Those who advocate economic education seek not only to ensure that people think in an economic way but also that government policies be judged according to free-market principles.
David S. Dahl, Public Affairs Economist with the Federal Reserve Bank of Minneapolis, argues that, with the collapse of communist states, ‘the debate is now about the degree and effectiveness of government action within a market-oriented economy rather than a stark choice of state vs. market.’ He therefore sees a major aim of economic literacy as being ‘to teach people how to ascertain when a government policy will improve market outcomes.’
Wolfgang Kasper, a Senior Fellow at the Australian think tank, the Centre for Independent Studies (CIS), argued that economic literacy includes understanding ‘that ballot democracy must therefore not be allowed to subvert the dollar democracy of the market place.’
An Economic Literacy Symposium, organised by the Economic Literacy Project concluded that the better-informed people were, the fewer mistakes there would be in public policy and that ‘economic literacy is not just about teaching people how to react to certain policies or ideas, but how to put them into context and evaluate them.’ Similarly, William Walstad, past president of National Council on Economic Education (NCEE) and director of the National Center for Research in Economic Education, argues that:
Economic knowledge, whether measured by an overall score or by knowledge of a specific question, may be the most critical factor determining public opinion on economic issues, perhaps more important and more consistently influential than other personal characteristics such as age, sex, race, education, income or political party.
Walstad argued that if people ‘understood’ economics (by which he presumably meant if they share his free-market views) they would be more likely to accept market outcomes. For example when young people are asked what they think of a bicycle manufacturer raising prices of bikes because demand is increasing even though the cost of producing the bikes remains the same, two thirds said he shouldn’t be allowed to. However most of those who ‘understood’ how markets work said he should be allowed to raise his prices. They were more accepting of market outcomes.
In 1999 the Council for Economic Education (CEE) embarked on a five year Campaign for Economic Literacy, which it said was equivalent to the national campaign that was underway to improve reading literacy. The idea was to ensure students would possess ‘economic ways of thinking’ when they left school. The advisory committee for the campaign included the CEO’s of American Express, Merrill Lynch, International Paper Co. and Bank of America as well as the president of the American Federation of Teachers. A list of contributors can be found here.
The goal of the campaign was to ‘ensure that economic literacy becomes a priority on the national education agenda’ and that ‘quality, standards-based economic education is effectively taught in every state, in every school, and at every grade level’. To achieve this NCEE implemented a ‘communications program, to create public awareness of the need and intensify the public demand for economic education’. It mobilised relevant constituencies ‘to help magnify the significance of economic education’. It also sought to develop materials; make use of volunteers, new technologies and partner organizations; and measure progress towards its goals.
Regular statements from a variety of sources about how students’ lack understanding of the economic system, and how this threatens American prosperity, have been successful in having economics courses introduced into schools. The CEE stated that ‘The shocking reality is that American high school and college students know precious little about how the American economic system actually works’ and gives the example that ‘Sixty percent do not understand the purpose of profits.’
The CEE conducted a survey in 1989 when 28 states required secondary students to receive some instruction on economics and found, what US News & World Report, referred to as ‘a burgeoning nation of economic dunces’. The given answers to the test, however, were attacked by economists of different persuasions as misleading or incorrect. CEE’s 1999 survey of economic literacy amongst students and the general public was funded by Merrill Lynch and conducted by Louis Harris & Associates. It found that half of the adults surveyed and two thirds of the high school students failed when tested.
Of course when CEE and others are testing economic knowledge they are in fact testing adherence to free-market gospel. The survey found that 61% of adults but only 48% of students ‘understand that in the United States it is a combination of consumers, producers and government that determines what goods and services should be produced’. Similarly a majority of adults but a minority of students ‘correctly’ ‘understand that investing in more research and development, and not taxing inventions or increasing government regulation, would most likely accelerate innovation’. Clearly the survey was testing the degree to which the population subscribed to the ‘market story’ rather than their real knowledge. Here are some sample questions which people did badly on, with the ‘correct’ answer shown:
If your city government sets a maximum amount landlords can charge in rent, what is the most likely result?
