The mass media already lies about the economy. The only source I see on TV that pays any attention, or seems to have any clue about what is really going on with the economy is Dylan Ratigan. He seems to be close to going off the rails about it at times, because he’s getting no traction with reporting the truth. All the news programs I see are like Homer Simpson … can’t spend more than three minutes on a story without getting distracted by the next dog with a fluffy tail that comes along.
I think people are being too dismissive of the OP. Consumer confidence clearly has an effect on the economy, and I don’t think anyone doubts that gloomy economic reporting can make things worse. But that doesn’t necessarily mean that sunny reporting can make things better.
An economist could no doubt draw you a nice graph with no numbers on the axes showing exactly how consumer confidence affects the economy. But it isn’t the only thing that has an effect. Things like the mortgage crisis, shifting jobs overseas, the growing gap between rich and poor, they all have an effect independent of people’s beliefs about them. It’s very likely that the economy would continue to be in bad shape even with a massive disinformation campaign to spread good news. And in that case, how long could the campaign remain even minimally effective? As others have pointed out, when the truth comes out or people become suspicious, the economy will react negatively because people rely on the availability of solid economic information to inform their spending and hiring decisions.
That brings us to the second factor to consider. There’s a prisoners’ dilemma thing going on when people hear bad news about the economy. When jobs are scarce, people put off spending because they fear losing their job and needing to rely on savings. But what happens if they spend money because they’ve been told the economy is good and then they still lose their job? Then they’re worse off than they would have been if everyone had known the truth. And when that happens to enough people, it can lead to an even bigger economic disaster.
It occurs to me that while you don’t want people acting on false economic information, you also don’t necessarily want them to have too much information, either. For one thing, 24-hour economic news reporting tends to exacerbate whatever mood the country is in already, so you get a constant barrage of bad news in a recession, making it worse, and a constant stream of optimism in times of fast growth, neither of which is healthy. What the Fed (and the rest of the country) wants is long periods of slow, steady growth, and so it generally works to dampen the prevailing mood, whatever that may be. A complete blackout on economic news would probably be Ben Bernanke’s pipe dream. Of course, government and businesses would still have access to nearly all the same economic data, but we wouldn’t have people talking about it nearly so much: a veil of penetrable ignorance.
The other reason economic ignorance is economic bliss is that most of the tools the Fed has (actually, its only tool–raising and lowering interest rates) work by shifting people’s expectations. When banks and businesses know in advance what the Fed will do, they take those actions into account before they happen, and so nothing changes when the Fed finally acts.
None of this is new, of course. It’s why Alan Greenspan became famous for solemnly pronouncing delphically indecipherable pleonasms before the press.