Thursday, 1 November 2018

Does the media help the general public understand inflation?

The media has an important role in helping us to recognise and understand what is going on in the world around us. One of the main goals of my ECONS102 paper is to have students recognise how economic concepts and theories apply to things that are discussed in the media. So, when I read the abstract to this new article, by David-Jan Jansen (De Nederlandsche Bank) and Matthias Neuenkirch (University of Trier, Germany), published in the Oxford Bulletin of Economics and Statistics (I don't see an ungated version, but it might be open access in any case), I took note.

Jansen and Neuenkirch use data from around 1800 people in the Netherlands, over the period 2014 to 2017, and investigate whether their engagement with print media affected the accuracy of their perceptions of current and future inflation. They find:
...no real support for the idea that more-often informed members of the general public do better in understanding inflation. In fact, more frequent readership of some types of newspapers is associated with slightly less accurate inflation perceptions... Also, a set of cross-sectional regressions using data collected in 2017 finds no evidence that non-print media outlets, such as television or Internet, help in understanding inflation. Overall, our paper casts further doubt on the idea that media usage contributes much to knowledge on economic developments...
In other words, the authors argue that the media plays no informative role in helping the general public to understand inflation. However, I disagree for two reasons.

First, the paper is clear that their measure of media use is simply the proportion of newspapers (by type: 'quality' or 'popular') that each person in the sample reported that they used 'frequently' or 'very frequently'. This is hardly a measure of media engagement. It is a measure that mixes up the diversity of news sources the person engages with, with the intensity of that engagement. For instance, there is only one news source that I would report that I engage with 'frequently', so I would show up as a low media user in their sample (in fact, given that it is print media and I don't read print newspapers, I would actually show up as a non-user).

It isn't clear to me what a relationship between incorrect inflation perceptions and the proportion of print newspapers that people read frequently even tells us. It certainly doesn't tell us anything about whether the media helps the general public to understand inflation.

The second issue I have with the paper is their measurement of error in inflation perceptions (and in future inflation expectations). They look at the absolute value of the difference between actual and perceived inflation (or expected future inflation). Actual inflation was taken from the Dutch statistics agency, and perceived inflation was what the respondents thought inflation was in that year (and in the following year, for inflation expectations). The problem here is the use of the absolute value of the error. Let's say that paying attention to media sources makes the general public overestimate inflation. Some people would overestimate inflation, but would overestimate by more if they paid attention to the media. However, other people would underestimate inflation, but by less if they paid attention to the media. In the paper, it appears that most people overestimate inflation, but the conflation of these two groups still potentially creates a serious problem for the analysis.

This is a paper that looks at an interesting research question, but does so in such a way that it doesn't actually answer the research question. It would be reasonably straightforward to replicate this analysis in a more sensible way though, if the authors were willing to share their data (the Dutch DHS household data is freely available online, but the authors supplemented that with their own data collection).

And if the answer is that the print media doesn't help the public to understand economic developments, we could conclude that the public should spend more time reading economics blogs instead.

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