As an economist dealing with public policy issues, and teaching business and economics classes at the graduate level, I often wonder why some people grasp basic economic principles while others don’t.
After explaining the economics of a policy issue, for example, it’s not unusual for a student to say, “But I feel differently.” Indeed, from voters to elected officials at the highest levels of government, many like to talk about how they feel to avoid the economic facts.
But do any patterns exist as to who gets it and who does not on economics? As it turns out, some intriguing findings have come to light in a new report.
In the May edition of “Econ Journal Watch: A Journal of the American Institute for Economic Research,” researcher Zeljka Buturovic and economist Daniel Klein reported on a nationwide Economics-101-style survey conducted by Zogby International. This survey scored individuals by various groupings as to how they answered eight basic economic questions meant “to reflect enlightenment about economic facts or consequences, especially those in tension with established policy and popular political mentalities.”
From an economics perspective at least, the answers are straightforward and non-controversial, with scoring based on answers that are “unenlightened,” or clearly incorrect.
Among the questions or statements were assorted economic truths, such as “restrictions on housing development make housing less affordable,” “mandatory licensing of professional services increases the prices of those services,” and “overall, the standard of living is higher today than it was 30 years ago.” Agree with these, and you’ve got the correct economic answers.
Among the economic mistakes or myths presented for testing were statements like “a company with the largest market share is a monopoly,” “free trade leads to unemployment,” and “Third World workers working for American companies are being exploited.” Agree with these, and you’ve got the wrong economic answers.
The breakdown on the average number of wrong answers is fascinating.
Based on political ideology or philosophy, those self-identifying as “very conservative” had the fewest wrong answers (1.30 on average out of a possible 8), followed by the “libertarian” and “conservative” groups. Those with the most wrong answers identified themselves as “Progressive/very liberal” (5.26), with the second worst being “liberal.”
As for political party registration, Democrats had a high level of incorrect answers, with Libertarians and Republicans faring much better. And in terms of whom they voted for in the 2008 presidential election, John McCain voters performed much better compared to Barack Obama voters.
Additional insights were offered by other affiliations or groupings. For example, households with a labor union member had more wrong answers compared to non-union households.
The point is clear and not at all surprising: Liberals on average fail to grasp the fundamentals of how the economy works, which correlates to policies that ignore economic reality.
Religion also showed some differences. Born-again, evangelical or fundamentalist Christians scored notably better compared to those not falling into this category. In addition, the greater the level of religious attendance tied to fewer wrong answers — with those attending services more than once a week having the fewest wrong answers compared to those never attending services having the most incorrect responses.
Perhaps least surprising is how investing and income levels come into play. Those self-identifying as part of the “investor class,” for example, had fewer wrong answers than those not in or not sure if they were in this category. Meanwhile, higher income earners fared better in their answers, with those making more than $100,000 a year answering the fewest incorrect and those below $25,000 missing the most questions.
And just to add in an odd factor, NASCAR fans had fewer wrong answers on average, compared to non-fans.
And then there is the matter of education. It’s distressing to discover that going to college did not matter in terms of economic enlightenment. Assorted reasons are mentioned to explain this, but the authors hit on something when noting that given the liberal leanings among college faculty, “the professoriate might be doing little that would elevate economic enlightenment.”
Regarding political philosophy, party registration and education level, the authors offer the following explanation regarding those who score poorly: “We think that, for many respondents, economic understanding takes a vacation when economic enlightenment conflicts with establishment political sensibilities.” That is, political preferences trump clear economic thinking for many.
After all, that economics stuff might be interesting, but that’s just not the way many people “feel.” And if anything relies more on emotion and feelings over sound thinking, it’s politics.
In the end, this economist apparently should tip his hat to upper-income, investing, church-going, NASCAR-watching, conservative Republicans — no matter their education levels — who on average seem to better grasp basic economic principles.
Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. He can be reached at email@example.com.