Chocolate and Gold Coins

Monday, September 26, 2005

Teaching Economics to Everyone

I am wondering if economics is a subject that everyone should know something about. I wonder if economics should be taught in high school so that everyone with even a high school diploma would have some exposure to economics some political economy.

What prompted this thought are a couple of interesting pieces about the general public’s knowledge of economics. The first piece was a Wall Street Journal Econoblog with Russell Roberts and William Polley. Here is an excerpt (Roberts addressing Polley):
Bill, in your last post, you mentioned the depressing (and seemingly inevitable) conceptual mistakes that the media makes when discussing natural disasters like Katrina. Why do you think that is? The obvious answer is that most members of the media have little or no economics training. True, but I suspect the reason for that lack of knowledge is that there's little or no demand for it. The average citizen doesn't understand the economic way of thinking, so bad economic writing is rarely punished.

For better or worse, understanding economics isn't a particularly useful investment of time and energy for most people. Understanding the true impact of Katrina or the true impact of price controls on gasoline in the aftermath of Katrina isn't valuable to the average person.

Read the whole article.

A second essay is from Atanu Dey and it is his attempt to explain the way economists think. Here is a nice excerpt:
Studying people exercising choice is what makes economics a study of behavior. Behavior – both human and non-human – has to do with rewards and punishments, gains and losses, in other words incentives. To some, the broadest generalizations that a study of economics leads to are, first, incentives matter, and second, markets work. The rest of economics is an elaboration and detailed arguments about those two generalizations. Recalls to mind what Ernest Rutherford had said about physics: “All science is either physics or stamp collecting.” That is, physics is central and the other bits of science are just a collection of facts that are peripheral and mere detail that one should not be overly concerned with.

Economics is all about codified common sense. I think that is what draws me to economics: I like common sense and I am appalled at the lack of common sense I see around the world. Setting aside the question of why common sense is called such when it is so uncommon, one may ask why economics is difficult if what it concerns itself with is apparently so commonsensical. I think it is difficult because its simplicity is deceptive.

Read the entire article. I think all economists tend to think economics is common sense, but apparently "common sense" is only common among economists.

The common theme in these articles is that the common man is woefully ignorant about economics and harbors many dangerous misconceptions about the economy and the role that government should play in the economy. In general, there may be little motivation for individuals to really learn economics. One doesn’t really need to understand how the economy works to be able to participate in the economy and even to make a lot of money via the economy. Economic knowledge is only really useful to decision-makers. It would be extremely useful for politicians to learn more economics. But voters also need know more about the subject if they are going to cast knowledgeable votes.

I recall reading that one of the first decisions of the founding fathers of the United States was to create provisions for land to be set aside for public education. It must be understood that the motivation for public education at that time was very different than it is today. They were not thinking that this would be a good way to produce marketable skills in the population and to make poor people into more productive citizens and help them out of poverty. Helping the poor really was not a motivation. The idea was simply that they recognized that only a well-educated citizen was likely to be able to be a competent voter. I still think this is an important idea. To some extent, the problems that India has had developing its economy can be traced to the problem of having a not very well educated electorate.

When I was in high school, I was required to take a half-year course called “civics” that basically covered the government. We spent a long time reading the whole U.S. Constitution, which was knowledge that was very unlikely to be retained by any ordinary American. A better use of that time would have been a more general course covering economics and politics and culminating in some simple public policy analysis. The point of the class would be to try to train people to be better and savvier voters.

My feeling is that in high school, it is less likely that people will learn so much from studying dry theory. Younger people learn more from hands-on experience. But how do you give people hands on economics, politics, and public policy experience? Well, with computers, anything is possible. It is actually very possible to create computer models of simple economies and let the students play around with them. They would learn the way scientists do: by trial and error. And students would develop intuition about how markets work and how poor public policy could lead to serious problems.

The one really big drawback of my idea of teaching economics and public policy via computer simulation is the expense of creating the software. This would probably require several tens of millions of dollars to produce. Of course, this would only be a few dollars per student, but someone would have to fund this initial investment.

