Gary H. Stern - President, 1985-2009
Published December 1, 1992 | December 1992 issue
If I were running for national office, I would propose a tax and spend policy that reduced taxes for all, increased spending on infrastructure (bridges, highways, etc.) and the social safety net, and quickly brought the budget deficit down to zero. My skeptical economist friends would say that my policy proposal is nonsense: It is not possible to cut taxes, increase spending and reduce the deficit at the same time. But I would cynically reply, "I know that, but the public doesn't."
My cynicism would be based on at least three different considerations. One rests on the results of a special Gallup survey concerned with the public's knowledge of broad economic issues. After 10 years of federal budget deficits averaging more than $200 billion a yeara time when the federal debt more than tripledit is amazing that:
A second consideration leading to my cynicism rests on the results of voter opinion polls. These polls regularly indicate that strong majorities of voters favor lower taxes, higher spending on infrastructure and social spending, and lower budget deficits.
A third consideration is based more on casual observation. Over the last 10 years federal budget policy has been abysmal. Many elected officials have recognized the problems and have proposed responsible solutions. Yet, their efforts, which call for some public sacrifice, get thwarted. Why? It seems to me because the public doesn't support the sacrifice. And the reason it doesn't is because it is not convinced there has to be one.
The moral is that we will not have responsible government policies until the public demands it. The public, meanwhile, can't demand it unless the public is adequately educated and informed. But what economic knowledge does it need, and where can it get that knowledge?
The public needs enough economic knowledge to understand the trade-offs it faces. I am not so bothered that the public doesn't know the size of the budget deficit. I'd bet that most people know it's big. I am not even so bothered that many do not know formally what the budget deficit is. I'd bet that most people know that it indicates something is out of kilter. What does bother me, though, is the evidence suggesting that the public doesn't know the tradeoffs it faces and hence the choices it has to make. A most fundamental lesson from economics is that resources are limited and we have to choose how to allocate those resources given the feasible tradeoffs That is, we can choose to have more butter and fewer guns; we cannot choose to have more butter and more guns. Similarly, we can choose to close budget deficits with some combination of higher taxes and lower spending; we cannot choose to close them with lower taxes and higher spending. We have to choose among the feasible tradeoffs
The public can improve its economic knowledge with better formal public education and better public information programs. This Federal Reserve bank has actively been working with Ninth District high schools and colleges to improve economic education. We are pleased with what we see. The quality and quantity of high school papers submitted to the Minneapolis Fed's annual essay contest, and the college papers submitted to the Minnesota Economic Association, suggest a big leap ahead in formal economic education. That progress must continue.
We at the Fed have also been trying to inform the public on economic issues through our numerous publications. According to the Gallup survey, 81 percent of those who read Fed publications find them useful. Unfortunately, only 3 percent of the public reads them. So, go tell your friends what they're missing.