Rivlin delivered this keynote speech on May 13, 1999, at the Federal
Reserve Bank of Minneapolis, to kick off the Economic Literacy Symposium.
I am delighted to have the opportunity to participate in this symposium
on economic literacy. Economic literacy happens to be one of my favorite
causes. I'm very pleased, both personally and on behalf of the Federal
Reserve Board, to associate myself enthusiastically with the efforts of
all the participants in the symposium who have come together from different
places to think about how to improve the ability of Americans to understand
and deal with basic economic issues.
There are two senses in which increasing economic literacy contributes
greatly to the functioning of our society. First, a free market economy
works well only when the participantsproducers, consumers, savers,
investorshave the information they need to make intelligent decisions.
People need to understand what banks do and how to deal with them; how
insurance works and how to think about how much they need; why saving
is important and what instruments are available for saving; what investing
means, how to do it and what the risks are; and the concept of investing
in themselves and how to get a good job. Most important, participants
in the economy need to know how to think about the economic choices they
face and how to get the information they need to make intelligent decisions.
Second, democracy works well only when citizens participate, vote and
make their views known to public officials. In this respect, we seem to
be living with a paradox. On the one hand, the revolution in communications
means that citizens have access to far more information on public issues
than ever before. Radio, television and the Internet are inundating all
of us with news, analysis, opinions and debate on public issues, large
and small. Citizens have more education and more ways of communicating
their views to public officials than they had in the past. They can write,
call, visit or e-mail their members of Congress or their state or local
legislative representative. Indeed, members are flooded with constituent
views. Citizen opinions are constantly being sought in polls or on talk
On the other hand, public issues, especially economic issues, seem to
have gotten more complex and harder to understand. Globalization and rapid
advances in technology mean that events in remote parts of the world that
we do not know much about can affect economic life in the United States
and vice versa. Markets in distant places are intimately interrelated;
huge amounts of money move around the world in seconds. The interactions
and interrelations of markets and economic institutions in different parts
of the globe are complex and unpredictable.
But even at home, public issues appear to have gotten more difficult
for the average person to understand. It may be partly because we solved
a lot of the easy problems, and they left harder ones in their wake. Whether
or not the government should provide health insurance for people over
65, for example, was a relatively straightforward problem, although emotions
ran high on both sides. How to finance and administer the Medicare program,
so that it provides adequate coverage at containable cost is a lot more
complex and intellectually demanding issue.
Adding to the complexity of the issues is the fact that we now have
a whole new class of experts, sometimes known as policy wonks, with charts
and equations, statistics and data sets, models and printouts. These peopleand
I freely admit to being one of themhave higher degrees from our
best universities. They are supposed to be helping decision-makers and
the public understand issues better and make more intelligent decisions.
But they often talk in a jargon-filled specialized language of their own
and sometimes seem more concerned with impressing each other on talk shows,
at legislative hearings or in public forums, than with enlightening the
public. Rather than simplifying the decisions, the chatter of the talking
heads often seems to make issues seem even more complex and hard to get
a handle on than they really are. The combination of overwhelming quantities
of information, the increasing complexity of the issues and the tech-speak
of the policy wonks constitutes the fundamental challenge to economic
Without a basic understanding of how the economy works, what the essential
terms and concepts are, the average citizen is likely to feel completely
left out of any conversation, whether in the media or around the water
cooler, about what is happening in the economy and what to do about it.
Feeling left out is frustrating and alienating. If talk is unintelligibleif
the listener is without keys or clues or a basic framework into which
to fit what is being saidthen it is natural for the listener to
tune out and to feel powerless, ill-used, manipulated and even feel that
something sinister or nefarious must be going on from which he is being
In order to feel included and empowered, a citizen needs to have a basic
understanding of how the world worksin this case how the economic
world worksthat will provide a basis for asking pertinent questions,
obtaining more information and eventually figuring out what the issues
are all about and what ought to be done.
Economic literacy is akin to having a working knowledge of a foreign
language. If you are with a group of foreigners and don't speak their
language at all, especially if its sounds and intonations are strange
and unfamiliar to your ears, you tune out. You feel excluded, perhaps
uneasy. If you have a rudimentary working knowledge of the language, you
can at least follow the drift of the conversation, ask a few questions
and feel that, even if you are not getting the fine points, you are not
totally left out and you have a basis for acquiring more knowledge. That,
it seems to me, is what economic literacy meansa rudimentary working
knowledge of the concepts and language of economic activity and economic
I said the language of economic activity and policy, rather than the
language of "economics." I make the distinction because the word "economics"
suggests the academic discipline taught in colleges and universities.
