CNN Spends 2005 Telling People They’re Going Backwards
Despite monthly wage increases, network says inflation is destroying the middle class.

By Noel Sheppard
Free Market Project
Jan. 20, 2006

     In many respects, 2005 was the strongest economic year the United States has experienced since 1999. The Gross Domestic Product continued its uninterrupted string of consecutive 3-percent or better quarterly increases – 10 quarters in a row, the longest streak since the mid-’80s. The nation added 2 million new non-farm payroll jobs. The average net wealth of the citizenry reached another all-time high – a total of more than $51 trillion – by the third quarter of 2005. And, as the Labor Department just reported on January 18, inflation as measured by the Consumer Price Index was virtually the same in 2005 as it was in 2004, while rising at the core level (excluding energy and food) at the average rate for the last decade.

     Yet, regardless of the continuous stream of positive economic news, CNN financial reports were normally quite bearish all year, in particular asserting that wages weren’t keeping up with inflation, causing the average worker to lose ground financially. Phrases like “falling wages have turned an assault on the middle class into a war on the middle class” and “The new jobs that are being created are by and large low-wage jobs” were uttered on a fairly regular basis during CNN broadcasts throughout 2005. A Free Market Project analysis of CNN’s newscasts on wages and inflation throughout the year revealed that journalists touted the relationship between wages and inflation as a cause for concern, instead of the positive sign of economic recovery that it really was.

 

     The first hint of this direction came on January 10 during “CNN Live Today.” CNN-FN Personal Finance Editor Gerri Willis was invited on to discuss inflation: “So are the battle days of inflation coming back to bite you? We'll tell you what to do if you think rising prices are going to hit your wallet when ‘CNN Live Today’ continues.” Willis then gave viewers a description of the horrors of inflation including: “When inflation ticks higher, higher, higher, the amount of money you're paid if it stays the same means you're actually losing ground against inflation, what you earn is less.”

     What made this statement somewhat odd was that just five days later, Susan Lisovicz was making exactly the opposite case on “In the Money” in a discussion about the president’s Social Security plan: “But one thing that we know for sure is that under this proposal, your first-year benefits would be tied to the rate of inflation rather than the rise in wages over workers' lifetime. We know that the inflation rate moves slower than the latter.”

     This position – that wages always rise at a faster rate than inflation – was one that became extremely common on CNN in the months that followed, as the president advanced an overhaul of the nation’s Social Security system. As a result, there was little discussion of inflation cutting into people’s paychecks on CNN until Social Security reform all but faded away. Once spring arrived, CNN’s position on inflation and wages mysteriously changed again.

     On the April 11 installment of “Lou Dobbs Tonight,” the network reintroduced this “inflation is killing the middle class” concept, and the program practically bludgeoned its viewers with this premise right through the end of December. That April evening, Kitty Pilgrim, who was filling in for Dobbs, gloomily introduced this segment: “Well, the standard of living for America's middle class is facing a major new threat tonight. For the first time in 14 years, pay raises are not keeping up with rising prices.” Lisa Sylvester reiterated this premise: “For the first time in 14 years, workers' wages have not kept up with inflation. Wages increased 2.5 percent, but the Consumer Price Index rose 2.7 percent. The reason wages have been stagnant, too many workers and too few jobs.”

     Unfortunately, Pilgrim and Sylvester were wrong…not about the current data, but about the fact that this was the first time in 14 years that the CPI rose more than wages. According to the Bureau of Labor Statistics, it also happened in 2003, and in 1992, 1993, and 1994. Somehow, CNN missed those years.

     That didn’t undermine CNN’s focus on this issue. Once summer arrived, the heat was really turned on. Dobbs began his August 9 economic segment:

“Well, the economy continues to grow, and unemployment remains at low levels. Many Americans, nonetheless, question the health of the economy. In fact, President Bush's poll numbers on the economy are at the lowest level ever. That amid stagnant wages, rising healthcare costs and soaring gasoline prices.”

     Dobbs then introduced Lisa Sylvester with: “The Bush administration may be optimistic about the economy, but millions of middle class Americans, nonetheless, suffering in what should be good economic times. Surveys show middle class Americans believe Washington is instead rewarding big business, and at their expense.” In her piece on wages, Sylvester referenced data compiled by a liberal think tank:

“According to the Economic Policy Institute, wages from April to June grew 2.4 percent, compared to the same time last year. But inflation rose even more, 2.9 percent. American families are trying to stretch their paychecks to cover rising housing costs, gas prices and health care.”

     Unfortunately, CNN and EPI didn’t offer a proper historic perspective concerning inflation surpassing wages in the first half of an economic recovery. According to the Bureau of Labor Statistics, in the four years since the recession ended in 2001, wages in America have grown by 10.93 percent while inflation increased by 11.37 percent. This is quite similar to the four years that followed the end of the ’90-’91 recession when wages also grew by 10.91 percent with inflation expanding by 11.31 percent. And, in the first four years of the ’80s economic expansion, wages increased by 12.36 percent as inflation rose by 13.22 percent. As such, when it comes to wages and inflation, the current recovery is following exactly the same pattern as the previous two, a fact that was lost on CNN. Reporters portrayed the data as horrible news for middle-class Americans, rather than confirmation that the economy was in a strong recovery – which was the truth.

     Regardless of the facts, Dobbs was at it again in the fall, beginning his October 14 economic installment:

“Tonight middle class Americans and those who aspire to the middle class face a growing cost of living crisis. Inflation last month up at the fastest pace in 25 years, while wages are falling. And Americans are being hit with new waves of job cuts, triggering new job insecurity for millions of workers.”

     Christine Romans concluded the yearlong diatribe on wages in America in a “Lou Dobbs Tonight” installment on December 30: “Still ahead, gas prices, a new bankruptcy law, falling wages have turned an assault on the middle class into a war on the middle class.”

     Sadly, in all of his discussions on this issue, Dobbs chose not to inform his viewers that there is a rather lively debate amongst economists as to whether the wage data being calculated by the BLS is giving us an accurate picture of earnings. As Alan Reynolds of the conservative Cato Institute wrote in September: “The most obvious flaw in the average earnings figures – as Stephen Moore pointed out in an Aug. 29 column, ‘The Wages of Prosperity’ – is that they totally ignore health, pension and other benefits. With benefits included, real compensation per hour was up 3.6 percent between the second quarters of 2004 and 2005 among non-farm businesses, and up 5.6 percent in manufacturing.”

     Reynolds’ contentions were supported by a December 30 Wall Street Journal editorial:

“Critics of the U.S economic model charge that income gains for workers still have not caught up with the losses from the 2000-2001 high-tech collapse. Now they have. The Treasury Department reported last week that ‘real hourly wages are up 1.1% versus the previous business cycle peak in early 2001.’ Workers are now earning more per hour in real terms than they did at the height of the 1990s expansion.”

     Apparently, CNN was more interested in fear than facts.

Noel Sheppard is an economist, business owner, and contributing writer to the Free Market Project. He is also contributing editor for the Media Research Center’s NewsBusters.org. Noel welcomes feedback at [email protected].