Economic Literacy

If this seems more formal that usual that is because it should be. I am starting to write columns for the University of Chicago Maroon. We'll see how it goes. In the meanwhile, enjoy:

By far the busiest day of my summer internship with my district’s congresswoman was when I had to man the phones directly after Hurricane Katrina. But surprisingly, many of the calls had little to do with the federal government’s inept handling of Katrina. The area of consternation was instead with the spike in gas prices. Every call started with a constituent reporting outrageous gas prices and demanding that something be done. I would respond by giving them lip service about the Congresswoman weighing her options: the usual.

But I wanted to tell them so bad was the truth. That there is nothing that can be done about rises in gas prices and in fact it is a sign of a healthy economy. This of course would have fallen upon deaf ears (as it did the one time I gave it my best shot). The sad fact is that an overwhelming swath of the American population has no concept of what determines prices and how detrimental government intervention can be.

Despite America’s eminent position in the pantheon of market economies, the populace is woefully ignorant of economics. The irony though, is that despite “the economy” constantly topping polls of what matters most to voters, many would not know economics if it smacked them in the face.

What voters seem to mean by “the economy” is a host of things; some related to economics, but none compromising any sense of the concept of “the economy.” Most prominent would be matters like the unemployment rate or balance of the budget.

Of course the voter is not entirely to blame. Candidates have no problem capitalizing on the fears (or in the case of the balanced budget, creating fears to capitalize on) of the electorate. The best example of this during the 2004 election was the political debate about free-trade, a matter settled long ago amongst economists. Despite the consensus on its merits by those actually qualified to look at such things, John Kerry fearlessly ignored his economic advisors and spouted protectionist/pro-union rhetoric. This is not to say that Republican stances on farm tariffs or tax-cuts deserve any merit. The point is that if a politician is using the word economy, it’s to scare voters they know are ignorant of what their economic advisors have told them.

But this would all be a non-issue if the country knew a thing or two about economics. The only thing stopping legitimate economic debate on issues like gas prices, trade, or Wal-Mart is a brief foray in introductory economics. Many states now require High School students to graduate with knowledge of American civics. This is a good thing; we want voters to understand what checks and balances are. But aren’t the laws of supply and demand just as necessary for the American electorate to be making an educated decision? In a world in which the Federal Reserve Chairman is arguably the most powerful position in government, basic economic literacy ought to far exceed its present lackluster state.