Part 2 of 2: How Do The Public Understand Economics – And Why It Matters

This is the second of a two-part post looking at a paper, ‘How laypeople understand economics‘ by Professor David Leiser of Ben Gurion University and Zeev Krill. The first part looks at why it’s worth studying how the public understand economics, and this part looks at a few things we know about how they do.

Leiser and Krill show that a good deal of public understanding of economics is based on cognitive shortcuts.

Good begets Good

In a 2014 study, Dräger, Lamla, and Pfajfar used data collected over years by the University of Michigan Survey of Consumers, which asks thousands of people each month about what they expect to happen in the economy.

In defiance of the Phillips curve – the conventional wisdom that unemployment is inversely related to inflation – two thirds of the respondents expected inflation and unemployment to increase together.

This was consistent with a pattern which emerged through the results of other surveys too: people tend to divide economic news into good and bad, and assume that good news causes more good news, and bad news causes more bad.

As explained in the previous post, most people see inflation as bad, because it means their money is worth less. Unemployment is also seen as bad, and so the two are judged to be likely to come at the same time. The authors comment that this system won’t necessarily get you the right result, but it does enable you to answer just about any macroeconomics question.

Metaphor

Much public understanding of economics is based on metaphor. The metaphors we use, of course, determine how we see the problem and the solution. A financial crisis can be seen as a ‘burden, a crime, other people’s suffering, an injustice, an opportunity and a looming threat, an illusion and the doings of fate’. The foreign exchange market can be characterised as ‘a bazaar, as a machine, as gambling, as sports, as war, as a living being and as an ocean.’

And this determines what policy is seen as appropriate.

For example, take manipulation of the foreign exchange market. Should policy try to make the FOREX market fair? If you see it as like sports, you’re likely to say yes. If you see it as like war you’re more likely to say ‘good luck with that’.

Intentionality

But the main way people understand the economy is not as a complex interlocking system of cause and effect, but as the result of the deliberate acts of individuals. The authors call this ‘intentionality.’

They describe a study of public perceptions of the causes of the financial crisis in the USA, Germany, France, Russia, Israel and Sub-Saharan Africa. Across different countries, respondents tended ‘to attribute the responsibility for the crisis to moral, cognitive, and character failures of individuals, rather than to systemic features of the economy’.

People are more likely to see the crisis in terms of moral failures, stupidity, deliberate negligence, lax regulation and supervision than the failure of a system.

And this is surely an important lesson for anyone arguing to change that system: most people, in most places, don’t think there is a system. That is not to say that it can’t be explained. Only that it needs to be.

I’m pleased to see the public understanding of economics beginning to get some scholarly attention, and I’m sure there will be plenty more useful insights from this area in future.

Vintage Woodcut Sliced Orange

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