Posted by Ilya Somin:
Thomas Sowell on Public Ignorance and the Financial Crisis:
http://volokh.com/archives/archive_2009_05_17-2009_05_23.shtml#1242881687
The Reason website has [1]an interview economist Thomas Sowell about
his forthcoming book on the financial crisis. Sowell makes several
good points, including one about public ignorance of economics:
Reason: What do crisis like this, and public reaction, say about
general public understanding of economics?
Sowell: I think in the U.S. and in most of the world the public
understanding of economics is abysmal. But it�s one thing not to
understand something. I don�t understand brain surgery. It�s
another to want to form policies on things on which you are
ignorant. I hear the wonderful phrase �I want to make a difference�
when it comes to policy. I would be horrified if I wanted to make a
difference in brain surgery. The only difference is more people
would die on the operating table.
The only encouraging thing about public reaction to the crisis is
that going by polls citizens seem to have more misgivings about
some of these policies than politicians or the media. Still, though
there have been studies that indicate the New Deal prolonged the
Great Depression by years, what is also clear is it was enormously
popular. FDR was elected four straight times, and more than once
without ever having brought unemployment down to single digits. An
economic disaster does not necessarily mean a political disaster.
If we could raise the average level of understanding of economics
to what [prominent 19th century economist] Alfred Marshall had in
1890, the vast majority of politicians would be voted out of
office.
I would add that public policy would be greatly improved if the
average voter understood what Adam Smith knew about economics when he
published The Wealth of Nations back in 1776. Reinforcing one of
Sowell's points, I discussed how some politically popular New Deal
programs helped prolong the Depression [2]here and [3]here. As Sowell
suggests, the interesting thing about these programs is not just that
they had extremely harmful effects, but that their authors didn't
suffer any political punishment as a result - in part because most
voters lacked the economic knowledge to understand what was happening.
References
1. http://reason.com/news/show/133593.html
2. http://volokh.com/archives/archive_2008_09_21-2008_09_27.shtml#1222450700
3. http://volokh.com/archives/archive_2009_02_01-2009_02_07.shtml#1233562829
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