Financial FAQs
“Fewer than a quarter of Americans (23%) currently rate the country’s economic conditions as excellent or good, while 36% say they are poor and about four-in-ten (41%) view conditions as “only fair,” PEW Research
PEWResearch
Why do so many Americans doubt the strength of the American economy that is the fastest growing in the developed world since the COVID-19 pandemic? It depends on their politial leanings, according to the latest PEW Research poll.
PEW Research has been measuring political attitudess for decades. As many as 81 percent of Republicans had positive views of the nation’s economy during Trump’s first presidency, whereas a higher percentage of Democrats were positive during President Biden’s term, per the PEW graph.
It is a condemnation of the lack of economic literacy among American voters, and I maintain largely a reflection of its lack in our educational system.
This is also a reflection of the fact that economic science is still in its infancy. In fact, Adam Smith, who wrote the first treatise on economic theory, The Wealth of Nations, was a Scottish Professor of Moral Philosophy who was the first to show that a successful economy was based on its citizenry guided by an invisible hand to make the right moral choices (honesty, good character).
And economies went awry when those in charge didn’t follow the rules of good character, which have always been autocratic rulers out to serve themselves rather than their citizens, such as in China and Russia. And why is that possible?
A large fraction of voters do suffer from economic illiteracy. Indeed, it is fair to say that an ample majority do not understand the basics of how markets work. They are especially confused about labor and international markets. Voters also have severe misconceptions about how government spends their tax dollars, and are extraordinarily pessimistic about long-run economic conditions,” says Professor Bryan Caplan of George Mason University, citing a recent Washington Post/ Henry J. Kaiser Family Foundation/ Harvard University Survey Project.
Most voters lack even an elementary understanding of economics. When prices change, vague conspiracy theories – not supply-and-demand – are their default explanation, says Professor Caplan.
One survey item that captured the public’s anti-market bias is the question asking why the price of gasoline rose back in 1996. Is the reason the “normal law of supply and demand,” or is it instead “oil companies trying to increase profits”? An overwhelming majority of economists – 89% – point to supply and demand. An almost equally lopsided fraction of the public – 74% – say the opposite.
Why so much ignorance of financial markets and basic economic conditions that everyone should know to make accurate decisions about their financial future? An economic education was not a high priority for Americans during more prosperous times, a time of a growing middle class after the Great Depression and World War Two.
According to the Council for Economic Education’s latest biennial Survey of the States, a nonpartisan education , just 28 states required K-12 students to take an economics course to graduate, until the COVID-19 pandemic and world-side economic shutdown.
But since the pandemic more than two-thirds of all states are now requiring personal finance classes for high school graduation.
The 2024 Survey found that 35 states now require students to take a course in personal finance to graduate. The new regulations in those dozen states will lead to over 10 million additional K–12 students – 21 percent of current students – gaining guaranteed access to this knowledge, the Survey notes.
The picture isn’t much better in higher education. Only 3.3 percent of colleges required students to take a basic economics course, according to a 2014 study by the American Council of Trustees and Alumni, titled “What Will They Learn?”
ACTA looked at 1,098 colleges and universities. The organization found 3.3 percent require an economics class, 18.3 percent require a U.S. government or history class, and 37 percent make students take a literature course.
There is one additional reason for Americans’ economic illiteracy. It is the well-studied phenomena of herd behavior that was called irrational exuberance by former Fed Chairman Alan Greenspan in an earlier decade.
Nobel Laureate Robert Shiller attributed it to a mental laziness that caused the housing bubble. People tend to listen to hearsay and word of mouth rather than rely on their own judgements to make financial decisions.
“It was, and is, about how errors of human judgment can infect even the smartest people, thanks to overconfidence, lack of attention to details, and excessive trust in the judgments of others, stemming from a failure to understand that others are not making independent judgments but are themselves following still others—the blind leading the blind,” said Dr. Shiller.
It is a sorry picture of our economic illiteracy, and the reason so many citizens are easily fooled by leaders without the requisite character traits, such as good morals and character, that Adam Smith said were required to run a successful economy and government that is for all the people.
Harlan Green © 2024
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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