Do we know enough about economics?
Minneapolis Fed President Gary Stern asks whether we know enough about economics, and why we should care about the answer
Published January 1, 1999 | January 1999 issue
Dennis Flanagan, former long-time editor of Scientific American, tells of once meeting the famous movie critic for The New Yorker, Pauline Kael. After introducing themselves, Kael admitted to Flanagan that she knew "absolutely nothing" about science, and Flanagan responded: "What ever became of the idea that an educated person is supposed to know a little something about everything?"
Kael was not amused.
And really, who can blame her? Nobody likes to be called to task about a deficiency in knowledge in a particular area, especially by someone who has a deeper understanding than she possesses. Not that Flanagan shares this trait, but there is often a certain smugness surrounding the "expert" in a particular field who believes that everyone else should know and care about what he knows and cares about. One can imagine Flanagan later meeting an economist and having to confess his ignorance of the dismal science, and the economist then meeting a geologist, who encounters an artist, and so on. Each is accomplished in his own right and may even consider himself something of a Renaissance Man, yet each is likely perceived by the other as somehow deficient.
So I have empathy for the readers of this column: You are about to be told that you (or at least the American people, generally speaking) do not know enough about economics and that you should know more. The occasion for this discourse is the recent issue of the fedgazette's sister publication, The Region magazine, which is devoted to economic literacy and which makes the claim, not surprisingly, that such literacy is necessary. Are we just being smug in this insistence? I hope not.
Here at the Federal Reserve Bank of Minneapolis we believe that knowledge of economics is important. To that end, this bank (along with other Federal Reserve banks) conducts workshops, provides printed material, develops curricula, sponsors essay contests, hosts meetings, constructs Web sites and so on, all with limited budgets and all with the intention of improving economic literacy. In addition, this bank will host—in partnership with Minnesota Public Radio—a national symposium on economic literacy in May 1999. In other words, you haven't heard the last about economic literacy.
Why all the fuss? Two reasons: First, from a parochial point of view, few understand the role of the Federal Reserve in monetary policy, bank regulation or in the services provided to financial institutions; even worse, some have rather bizarre notions of their central bank.
Second, and perhaps more importantly, economic literacy is crucial because it is a measure of whether people understand the forces that significantly affect the quality of their lives. Now, I'm not going to overstate that claim. The argument can be made that despite this country's apparent ignorance about economics, the economy is still doing quite well and will likely continue to do so. Michael Watts of Purdue University writes in The Region that much of economic literacy is "learned the hard way, by trial and error," and he calls such experience a "hard teacher." I think I would amend that statement to suggest that experience is a good teacher. We learn a lot from merely participating in the economy. Adam Smith knew that because of the efficacy of markets, the invisible hand works regardless of whether people know about it. There may be some irony in that regard for economic educators, but even so—their task is no less important. As Watts and others note, knowledge of how an economy works helps people function more effectively as consumers, savers, investors, workers and voters; the same could arguably not be said about the study of biology or ballet, although I recognize that such study brings value of its own.
Every science, every academic discipline—from art to zoology—thinks itself crucial. Economics is no exception. But we should recognize the significance of economic study. You cannot fully understand history without understanding economics. You cannot understand politics and other social sciences—in other words, how the world works—without understanding economics. And you cannot make an informed choice when you walk into the voting booth. This is not to set one field of study against another, but to acknowledge that economics should be given its due in the classroom.
I invite you to visit our Web site (minneapolisfed.org) and consider the issues raised about the meaning of, and the need for, economic literacy. You will find an article titled "Why Johnny Can't Choose," which describes the economic fundamentals that U.S. citizens need to understand—as defined by this bank. You will also find the results of our national survey on economic literacy, which tested respondents' knowledge of those economic fundamentals. The average score for the survey was 45 percent, which in my estimation is not too bad, but whether you see the results as a glass half-empty or half-full, there is still clearly room for improvement. And feel free to take the poll yourself: An interactive version will promptly check your answer and provide an explanation should you choose the incorrect response. There is much more on the Web site, including seven papers from experts in the field of economic education, and other articles and information pertinent to economic literacy.
In the end, you may not agree with everything you read—disagreement is no stranger to the economics academy—but I hope you come away with either a new or renewed sense of the importance of economic literacy. At the very least, I hope you come to understand that economic literacy is not an afterthought; rather, economic literacy is a skill necessary to function effectively in society. Whether economic literacy is as important as reading literacy is a question that would likely garner debate; and so would questions regarding how economics should be taught, what other subjects should be cut to make room for economics, and a host of other queries. That's the purpose of The Region magazine and the subsequent symposium, to raise questions and issue challenges. We'll keep you posted.