLS page we find that productivity was up 6.3 in the last quarter we have such recorded. Again, not indicative of a recession. In fact it is a sign of a booming economy.

As I watch CNBC (which is all I have available in my TV studio) I am seeing these people celebrate a recession as the Dow hoovers around -300. One of the analysts is arguing that they need to declare the recession now so the market can determine what are the best stocks to invest in. It is dishonest (it takes six months of economic decline to have an actual recession), it probably lead to poor financial planning, but it leads to great TV ratings.

I admit, today may not be a good day to invest in the market if you are faint of heart -- although there are plenty of barging out there that are worth pursuing. But there are numerous places that you can successfully put money -- in Real Estate (especially in the investment side as people move to renting rather than owning), creating your own business, and other more tangible economic activities. But it is simply too early to call this an economy in decline.

In the above video from Movers and Shakers, you will see a different spin on the economy.

Kevin Price is Host of the Houston Business Show (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at HoustonBusinessShow.com. Visit the archive of past shows here.

Eagerly Waiting Recession

I love the movie "The Matrix." It is smart and imaginative. Yes, it's violent, but even that seemed to have a purpose. I love the scene where Agent Smith tells Neo the truth about the world he has always known. He tells the hero that in earlier attempts the machines attempted to make a perfect virtual world so that humans would be happy while they waited to be batteries for the machines. Smith goes on to say that it made the humans miserable and they had to give us the current world plagued with challenges and problems in order to make us content. We lived for bad things, he argued, and the Matrix accomodates such.

I like to consider myself an optimist, but there is a part of this story rings true. One of my earliest posts was on the "Real Economy." Back in July of 2006, when the economy was booming, I wrote that "any way, the news isn't good, but the economy keeps on chugging along at excellent levels." In spite of the news today, we only have a very slight drop in the economy over the last month. According to economists, it takes six months of decline to be called a "receission." But believe me, we will keep hearing recession talk, even if February shows a dramatic up swing. The media business is actually the bad news business. They thrive as long as the media is bad, in their opinion.

I'm not ready to buy the recession rhetoric, regardless of how strongly it is pushed down my throat. A recession requires six month of economic decline. We have only seen a soft month. I believe we had years of recession rhetoric, yet continued prosperity. We should continue to determine our economic destiny.

Kevin Price is Host of the Houston Business Show (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at HoustonBusinessShow.com. Visit the archive of past shows here.

California Fire Fuels TV Ratings

If I have said it once, I have said it a million times, the media is in the bad news business. Again, not news, bad news. If people merely saw news or good news, it appears interest would be at a minimum. In the words of Don Henley, we want "dirty laundry." Proof of the power of bad news can be found in one of yesterday's article in Media Bistro's TVNewser:

Last night's special edition of 20/20 posted the program's largest audience in more than a year and its highest A18-49 and A25-54 numbers in more than eight months.
The Charlie Gibson-anchored special brought in 10.9M total viewers. In the A18-49 demo the hour had a 2.8 rating/8 share; in A25-54 it had a 3.7/10.

So when the media has the opportunity to talk about the fact that we will have one of the best home selling years in history this year or focus on the 1.5 percent of home owners who are in forclosure, what route do you think they will take? Sadly, bad news is good news for the media.

Bad News Means Big Business for CNBC

This from MediaBistro:

"More from the August ratings reports. During Wall Street's rocky month, CNBC's 5am-7 pm ET programming ave. raged 87,000 viewers in the 25-54 demo. According to the net, its their 'best August since 2002 and up +50% versus August 2006.'

"Other highlights are in the press release after the jump... (note too, the caveat at the end of the release about Nielsen's audience universe being limited to 'in-home' measurement.)

'CNBC HAS BEST AUGUST IN FIVE YEARS.' August Ratings More Than Tripled Since 2005, ENGLEWOOD CLIFFS, N.J., August 28, 2007---During one of the most volatile months the markets have seen in years, viewers turned to CNBC, First in Business Worldwide for fast, accurate, actionable and unbiased business news. CNBC's Business Day (M-F 5a-7p ET) had its best August in five years, and August ratings have more than tripled since August 2005. For August 2007, CNBC's Business Day (M-F 5a-7p) averaged 87,000 A25-54, hitting its best August since 2002 and up +50% versus August 2006. All 6a-7p CNBC programs had their highest August time period delivery since at least 2003."

Okay, I got carried away, but I found these numbers astonishing -- bad news resulted in big numbers for CNBC. Such numbers may have turned into multipliers for the often struggling network.

This validates a point that I make quite often in this blog. Consider these headlines:

"Why the Media Hates Bad News"

"The Half Empty World of the Media"

"When It Comes To Real Estate: Bad News or Ridiculous Expectations?"

"As the Economy Enjoys Good News, Critics Receive Bad"

Etc., etc., etc.

The rise in CNBC's numbers is directly linked to the insanity in the Stock Market. This is exactly why the media continues to do negative spins on the news. Anything to attract attention. The worse it is, the more viewers it attracts, and it is usually done in an irresponsible fashion, in my opinion.

