Reporting during crisis: Can the media affect macroeconomic outcomes?

Against the backdrop of the economic implosion in Sri Lanka and the subsequent political turmoil that saw its leaders Rajapaksa being violently ousted from power, Bangladesh has remained wary of avoiding a similar catastrophic downturn. 

The caution is well-deserved as the country faces similar, albeit much less severe challenges such as rising trade deficits, declining foreign reserves, sudden hike in fuel prices and shortage of natural gas and electricity potentially leading to a double-digit inflation rate in August 2022. 

These worrying trends have led many on social media and in tea stalls to adopt a doom and gloom attitude and draw a debatable equivalence between Bangladesh and Sri Lanka. Many economists and politicians have begun to blame the national media for harbouring this doom and gloom attitude. Apparently, it is the excessive reporting on the state of the economy – factual or not – which led to this despondence among the populace. 

Given these accusations, The Business Standard decided to take a deep dive into the media's role in forming an economic opinion and affecting the decisions of economic agents at a micro level and the state of the economy as a whole.

Media's role in forming expectations

As Nobel laureate Robert Shiller's 2019 book 'Narrative Economics' discusses, narratives – rational or not – can spread like contagions, forming beliefs among economic agents, be they consumers, producers or investors, that lead to irrational behaviour and can either lead to or exacerbate economic crises.

Oftentimes, whenever there are media reports regarding 'upcoming' shortages of some essential items like onions in Bangladesh, prices can instantly rise in the grocery markets, without any coordination among buyers or sellers. The word 'upcoming' is crucial here as such a shortage should raise prices only after it hits the market. 

But simply because of the reporting, consumers begin stockpiling the items before the rise in prices and producers begin to raise prices to counteract this rise in demand, eventually leading to inflation.

However, questions can be raised regarding the extent to which it is the media's fault and how much of it actually depends on economic agents' understanding of market trends. Getting to the bottom of this question requires a thorough analysis of several aspects of economic reporting starting from the volume and frequency of reporting, their tone, their timing, the accuracy of the information and the impact of each of these factors on economic expectations. 

The volume of reporting

To understand the effect of economic reporting on economic behaviour, one crucial indicator can be the agents' confidence in the market. Confidence indices are important because if a consumer does not feel confident about the economy they will reduce spending; if investors lose confidence they will not invest. And lower consumption and investment can lead to economic recessions.

Considering the volume of economic reporting in Bangladesh over the past few months, it might be prudent to look at it first. Economic literature shows that voluminous economic reporting in mass media has a negligible impact on consumer confidence (Su, 2008), at least under normal circumstances. Instead, public perception of the economy is greatly shaped by what they experience in their everyday lives (Behr and Iyengar, 1985; Linden, 1982). 

That is, while economic reporting can serve as a source of information to the public, they form their opinion based on their personal experiences. This makes sense as economic agents are not as irrational or ill-informed as some would like to assume and even without being exposed to economic reporting, their confidence can be affected simply because of their exposure to markets on a daily basis.

In fact, some studies (Lamla and Lein, 2014) found that a greater volume of reporting was actually beneficial for the economy and economic agents more exposed to economic reporting were able to take more informed decisions and update their choices based on evolving circumstances. 

This finding was also echoed by Dr Zahid Hussain, Former Lead Economist at the World Bank, who said, "It's the job of the media to play the role of a messenger. It is supposed to provide information on the state of the economy and help the public form informed opinions." 

Dr Ahsan H Mansur, Executive Director at the Policy Research Institute, agreed with the sentiment. 

"The media should perform its duty to the people by informing them regarding the state of the economy. Otherwise, how would the people know how they should behave under different economic realities?" said Dr Mansur.

The tone and timing

While objective reporting can serve as a source of information for the public, the tone of the reporting may significantly affect how they respond. As global media became more corporatised and ratings-driven, getting more views, clicks or TRP became a crucial indicator for success. However, many mainstreams, global media outlets, especially electronic media, can often have the tendency to portray an overtly negative picture of the economy, scare the public into making irrational decisions and exacerbate recessions. 

This tendency has been well-documented in economic literature as well.

One study by (Jonkman et al, 2020) found that negative coverage of economic conditions adversely affects consumer confidence. (Lamla and Lein, 2014) found that the full-information impact of economic impact can be reverted if the tone of the reporting is excessively negative or positive or somehow distorting reality. 

The timing of economic reporting also matters as suggested by another study (Su, 2008). According to this study, economic reporting during times of economic recession can indeed have a significant impact on consumer expectations, although consumers are still primarily driven by their personal experiences. 

The relationship between economic reporting and expectations remains a developing field and no consensus has yet been reached among economists. The nature of this relationship varies across countries, depending on their institutions, income level and development status and there is no 'one size fits all' answer to this question. 

So that begs the question, how good of a job Bangladeshi media is doing with its limited democratic rights.

Is the Bangladesh media doing a good job?

Bangladeshi media outlets have remained vigilant in the wake of the Russian invasion of Ukraine and the subsequent stagflation. Some may even argue that the sheer volume of reporting on macroeconomic issues such as foreign exchange reserves, currency devaluation, trade deficits, energy imports, inflation, etc was too much to take. 

The Business Standard asked Dr Zahid and Dr Mansur to evaluate the role of local media outlets.

"It's dangerous to assume that there is a doom and gloom attitude in the media. Media outlets do not conjure the information out of nowhere. Most of it comes from the government, BBS and other research organisations. So, I would urge everyone: 'don't shoot the messenger'," said Dr Zahid Hussain.

"As long as media outlets are not distorting the news and are disseminating the correct information, I believe there is no need to worry," said Dr Ahsan H Mansur.

While getting the approval of the economists sounds promising, it is important to remember the crucial role media can play, especially in times of economic stress. And it is important for outlets to carefully present objective, no-nonsense, and de-sensationalist reporting. 

Reference

Behr, R.L., Iyengar, S., 1985. Television News, Real-World Cues, and Changes in the Public Agenda. Public Opinion Quarterly 49, 38. https://doi.org/10.1086/268900

Jonkman, J., Boukes, M., Vliegenthart, R., 2020. When Do Media Matter Most? A Study on the Relationship between Negative Economic News and Consumer Confidence across the Twenty-Eight EU States. The International Journal of Press/Politics 25, 76–95. https://doi.org/10.1177/1940161219858704

Lamla, M.J., Lein, S.M., 2014. The role of media for consumers' inflation expectation formation. Journal of Economic Behavior & Organization 106, 62–77. https://doi.org/10.1016/j.jebo.2014.05.004

Linden, F., 1982. The Consumer as Forecaster. Public Opinion Quarterly 46, 353. https://doi.org/10.1086/268732

Su, L., 2008. Impacts of mass media coverage of the economy during normal times and recessions on the Index of Consumer Confidence using time series analysis and Granger causal analysis (Master of Science). Iowa State University, Digital Repository, Ames. https://doi.org/10.31274/rtd-180813-16559

Seikh Rafi Ahmed. Sketch: TBS