( ) There will be more apartments available than people want to rent
(✔) There will be fewer apartments available than people want to rent
( ) The number of apartments available will be equal to the number of people that want to rent
( ) Don’t know
The stock market is an example of an institution within our economy that exists to help people achieve their economic goals. The existence of this institution:
( ) Results in an increase in the price of stocks
(✔) Brings people together who want to buy stocks together with those who want to sell stocks
( ) Helps predict stock earnings
( ) Don’t know
CEE’s Test of Economic Literacy (TEL) has become a standard for many schools wishing to evaluate student knowledge of economics. Developed in 1987, 64,000 copies were distributed over the following four years, and it has been given official status in some states. However, as is obvious from the above sample, this test is not so much a test of economic knowledge so much as a test of a particular economic view or ideology.
Economists Nelson and Sheffrin examined the test in 1991 and found it to have a ‘pronounced ideological slant’. For example:
In a market economy, the social purpose of profits is to
(a) get businesses to follow government regulations
(b) get businesses to provide what consumers demand
(c) provide funds to pay workers better wages
(d) transfer income from the poor to the rich
According to free market ideology and the test authors (b) is the correct answer but the answer (d) might indicate a different ideological standpoint rather than economic illiteracy. Similarly:
Which of the following is the most essential for a market economy?
(a) Effective labour unions
(b) Good government regulation
(c) Active competition in the marketplace
(d) Responsible action by business leaders
Nelson and Sheffrin argue that ‘while the test writers (and perhaps most economists) prefer (c), it is certainly arguable that a minimal level of social responsibility and cooperation and a regulatory infrastructure are necessary to create the ‘playing field’ on which competition take place, and are hence even more basic than competition’. Others might reasonably argue that for a high standard of living and a cohesive society (a) is actually the most essential of all.
The assumption that the public interest is served by individuals pursuing their own interest is not open to question in the test and some of the questions have the propaganda embedded in them so that it would be impossible to give any answer at all without accepting the free market premises. For example:
In a market economy, the public interest is likely to be served even when individuals pursue their own private economic goals because of
(✔) the operation of competitive markets
( ) the social responsibility of business leaders
( ) careful planning and coordination of market activity
( ) individuals who understand what is in the public interest
Some of the NCEE’s earlier surveys also included a section ‘measuring’ ‘Economic Attitude Sophistication’. For example, according to the NCEE, the economically sophisticated student should disagree with the following statements:
Free medical care should be provided for all Americans.
When a business gets big, it should be controlled by government.
When a strike occurs, the government should step in and settle the dispute.
The Business Roundtable commissioned the NCEE to survey employees of seven companies. NCEE found that 28% of them ‘failed to see the connection between their companies’ interests and their own. They would have failed if the survey had been a test. Those are adults who are likely to make poor personal financial decisions.’
Other organizations have used similarly ideologically slanted questions to survey economic literacy. For example the Federal Reserve Bank of Minneapolis’ national telephone survey of economic literacy awarded an average score of 45% to respondents. Sample questions which those surveyed failed included:
What would happen to employment if the government mandated a minimum wage above what employers currently pay?
( ) Employment would go up
(✔) Employment would go down
( ) Employment would stay the same
Which of the following approaches to pollution control makes the best use of a country’s economic resources:
( ) Abolishing the use of toxic chemicals
( ) Using resources to reduce all pollution damage
(✔) Controlling pollution as long as the extra benefits are greater than the extra costs
( ) Prohibiting economic activities that cause pollution or harm the environment
The ‘Great Nebraskan National Economics Test’ can be found on the internet. It asks multiple choice-questions like ‘The prices of meat products in a competitive market are determined by...?’ The ‘correct’ answer being ‘Supply and Demand’. Or ‘Which of the following is most likely to improve the wages of American workers?’ The ‘correct’ answer being ‘An increase in productivity’.
Such surveys are also done in other countries. At the end of 1997 the Canadian Bankers Association and the Canadian Foundation for Economic Education (CFEE) conducted a survey of the level of economic literacy amongst Canadians and found them lacking.
In Australia economics is an elective high school subject in all states. A survey of the economic literacy in Queensland high school students (years 11 and 12) was conducted in 1998. It was adapted from CEE’s Test of Economic Literacy (TEL) discussed above.
A more recent version of the TEL was used to test the economic literacy of Japanese senior high school students in 2001 and in Korea in 2002.
The TEL has also been used on New Zealand first year University students.
If you have any examples or updates you would like to contribute please email them to me and I will add them here. Please give references for where you sourced the information.