So do you think that students might profit from such a course? What are your opinions?


  • A hurried comment:
    Check out point no. 3 in this essay.

    By Anonymous Anonymous, at 11:37 PM  

  • I have to admit here that being an Engineer and working for one of the worlds' best MNC's,my knowledge in economics is a mere "Zero" . Thanks to you for your "gold coin" posts.I've strated underatnsding what economics is all about and I can vouch that Economics == Common Sense! And now, I'm planning to take up B.A in Economics as a part time course!

    By Anonymous Anonymous, at 12:50 AM  

  • Hi Srikanth and Anonymous
    Srikanth: Thanks for this article, it is excellent. I agree with his view that micro is probably useful in business, especially basic concepts about costs (opportunity cost) and such.

    Hi Anonymous: Thanks for the compliment. I'm not sure whether I should feel flattered or feel guilty that you have chosen to study economics because of my posts. The beginning courses in economics are pretty good but a lot of the other courses I have encountered (and even taught) have been somewhat disappointing. They are more like dumbed-down versions of graduate economics.

    I did like the sophomore sequence of econ course at U of Mn. There, a student learns how to model economics and solve so simple problems. You can actually compute supply and demand which might be interesting to an engineer.

    Anyway, have fun!

    By Blogger Michael Higgins, at 4:49 AM  

  • A little more leisurely comment:
    We did have Economics in high school here in India - it was part of our Social Science paper. But it was more about Gross national product, gross domestic product, per capita income, etc. Not much about economics fundamentals.

    And I also had in my engineering bachelors (we don't get to choose papers in most Indian engineering schools). But the book I read was so insipid that I could not appreciate it much.

    It would be great if you could suggest a well-written book of economics or micro-economics fundamentals.

    By Anonymous Anonymous, at 11:22 PM  

  • How about tapping into what high school kids already engage with? Video games, for example. Why not use The Sims and create some basic lessons? There are interesting instances of using games like "Civilization" or "Pirates" to rethink the way history is taught at the school level. See for example:

    By Anonymous Anonymous, at 8:14 AM  

  • I really like Aswin's idea......I play civilization, AOE/AOM and Sim City, and you can really get a good understanding of some macro-economic issues from them......and they can be modified to bring out more concepts!

    That in economics is an excellent idea.......and should be included. Along with education that helps develop a scientific temper.....and a good appreciation and understanding of basic science.

    By Blogger Sunil, at 2:13 PM  

  • Hi Srikanth, Aswin, and Sunil

    Srikanth: Talking about economics education in India, my wife took that sequence. She describes it as the most boring subject ever. All they did was memorize useless statistics from the various 5-year plans. It sounded like a complete waste of time.

    Aswin: That sounds like a good idea. In fact, it might be wise to create some software that could double as educational and marketable entertainment (although I can see the criticism that mixing the two is dangerous) I'm just thinking that it might be easier to fund the developement of the software if it had more commercial applications.

    Sunil: I'm impressed. You write a great blog, find time to comment on other blogs, you work on your thesis research, and you have time to play video games? How do you do all this?

    By Blogger Michael Higgins, at 8:34 AM  

  • hehe.....

    I used to play a lot of video games......but have cut down i usually play only on some weekends. My wife has convinced me (correctly) that it is mostly a waste of time. And my blog is rather modest, with only 2-3 posts a week, and i do comment a lot less now (thanks to more work in the lab, and work on my thesis)........

    You on the other hand have a real job, and a wife and kid, and i'm sure your son takes up all your time once you get home......AND you post detailed posts regularly. Clearly......there's a lot more multi-tasking going on here....

    By Blogger Sunil, at 12:25 PM  

  • Michael,

    I don't think its that monumental a task - marketing is already taught in business schools using a simulated version called Markstrat or SABRE. Markstrat was developed by a couple of profs, and now there's some periodic modification.