It isn't just the media at fault, however, we reinforce their bad behavior by giving them ratings like those above. We have to say more than we are merely "tired" of bad news and start punishing them for being such passionate promoters of such by consuming media that offers more balanced and even positive perspectives.

P.S.: Do you know why August 2002 beat this rating period? It was because it was during the technology bubble burst of that year.

The Stock Market Continues to Boom

The Stock Market broke 13,000, breaking a new milestone in its continued growth. That is the 35th record broken since October of 2006. Why the continued growth? New home sales are rebounding, companies are demonstrating record returns, and the unemployment levels are incredibly low.

This happens, in spite of the fact that the media continues to beat its negative drum. In fact, this is the toughest time I have seen for the Republican Party in many respects since the 1970s (post Watergate); in spite of incredible economic performance they are fighting for their political lives and have no clear leader to make sure they maintain the White House after 2008.

The growth of the economy is partially due to divided government. In spite of pledges to bring sweeping policy changes for the President to sign into law, the Democrat led Houses of Congress haven't brought a single piece of legislation down Pennsylvania Avenue for him to sign. "Do-nothing" governments often mean economic environments where businesses can grow. Furthermore, the business community's disregard of the pessimism promoted by the media keeps it humming along. The media has "cried wolf" so often, many no longer consider it a legitimate source of information of how business is performing, meaning businesses will listen to one another and operate on its own instincts. That is an essential part of the "invisible hand" of the free market that makes economies grow.

Why the Media Hates Good News

If you love conspiracy theories, you will love this post, but I think I have finally figured out why the media hates good news and loves bad. This subject has been of great interest to me and the following are just a few of the titles I have had on the subject:

* More Bad News for Those Who Love Bad News

* The Half Empty World of the News

* As the Economy Enjoys Good News, Critics Receive Bad

I have written several more and they all have a similar theme, the media lives off of bad news. Furthermore, I believe that the media makes a living off of bad news. There are some logical reasons for the media to like bad news.

People are not nearly as interested in good news as they are in bad. As Don Henley said in one of my classic rock favorites -- give us the dirty laundry! News, by design, is meant to warn, protect, and prepare. Most of the stories that fall in these categories, tend to be negative in nature. If the weather was perfect, who would need to know the forecast? If all neighborhoods were safe, there would be no stories about the parts of town to stay away from. And if all things were perfect, we would likely find the news really boring. This has been a huge force in driving the global warming hysteria.

More sinister than this, and this is where my conspiracy theory comes out, when the economy is performing well, many businesses don't invest nearly as much on advertising. When people can easily find clients, they are less likely to invest money in marketing. When the economy gets weaker they are often forced to make such expenditures or face terrible consequences. Bad news can foster a negative view of the economy, which can lead to an actual economic decline.

I know, it is a little far fetched, but when I talk to my associates in media many are actually glad about the possibility of a rumored economic decline and think things might be improving for their business. Call it what you will, but I call it the economics of bad news.

Is the Economy in Danger or Was Yesterday a Mere Speed Bump?

The Headlines are fairly ominous today at CNN Money. We read about a "Wound Licking Wednesday" because the stock market dropped by over 400 points. Just below that article we see that "Economic Growth Not So Strong," with the actual increase being only 2.2 percent instead of the initial estimates of 3.5 for the fourth quarter of last year. The problems are not merely domestic, with the headline "Asia Stocks Tumble -- Except China" (this news is considered a major factor in our stock market decline yesterday). In fact, the news is so bad today, I suggest you avoid any sharp objects while reviewing it.

Seriously though, there is probably some legitimate cause of concern, but I believe that the economy is still on track towards a positive trajectory for this year. I say this for a few reasons:

* The power of divided government. There is an old saying, when the legislature is in session, no one's wallet is safe. Thanks to the fact that the President is of one party and the majority of the Congress is in the other, the chance of much being done legislatively is very slim in deed. This is a good thing in the eyes of business.

* Unemployment remains at historic lows. Zero unemployment is considered by most economists to be around 4 percent (because of people who are seasonally employed, are in illegal activities, are actually creating a business, etc.). Our unemployment is a mere 4.5 percent, thus near zero. This means the housing bust is probably going to actually be a mere burp (since high unemployment is a typical prerequisite to a housing bust) and should find itself having a strong year over all.

* The long term and consistent growth for so many quarters. This too is historic (even with the small increase from the last quarter) and there is nothing in the fundamentals of the economy to make one think it should change any time soon.

However, if the economy does go south, there are several potential contributing factors. If Congress passes its massive increase in the minimum wage and the President signs off on it, the economy will certainly suffer. Also, if the President signs on to a Democrat tax increase, we could find ourselves in serious trouble. In fact, the Congress failing to keep the current tax cuts in effect (a requirement in the bill that was passed with the tax cuts) will equal a tax increase in the eyes of many.

In the end, though, I expect 2007 to be extremely strong on the economic front, even if it is a little soft compared to last year. I have such optimism, not so much because of the ability of government to prevent a slump, but because of the entrepreneurs that has kept this economy growing. Let's face it, the economy typically thrives in spite of government, not because of it.