Non-sense

Along the way we are going to meet a large cast of characters, some old, some young, some on the Left, and others on Right. What we’ll find is that journalism, unlike sciences or the professions, does not require experience or even expertise to succeed. Not even financial journalism, which is much more technical than most areas. Unfortunately it is much more nebulous than that.

Most mainstream financial journalists are young generalists, seemingly employed on the basis of having the appropriate background or university. Until this year, none of the journalism schools offered substantial training in financial journalism.

Once in work, the financial journalist on a newspaper has little incentive or ability to step outside the office and find out their own stories. A steady flow of stock exchange announcements, press releases, rewriting news wire articles as well as the occasional public-relations-driven leak is more than enough work for the tiny teams of journalists that newspapers employ.

The newspaper journalist is also encouraged to find their own voice by writing comment and opinion pieces, particularly in the wake of the financial crisis. For many journalists, this allows them to live the dream of the agenda-setting campaigning journalist. Most who are given the opportunity take the bull by the horns, and write doom-laden pieces about the state of the world, highlighting the terribly misinformed actions of governments and Europe (if you write for the Telegraph), or the markets and bankers (for the Guardian). I exaggerate, but only very slightly.

Disappointingly, the quality of these articles is difficult to find, and rarely do professionals in the financial world take them seriously; most don’t even bother to read them. Instead, what these articles usually do is reflect the prejudices of the newspaper back at the reader which hopefully makes the reader feel a little bit better about their own views, and maybe gives them an extra reason or two why they were right all along. Rare it is for a journalist to aim to challenge the newspapers pre-established views, and none tolerates more than one or two of these.

A typical example of a newspaper insider, faithfully replicating the senior editorial line, is a young Guardian journalist called Aditya Chakkrabortty. He is the economics leader writer, which means he gets to write some of the unsigned articles in the centre of the newspaper, giving the paper’s own view on matters. It sounds like a senior job but in reality it is often a job of younger staff, specially picked because they are seen as particularly bright or insightful. They get to work alongside the newspaper’s most senior comment writers and management and as such it is generally a route through to career advancement within the newspaper.

As such, reading Chakkraborrty’s work gives us a good insight into the Guardian’s thinking on finance and economics, and what it thinks of the future. Hardly surprisingly, his views are distinctly familiar to those of Economics Editor Larry Elliott, who rarely misses an opportunity to blame markets for the majority of the world’s ills. We’re likely to meet him later on.

First, let’s meet Chakkrabortty. This young man took the traditional elite route into the centre left media - Oxford University, the BBC, the Guardian. At the Guardian, Chakkraborrty writes leader columns as well as signed pieces. In these signed pieces we can see that Chakkraborrty adopts a cosy leftwing view with little or no financial sophistication. Unsurprisingly, his background appears to be more Marxist than markets; he read Modern History at Oxford. A typical signed piece comes from 3 August 2010, and is titled: “What the £35,000 cocktail taught us”. On reading it, I noted to a friend that it is articles like his that made me stop buying the Guardian.

His argument runs as follows: shortly before the financial crash the super-rich were spending like no tomorrow. He remembers writing a silly-season piece in December 2007 in which Movida, the nightclub for people who want to be seen to be rich (footballers and other forms of the grotesque rich), offered a cocktail for £35,000. It was basically a stunt, as the cost of the drink came largely from an 11-carat diamond ring. Stunt or no, the cocktail got the club in the papers, which one suspects was the point all along.

Not to Chakraborrty. Just as any good young journalist with limited experience should do when asked for a weighty opinion, he mined his life history for events on which he could attach meaning. And so the silly stunt becomes a representation of capitalist society, “a potent sign of how unequal boomtime Britain had become”. He quickly moves beyond standard left-wing canards about inequality to another idea: “it can just as well indicate imminent economic failure”. Chakraborrty has just skimmed through a book that has landed on many reviewer’s table that week - Raghuram Rajan’s ‘Fault Lines - and cites his argument that the subprime meltdown - apparently at the heart of the financial crisis - was because the middle class had to borrow to buy houses and maintain their lifestyles in the face of stagnating wages, meanwhile the rich just got richer. And, in some unspecified way, this might happen again: “sorting out the wealth gap is essential if we are not to repeat the financial crisis.”

This article is the Guardian’s current economics thinking in microcosm, and not in a good way. Firstly, it is credulous. The cocktail may have been outrageous but it was likely a PR-driven stunt, so hardly something safe to generalise about. Second, it relies on flawed evidence. Chakraborrty cites ‘The Spirit Level’ to demonstrate the evidence that more equal societies are happier and more successful. He either hasn’t noticed, or does not care to note that this book has been widely slated by most respected - and non-political - writers as drawing conclusions that its data does not show. (John Kay’s review is worth a read.)

Thirdly, it misinforms readers about the financial crisis. Rajan’s argument about the rising level of debt being largely a product of the poor trying to make up for their spending weakness is interesting - and has some basis in truth - but hardly reflects the financial reality of the credit boom, a time in which almost every institution in society was borrowing - both rich and poor, American and European. Why should it only be the poor’s borrowing that causes financial crises?

There is a curious parallel argument made by the government-hating wing of the US Right, which alleges it was government pressure on the US mortgage giants to lend to the poor that triggered the financial crisis. Rajan appears to have taken this view and remixed it for the Left.

But however it is presented, it is not true. The credit boom and the inevitable financial crisis that followed was caused, broadly, by a combination of cheap money - due to central banks, bad regulation, and a highly competitive globalised banking system. These three combined with a strong dash of free market ideology and statist governments blinded by the power of big finance. The borrowing of the poor was a symptom rather than a cause.