Freeman

ARTICLE

Two Cases of Press Malpractice

Responsible Journalists Would Learn Basic Economics

SEPTEMBER 01, 1996 by TIBOR R. MACHAN

Dr. Machan, this month’s guest editor, is a professor of philosophy at Auburn University, Alabama. His next book, A Primer on Ethics, will be published later this year by the University of Oklahoma Press.

1. The Wells Fargo Affair

In late January, Wells Fargo Bank acquired First Interstate Bank of California in what the press so gleefully calls a hostile takeover. I was in California, driving from one place to another for various speaking engagements, so I had the opportunity to listen to innumerable news reports that discussed the purchase. In particular, I listened to KCBS radio, the all-news station in San Francisco, which reported the merger several times during my drive north from Santa Barbara to the Bay Area.

Invariably, the broadcasters gave an account of this major economic event in terms of how thousands of First Interstate employees would probably lose their jobs in Wells Fargo’s efforts to consolidate its services and to secure a more profitable operation for the resulting huge enterprise. Employees were interviewed, and journalists pretending to some measure of economic and business expertise gave their take on what occurred. In all cases the emphasis was placed on just how this major buyout would hurt people, even consumers (because the reduction in the work force surely isn’t good for customers).

Not one reporter even advanced the idea that such a merger will probably enrich a great many of the Wells Fargo and First Interstate stockholders—that these people will now be able to invest more money into their children’s education, health care, clothing, ballet lessons, and other efforts to make a better life for themselves. And all of this will very likely lead to more demand for labor which eventually will give those who leave the employ of First Interstate Bank another opportunity for productive employment.

None of this is certain, of course, but neither is it certain that those laid off from the merger will remain unemployed. Yet the media experts immediately focused on the possible downside, indicating nothing worthwhile that might come of what occurred. The only benefit mentioned—the possible profitability of the merger—came as a snide remark. It was clear that the pundits thought of profit as a crass motive for doing such terrible things as consolidating two giant financial institutions. Profit-making—seeking prosperity—was once again consigned to the cultural status of a pernicious virus that merely hurts people.

Such narrow-mindedness seems to characterize nearly all news-reporting, with only a few exceptions in such outlets as the Wall Street Journal, Investor’s Business Daily, Forbes, and Barron’s. If there were such a thing as a tradition of class-action malpractice suits initiated against the press, no doubt one could make a very strong case against all reporters whose only aim seems to be to denigrate business and incite public fear.

What can be done? Well, it would be nice if business schools and other educational institutions made some effort to teach basic economics to journalism majors. But that will not be enough, since economists typically try to avoid giving a moral defense of the market. What is really necessary is the moral education of the public, including the press, about how prosperity is a worthy objective and that those who pursue it are doing the right thing.

Is this going to happen soon in our educational system? I doubt it.

2. Paying Management for Downsizing

A 60 Minutes segment in the spring of 1996 featured various executives and other professionals who have been laid off in various efforts by firms to trim their operations. A reporter confronted the president of AT&T because of his hefty compensation while AT&T was undergoing downsizing in connection with its failed efforts to enter the PC market. Once again, sentimentality triumphed over journalistic integrity.

In the first segment, one of the people interviewed expressed outrage at the fact that he was laid off while higher management was receiving pay increases. The reporter provided sympathy and support but never bothered to raise any questions as to whether higher management may have made a good decision in pursuing the policy of downsizing as far as their primary duty to the stockholders is concerned. Any journalist who knows economics should realize that one sign of good management is making a company profitable. Those who own the company’s stock and depend on its remaining profitable hire management and reward it precisely for making difficult decisions.

The second segment exhibited further economic ignorance. This time the reporter tried to get the president of AT&T to confess to being a supremely greedy man for having received a very good deal indeed in the wake of probably saving AT&T from taking a major economic hit via its failing PC division (which it had acquired in an earlier unwise purchase of NCR). By quickly moving to abandon the PC market, AT&T probably saved the jobs of thousands of employees and the investment of millions of stockholders. But, of course, 60 Minutes was clueless. It opted for the typical rich-bashing favored by politicians and the popular press.

Responsible economic reporting would have made it clear that in all fields of employment there are times when downsizing must occur. Without such restructuring employers will fail their investors. Football teams, orchestras, faculties at universities, hospitals, television broadcasters, and every other kind of employer can find that without trimming costs, there will be no future left for itself.

Who’s to Blame?

If there is any culprit to be held responsible for downsizing, it is the consuming public. But consumers are not culpable either since they do not owe loyalty to any firm, product, or service. They owe loyalty to their own aspirations, goals, wants, and hopes. That is what should dictate their purchasing practices. But by doing so, they will often stop buying certain kinds of goods and services, adversely affecting employees of less favored firms.

CBS, which produces 60 Minutes, may well experience some downsizing itself, at least if competing networks have anything to say about it. The company has been steadily falling in the ratings. Some changes are already being made at the program— with the addition of face-offs between Molly Ivins and Stanley Crouch and P. J. O’Rourke—and it may have to be scrapped entirely.

In the meantime, celebrity newscasters and viewers should familiarize themselves with the realities of the business world. One such reality is that a firm does not exist primarily for the sake of making its loyal employees happy, secure, and satisfied. It exists to further the goals of those who invest in it, who own it, so they can send their kids to college, take vacations, provide for the future, and eat healthy meals. Employees can never become complacent.

In the United States, there is now too much complacency about security. People are being told by too many commentators that they are owed a living, that they have “a right to a job,” “a right to a living wage,” and “a right to health care and social security.” So it is no wonder that laid-off employees are baffled, their self-esteem damaged—they think they are being cheated when the market can no longer sustain them in their preferred line of work.

In other systems we see illusory security and then, when the roof caves in, disappointment and disillusionment. In a free- market economy, one is never deceived about security, and can make preparations, take precautions, take out insurance, set aside resources for times of economic hardship.

There is no such thing as a risk-free economic system.

ASSOCIATED ISSUE

September 1996

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Unfortunately, educating people about phenomena that are counterintuitive, not-so-easy to remember, and suggest our individual lack of human control (for starters) can seem like an uphill battle in the war of ideas. So we sally forth into a kind of wilderness, an economic fairyland. We are myth busters in a world where people crave myths more than reality. Why do they so readily embrace untruth? Primarily because the immediate costs of doing so are so low and the psychic benefits are so high.
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