April 29, 2005
The answer to failed government…
…as usual, it must be more government.
Don Boudreaux of Cafe Hayek presents his thoughts on a recent survey showing that in an economic sense, Americans are a bunch of functional illiterates. I can’t really state a case anywhere near as well as he has done, so I highly recommend you read his thoughts before mine.
He is discussing a NY Times story (registration required) discussing a recent poll by Harris Interactive. The story does paint a dim picture of our economic knowledge as a whole, and is (presumably) concluding that we’re simply not smart enough to handle such weighty decisions without the guidance of benevolent government:
The survey of 3,512 adults and 2,242 high school students also suggested that the intense attention Americans have paid to the pronouncements of the Federal Reserve chairman, Alan Greenspan, in the last few years had done little to help people grasp the role of interest rates. One-third of adults were unable to explain how falling interest rates would affect business.
Young people – those the current Social Security proposals are intended to help the most – performed more poorly on the survey’s questions than adults. Barely half of the high school students polled could correctly state the role of the stock market in the economy, with a few choosing the option that it makes stock prices rise.
Fewer than half the students could accurately define the term “budget deficit.” And there was confusion about the purpose of mutual funds, with some students stating that they provided higher returns than individual stocks, and others stating that they guaranteed a steadier income. Only 15 percent of students understood that the purpose of mutual funds was to provide
diversification.…
“It is abundantly clear that there are a large number of Americans who are completely unprepared to make these decisions,” said Steve Blakely, the institute’s editor and communications director.
Up to this point, the facts are the facts. It’s quite obvious that most Americans don’t know squat about economics, and that most high-school students are now barely capable of tying their own shoes, much less handling money. The question, then, is who is at fault for this, and what needs to be done to change it.
Scott Scheule has brought up the point that when you see a problem, usually referring to a failure of the market, you need to satisfy two conditions to advocate a government solution:
1) That the problem you are seeing is a failure of market conditions.
2) That the proposed government solutions can and will fix the failure.
Typically, the test fails part 2. The government solution creates more problems than it fixes, and frequently doesn’t fix the original problem it was intended to.
What I think we see here, on the other hand, is the culmination of several times that part 2 was completely ignored, and now we such a distorted market in both education and economics that the failure not a market failure, but a government failure.
The first is with our educational system. According to the Junior Achievement web site, the most recent data from 1994, only 44% of graduating high school seniors had taken an economics course. How do we expect these people to have any understanding of economics, whether micro or macro, if they’ve never even learned the basics? Considering where the purse strings and control levers of our educational system reside, I think we need to place this blame squarely on government.
The second problem is with our welfare and entitlement mentality. I’ve mentioned previously the theory of rational ignorance, and in this case it applies. For so many people, they have taken as fact that it is the government’s job to educate them, care for them, and provide for them in the case of unemployment, disability, or retirement. Especially for those on the margins, who have so much of their money (which could be used for investment) taken away for Social Security, what purpose is there to learn about economics? What impact does it have on their lives? What are the consequences of poor economic planning? The question for all these people, is if the government is taking care of it, why should they take the time to learn it?
So the problem we have here is not that the market has failed, it is that the government has failed to let the market work. The answer to this problem is not more government, or continuing our failed programs. It is time for radical reform. Whatever shape that reform might take, we need to look at how government interference has caused the current situation, and look at ways to reverse that trend. Whether you think Social Security privatization is a good thing or not is only part of the equation. The realization that government interference, through misguided and anti-market policies, has given people incentives to be stupid should make us all realize what the effect of more government interference will be.
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Brad, In the state of Texas students are required to take Economics before they graduate, usually in there Senior year. It still doesn’t mean that they learn anything. I think that we have two generations of the “entitlement” group. Savings are at a record low. People used to save for their “old age”. When Social Security came along they falsely believed that it would be their retirement income. How foolish were they? I don’t believe in putting all your eggs in one basket. Just think of all those people who worked for Enron and lost everything they had in their retirement. TF and I are diversified!
I really admire my dad. He put 10% of his income into his retirement account with Brown & Root and he also contributed to Social Security. When he retired, his house was paid off, and he lived comfortably on his B & R retirement. He put his social security money into savings for a rainy day. When it came time to buy a new (plain Jane) truck, he used his social security money to pay cash for it. When dad died 5 years ago this month, he had money left in his retirement account and he still had some of his Social Security money in the bank. He was a good example to his 4 kids. He knew how to live within his means. I hope we all do as well as him. Sorry, didn’t mean to get so long winded. Lucy Stern
Here in California, I can’t even require that students who need extra help get free tutoring. Nor can I require their parents to show up for conferences which I schedule to discuss their kids.
And yet I am held accountable for their progress.