    I would disagree with the statement aht economics teaches us about behavior. Yes, it does set out some rules of "rational" behavior but as the exploding field of behavioral decision theory shows, humans don't always behave in the most "rational" manner and I think this mismatch between what we "ought" to do (as set out by economists) and what we actually do is part of the reason for its lack of relevance to the layperson. It also doesn't help that a lot of economists insist that theirs is The Path of True Enlightenment and stick to only traditional economics. For example I believe that we should learn Prospect Theory in the consumer part of economics.

    I think simulation would make it easier at least to grasp the economic rules (and non-intuitive ones, especially such as sunk cost).


    By Blogger Neela, at 3:46 PM  

  • Actually the junior achievement program does just that. it is a k-12 program funded by corporations that send in a free kit and if possible a volunteer from the corporate/home world to "teach" economics to school kids. it is in compliance with state social sciences standards and makes kids really think! last year I had a delightful discussion on milk prices going up and this year it was gasoline and the fall of the dollar against certain other currencies. this year I was also able to introduce free-market economy- what it says and how it is implemented- we dicussed and read about farmers' suicides in Asia, genetic foods vs organic and the worldwide implications based on the basic tenets of a freemarket economy- there is much one can do... volunteer thru the juniore achievement program.

    By Blogger blokes, at 10:55 PM  

  • Michael, interesting post. I generally prefer narratives to the formal mathematical approaches described here. I learnt my first economics reading about the history of Venice, Genoa and Florence, then progressed into the technical stuff from there.

    Also, some simple card or board games would probably be cheaper and as effective as a computer game. Particularly if you are trying to show how incentives matter; if you think about it, all rules depict different incentives. Markets are more complex -- most games are winner-takes-all -- but it's possible.

    By Anonymous Anonymous, at 2:12 AM  

  • Hi Sunil, Neela, Blokes, and Russ

    Sunil: I hope the thesis work is going very well. A good thesis makes all the difference.

    Neela: Interesting comment about behavior decision theory, but I'm inclined to disregard it for a simple reason: if people really did have problems making good decisions, then there would be a market for some firm to help you make decisions. There are firms that do help in some areas: real estate agents help you buy a home, brokers help you pick stocks, financial planners help you allocate money between saving and consumption, etc. But you seem to be implying that people are incompetent to make their own decisions and yet there is no market to help them. I don't buy this at all. There is no evidence of this at all.

    Blokes: I haven't heard about this junior achievement program. It must not be very popular yet. I wonder how good it is. I am curious about this, thanks for telling me about it.

    Russ: Marginal revolution had an interesting piece on exactly this point. Most people do like stories, and I can see that would be another way of introducing the intuition of economics.

    By Blogger Michael Higgins, at 8:21 AM  

  • Michael,

    Perhaps I did not communicate well enough. I did not imply that people are incompetent to make decisions - only that the view of rationality in decision-making on which economics rest can be challenged or extended to incorporate the deviations from strictly rational economic theory.


    By Blogger Neela, at 12:32 PM  

  • Hi Neela
    I think the area that perhaps fits your discription is the choice under uncertainty. The assumptions about the choice there are somewhat strong and maybe they could be adjusted. I am all for learning more about how people actually make decisions, but I am sure that in the end, it will seem rational.

    By Blogger Michael Higgins, at 5:46 PM  

  • I know this is an older post- I was just posting something about the need for more poeple to be familiar with economics, and I googled the topic to see what I could find and this post turned up.

    We homeschool, and we do teach economics as a topic to our kids starting in Jr. High.
    Two of the books we use are Whatever Happened to Penny Candy by Richard Maybury and Economics in One Easy Lesson, by Harold Hazlitt.
    If you're interested in seeing other titles suitable for young people (and adults who haven't looked into it before), you can look at government and economics under years 7-12 at this website:
    (full disclosure: I helped write that curriculum, but we don't charge anything for it and people are free to use as much or as little as they like)

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