Beat the Press

Dean Baker's commentary on economic reporting


When Out of Context Is Untrue

A couple of days ago, I gave my standard diatribe about the importance of putting numbers in context, especially budget numbers, which as isolated billions or trillions are virtually meaningless to the typical reader. In some cases, the issue is not just one of being uninformative, it’s also a question of actually being wrong.

In budget reporting, the most obvious case in which out of context is wrong, is when comparisons of the deficit are made through time. There have been many news reports pronouncing the Bush deficits the largest in history based on the fact that nominal deficits (which peaked at $413 billion in 2004) were larger than the size of the deficits in any prior year.

This statement is true, but sufficiently misleading to be wrong. The impact of the deficit on the economy, and the potential debt burden it poses to taxpayers in the future, depends entirely on its size relative to the economy. This is the Bill Gates principle. If Bill Gates chooses to borrow $1 million for some reason, it is not a big deal for him, since he can easily repay this sum. However, if most of us had $1 million in debt, this would be a very big deal for us. It is entirely possible that Bill Gates actually has borrowed millions of dollars for various purposes, but a comparison of our wealth with Bill Gates’ wealth that focused only on his debts, without including his assets, would be ridiculous.

That is effectively what reporters do when they compare budget deficits through time, without comparing them to the size of the economy. The proper measure is to describe the deficit relative to GDP. By this measure, the 2004 deficit did not come close to historic peaks. The unified deficit in 2004 was equal to 3.6 percent of GDP. Ignoring the huge World War II deficits, the country had a larger deficit every year from 1982 to 1986 (peaking at 6.0 percent in 1983) and from 1990-1993 (peaking at 4.7 percent in 1992). In short, the 2004 deficit was nowhere near a record.

Arguably, the appropriate measure of the deficit is the “on-budget” deficit which adds in the money borrowed from Social Security. This brings the 2004 deficit to 4.9 percent of GDP, still well below the peaks of 1980s and 1990s. So, it is simply inaccurate to claim that the 2004 deficit was a record.

(A side point: REPORTERS, not politicians, use the Social Security surplus to hide the deficit. Reporters, or their editors, decide which numbers get in newspapers or on the news. If they think that the on-budget deficit is the right one to report, then it is their obligation to report it. It appears directly in every budget document, so they do not even have to do the arithmetic.)

There are many other, less political, uses of numbers where out of context is wrong. A comparison of baseball salaries, or movie revenue, that doesn’t adjust for inflation is meaningless. If the time-span is only a couple of years, this is not a really big deal, but the $80,000 that Babe Ruth was paid in 1929 would be close to $1 million in today’s dollars. Reporters should adjust for inflation, and their editors should take them to the woodshed when they don’t. There is no argument on the other side.


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