Bad press: how business journalism helped inflate the bubble

Washington Monthly, Oct, 2002 by Phillip J. Longman

PICK UP The Wall Street Journal today, and the business pages are full of stories about the men and women who built the stock market bubble. Months into the current downturn, the saga of Enron, WorldCom, Arthur Andersen, and other 1990s cheats has become the biggest running business story in decades--and business journalists are hot on the trail. Should we blame sticky-fingered CEOs? Self-dealing analysts and accountants? Board members asleep at the switch? Absolutely. But there's another sector of the economy, deeply implicated in the collapse, whose conflicts of interest, ethical lapses, and naive enthusiasms have so far received little press attention: business journalism itself.

I was once proud of my profession and resentful of those who criticized it. For more than 20 years, I rode the great boom in business journalism that began in the early 1980s. I like to believe that at least some of my stories helped to enlighten readers and remedy wrongdoing. But today, I'm more likely to admit--at least on a bad day--that I spent my youth hustling Tyco shares to senior citizens. Just as Americans put far too much faith in the integrity and intellectual prowess of stock analysts and other supposedly disinterested financial watchdogs during the boom, they also put far too much stock in business journalism, and have a right to be disappointed and angry.

Like many of the industries we once covered, business journalists built their own bubble during the last decade. And now--as is appropriate for an industry that grew rich by dishing out so much bad advice and flabby reporting--business journalism is currently suffering the same financial fate as Wall Street and Silicon Valley. The Industry Standard--where reporters once took time off from chronicling the achievements of dot-com heroes to enjoy in-house massages and open-bar parties graced by belly dancers--is history, along with many other formerly high-riding business rags. And even the most venerable and established business publications are in trouble. The Wall Street Journal has suffered huge lay-offs. Forbes, no longer profitable, is reducing staff and executive salaries, eliminating the 401(k) plan, and raising cash by auctioning off old man Forbes's various art collections. Business Week, which championed the "new economy" and in the late 1990s proclaimed an end to the business cycle, saw its advertising plunge from 6,000 pages in 2000 to 3,786 last year, and may finish 2002 with even fewer.

But it's not clear to me that the deeper lessons of what went wrong have been absorbed by either the public or business journalists themselves. Many of the biggest "rah-rah" boys in the business, like James Kramer and James Glassman (coauthor of the 1999 book Dow 36,000) continue to appear in print and on TV, while most surviving publications and newscasts have merely downsized and hoped for the best. The public is getting some brilliantly reported catch-up stories on the crooks we once celebrated or ignored, but there's little indication that the business press is ready to examine its own sins and failings. In my experience, there are three essential fallacies that pervade business journalism in all its forms, and correcting them is every bit as important as any of the other business reforms the nation is now so hotly debating.

Fallacy #1: We are dispassionate observers, free from conflicts of interest.

In November 1997, I wrote an article for U.S. News & World Report that raised questions about a recently published and much-discussed cover story in Wired called "The Long Boom." The editor of U.S. News then was James Fallows, who shared my doubts about the growing chorus of voices proclaiming that America stood on the threshold of a new age of superabundance. But to get my piece into print, Fallows had to work until 2 a.m. as the presses stood by to accommodate furious objections from the magazine's owner, real estate tycoon Mort Zuckerman. The resulting piece, entitled "Is Prosperity Permanent?," lacked the word "bubble," though it still managed to raise a few subtle questions about the case for the long boom. Fallows was fired shortly afterward, and I have no doubt that the fireworks that flew that night were a contributing factor. Later, after I proposed similar stories to the new regime and was shot down, "bubble" became notorious around the office as a word Zuckerman would not permit in his magazine anywhere near the word "economy." Instead, often against their better judgments, and sometimes in silent fury, the magazine's business writers concentrated on articles like the April 3, 2000, cover story--one that, even after the NASDAQ had begun to crash, explained how "new tools" for evaluating a company's worth (such as ignoring its lack of profits) could justify a continuing bull market.

Why did so many business journalists wind up hyping the bubble? There are both innocent and not-so-innocent reasons. Many reporters, editors, and even a few media moguls were sincerely caught up in the same irrational exuberance that affected even Alan Greenspan in the end. Moreover, the boom did produce compelling yarns about flashy dot-com millionaires on the make and imminent technological wonders. And many business reporters simply didn't know what they didn't know about business. The old hands came up in an era when business journalism was a backwater where the best and brightest rarely ventured. And many journalists who poured into the field during the boom were lured more by inflated salaries than any deep curiosity about how business works. As media columnist Michael Wolff wrote at the peak of the boom in March 2000: "Not only is every self-respecting ambitious journalist becoming a business journalist, but the great sucking sound is the sound of people being pulled away from newsrooms everywhere by the persistence of business-press headhunters and the doubling and tripling of general-news salaries."