Recession. The word has dominated news stories over the past month, and especially since the Dow Jones dropped 460 points earlier this week prior to recovering somewhat.
Is America headed inevitably toward recession? Maybe; probably; who knows? If anyone could accurately predict the economy, they'd be billionaires in no time.
One thing is certain, though: Simply hearing about the possibility of a recession can bring it about. This is due to a combination of two distinctly non-economic factors: psychology and the news media. This is nothing new; sometimes in the process of reporting about a problem, the media actually makes that problem worse.
A classic example is crime reporting.
For most of the past twenty years, crime coverage has increased in the news media even as the crime rate has dropped. Americans see violent crime on television and (wrongly) conclude that they are in danger. To make themselves feel more secure, they go out and buy firearms for protection (gun sales jump dramatically after news coverage of high-profile shootings and violent crimes).
While this may seem like a reasonable reaction to assure safety, it has the opposite effect. Buying a gun does not make people safer; statistics show that having a gun in the home actually increases the occupants' risk of being shot or killed. The media-fueled fear of violence creates a self-fulfilling prophecy.
The same thing happens with the economy.
Warnings about a recession create a similar self-fulfilling prophecy — or, thought of another way, an anti-placebo effect. Just as a placebo (a non-effective "remedy") can make people feel better simply on the basis of their belief and expectation, recession worries can make people panic because they feel like they should.
It works like this: Experts in the news suggest (reasonably enough) that a recession may be coming; this in turn causes Americans to be more cautious with their investing and spending. Less spending and investing helps lead to slower economic growth, which in turn can lead to — you guessed it — recession.
In fact, much of the expert advice for how to survive a recession (save money, reduce debt) actually perpetuates it. Later this year the government will be issuing checks to taxpayers in an effort to stimulate the economy, but that will have little impact if those dollars go into savings accounts instead of being spent on consumer goods.
The effect is the same whether or not the stimulus is actually true. Whether crime is actually on the rise — or a recession is imminent — is less important than what people believe. Maybe the government should include some placebo pills along with the checks.
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Benjamin Radford is managing editor of the Skeptical Inquirer science magazine. He wrote about the news media in his book" Media Mythmakers: How Journalists, Activists, and Advertisers Mislead Us." This and other books can be found on his website.
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