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 year—a
time when the federal debt more than tripled—it is amazing
- only 50 percent know what a budget deficit is,
- less than 20 percent know within $100 billion what the current
budget deficit dollar amount is, and
- less than 25 percent know of a policy tool that can be used to
reduce the budget deficit.
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
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.