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Free Market Project

3/1/2006 10:50:42 PM

Updated 02/24/06

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Biased Accounts: Part III
Risky Business: Media Bearish on Personal Freedom
Tying personal Social Security accounts to a ‘risky’ stock market, journalists portray a wild investment world filled with simpletons.

By Amy Menefee
Assistant Editor/Senior Analyst

     The media are supposed to inform the public, but in the Social Security debate, broadcasters have let ignorance about the stock market flourish.

     Reports on President George W. Bush’s personal accounts plan have erroneously given the impression that Social Security accounts would be the same as investing in high-risk stocks. Some journalists have gone the extra mile of showing people who aren’t familiar with the stock market and then expressing worry about entrusting retirement planning to these individuals.

     Journalists have omitted the truth about the president’s personal accounts plan, making backward statements like Anthony Mason’s on the Feb. 3, 2005, “CBS Evening News”: “Personal accounts add risk to a system designed to reduce it.” The accounts are, in fact, low-risk. And retirement planning isn’t as difficult or scary as the media have suggested.

     In an ongoing study of Social Security coverage first released in April by the Free Market Project, NBC and CBS were the most lopsided on this point. On NBC, personal accounts were tied to stock market “risk” 44 percent more often than the benefits of investment were explained. On CBS, the “risky stock market” point was made 30 percent more often than the point that the market historically yields much higher returns than Social Security.

     Overall, risk was tied as the second most popular liberal talking point used about Social Security. Nearly 15 percent of all liberal talking points in the study focused on the dangers and risks of personal accounts.

Learning from an existing system

     The media have linked personal accounts to different types of financial threats. CBS’s Trish Regan set her Feb. 5, 2005, report in the popular gambling destination of Reno, Nev. When she talked to worker Maureen Fager about personal accounts, the local woman said, “This is Reno, Nevada. I know a gamble when I see it.” CBS took Fager to a financial planner named David Yeske. Though he works with numbers for a living, Yeske made the startling comment that “The human brain has been wired for social interactions, not analyzing numbers.”

     The hyperbole continued on the May 1, 2005, “World News Tonight.” ABC’s Geoff Morrell repeated the problems found in the original study results, introducing an interview saying that “Canton’s congressman, a Democrat, says the president’s push to invest Social Security funds in stocks and bonds conjures up bad memories of corporate scandals.” Rep. Bennie Thompson (D-Miss.) followed with the comment, “The largest company in this state that was listed on Wall Street went bankrupt and so they’re saying don’t make WorldCom out of Social Security.”

     The rest of that story addressed the president’s supporters and their hope that Bush could overcome misperceptions and fears about personal accounts. By implying that WorldCom’s fraud and Bush’s Social Security plan could be similar, Morrell’s story only contributed to those misperceptions.

     In reality, the president’s plan for personal accounts would operate much like the Thrift Savings Plan (TSP), a voluntary retirement savings system established in 1986 and used by more than 3.4 million federal employees including Congress. Social Security typically returns just 2 percent or less on payroll taxes paid into the system. In contrast, the Thrift Savings Plan has paid returns averaging 7 to 8 percent over the last 10 years. While it offers more freedom than traditional Social Security through voluntary individual savings accounts, it is designed to minimize risk.

     “You can’t hurt yourself there if you try,” Donald Luskin said of the TSP. Luskin, chief investment officer for the economic research firm Trend Macro, has written about investing and writes about media coverage of economics for National Review.

     With the TSP, “the two biggest mistakes investors make are impossible,” Luskin said. He said investors hurt themselves when they fail to diversify their portfolios and when they choose funds with high fees that eat away at their gains. The individual accounts in the TSP are invested in diversified funds with low fees, and Bush’s plan is modeled on that idea.

     Yet, the media have continued to focus on personal risk instead of personal freedom when it comes to the responsibility of Social Security accounts, featuring people who express fear or ignorance of the stock market. On the March 22, 2005, “NBC Nightly News,” David Gregory said, “Florida retirees Cliff and Bernie Lamoreaux have heard an earful about the president’s pitch for private savings accounts in Social Security, and they didn’t like any of it.” Current retirees’ benefits would not be affected under any new plan, but Bernie Lamoreaux said, “Well, we have seen what happened to the stock market recently, and it’s a little scary to have everything tied to the stock market.”

     Later in that same report, Gregory continued, “Former Florida Congressman Bill McCollum says many seniors are not only concerned about their own benefits being affected by change, but many worry about how well their children or grandchildren will fare in a stock market that has taken cruel turns.” McCollum: “Well, a lot of seniors today, like my 89-year-old dad, were very familiar with the Great Depression and the crash of the stock market.”

     Whether or not the market will crash in the future is impossible to predict, Luskin said. But one certainty is that if the economy were that bad, the traditional Social Security system wouldn’t be in better shape than individual investments.

     “What they don’t tell you is you can’t avoid that risk by pooling together and everybody paying for everybody else,” Luskin said. “The least risky thing is to go it alone.”

Can the average person invest?

     But media reports about individual investors have portrayed “going it alone” as a risky proposition in itself. Financial planner David Yeske said on the Feb. 5, 2005, “CBS Evening News” that humans weren’t “wired” to understand numbers, and other stories underscored his point.

     For example, Jim Axelrod interviewed receptionist Jama Whitesell on the Feb. 9, 2005, “CBS Evening News.” He asked, “Would you say you know a little about investing or a lot about investing?” Whitesell replied, “A teeny bit.” Axelrod commented that “In that case, Jama and a lot of Americans might want to know more than just a teeny bit about investing, because the choices they make could have a huge effect on their retirements.”

     Earlier in the Social Security debate, on the Dec. 16, 2004, “World News Tonight,” ABC’s Betsy Stark highlighted a family she described as doing “very little investing. And they worry about knowing enough to make good investment decisions.” Stark asked Teresa Webster, “Do you know the difference between a stock and a bond, for example?” Webster answered, “Not really. No.” Stark did not explain even the simple difference that stocks are generally riskier than bonds, or that private companies issue stock while the government issues some types of bonds.

     The networks have ignored widespread individual investment through company plans and mutual funds. Luskin said there are millions of people out there who have experience investing.

     “We’ve already educated an investor class in the 401(k) revolution of the ‘80s and ‘90s,” Luskin said. “The level of skill you need to do this is really quite modest. We’re not talking about people doing open-heart surgery on themselves.”

     Treating people like they can’t invest is “a tremendous insult to the American people,” Luskin said. “If you, ‘for people’s own good,’ take away their ability to take risks, you also take away their ability to get rich.”

Study parameters

     In the initial Social Security study, first published in April 2005, the Free Market Project examined the evening news programs on all five major networks – ABC, NBC, CBS, Fox News Channel and CNN – between Nov. 15, 2004, and March 15, 2005. This time frame covered the heart of President George W. Bush’s proposal to reform Social Security from soon after his re-election through the launch of his “60 stops in 60 days” campaign.

     The study analyzed use of liberal and conservative talking points, focusing on 125 stories mostly or completely devoted to Social Security. Talking points on both sides of the issue were coded, designated “liberal” or “conservative,” and tallied. If the ratio of talking points for the two sides was greater than 1.5, then that story was considered to reflect the position of the side with the most talking points. Stories that had a 1.5-to-1 or less ratio were categorized as “neutral.” Overall, liberal talking points outweighed conservative ones by a 2-to-1 margin.

Also See:
Biased Accounts: Part 1
Biased Accounts: Part 2


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