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Richard Larsen: Economic Literacy and the Political Spectrum

June 15th, 2010 by Halli


By Richard Larsen

Minimum wage laws raise unemployment. Restrictions on housing development make housing less affordable. Rent control leads to housing shortages. Overall, the standard of living is higher today than it was 30 years ago.

These were some of the statements nearly 5,000 American adults were asked to respond to by pollsters in 2008. Daniel Klein, who conducted the poll for Zogby, reported the results in the Wall Street Journal this week.

Respondents were given eight statements, all of which are empirically indubitable in real world economics. The other statements were: Mandatory licensing of professional services increases the prices of those services; A company with the largest market share is a monopoly. Empirically false statements were: Third World workers working for American companies overseas are being exploited, and Free trade leads to unemployment.

For each of the eight statements, respondents were given five choices, whether they strongly agree, somewhat agree, somewhat disagree, strongly disagree or are not sure. The Zogby researchers, rather than requiring the exactly right answer, only marked as erroneous the most incorrect response. Thereby, instead of having a 20% chance of selecting the correct answer, they only had a 20% chance of making the most incorrect response.

Respondents were also asked how they self-identify themselves politically. The options were, from left to right on the political spectrum, progressive/very liberal; liberal; moderate; conservative; very conservative; and libertarian.

The conclusions are enlightening, but not surprising considering the regulatory and fiscal mindset of the ruling Washington crowd. According to Klein, “The left flunks Econ 101.” Explaining the results, Klein states, “How did the six ideological groups do overall? Here they are, best to worst, with an average number of incorrect responses from 0 to 8: Very conservative, 1.30; Libertarian, 1.38; Conservative, 1.67; Moderate, 3.67; Liberal, 4.69; Progressive/very liberal, 5.26.”

Klein summarizes, “Americans in the first three categories do reasonably well. But the left has trouble squaring economic thinking with their political psychology, morals and aesthetics.” In other words, just because we wish it were so, doesn’t mean that it is. For example, we may wish that raising the minimum wage doesn’t have an impact on joblessness, but it does, especially with minorities and teenagers wanting to enter the workforce.

Did level of education make a difference in the results? Klein said it did not. “We work with three levels of schooling: (1) high school or less; (2) some college (but not a degree); (3) a college degree or more. In our data, economic enlightenment is not correlated with going to college.” That should be extremely disturbing to economics instructors. Makes you wonder if they’re teaching more ideology than economic fact.

Ronald Reagan once said, “It isn’t that liberals are ignorant, it is just that they know so much that isn’t true.” The results of this study seem to validate Reagan’s sentiment. We all have opinions, which may be more or less substantiated by empirical data. Sometimes our opinions are diametrically opposed to reality. Economic principles, once they are proven to be incorrect, should logically be abandoned by any sentient person.

Regrettably, ideology and politics often get in the way of facts, and equivocation of results are explained away as anomalies rather than correct economic principles. We see this played out daily by the Washington power elite, where different results are expected from the same actions, contrary to proven theory. They are proving their incompetence and calling into question their sanity. Albert Einstein defined insanity as doing the same thing over and over again and expecting different results.

Polls always have subjective elements which can tarnish the outcome. Sometimes there’s an agenda incorporated into the statements or questions of a poll that are being engineered by the pollsters to achieve a desired outcome. While that could be the case with this study, the results clearly manifest a deficiency in economic education by the left end of the political spectrum. The deficiency is not only incorrectly recognizing what works and doesn’t work, but an inability to separate fact from what their ideology dictates.

Sometimes our perspective on economic theory is tainted by the supposed good that would be done if the theory was true. Especially in this age of over-regulation, over-taxation, and over-spending, we must learn to divorce invalid economic assumptions from our desire for them to be correct. There is a cost for everything, and the cost always should be justified by a desired outcome. We simply cannot afford a spending and regulatory wish list because of good intentions. Reality and proven economic principles must be our foundation, especially since Washington seems bereft of them.

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