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September 26, 2005
Economic literacy
I ran across this interesting article on economic literacy. It's a blog-conversation between two economics professors, focusing mostly on what economic literacy means and why there is so little of it in the general population as well as some ideas for changing that.
A little out-take:
I break economic literacy into two components -- factual and conceptual. Alas, most well-educated Americans are illiterate in both areas. First, the facts. Whenever I teach a seminar on basic economics, I always survey the audience: What proportion of the American labor force earns the minimum wage or less and what is the standard of living of the average American today relative to 100 years ago?
Even among highly-educated groups such as journalists or congressional staffers, the median answer is depressingly similar -- they think 20% of the American work force earns the minimum wage or less. In fact, the actual number is something less than 3%. Usually a non-trivial portion of each group thinks that our material well-being is lower today than 100 years ago. Their median answer is that we are 50% better off than we were 100 years ago. In fact, the average American is at least five and maybe 30 times better off than we were in the good old days. There's a dramatic range because it's hard to value the opportunity to listen to your iPod while recovering from open heart surgery. But 50% is a very bad answer.
Conceptual literacy means mastering the economic way of thinking -- understanding tradeoffs, market forces, and the full effects of a proposed public policy. What is the essence of the economic way of thinking? A good starting point is Frederic Bastiat's idea that what is seen, the direct effect of a policy, is often just the beginning of its impact. Equally or more important is what is not seen. The world would be a better place if people understood that the intention of a policy (no price gouging after a hurricane, for example) does not capture the full effect on our well-being.
For the record, I had guessed 6% minimum wage and five times gain in standard of living. Also, the links from the article (a few ported over in my quote) are quite interesting reading on their own. The minimum wage link, for example, goes to the authoritative source: the Federal Bureau of Labor Statistics. It points out a few not-so-suprising things (about half of minimum-wage earners are under 25) and some surprising things (whites are 50% more likely to earn minimum-wage than blacks or hispanics).
Hat tip to Jane Galt at Asymmetrical Information for the link.
Politics by Dan at September 26, 2005 09:17 AM
Comments
The "50% better off" thing might be due to two factors: We know that we have cooler toys now than they did then (the "better" part), but the media is constantly trying to sell the consumerism message (that's "You don't have enough stuff - buy our product and you'll be happy").
People don't believe that they're any better off, despite evidence to the contrary.
Posted by: Dan Higdon at September 26, 2005 12:34 PM
There's an element to that. We may be 500% better than 100 years ago, but we're still 10% behind the Jones'.
Posted by: Dan at September 26, 2005 04:42 PM