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August 13, 2004

Does Knowing Economics Make Better Citizens?

Someone recently asked an email group the question of whether knowledge of economics made people less inclined to support government programs, or more inclined. They might be less inclined because they would realize how inefficient most government programs are, but they might be more inclined because they would better appreciate how certain of those inefficient programs would benefit them personally.

Here are my thoughts.

People have more incentive to understand redistributive policies that help themselves a lot, so they tend to udnerstand the economics of those policies pretty well even if they don't know any formal economic theory. Thus, I think economic education does have a beneficial effect, overall.

Educating a person in economic theory helps in two ways.

1. The person will learn about policies that hurt them (and most citizens) a little and help a few people a lot. An example is the ugar import quota that hurt US consumers nad help a few US sugar growers. People don't have the incentive to learn about the hurt to themselves that the sugar growers have to learn about the benefit.

2. The person will learn just how inefficient many policies are-- that they hurt almost everybody. The minimum wage and the corporate income tax fit roughly into this category. I hear from Joe Smith that there is a non-partisan outfit in Denver, the Colorado Council on Economic Education, that hosts events for junior and high school teachers to teach them about economics.

I have wondered if the deregulation of airlines and trucking in the 1970's was due to better economic education in colleges over the previous 30 years. Before 1970, economists such as Stigler and Friedman had noted the inefficiency of such programs but scoffed at those who thought they would ever be repealed. The programs had perhaps gotten more inefficient, due to growth of the economy, but the benefits to special interests had grown correspondingly. So why would a rotten program be repealed in 1975 when it hadn't been repealed earlier?

I should mention one common explanation which makes some sense for airline regulation, at least. In the early 1970's, Ted Kennedy wanted to run for president, and needed some publicity and credit for doing good things. He found airline deregulation to be an issue he could take up, an issue of good government, quite removed from his usual big-government policies, so he could reach out to centrists. Thus, he was a "political entrepreneur", innovating on an issue

Posted by erasmuse at August 13, 2004 04:17 PM

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