How Much Do Americans Know About Economics?
Unemployment, inflation, monetary policy, corporate profits, the balance of trade, and the Federal Reserve figure prominently in the news. Granted, they sometimes receive less ink or fewer TV minutes than high-profile murder trials or the trials and tribulations of the British royal family, but that's another story.
The point is that pundits and politicians do a lot of talking about the economy, and long-standing political wisdom holds that Americans vote their pocketbooks. "It's the economy, stupid!" was the most often quoted slogan of the 1992 presidential campaign.
But how much do we actually know about economics? Results from a 1992 national survey of American economic literacy indicate that, to put it politely, there are gaps in our knowledge. The National Survey of American Economic Literacy, conducted jointly by the National Center for Research in Economic Education at the University of Nebraska-Lincoln and the Gallup Organization, under the direction of Nebraska economics professor William B. Walstad and Gallup's Max Larsen, had three main objectives: 1) to assess the American public's level of basic economic knowledge; 2) to measure American public opinion on important economic issues that are frequently discussed by national leaders and the news media; and 3) to document the level of economic education and identify current sources of information about the economy.
Survey data were collected from three national random samples, one for the general public, based on 1,005 interviews; one for high school seniors, based on 300 interviews; and one for college seniors, also based on 300 interviews. The responses seem to indicate that the general level of economic literacy has plenty of room to rise.
The general public correctly answered only 39 percent of the survey questions on economic concepts, relationships, and ideas that are frequently used in discussions of economic matters. High school seniors supplied correct responses to only 35 percent of these questions, and college seniors topped the field, but they didn't exactly do their parents proud by responding correctly to just 51 percent of the basic economic questions. (See the accompanying table for a summary of the responses to the basic economic knowledge questions.)
The opinion section of the survey yielded interesting results. Human nature being what it is, limited economic knowledge did not deter respondents from holding strong opinions on economic issues. For example, only a third of the general public knew that the Federal Reserve is responsible for monetary policy and even fewer were able to cite an example of monetary policy, yet two-thirds expressed the opinion that some organization such as Congress or the U.S. Treasury should be responsible for monetary policy.
Nevertheless, all three groups of respondents -- general adult, high school seniors, and college seniors -- seemed to be aware of the gaps in their knowledge. About half of the respondents in each group rated their understanding of economics and economic issues as fair, and about one-third rated it as poor, on a scale that ranged from excellent to good to fair. Only 29 percent of the general public, 50 percent of high school seniors, and 44 percent of college seniors reported taking steps to improve their understanding of economic issues during the six months preceding the survey. Their major sources of current information about the economy were: television (79 percent), newspapers (77 percent total, with 62 percent for high school seniors), magazines (14 to 27 percent), and radio (9 to 16 percent).
In a report on the results of their survey, Walstad and Larsen concluded that, "The need for more education in economics was recognized in all [survey] groups despite any differences in the sources of information about the economy. In fact, the only issue in the survey on which there was near unanimous agreement (96 to 97 percent) among all respondents was that schools should teach more about how our economy works."
A National Survey of American Economic Literacy
Percent of Correct Responses to Economic Knowledge Questions
|Topic||General Public||High School||College|
|Budget deficit definition||51||38||66|
|Budget deficit size||19||22||24|
|Federal Reserve purpose||46||38||58|
|Monetary policy set by||33||25||47|
|Monetary policy example||21||17||42|
|Fiscal policy set by||50||50||55|
|Fiscal policy example||23||28||48|
|Economic policy example||48||39||55|
|Purpose of profits||36||42||52|
|Profit rate on investment||13||12||22|
|Supply & demand||64||72||79|
|Value of dollar/exports||50||38||61|
|Trade quotas and employment||49||37||50|
|Mean % correct||39||35||51|
William Walstad is currently working on a follow-up study that is slated to appear in The Journal of Economic Education. If you would like to contact him about the 1992 survey or his upcoming study, his address is:
William B. Walstad
Director and Professor
National Center for Research in Economic Education
University of Nebraska - Lincoln
Lincoln, NE 68588-0402