Fareed Zakaria's Newsweek cover article, There Is a Silver Lining, caught my eye. The headline conveyed a balanced perspective which has often been missing in much of the media's coverage of the crisis, meltdown, recession expected soon to be depression, etc.
 
Zakaria, is the editor of Newsweek International and hosts an international affairs program, "Fareed Zakaria GPS," on CNN. He was born and raised in India, earned his undergraduate degree at Yale (a couple of years after I did) and became a U.S. citizen in 2001.

Unfortunately, the first half of Zakaria's article was a major disappointment. According to Zakaria's view of the American economy, we've essentially been living a lie economically since 1980. I sought to get his comment on issues raised in this piece but his assistant said, "He's not giving any domestic media interviews. He is focused internationally."

In a moment, I'll analyze exactly what he said in the piece and why I take issue with it. But, first, I'd like so share more about the writer's background about which I was curious since the piece focuses on the economy and financial markets.

I asked his Newsweek assistant what were his credentials and was initially told that he was a trained economist and studied economics at Yale. I sensed a touch of uncertainty and pressed for verification. The secretary sheepishly called back a few hours later to report that Zakaria actually was a history major but was "very smart." Zakaria earned his bachelor's degree in history and has a Ph.D. in political science from Harvard.

I have no doubt he's a bright man. But he's no economist and has no educational training or professional experience in the field. Once I understood this, the following problematic quotes from the article made more sense to me:

* "Since the 1980s, Americans have consumed more than they produced - and they have made up the difference by borrowing."

I'm not sure what data Zakaria is referring to here since he doesn't say but he's likely calling out the U.S. trade deficit. For most years since 1980, we have run a trade deficit but the deficit was negligible until the late 1990s and even then, it's quite small in comparison to our total economy. Our annual trade deficit in recent years has been running about $700 billion (a mere 5 percent of our total economy's size) - coincidentally about the same amount we spend to import foreign oil. With plunging oil prices in late 2008, growing exports to emerging economies and the elimination of the government's offshore drilling ban, the deficit seems more likely to continue shrinking as it has in recent years. An analysis done by the Center for Trade Policy Studies found, "...the data fail to show any discernable negative effect on economic growth from a rising trade deficit. Absent any real evidence, the standard assumption that trade deficits are a drag on growth should be re-examined before it is repeated again uncritically."
 
* "Two decades of easy money and innovative financial products meant that virtually anyone could borrow any amount of money for any purpose."

Can you say hyperbole? Zakaria clearly has never spent any time running a small business or speaking with small business owners or bankers. Borrowing money isn't easy and certainly isn't for anyone, for any amount, or for any purpose. Now, that's not to say that some risky real estate loans shouldn't have been done, especially over the past decade. And, clearly, some folks have overextended on credit cards.

* "The average household owns 13 credit cards, and 40 percent of them carry a balance, up from 6 percent in 1970."

The first part of this statement is totally wrong and not even close to being accurate. The average is about 4 per household, not 13! I know this from numerous studies and common sense told me the average can't possibly be 13. The fact that Zakaria published an article in a major national magazine with such an obvious error speaks to his bias and lack of economic knowledge and perspective. The second part of the statement seems correct and is a function of the fact that credit cards were in their infancy in 1970.

* "But the average American's behavior was virtue itself compared with the governments'. Every city, every county and every state has wanted to preserve its many and proliferating operations and yet not raise taxes."

So, after erroneously telling us that a typical American carries more than a dozen credit cards and can borrow any amount for any purpose, Zakaria tells us that state and local governments are even worse! And, he goes on to portray these entities as spending lots of money but not raising taxes. The folks who I talk to who live throughout America and my own experience strongly suggests that state and local governments have raised taxes plenty - apparently Zakaria, who lives in New York City, hasn't spoken to suburban dwellers about property taxes!

Now, I don't mean to pick on Zakaria but he clearly is outside his area of expertise. Many folks fail to check out the backgrounds of various pundits and journalists before heeding their perspectives and advice.    

Copyright Eric Tyson, 2008 - 2010 all rights reserved.

Eric Tyson is the only best-selling personal finance author who has an extensive background as an hourly-based financial advisor and who does not accept speaking fees, endorsement deals or fees of any type from companies in the financial services industry or product or service providers recommended in his articles, books and his publications.