When officials try to ban economic truth
A mandate on Chinese media not to report a credit crunch is the latest example of governments trying to keep bad news under wraps. But the forces for honest financial data are too strong to defy.
It is one thing for a government that spies on others to keep that fact a secret and even go after an employee – such as Edward Snowden – who leaks such secrets. But is it right for a government to also deny facts about the economy and then attack the messengers of those facts?
China is the latest example of this problem in which a country tries to defy the demand of global markets for transparency and honesty in financial data. Last week, the propaganda arm of the Communist Party ordered Chinese media not to use words such as “cash crunch” or “inadequate liquidity” in reporting on what has been obvious for weeks: a near-panic in financial markets as the government tries to rein in a shadow banking industry that has doubled the amount of loans in three years.
Chinese authorities, like England’s 11th-century King Canute, who ordered the tides to stop, want to prevent a bursting of a credit bubble through a mandate on what the media tells the public. This may be a lost cause. Even the head of the Bank of China referred to the $6 trillion shadow banking industry as a Ponzi scheme, with lenders doling out loans while promising big returns to investors. (The party’s media mandate is akin to a new law that grown children must visit their elderly parents or face official punishment.)
China’s truth-defying tactics are not trivial. The world economy now depends on the stability of the Chinese economy as well as integrity in needed reform of state-run industries. One need only look at what triggered the financial crisis in the 17-nation eurozone in 2009: An honest economist took over Greece’s statistical office and announced the government had been lying about the size of its debt.
Even now that economist, Andreas Georgiou of the Hellenic Statistical Authority (Elstat), faces charges in court for “false attestation to the detriment of the state” and “violation of duty.” European Union officials, such as Taxation Commissioner Algirdas Semeta, have had to back up Mr. Georgiou. “Probably for the first time in the course of many years … Elstat was able to present … data without any reservations from the commission,” Mr. Semeta said last month.
Argentina, too, continues to issue inaccurate figures on inflation, claiming it is only about 10 percent when private economists estimate the rate at above 25 percent. The government fired its statisticians who reported the right figures and pursued them in court, claiming they were hurting national security. Meanwhile, the International Monetary Fund (IMF) got so fed up that it issued an ultimatum to the government in February to come clean on its data by September.
The United States is not immune to such debates over honest accounting. The Congressional Budget Office, which is supposed to provide US lawmakers with “nonpartisan” analysis of proposed bills and fiscal trends, is restricted in how it conducts its accounting. The political party in power can sometimes influence how the CBO performs an analysis in order to slant the results.
Sometimes the agency occasionally defies a mandate. In a report last month on the impact of interest-rate increases under a federal student loan law, the CBO stated that the law’s “accounting does not consider some costs borne by the government.” That’s not what many Democrats wanted to hear.
GOP lawmakers also question the Obama administration’s accuracy in coming up with figures on the “social cost” of carbon emissions – in, for example, the impact of rising sea levels. The White House’s estimates of such costs have more than doubled in three years, causing Republicans to demand a full disclosure of the accounting methods.
Fortunately, most countries have enough free media, as well as the pressure from markets and institutions like the IMF to hold officials to account for lying about data. In China, Internet users had a field day with the latest mandate to ignore the “credit crunch.” Chinese journalists leaked the order to foreign journalists.
Some secrets like spy programs are worth keeping. But governments cannot make secret that with which people live every day, whether it is a credit crunch, inflation, or other economic realities.