The Importance of Improving Economic Education Phillip Saunders Indiana University Bloomington Bloomington, Indiana

High-school graduates will be making economic choices all their lives, as breadwinners and consumers, and as citizens and voters. A wide range of people will bombard them with economic information and misinformation for their entire lives. They will need some capacity for critical judgment. ¹

This quotation from the 1981 Nobel Laureate in Economic Science neatly summarizes two benefits of learning about economics. Individuals benefit, not only as breadwinners and consumers, but also as savers, investors, and participants in an increasingly interdependent global economy; and society benefits from having better informed citizens, voters, and public officials. In addition to the individual and social benefits from better economic decisions, there is also a general education point to be made about the importance of economic understanding in today's world.

Herbert Stein states this point vividly:

There is a compelling reason for learning about economics which I tell my students. Economics is a large part of life in this country. If you read the daily newspaper, a large proportion of the stories in the paper are about economics. They are about economic policy, and they are about the behavior of the economy. To live in this country and not understand all this is just to miss a good deal of the excitement of being here.²

The news media present problems as well as opportunities. As Americans rely increasingly on audio and visual media "sound bites" to supplement or supplant newspaper reports, the case for economic education, particularly the social benefits of economic education, has never been stronger.

Problems as opportunities

In the area of macroeconomics, recent changes in the labor force and in the structure of our economy suggest our conventionally accepted estimates of the natural rate of unemployment may be too high. And there are preliminary but encouraging signs we may be breaking out of the stagnated rate of increase in productivity that has plagued our economy over a decade.

Recent developments in communications and computer technology, the collapse of the centrally planned economies of the Soviet Union and Eastern Europe, and the increasing internalization of markets also indicate we may be entering a new era of historic importance in terms of the demands placed on individual and social decision-makers in our economy.

Major structural changes in our Social Security and Medicare programs seem imperative. These programs were well established at a time when average life expectancy, medical technology, and the ratio of contributors to recipients were significantly different than they are now. Individuals now may have to assume more responsibility for the saving, investment, and spending decisions associated with their retirement income and medical care.

Improved economic understanding will be needed if we are to deal with these issues in a considered manner, likely to be more effective and less costly than "emergency" measures adopted only when the problems reach crisis proportions.

In these circumstances, the case for economic understanding is the case for democracy itself. As noted by the late G. L. Bach, chair of the National Task Force on Economic Education, "Democracy means government by the people. ... For democracy to work on economic issues, the people must understand; it is not enough that the leaders alone do so."3 Briand's told Lloyd George that war is much too serious a thing to be left to military men; we can say today that economic understanding is much too important to be left to professional economists.

We can also say that people who have not studied economics are not likely to acquire the analytical framework and content they will need to make thoughtful economic decisions on their own. William J. Baumol reminds us that "common sense" is often "common nonsense" when it comes to economics:

So many economic phenomena and relationships are either not obvious or altogether counterintuitive that education in the discipline is needed by the nonspecialist. ... One of the crucial obligations of economic education is to provide the student with at least the beginnings of an analytical framework as well as ancillary materials needed to avoid ... misunderstandings, with all of their serious consequences for society.⁴

Basic economic concepts and their interrelations can be presented and learned with various degrees of sophistication and refinement, and the economic way of thinking can be applied to a wide variety of individual and social economic decisions. Indeed, repeated practice in applying economic reasoning to a variety of individual and social economic decisions is the best way to learn economics; the best way to help people understand the world around them; and the best way to prepare future consumers, workers, managers, entrepreneurs, savers, investors, citizens, voters, and public officials for the challenges they will face throughout their lives.

Making economic study meaningful

In seeking to help students develop economic understanding, however, teachers may struggle to find appropriate materials and exercises. There are currently far more and better microeconomic materials and exercises than macroeconomic or international materials and exercises. Yet it is macro and international topics that are reported in the media most frequently.

There are daily reports on the exchange value of the dollar relative to other currencies, monthly reports on unemployment and consumer and producer prices, and quarterly reports on economic growth and changes in productivity. Yet far too many people have no idea what these reports mean for things that are important in their daily lives. And few have any real understanding of what, if anything, public policy might do to influence these important measures of economic activity and human behavior.

The problem of understanding and applying aggregate and average measures in individual situations is, admittedly, a formidable one. It is sometimes difficult to make something as abstract and amorphous as "the economy" meaningful and interesting. Nevertheless, we must continue to work aggressively on these problems.

Now that video and Internet technology are available in many classrooms, teachers of macroeconomics may be able to reduce their reliance on printed material that becomes outdated rapidly. By relying more heavily on video clips from current broadcasts such as the "Nightly Business Report," "CNN's Moneyline," or Paul Solomon's occasional presentations on PBS's "News Hour with Jim Leher," we can help students see visual images of the people in action behind the economic numbers being reported.

Conclusion

Students do need to be oriented to current data if they are to develop the basic numeracy they need to understand what is happening in the economy today, but it is also important to develop an overall organizing framework so they can see where all of the pieces fit in and how they are related. Given the complexity of a macroeconomic overview and organizing framework, however, it may be best to wait until a separate economics course at the upper grade levels to place a heavy emphasis on macroeconomic concepts and applications. Such an approach will be most successful if solid microeconomic foundations are infused into a variety of courses at earlier grade levels.

Since economics blends the rigors of careful analysis with the concerns for efficiency and human welfare that are essential for sound decision-making in a wide variety of contexts, it lends itself to infusion into a wide range of courses. No other subject creates a more vivid understanding of the costs and benefits of alternative choices. No other subject better equips students for evaluating alternative courses of action or inaction. We must continue to develop innovative and effective economics programs to better prepare today's students for the challenges they will face in the future.

¹James Tobin, Economic Literacy Isn't a Marginal Investment, Wall Street Journal, July 9, 1986, p. 22.
²Quoted in Francis W. Rushing, The Position of Distinguished Economists on Economics Education, in J.S. Brenneke (ed.) An Economy at Risk: Does Anyone Care? (Atlanta: Georgia State University Press, 1992), p. 29.