Economic Illiteracy

 Political scientists have documented that roughly half of all U.S. citizens do not know that each state has two senators and that only a quarter realize the senators serve six-year terms. In a similar theme, the unfortunate reality is that more than half of the electorate also suffers from economic illiteracy. The problem is not that voters lack doctoral-level expertise in economics, or that they make an occasional error. Most voters lack even an elementary understanding of economics. This glaring intellectual deficiency potentially can lead to problems, if not outright disaster, both on an individual and society-wide level. One of the primary roles of government is to determine economic policies. Sound and intelligent policies are unlikely to emerge if the voters are economically illiterate. An economically illiterate population will fail to hold elected officials accountable for public policy that makes society poorer. How a society organizes its economy is vitally important. Economics is not about how to get rich or make money in the stock market. It's about understanding eternal truths about human actions and the implications derived from how human beings make choices in a world of scarce resources.

In an age where financial decisions have far-reaching consequences, it is imperative that young people advancing through our educational system understand the basics of money management, savings, investments, and credit. High school is the time when some students are exposed to the discipline and study of economics. Unfortunately, only about 50% of secondary schools require an economics class to graduate. For those high schools teaching this subject, in general, their track records range from poor to abysmal. The reasons for the sub-par performance are many. There is a chronic shortage of qualified teachers who have any knowledge involving the subject matter. Economics can be complicated and at times involves a healthy dose of mathematics. The methodology of teaching economics and a lack of instructional materials are often cited as factors contributing to the deficiency in this area. A passionate economics instructor combined with interested students who believe learning the basic principles of economics is relevant is a rare occurrence. Various school districts might want to consider retaining retirees from the business world to teach courses in economics and finance. And here's a terrifying statistic: only 17% of college graduates are able to correctly provide the basic reasoning as to why "free markets secure greater economic prosperity than government centralized planning." This blind ignorance goes a long way in explaining how an avowed socialist like Zohran Mamdani will probably be elected the next mayor of New York City in November.

Mamdani and his followers are avid supporters of price controls, in particular, rent price controls in NYC. They are apparently blind to the fact that price controls never have worked, and never will work. It is ludicrous to even consider their implementation. While rent control appears to help current tenants in the short run, in the long run, it decreases affordability and supply of new units. Invariably, price controls facilitate shortages. Not only do price controls fail to cure the problem, but they also accentuate the problem.

Although it has been transformed into society's biggest punching bag for practically all problems, the dominance of social media is at least partly to blame for the widespread ignorance on financial issues. Research indicates that a significant percentage of Gen Z individuals utilize TikTok "finfluencers" for investment advice. There are numerous downside risks associated with relying on TikTok for investment advice. Many of these finfluencers do not possess formal qualifications or extensive experience in finance. This raises concerns about the accuracy and reliability of the information shared with followers. A study cited by Fast Company found that 63% of financial advice on TikTok was misleading, and 95% lacked disclaimers about investment risks. Some influencers may promote high-risk strategies without providing adequate context or highlighting potential dangers. TikTok has been identified as a platform susceptible to "pump-and-dump" schemes, where influencers might promote certain stocks only to sell them off once their followers invest, causing the stock's value to plummet. In addition, financial advice on TikTok is often generalized and may not be suitable for individual circumstances, goals, or risk tolerance.

The commonly held perception of corporate greed is another example of economic nescience. When the price at the pump rises appreciably for gasoline, a lop-sided fraction of the public - 74% - places the blame on oil companies for trying to increase profits. Most people believe that prices go up when businesses suddenly start to feel greedier. Economists, in contrast, expect businesses to be greedy, year in and year out, but only if supplies have gone down (or demand has gone up) can they increase prices without losing business to competitors. Free markets give people choices. You can go elsewhere if a greedy corporation fails to satisfy you. Thus, the best way for the corporation to pursue self-interest is to be attentive to the consumer's needs.

I retain minimal optimism that the general population will suddenly grasp a few of the fundamental principles of economics. Unfortunately, the policies economists deplore often turn out to be immensely popular with voters. Why should we think politicians will fail to listen to the voice of the people when heeding the voice of the people is the usual path to political power in a democracy? Politicians listen all too well, and as a result, they heed a host of economically illiterate demands. A case in point would be we now have a president who at times says things that directly contradict some of the most basic and incontrovertible economic principles. Perhaps he either fell asleep or skipped his Econ 101 class while attending Wharton.