Sunday, February 08, 2004

The Dangers of Public Economic Illiteracy

Economists are alarmed that ordinary people do not understand how
their economy works. How can the country operate the right economic
policies, they ask, if most voters systematically have the wrong ideas? A
survey taken at the height of the long economic boom asked the same
questions of economics PhDs and a cross-section of the public. They agreed
on hardly anything, except that people needed to save more and that
inadequate education and training were damaging the economy.

The public was convinced that the economy
was suffering from high taxes, excess public spending, too much foreign aid,
too many immigrants, and having too many people drawing welfare benefits.
Economists did not rate any of those much of a problem.

The public saw high business profits, executives paying themselves too much,
technology displacing people and companies restructuring as detrimental to
the economy. To the economists, none of these were bad and some were good.
Ominously, the public said that freer trade costs American jobs while
economists are convinced that it creates more. Worst of all, ordinary people
were convinced that they had become worse off over the previous two decades
while the income and output statistics relied on by the economists showed
precisely the opposite.

Bryan Caplan, of George Mason University, has analysed why voters and economists are at odds. It is not because economists have safe, well-paid jobs. Other wealthy folk agree with the rest of the public. Nor is it that the economists are all free market
ideologues. Most are left of center.

Sheer ignorance and prejudice is to blame, the professor concludes. Surely
it is no coincidence that the average American thinks anything involving
foreigners hurts the economy.


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