A layman's guide to the how and why of newspaper reporting; Press Watch: A Provocative Look at How Newspapers Report the News, by David Shaw. New York: Macmillan. 288 pp. $15.95.

It was in March that the undernourished media watchdog, the National News Council, voted to dissolve itself for ''lack of news media acceptance of the concept of a news council.''

Why would the news media shun any opportunity for close self-examination that might foster greater reader trust?

Because, ''like lawyers - and doctors and politicians and athletes and movie stars and everyone else I know - we (in the news media) don't like to be criticized,'' writes journalist David Shaw in his new book.

But criticized they are, as is evidenced by ever more prominent and frequent libel suits, with their often mega-dollar awards.

As a remedy for public distrust and loss of credibility, Mr. Shaw, a 16-year veteran reporter who has been covering the national press for the Los Angeles Times since 1974, says the press could stand to turn some of the close scrutiny it regularly focuses on others back on itself.

''We observe. We monitor. We report. And by so doing we sometimes hold others accountable for their errors of commission and omission. But who observes us?'' asks Shaw in this book, ''Press Watch.''

Shaw says the First Amendment does not exclude the press from the need to account to the public it serves. He doesn't argue for censorship. Far from it. But he does advocate a need for the press to become ''morally accountable for its actions'' so that the bond between the reader and the newspaper can be restored.

Shaw's book tries to get at the root of the misconceptions of news readers by being a sort of textbook for the layman on how some basic newspaper decisions are made, the ethical codes reporters live under, and how newspapers make mistakes.

For example, he points out that sometimes vague news ''sources'' quoted in a story aren't as much the fault of the reporter as the fault of the news-gathering ritual, especially in Washington, where competition among the media and newsmakers desiring anonymity leads to fuzzy attribution.

Shaw explains this game in his chapter on unnamed sources, in which he describes newsmakers who often try to use the media for their own purposes while dodging attribution. Then there is the other side of the coin, when complacent reporters don't seek attribution or may even volunteer to preserve a source's anonymity at the outset of an interview.

The book continues to ask acutely interesting, rarely answered questions such as: How does a major newspaper with top-notch editors miss a major story? Why does a veteran Washington reporter begin to rely too heavily on unnamed sources? How are Pulitzer Prize-winners chosen? Is it ever ethical for a reporter to misrepresent himself, especially in cases where there is no other way to get a story that would be for the ''greater social good.''

It is Shaw's contention that the workings and decisionmaking of newspapers should be regularly reported in newspapers in the same way other news is covered. By doing so, newspapers would destroy the mysteries that sometimes surround the media.

''Press Watch'' is an important book for both newspaperman and newspaper reader, because it not only asks fundamental questions about that relationship but goes about restoring the breach of trust between the two.

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