Despite economic conditions being awful, the financial press labels the environment “improving.” Federal Reserve Chairman Ben Bernanke told Congress recently, “The economy … appears to be on track to continue to expand through this year and next.” While economic activity maybe good on the island of politics and bureaucracy that is Washington D.C., everywhere else the policies emanating from D.C. has the economy in a funk.
One in five people are unemployed, but headline statistics say it’s one in ten. Prices are increasing at nearly ten percent a year, but the Bureau of Labor statistics claims prices are flat. Meanwhile, the financial markets gyrate up and down from one day to the next, whether reacting to riots and financial crisis overseas or proposed legislation here at home.
When asked what’s wrong, the average person on the street wants to blame either George W. Bush for running the country into the ground during his eight years, or Barack Obama for ramping up the size of government in record time. With all the focus on party politics and personalities, no discussion is made of actual economic policies. And why should there be, Americans’ knowledge of economics is quite poor.
Zogby International psychologist Zeljka Buturovic and economics instructor Daniel Klein just published a paper entitled “Economic Enlightenment in Relation to College-going, Ideology, and Other Variables: A Zogby Survey of Americans.” Compiling the scores to eight simple economics questions, the authors found that respondents with college degrees had an average of 3 of 8 questions wrong. And with particular questions like, “Minimum wage laws raise unemployment” and “Third-world workers working for American companies overseas are being exploited” half the college educated gave the incorrect answer. Even the group that only finished high school or less did better on the minimum wage question.
When Klein and Buturovic divided the responses by ideology, respondents that described themselves as “Progressive” on average missed five of the questions, while “Very conservative” and “Libertarian” respondents on average gave only one incorrect answer. On the minimum wage question an astounding 92.5 percent of “Progressives” gave the wrong answer.
So just what’s happening on college campuses? First of all, the authors make the point that the majority of the “college professoriate is very preponderantly centrist, center-left, or left.” Second, economics is not required coursework at most universities.
So when the financial media says thank goodness for the Federal Reserve otherwise we’d be in a depression, there are plenty of Americans that believe it. When Congress votes for policies like cash-for-clunkers, increasing the minimum wage, extending unemployment benefits, tax credits for new home buyers and bailing out Wall Street’s big banks, Detroit’s big car companies and nationalizing mortgage companies Fannie Mae and Freddie Mac those with no economics training, sigh and say, “well, I guess they must know what they are doing.”
In this election season, Buturovic and Klein’s work is as scary as it is enlightening, and makes the point for H.L. Mencken who once described democracy as “simply a battle of charlatans for the votes of idiots.”
