Since 2008, Nobel Prize-winning economist and Princeton University professor Paul Krugman has been a loud and consistent voice calling for more government stimulus to help the American economy recover from the Great Recession, induced to a large extent by the financial implosion on Wall Street.
WLRN-Miami Herald News spoke with him on the sidelines of an economics conference at Florida Atlantic University's Davie campus last week about two things: the evolution of economics education and (instead of financial literacy) the impact of economics illiteracy on American politics.
WLRN: In the mainstream and financial press, reporting on economics and finance can cause confusion. In other words, the vocabulary is used interchangeably, so when people talk about the economy they are often referring to what's happening in the financial sector, which is only a piece of the pie.
Krugman: The fortunes of Wall Street and the fortunes of the economy for working Americans don't necessarily move together. We've had a full recovery of stocks but nothing like a full recovery of the job market. People used to say the stock market is the best indicator of the health of the economy. It's not. The stock market is (shall we say) interesting. And somewhat important. The bond market is more important. But ultimately the economy is about producing stuff and providing jobs.
WLRN: Do we have an economics illiteracy problem in this country?
Krugman: Much of the reporting is finance because that's where the money is, not in terms of people's livelihoods, but if you like selling advertising. We have cable networks devoted entirely to financial issues. We don't have a cable news network devoted to the economy because, given a choice between a financial news network and an economic news network, and if you're somebody selling stocks, brokerage accounts or gold, which network are you going to advertise on? So there's a bias in the way stuff is reported, and that does distort public understanding.
WLRN: So how does this distortion you refer to impact politics and the choices we make at the ballot box?
Krugman: People don't know much about what's going on in the economy. According to political scientists, their view is that what most people know about the economy is whether it's been getting better or worse in the last year or so. We do not get good enough reporting on, let's say, the economic policies being proposed by rival candidates, so that most voters can actually make it out. So most voters kick the incumbent out if the economy has been doing badly in the last year and reelect the incumbent if the economy has been doing better in the last year. That's not a very good basis. It means there's not much penalty for spouting absurd economic doctrines and not much reward for talking good economic sense.
WLRN: Are you referring to the old adage that people vote their pocketbook?
Krugman: No, because most people by and large don't have the information to vote their pocketbook. How can people vote their pocketbook if they don't know how policies (like Obamacare before it was rolled out on Oct. 1) are going to affect them.
WLRN: What is the result of a population that is economically illiterate?
Krugman: I think it used to be less of a problem because we had an "establishment." (Historically) there was kind of a core group of people of fairly good sense and a consensus about the range of sensible discussion so we didn't do really stupid things, at least on economics, because important people, even if they didn't understand economics themselves, talked to other people who would tell them 'you really don't want to do this thing.' The trouble is now, of course, we don't have that. So everything's out there... and by and large you can have politicians saying all kinds of things, and depending on what your news source is, you may have no idea of just how out of touch what the politician is saying really is.
WLRN: What's the challenge for economic educators?
Krugman: Lots of students do take economics. I don't think you can trust cable news or even public radio necessarily to do the job of economic education, but maybe slowly over time you can get it across in all of those courses where we are teaching economics to millions of students. I think the economics that's taught around America is pretty good. I think the principles of economics books that are in use, having written one myself, are pretty good. The trouble is: how do you teach that in a way that students understand that it relates to real life, that it's going to matter to them as citizens in their own personal decisions? So it's about getting the relevance across more than teaching the right stuff.
WLRN: Lastly, so if nobody is challenging the assumptions of economic decision-making, how does political and even financial reform happen?
Krugman: If policy in the United States these past five years had been based upon what's covered in Econ 101 textbooks, it would have been vastly better than what we've actually had. We've actually had policy that has flown completely in the face of what anybody who had taken Introductory Economics should have known we should be doing. You do not slash spending in the face of a depressed economy. That's a very basic proposition that's pretty much there in all the textbooks. But you had all these public figures saying what we need to do now is that since households are having to tighten their belts, the government should tighten its belt too. So the problem is not that the assumptions in what we teach in our economics courses are wrong. The problem is the body politic doesn't know any of that. In other words, I don't think we have the wrong stuff in our textbooks. I think the problem is that we're not getting what's right in our textbooks across.