The extent to which journalists and the media might share at least partial responsibility for the meltdown of banks and the financial markets has not been widely addressed thus far.

Can the dog’s dinner that is the economic crisis also be seen as a crisis of business and financial journalism? Are we insufficiently informed – despite, or even because of the overload of information that comes with the 24/7 news cycle?

Anya Schiffrin of Columbia University has devoted considerable attention to these questions. She is one of the rare experts to take an unbiased look at the work of business and financial journalists. In her recent book, Bad News: How America’s Business Press Missed the Story of the Century, she and a range of contributors consider what went wrong from a variety of different perspectives.

Schiffrin sees the failure of business and financial journalism as being intertwined with a general lowering of standards in professional journalism in recent years. As she explains, “There was a collapse in advertising revenues which preceded the crisis but was aggravated by the economic downturn. There were the ensuing layoffs and staff cuts that made journalists fear for their jobs and perhaps more afraid to stand out from the pack.” The financial crisis of 2008 and 2009 came “at a time when American journalism was already imploding” and when almost one-third of all newsroom jobs had disappeared.

According to Schiffrin, there has been little academic research on how business journalism fares during economic crises. What has been done suggests that during crises reporters become more dependent on sources – their contacts at the firms in key public and private institutions. “The pace at which the stories unfold means that reporters do not have the time to do broader investigative reporting, or to turn to academics or even former ‘insiders’ for more analytic perspectives. At the same time, these sources dry up because they are afraid that publicizing bad news will make things worse. If the sources are available, their focus – even more than usual – is on ‘spin’, trying to shape the coverage of the story as it develops.”

Nobel Prize winner and information economist Joseph E. Stiglitz  states that “a critical press might serve as one of the checks and balances, restoring sanity to markets that have lost touch with reality.” But Stiglitz is also fully aware of why such high expectations are difficult to meet: “Reporters and their editors do not stand apart from the rest of society. They too can easily be swept up in the herd mentality,” not least because “there are strong incentives for the media not to lean against the wind.” Stiglitz identifies a significant problem in the symbiotic relationship between the press and those they cover. This cozy relationship “does not necessarily serve the rest of the society well.” Moreover, “hubris can lead to the view by journalists that as recipients of information they can sort out the distortions and inaccuracies – so long as they can get the information.”

The result is, according to Stiglitz, that too often “there is a he-said, she-said kind of coverage, a simple reporting of the different perspectives, with little balance, let alone analysis. It is as if in covering a story about the colour of the sky, a colorblind reporter gave equal weight to those who claim it is orange as to those who claim it is blue.”

Dean Starkman from the Columbia Journalism Review points to a handful of other firewalls which did not work well in sounding early warnings of the crisis. Among them he lists risk managers, directors within financial institutions, accounting firms, rating agencies, regulators and – yes – journalists. In his content analysis of the nine most influential business press outlets of the U.S. between January 2000 and June 2007, Starkman identifies 730 entries containing significant warnings. And while 730 may seem a lot of relevant stories, Starkman reminds us that this is not at all an impressive record. We should keep in mind that the Wall Street Journal alone “published 220,000 stories during that period, so in a sense these were corks bobbing on a news Niagara.”

While Chris Roush, a business journalism expert from the University of North Carolina at Chapel Hill, defends the overall performance of business journalism, Robert H. Giles and Barry Sussman, both from the Nieman Foundation at Harvard University, remind us of journalism’s old virtues. The two media experts highlight the importance of “being skeptical, thinking counter-intuitively, and fighting the tendency to follow the pack.” This sounds charmingly old-fashioned, but such appeals can be seen as signs of helplessness. To understand why business and financial journalism failed in some respects, another insight of Giles and Sussman may be more important: for journalists, dealing with economic experts is particularly difficult because consensus amongst economists is rare, and their opinions can vary significantly.

According to Giles and Sussman, economists can be divided into three groups: “The first one, the one most often called on by the media, especially cable TV, includes fine and competent economists but ones employed by Wall Street and various commercial interests.” The second group includes those who became so immersed in the theory of efficient markets “that they simply couldn’t let go of it, even after the great catastrophe that exposed the flaws in the theory and left millions out of work, homes lost, savings gone.” The third group consists of  “those with credibility,” believing “that markets are fallible, vulnerable to irrational speculation and bubbles, and that government has a large role in regulating markets and in establishing monetary policy that help stabilize them.”

This may be seen as a somewhat crude summary, but it nonetheless seems to have a grain of truth, and it goes some way to explaining why even those business journalists who try to identify “truth” in their reporting cannot always do so. The power and influence of leading economic commentators, financial analysts and others who have an agenda to advance is significant and all too often, these are the voices who are allowed to frame the debate.

Originally published in Neue Zürcher Zeitung, October 18, 2011.

Anya Schiffrin (ed.): Bad News. How America’s Business Press Missed the Story of the Century, New York/London: The New Press, 2011