That discipline, I am afraid, has become so abstract, so obsessed with
mathematical modeling of an unreal world where economic actors have perfect
knowledge and unambiguous profit-seeking motives, that it frequently does
not have obvious relevance to what average citizens need to understand
about economic activity and economic policy choices. The teaching of economic
literacy does not mean teaching a dumbed-down version of a graduate
economic theory course. It's harder than that. It means starting from
the complex ambiguous real world that we all find ourselves in
(whether as producers, consumers, savers, investors or economic policy
makers), figuring out the basic concepts that people need to grasp in
order to function and feel empowered in that real world, and then helping
them learn a rudimentary working knowledge of that language.
I have long been impressed with the ability of quite young children
to grasp ideas about buying and selling, saving and investing and even
basic ideas of how economic policy works. Economic literacy ought to start
in kindergarten and continue right through primary and secondary school.
I have also long been impressed by the power of role-playing as a teaching
tool. I was delighted when I came to the Fed to discover that we sponsor
"the Fed Challenge"a contest for high schools with which many of
you are doubtless familiar. Teams of high school students assume the roles
of members of the Federal Open Market Committee (FOMC) and debate current
monetary policy. The finalists in the contest get to come to Washington
and hold their monetary policy debate around the actual Board room table
where the real FOMC gathers eight times a year.
I have been a judge for this contest twice and enjoyed it enormously.
As I told the students, in all honesty, their discussion was every bit
as informed and insightful as the real meetings of the FOMC. If we turned
monetary policy over to the winners of the Fed Challenge, the real FOMC
could retire and the nation's economy would be no worse off.
I am also convinced that if the schools do a good job of teaching economic
literacy and the businesses, banks, unions, and governmental institutions
lend their support and help further the economic literacy of their employees,
members, customers and clients, then not only will the economy work better,
but economic policy will be better informed and more effective.
Even policymakers need help. Years ago when I first went to Capitol
Hill to direct the newly established Congressional Budget Office, a group
of freshman members of Congress came to me and said, in a sort of embarrassed
whisper and out of earshot of more senior members, that they found themselves
mystified by the federal budget and all this talk about deficits and debt,
appropriations and authorizations, effective tax rates, multipliers and
fiscal policy. Was there any way, they whispered, that I could arrange
a course that would help them understand what they needed to vote about.
I agreed, and recruited a couple of policy economists that I knew to be
excellent teachers. We had several sessions and had quite a good time.
A few years later, in the '80s, when mounting federal budget deficits
were an urgent problem, the Committee for A Responsible Federal Budget
launched "A Exercise in Hard Choices," in which groups of people in various
parts of the country gathered around tables and actually tried to balance
the federal budget by cutting specific programs and raising particular
taxes. The participants learned a lot about how hard the choices really
are. The exercise shook up a lot of people who had been saying, "Oh, those
idiots in Washington, why don't they just balance the budget by cutting
out all that government waste." They discovered that there isn't a line-item
in the budget called "wasteful programs." One person's wasteful program
is another's high priority. We also did the "exercise in hard choices"
with a group of Congressmen and Senators, fairly senior ones, as I remember.
They also learned a lot, believe it or not. Members who were not on the
budget committees had their own areas of expertise depending on their
subcommittee jurisdiction, but they had not looked at the whole budget
and tried to make the spending and revenue sides balance. They, too, learned
how hard it was.
This type of experience has brought home to me, not only the learning
value of role playing, but the importance of getting students involved
in actually making economic choices and not just hearing people talk about
And then there is the role of the media, which, it seems to me, could
do a lot better in furthering the cause of economic literacy and possibly
even build their audience in the process. One problem is the presentation
of the statistic of the day on, say, the evening news. The audience learns
that the Consumer Price Index went up .4 percent or that housing starts
went down, but is given no context into which to fit the information.
The weather reporters do better. Their audience can watch storms developing,
temperatures rising or falling. There's a map that puts the isolated statistics
into contexts and allows the audience to see the patterns develop. The
economic reporters have no economic map on which to show the audience
how the economic patterns are developing. The assumption is that the audience
would tune out. I'm not so sure; pocketbook issues rank right up there
with the weather in importance to people.
Another problem with TV economics is the persistent view that what people
want is controversy between two sides (always two, never three) of an
issue, and hence that the best way to enlighten the public is to get two
talking heads with extreme opposite views to shout at each other. Maybe
people like that styleI don'tbut I don't think they learn
much that helps them or their elected representatives craft more moderate,
constructive solutions that might command a consensus.
In sum, my view is:
- Increasing economic literacy is important to the functioning of the
economy itself and in making better informed economic policy in our
- We don't do a very good job nowon the average.
- There are lots of good techniques available to increase economic literacy,
especially role-playing about economic choices, public and private.
- The technology would allow more effective daily economic education,
especially on TV and over the Internet.
You all are going to have plenty to talk about tomorrow. I'm glad this
Summit is taking place. Thank you for asking me to participate.