Students typically come to an economics class with many misconceptions, not just random errors but systematic biases.
Bill Goffe recently (2009) surveyed one of his macro principles classes and found, for example, that the median student believes that 35% of workers earn the minimum wage and a substantial fraction think that a majority of workers earn the minimum wage (Actual rate in 2007: 2.3% of hourly-paid workers and a smaller share of all workers earn the minimum wage, rates are probably somewhat higher today since the min. wage has risen and wages have not).
When asked about profits as a percentage of sales the median student guessed 30% (actual rate, closer to 4%).
When asked about the inflation rate over the last year (survey was in 2009) the median student guessed 11%. Actual rate: much closer to 0%. Note, how important such misconceptions could be to policy.
When asked by how much has income per person in the United States changed since 1950 (after adjusting for inflation) the median student said an increase of 25%. Actual rate an increase of about 248%, thus the median student was off by a factor of 10.
Alex Tabarrok, “Economic Misconceptions”, Marginal Revolution, 2010-10-11
October 13, 2010
QotD: Economic misconceptions
August 23, 2010
QotD: Peak Culture
The height of their society peaked in 1969. They used militarism and socialism to put two guys on the Moon, they trotted out their public-private partnership (Concorde) to build exclusive supersonic transport for the rich. Max Faget and some other brilliant engineers designed a space shuttle fleet of ten vehicles capable of hundreds of flights a year to make access to low Earth orbit cheap and routine. And the Advanced Research Projects Agency had some geeks create an inter-networking protocol that could survive a nuclear war.
Obviously, they shot their wad, as it were, and no longer put guys on the Moon. They no longer fly supersonic transports. Their space shuttle is going to stop flying soon, if it hasn’t already. Those geeky guys went on to develop open source cryptography, open source software, and totally private economic transactions. The future we’re creating is going to be very, dramatically different. It is going to be decentralised to a fare thee well.
Right now, today, two people anywhere in the world *can* have a totally private economic exchange that cannot be detected by anyone else. And since it cannot be detected, it cannot be regulated, it cannot be prohibited, and it cannot be taxed. Even inflation cannot tax it, if the exchange is denominated in some money like silver or gold. Which means that those who dream of ruling the world sowed the seeds of their own damnation?
Jim Davidson, “Peak Culture”, Libertarian Enterprise, 2010-08-22
June 8, 2010
Are we ready for “a serious debate about returning to the gold standard”?
The more I read of Maxime Bernier’s thoughts, the more I wonder how long it’ll be before he’s drummed out of Stephen Harper’s party: he’s far too sensible. Here, for example, he outlines what it is that central banks do to your money, and why it’s a bad deal for ordinary Canadians:
All this guessing about setting rates has nothing to do with capitalism and free markets; it has more to do with central planning and government control of the money supply. In a monetary free market, the interest rate would be determined by the demand for credit and the supply of savings, just like any other price in the economy.
Government control over money has serious consequences that few people seem to be aware of.
One of them is that central banks are continually increasing the quantity of money that is circulating in the economy. In Canada for example, if we use the strictest definition of money supply, it has increased by 6 to 14% annually during the past dozen years. The situation is about the same everywhere.
The effects of constantly creating new money out of thin air have been a debasement of our money and a dramatic increase in prices. The reason why overall prices go up is not because businesses are greedy, or because wages go up, or because the price of oil goes up. Ultimately, only the central bank is responsible for creating the conditions for prices to rise by printing more and more money.
With all this, it’s surprising that he has (so far) managed to stay in the Conservative party, which doesn’t appear to actually believe in anything much anymore . . . other than the need to stay in power.
Update, 9 June: His speech (from which the article linked above was drawn) gets positive reviews.
August 13, 2009
QotD: Interpreting the Fed’s message
After two days of satanic worship, no-safeword BDSM and blackface minstrel performances, the Federal Open Market Committee (FOMC) announced today that it will stay the course on currency manipulation. According to the post-meeting press release, the Federal Reserve will maintain its effective negative target range for the federal funds rate. With economic activity “leveling out,” “signs of stabilizing” in household spending, “tight credit,” continued business cutbacks and a “gradual resumption of sustainable economic growth in a context of price stability,” the Fed expects inflation to “remain subdued for some time.” But the Fed is also standing by its plan to discontinue purchases of Treasury debt this fall [. . .]
The plan to phase out Treasury purchases is a bet that inflation will be kicking in by the fall, as Americans gear up for the harvest festival that marks their winter solstice. Will Santa be bringing you a wallet full of degenerated dollars? Some early signs: The greenback spiked right after the FOMC’s announcement, but has been falling against the currencies of countries with adult supervision. Demand for the the 10-year Treasury note followed the same pattern — with the FOMC’s statement triggering a brief flurry after a disappointing auction of $23 billion in new government debt earlier in the day. Maybe the market took the boilerplate about “subdued inflation” seriously. Or maybe it’s easier to believe the economy will heat up when the Fed doesn’t say so.
Tim Cavanaugh, “Fed Thinks It Has Conjured Inflation”, Hit and Run, 2009-08-12
