Ruminations, November 27, 2011
What’s your knowledge of basic economics?
Here is a basic economics quiz developed by George Mason University economist Daniel Klein and an associate Zeljka Buturovic. To test yourself, get a piece of paper and a pencil. Your choices of answers are: 1) strongly agree; 2) somewhat agree; 3) somewhat disagree; 4) strongly disagree; 5) are not sure. (The answers follow but don’t cheat).
- Mandatory licensing of professional services increases the prices of those services
- Overall, the standard of living is higher today than it was 30 years ago
- Rent control leads to housing shortages.
- A company with the largest market share is a monopoly.
- Third World workers working for American companies overseas are being exploited
- Free trade leads to unemployment.
- Minimum wage laws raise unemployment.
- Restrictions on housing development make housing less affordable.
- A dollar means more to a poor person than it does to a rich person.
- Making abortion illegal would increase the number of black-market abortions.
- Legalizing drugs would give more wealth and power to street gangs and organized crime.
- Drug prohibition fails to reduce people’s access to drugs.
- Gun-control laws fail to reduce people’s access to guns.
- By participating in the marketplace in the United States, immigrants reduce the economic well-being of American citizens.
- When a country goes to war, its citizens experience an improvement in economic well-being.
- When two people complete a voluntary transaction, they both necessarily come away better off.
- When two people complete a voluntary transaction, it is necessarily the case that everyone else is unaffected by their transaction.
- Would you describe your politics as basically conservative or liberal?
Your answer to #18 is a predictor to as to which answers you probably got right and wrong. If you are conservative, you are more likely to get most of the answers 1-8 right and most of the answers to 9-17 wrong. If you are liberal, you are more likely to get most of the answers 1-8 wrong and most of the answers to 9-17 right.
The problem is not a lack of education or knowledge; it’s that we often tend to shape our vision of reality to fit our perceptions of what should be. Thus, for example, if we feel that there should be restrictions on housing development, we often refuse to acknowledge that the restrictions would raise the prices of housing. Similarly, if we believe that abortion is immoral then we do not wish to acknowledge that making it illegal would increase black-market abortions.
In a similar informal poll, Alex Klein of New York magazine last month went to Zuccotti Park in New York and asked some questions of the Occupy Wall Street (OWS) crowd. (Remember, these are the folks who are so incensed at the wrongs of the world economic system that they are mounting protests.) Here are his results with the correct answer in parentheses:
- What is the Dodd-Frank Act? (A financial regulation act) 84 percent didn’t know this.
- Does President Obama control the Federal Reserve? (No) 26 percent didn’t know this
- Who is the chairman of the Federal Reserve? (Ben Bernanke) 62 percent couldn’t identify him.
- Is the U.S. economy currently experiencing inflation or deflation? (Inflation) 24 percent didn’t know the correct answer.
- Who is Elizabeth Warren? (Professor, Massachusetts senatorial candidate or financial reformer) 76 percent didn’t know
- What is the “S.E.C.”? (Securities and Exchange Commission) 72 percent didn’t know
- What is the top marginal income tax rate for the richest 1 percent? (35 percent) 90 percent didn’t know within a range of 25 percentage points.
- What does the government spend more on: Health care and pensions, education, or the military? (Health care and pensions accounted for 47 percent of Federal government outlays in the 2013 budget. Education accounted for 3 percent and the military 23 percent) 96 percent got this wrong
It would seem that what the OWS lacks in basic knowledge, they more than make up for in enthusiasm. Maybe we all would do better to acknowledge the yin and yang of our political/economic positions.
One of the indicators of economic activity (or the lack thereof) is empty boxcars. People who live near a railroad siding with a large capacity often notice, just prior to the onset of a national economic downturn, a dramatic increase in the number of empty boxcars on the siding. Similarly, just prior to the economy picking up, the number of empty boxcars decreases.
As a harbinger of more bad economic news, this week Maersk Line, operator of the largest (by volume) container shipping line, and its rival, Orient Overseas Container Line, announced that they were cutting shipping capacity between Asia and Europe for 2012. Due to the overcapacity of container shipping, freight rates on the route have fallen 35 percent in the past year.
While empty boxcars represent domestic economic outlook, container shipping accounts for 80 percent of international shipping. It doesn’t look like 2012 will be the year of recovery.
Quote without comment
Tung Chee Chen, chairman of Orient Overseas Container Line, commenting on the container shipping business at last week’s maritime conference in Hong Kong: “The outlook will eventually depend on Europe’s situation, and whether the debt crisis can be resolved. But in light of today’s situation, next year will not be promising.”