Thursday, September 22, 2005

Good Sense on Illiteracy in Economics This Month's Prize?

Two economics professors in the Wall Street Journal on-line discuss economic illiteracy and contribute perceptive thoughts on the problem and consequences of public ignorance of economics. Their discussion is reproduced in: “Knowledge Deficit” on 21 September. Russell Roberts is a professor at George Mason University and William Polley is a professor at Western Illinois University. I provide two short extracts, which do not do justice to the debate at all (see for the full debate):

Russell Roberts writes: What is economic literacy and is it important? I'd start by defining what it's not. It's not financial literacy. It's nice to understand how the stock market works, how compound interest can grow faster than you might think and how to balance your checkbook. High school classes, along with the media, often mingle the two kinds of literacy, which continues an unfortunate confusion that economics is mainly about money.

Bill writes:. Perhaps a return to the ideas of Adam Smith as expressed in both "The Wealth of Nations" and "The Theory of Moral Sentiments" would yield some suggestions though, because I think it would reveal how much more broadly we have to think.

"The Wealth of Nations" is a treatise on man's interaction with his fellow man in the marketplace. That is, it's a study of prudence. Today, it ends up being taught as constrained maximization, and in the rush to cover all of the techniques, essential insights can be lost if you're not careful. A thorough examination of the virtue of prudence as Adam Smith perceived it would be time well spent, and it's a nice complement to the idea of constrained maximization for those who are technically inclined.

"The Theory of Moral Sentiments," on the other hand, is a treatise on temperance. It is a study of propriety, sympathy, and justice. Sadly, many people don't even know the book exists or that it was written by the man who is sometimes called the "father of capitalism." Ignorance of Smith's other major work leads people to think that economics is only about greed, self-interest, and rational maximization. As a result, many intelligent people who would be quite capable of becoming economically literate are turned off to economics because they see it as promoting a "greed is good" mentality that doesn't square with their world view. Unfortunately, this perception is so well embedded in the pop culture view of economics and economists that it may be very difficult to reverse.”

And Russell Roberts comments on the role of the Blogosphere:

“Russell: One source for optimism in this otherwise bleak analysis is the blogosphere. I think it's very hard to teach the economic way of thinking. But reading the best economics blogs is like sitting around the faculty lounge absorbing the economic way of thinking by example. The blogosphere has made it a lot cheaper to acquire good economic intuition. And it has made bad journalism a little more expensive.

Bill writes: Naturally I share your sense of optimism for the blogosphere, Russell. One can get quite an education from a regular reading of some of the many fine economics blogs. I see incredible potential in this medium for communicating the economic way of thinking to a wider audience.”


The debate as a whole, and Professor William Polley’s suggestion on reading Adam Smith’s two works in particular, is prime candidate for this month’s ‘Lost Legacy Prize’.

Economics teaching is in good hands if Professors Roberts and Polley are representative of the profession; patently they are not, though the main problem is what many others have been taught as students in in Economics 101 and beyond. We read of some of their errors in the world’s media in "Lost Legacy" every day almost.

I like the line that the Blogosphere has made ‘bad journalism’ ‘more expensive’. In correspondence I initiate with some of the authors of the pieces I report here, several reply they had only repeated what they had been taught; a few that they had been teaching the error for long enough, but they would rephrase their words in future.


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