Digging Deeper

One of the things I used to exhort my students to do was to try and figure out what wasn't being said when they read media coverage of economic events. I told them that if they could determine the spin, they might uncover additional information.

Jane Galt has an interesting take on this issue in Asymmetrical Information. While she uses examples about tax cuts, I used to use one about oil companies from back in the 1970s.

In that instance, one of the network nightly news stories at the time led a story with a headline about oil company profits rising 50%. The way the story was reported, one could easily be led to believe that the companies were making 50 cents on the dollar (this at a time when gasoline was selling for almost $1.25 a gallon). However, the next day, one of the companies (I think it might have been Mobil) published a simplified version (yes, I know that means altered) of their income statement. It showed that the profit margin on operations had risen from 4% to 6%, a 50% increase in profitability. However, this was when inflation had already passed 6% and was nearer to 10%.

This told a different story. Were both of the stories true? Yes. Did both "hide" something? Undoubtedly. But by digging deeper and asking questions, the students understood more.

Your thoughts and comments are appreciated.

UPDATE: First, here's the original post by Greg Mankiw that was referenced in Jane Galt's post. My apologies for not referencing it in the first place.

Second, here's an excellent follow-up by Mankiw. And the comments are interesting, as well.

Posted by TSchilling at 3:42 PM | Comments (0)