Michael K. Salemi - Professor, Department of Economics, University of North Carolina
Published December 1, 1998 | December 1998 issue
The Research Triangle is getting ready to host the Special Olympics World Games during the Summer of 1999. Dennis Rogers, columnist for the Raleigh News and Observer, noted in a recent column (Aug. 23, 1998) that one Raleigh hotel had raised its summer-1999 rates by $100 per night. Said Rogers: "...(T)he hoteliers are embracing diversity by sticking it to the Special Olympians. ... Don't bother telling me that raising prices is business as usual for the hotel trade. Of course it is, but that doesn't make it go down easier. It was that mind setsupply and demandthat jacked up the prices for everything from ice to chain saws to generators after Hurricane Fran came through. Remember how it felt to be gouged. ... Don't think our visitors won't feel the same way. ..."
What Rogers fails to acknowledge are the benefits of a $100 increase in hotel room rates. The increase creates an incentive for visitors with flexible schedules to avoid the Triangle during the Special Olympics. It creates an incentive for hotels in Greensboro, about 75 miles away, to offer room-and-shuttle-bus packages as alternatives to staying in the Triangle and for home owners to rent their houses to visitors. Higher prices will make more lodging available for Special Olympics visitors.
There is no denying that some businesses will collect windfalls during the Special Olympics. This is a cost of efficiency. Dennis Rogers may believe that "public spirited" residents of the Triangle should provide additional housing without a financial incentive. Others may want government rather than the price system to decide who will get hotel rooms. Economists, for the most part, believe that the price system allocates hotel rooms and other scarce resources far more efficiently and often more fairly than government bureaus or appeals to good citizenship. They place great stock in the fact that allocation by price leaves each individual free to "pay and stay" or "stay away."
The views of Dennis Rogers on price increases are not an isolated misunderstanding of our economic system. In their Gallup Poll study, Walstad and Larsen find that 64 percent of the general public know that prices of products in competitive markets are determined by supply and demand. But 65 percent of the general public believe that the "United States government should be able to prohibit oil companies from raising oil and gasoline prices even if the supply of oil was reduced by a crisis in the Middle East." Americans can "talk the talk" but won't "walk the walk."
Why don't the American people have a better understanding of economics, one that alters the way they look at important policy issues such as international trade, price ceilings and so forth? And what can economists do to remedy this situation? I approach these questions from the perspective of the Committee on Economic Education of the American Economic Association. While the committee has been working to promote economic literacy for many years, there is much left to be done. In what follows, I describe three causes of economic illiteracy that our profession can and should address.
An important cause of economics illiteracy is that economics is too seldom part of the K-12 curriculum and, when taught, is too often taught by teachers with little training in economics. A great majority of high school graduates do not take a course in economics. Unless they go on to college, those graduates enter the working world without an understanding of how our economy works. During the past 30 years, many school systems have added economics to their curricula. Some mandate courses on the free market system. Others offer regular and advanced placement principles of economics courses. Still others introduce economic content into their history, social science and civics curricula. Despite this progress, as of 1987 over 70 percent of high school graduates had not taken a course in economics (Walstad).
Many K-12 teachers of economics and social studies receive too little training in economics. In 1987, between 20 percent and 30 percent of high school economics teachers had taken no more than a two-semester principles of economics course. Only 50 to 60 percent had taken the five-or-more college economics courses recommended by the 1961 National Task Force on Economic Education (Walstad). As a participant in several education-methods programs for K-12 economics teachers, I have been surprised that many need help understanding the content they are supposed to teach.
Economists can help with the K-12 curriculum in two important ways. We can continue to lend our voice to those, like the National Council on Economic Education, who are attempting to reform public education curricula. For example, it was important that prominent economists set aside differences in professional opinion to speak with one voice in creating and endorsing the Voluntary National Content Standards in Economics.
We can also lend our expertise to training programs for K-12 teachers of economics. Some of the students we teach in our undergraduate courses are headed for precollege classrooms. Teaching them well is part of the solution. But it is not enough. We should increase our participation in programs designed to provide economics training for K-12 economics teachers. We can assist the national council, its network of state councils and centers, the Foundation for Teaching Economics, and other organizations in their efforts to offer quality in-service programs. For example, more departments of economics could offer summer school economics courses that meet the in-service needs of K-12 economics teachers.
A second cause of the literacy problem is that economists have done a poor job designing the college Principles of Economics course. In a misguided attempt to construct a course that will prepare prospective majors for their intermediate courses, economists have created a principles course with too many topics and too much technical material that provides students with too few opportunities to apply basic economics to problems and questions they will encounter for the rest of their lives. This criticism is not new. In 1963, now-Nobel Laureate George Stigler said: "The watered down encyclopedia which constitutes the present course in beginning college economics does not teach the student how to think on economic questions. The brief exposure to each of a vast array of techniques and problems leaves with the student no basic economic logic with which to analyze the economic question he will face as a citizen." Twenty-five years later, the economics profession has yet to respond constructively to Stigler's criticism. We have produced cohort after cohort of students who memorize the relationship between marginal and average total cost but do not understand how to apply opportunity cost to a personal or public policy problem.
The publication of the National Voluntary Content Standards in Economics provides a new opportunity to overhaul the principles course. We should redesign the course so that, first and foremost, students master the Standards! No additional content should be added until that goal is met. Students should gain lasting mastery of a few important ideas rather than temporary, low-level mastery of a large number of concepts.
The third way in which the professional economists can enhance economic literacy is by broadening the membership and interests of the American Economic Association. The association and its Committee on Economic Education is largely designed to meet the needs of economists at four-year colleges and universities. This focus is too narrow. An increasing share of college economics enrollments are accounted for by two-year institutions. The starting point is to learn more about how economics is taught in two-year colleges and to broaden the scope of economic education to include those who practice it at these institutions.
In sum, now is the time for the economics profession to place greater emphasis on educating the general public about how our system works. For too long, we have focused too much of our educational attention on the relatively small share of our students who become majors and the still smaller share who enroll in graduate programs. We have allocated too few resources to what should be job onemaking better citizens.
Stigler, G., "Elementary economics education," American Economic Review 53, 653-59.
Walstad, W. B., "Economics instruction in high schools, Journal of Economic Literature, XXX, 4, 2019-2051.
Walstad, W. B. and M. Larsen, "A national survey of American economic literacy," Education Research Division, The Gallup Organization, Inc., July 1992.
Salemi is professor of economics at the University of North Carolina at Chapel Hill. In addition to his long list of writings in research and other publications, Salemi is also on the board of editors of the Journal of Economic Education and chair of the American Economic Association Committee on Economics Education.
Salemi received his master's in economics from Purdue University and his doctorate in economics from the University of Minnesota.
Special study: The Economic Literacy Project