Another Totemic Story in the WSJ

I was sent up there to cover the Hot Rod & Custom Car show by the New York Herald Tribune, and I brought back exactly the kind of story and of the somnambulistic totem newspapers in America would have come up with. A totem newspaper is the kind people don’t really buy to read but just to have, physically, because they know it supports their own outlook on life.

The Kandy-Kolored Tangerine-Flake Streamline Baby, 1965.

Tom Wolfe’s famous aside about newspapering came to mind this morning while reading a Wall Street Journal story, “Political Uncertainty Puts Freeze on Small Businesses.”

The story, which says Washington policy fights are holding up small business hiring decisions, may match some Journal readers’ view of the world, but it is based on awfully thin evidence, just anecdotes and talking heads, including one from Standard & Poor’s, the discredited rating agency. It’s not about what you think about big government. It’s about collecting enough facts to support the premise.

Here’s the Journal:

W. Michael Brown has scaled back hiring plans in his Virginia auto-parts stores. Carl Redman halted an expansion project at his Oregon contracting business. Bill Hammack is preparing layoffs at his road-construction company in Georgia.

The economy remains unsteady 22 months after the recession began, with banks restricting credit and consumers hunkering down. For these small businesses, and many others across the country, there’s an additional dark cloud: uncertainty created by Washington’s bid to reorganize a wide swath of the U.S. economy.

Let’s look at the support:

The economic contraction is of course the prime force driving companies to lay off workers. But a health-care overhaul grinding through Congress could bring unknown new obligations to insure employees. Bush-era tax cuts are set to end next year, and their fate is unclear. Legislation aimed at tackling climate change might raise businesses’ energy costs. Meanwhile, a bill aimed at increasing transportation spending is stalled.

Many companies say they have responded by freezing hiring, cutting benefits and delaying expansion plans.

Actually, four companies in this story say something along those lines, including the ones mentioned in the lead paragraph. And, in fact, their testimony is straightforward and compelling. But it alone can’t bear the weight of this premise. Without any broader evidence, the reader has no way of knowing what effect Washington is really having on small business decisions. One can assume it has a lot, or a little. That’s the trouble with assumptions.

Survey data don’t speak to the political uncertainty point.

Employment data released this month showed worse-than-expected job losses. According to a National Federation of Independent Business survey, 16% of small business owners said they plan to cut staff or not fill vacancies, a three-percentage-point increase over August. Only 7% said they planned to create new jobs.

The survey concludes that more business owners are planning to contract than expand. In August, businesses were split equally.

But why?

There is little reliable data explaining why companies are retrenching despite signs of life in the economy, including recent increases in production in some industries and rises in housing prices and new home sales.

With little reliable data, all we’re left with are the unreliable kind:

However, a variety of organizations that monitor business behavior, including the NFIB, the Associated General Contractors of America and the National Small Business Association, say political uncertainty is a substantial factor, alongside other more typical problems, such as availability of credit.

Adding insult, a quote from an S&P economist:

“No question, this is a tough issue for a lot of these companies,” said David Wyss, chief economist at ratings firm Standard & Poor’s. “It’s all anecdotal, and it affects everybody differently, but the one common factor is people postpone decisions, and I’m afraid that’s going to slow us down coming out of the recession.”

Mr. Wyss said the resulting lack of hiring is one reason he’s forecasting just 1.5% growth in the economy for 2010. “It’s better than going down but it’s not going to be fun.”

Then there’s this guy:

Wharton School of Business Professor Raffi Amit cites the Obama administration’s pending overhaul of banking regulations as another drag. He said it will likely require banks to hold more money in reserve, potentially reducing the pool of funds available to make loans.

That combines with uncertainty about other issues, he said. “Obviously people are worried about what health-care costs are going to be. Nobody knows. Taxes, who knows?”

Exactly. Who knows?

To get an idea of the randomness of this kind of journalism, imagine a totally different premise: say, that small businesses are delaying not hiring, but cutting jobs, because, let’s say, the stimulus program is so great. As the S&P economist says, the economy is basically treading water, so you can go either way. It would have been just as easy to get anecdotes and experts to support a premise that is basically the opposite of what the Journal proposes here.

The lower the evidentiary standards for stories, the more subjective newspages become.

This reminds me of a story over the summer that tied Vermont’s strict mortgage laws to its historically slow economic growth rate, another premise that might fit conservative readers’ world view. But as I noted, the story offered no facts actually tying lending laws to growth, but merely said that the state grew slower than others and that it had strict lending laws.

Facts reduce the randomness and tendentiousness of journalism. They’re what separate news from opinion, or editors’ musings. They also have a way of actually surprising readers once in a while, instead of always supporting their outlook on life.

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Dean Starkman Dean Starkman runs The Audit, CJR's business section, and is the author of The Watchdog That Didn't Bark: The Financial Crisis and the Disappearance of Investigative Journalism (Columbia University Press, January 2014). Follow Dean on Twitter: @deanstarkman.