Economics is important. One party doesn't get it.

This is a fascinating article that backs up my personal observations over the course of my life. Wishful thinking (good intentions and all that) does not equal results in the real world.

Are You Smarter Than a Fifth Grader?
Self-identified liberals and Democrats do badly on questions of basic economics.
By Daniel B. Klein
http://online.wsj.com/article/SB10001424052748703561604575282190930932412.html?mod=rss_opinion_main

Here is a link to the study (download the PDF file):
http://econjwatch.org/articles/economic-enlightenment-in-relation-to-college-going-ideology-and-other-variables-a-zogby-survey-of-americans

Do economists generally agree on these eight points?

1. Restrictions on housing development make housing less affordable. - True
2. Mandatory licensing of professional services increases the prices of those services. - True
3. Overall, the standard of living is higher today than it was 30 years ago. - True
4. Rent control leads to housing shortages. - True
5. A company with the largest market share is a monopoly. - False
6. Third-world workers working for American companies overseas are being exploited. - False
7. Free trade leads to unemployment. - False
8. Minimum wage laws raise unemployment. - True

On some questions (are overseas workers being exploited) liberals might debate what the "right" answer is. But even on the non-partisan issues, the basic stuff, liberals got it wrong. "In particular, the questions about mandatory licensing, the standard of living, the definition of monopoly, and free trade do not specifically challenge leftist sensibilities."

Scary stuff. And these are the people trying to lead us out of (into?) this economic crisis.

I should also add that even the highest scoring groups got an average of 1.3 questions out of 8 wrong. Even the the highest scoring groups show too much ignorance.


On the other hand, there are plenty of apologists for the results of this survey.

One dissenter says that these questions do not assess economic knowledge but "agreement with the neoclassical model."
http://www.tnr.com/blog/jonathan-chait/75399/study-proves-libertarian-economists-ignorant

He also suggests that some questions are really a matter of values one holds rather than economic facts. For example, "Klein treats anybody who thinks a Third World worker for an overseas American firm is being exploited as ignorant of economics, when this is obviously a questions of values rather than knowledge."

Finally, he makes the point that empirical evidence does not match the theory behind the "correct" answer. In particular: "The minimum wage question is even worse. It counts anybody who doubts that minimum wage laws always raise unemployment as ignorant, when in fact empirical evidence suggests that in practice the link may be nonexistent."

The really sad part on that link is all the misinformed comments that follow the article. Very sad to read.


Another dissenter basically says that the study was bad "because the questions are ambiguous, substanceless, or confusing." He doesn't back up that opinion, however. This is just a puff opinion piece.
http://www.fivethirtyeight.com/2010/06/are-you-smarter-than-george-mason.html

As with the previous link, the saddest part is reading the comments after the article. Amazing how many people apparently don't live in the real world, or actually watch the effects of policy decisions.


So do economists agree on anything? Is an exercise like this completely futile? Here are a couple more links:

http://www.bepress.com/ev/vol3/iss9/art1/
Whaples, Robert (2006) "Do Economists Agree on Anything? Yes!," The Economists' Voice: Vol. 3 : Iss. 9, Article 1.
Some major points of agreement (85+%) indicated that:

• "...the gap between Social Security funds and expenditures will become unsustainably large within the next fifty years if current policies remain unchanged."
• "Economists overwhelmingly favor free trade--apparently, the freer the better."
• "...the U.S. should eliminate remaining tariffs and other barriers to trade."
• "Even more (90.3%) disagree with the suggestion that the U.S. should restrict employers from outsourcing work to foreign countries."
• "Economists are very wary of subsidies. Substantial majorities favor eliminating agricultural subsidies (85.2%) and subsidies to professional sports franchises (85.2%)."

Here is another link:
10 Things Economists Believe
http://www.realclearmarkets.com/charts/10_things_economists_believe-44.html

• Rent control limits quantity/quality of housing - 93%
• Tariffs and quotas reduce economic welfare - 93%
• The United States should not restrict employers from outsourcing work to foreign countries. - 90%
• Floating exchange rates are effective international monetary policy - 90%
• The United States should eliminate agricultural subsidies - 85%
• The gap between Social Security funds and expenditures will become unsustainably large within the next fifty years if current policies remain unchanged - 85%
• Large federal deficits adversely affect the economy - 83%
• Welfare should be administered as a negative income tax - 79%
• A minimum wage increases unemployment among young and unskilled workers - 79%
• Taxes and permits are a better way to control pollution than pollution ceilings - 78%