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Times Buries Lead in Federal Reserve Story

In an article in the June 22, 2011 New York Times, reporter Binyamin Appelbaum led [1] by arguing that “The Federal Reserve hoped that its three-year-old economic rescue campaign would reach a climax at the end of June. It hoped that consumers and businesses by now would be spending more and more, and the central bank could start doing less and less.” Only further down the page did the Times cite the Fed’s (historically [2] justified [3]) reason: “The Fed has made clear that it its primary focus is on the pace of inflation.”

[4]

Also buried was the fact that “almost 25 million Americans cannot find full-time work, a number that is rising again.” The Times considered that worthy of the 11th paragraph, while the claim that “Economic forecasters…say that they underestimated the impact of the Japanese earthquake on the production of cars and other goods” qualified for the fourth.

Additionally, the Times buries the central point of the article; namely that “When the economy faltered last summer, the Fed announced a giant stimulus program. This year, the leaders of the central bank have shown little appetite for another intervention.” Indeed, despite the claim that “the Fed is frozen” it is apparent that the Federal Open Market Committee is wary [5] of the potential for inflation from excessive monetary easing, although they do not expect it over the long run.

The Times claims also that forecasters “point to a lack of confidence” which the Times calls an “elusive concept that basically defines the willingness of consumers and businesses to spend more money than is justified by current circumstances.” This characterization misses the point of the theory of rational forward-looking [6] expectations. Expectations theory explains how present economic conditions, policies, and trust become Keynes’s “animal spirits” that drive investment. Also, as economist Arnold Kling notes [7], it goes against the general principles of economics to assume that “spend[ing] more money than is justified” is good. Rather, one must expect that “current circumstances” will improve enough to create returns for investment and consumer spending to occur.

The Times also buries in the second-to-last paragraph a notable claim by Fed Chairman Ben Bernanke. The Times notes that Chairman Bernanke has said that “a long-term plan to reduce spending could increase growth.”