Commentary

Things Are Better Than You Imagine

It’s never an easy job to tell the public that they are ignorant. But sometimes they are. Happily, ignorance is curable — and sometimes things are a lot better than you imagine.

A recent article by economist William Goffe of SUNY Oswego University demonstrated widespread ignorance about economic conditions in the United States, even among students who had taken a previous course in economics. Not only were the students wrong on the facts, though, but they were wrong in some very interesting directions.

Their responses showed at least two strong biases. First, their estimates about economic conditions were consistently more pessimistic than the real economic data. And second, they showed significant anti-market bias — a belief that the free market wasn’t delivering as well as it actually was, and that the government was doing a lot more than it actually was to secure ordinary Americans’ prosperity. The results should be a wake-up call for anyone, like me, who thinks that free markets are the key to prosperity, peace, and freedom in other areas of life. We need to get the message out — America is doing pretty well in a lot of ways, and the government doesn’t have nearly as much to do with it as you may imagine. Here are some examples from Goffe’s paper.

America is doing pretty well in a lot of ways, and the government doesn’t have nearly as much to do with it as you may imagine.”

Overwhelmingly, his students feared corporate windfalls that simply don’t exist. When asked what how much an average U.S. corporation’s profits were as a percentage of sales, the students gave wild overestimates — the median student guessed corporate profits were 30% of sales; the upper quartile said more than 60%. The reality? More like 4%.

Goffe’s students also thought inflation for the previous year (2008) had been about 11%. The Consumer Price Index, our best measure of inflation, rose by a mere .09% during that time, a small enough change that we could plausibly dismiss it as a measuring error.

Ordinary Americans make more money, too – the median student said that 35% of all workers earned the minimum wage. The real number is more like 1.7%.

And things are improving more than they imagine. When asked how much inflation-adjusted income had risen since 1950, the median student said 25%. Really, it’s more like 248%.

Finally, our economy is freer than most of them imagine – when asked, the median student believed that the government sets 40% of market prices. Numbers for this one are harder to come by, but I asked some economist friends of mine, and it’s certainly nowhere near that high. Governments do set prices on state-school tuitions, on Medicaid and Medicare-financed health spending, on cigarettes, and on a few others — but in all, prices are pretty free nowadays. Formerly, the federal and local governments had regulated airfare, trucking prices, and the prices of major consumer products like gasoline and apartment rents (there are still a few rent-controlled apartments, but good luck finding them!).

To sum up, these students would appear to believe that corporations are fleecing everyone else, and that they’d take even more if it weren’t for the federal government. They think that many of us owe a large chunk of our salaries to government intervention, and that without it we’d perhaps be earning pennies an hour. Incredibly, they think the only thing keeping prices in line is a number-crunching bureaucrat, without whom we would presumably starve. They think it’s useless to save, that there’s little hope for economic betterment in the future, and that the market is basically broken.

In other words, they’re budding socialists, because this precisely what socialism says about the free market. So it should be no wonder that when the government comes along and proposes new regulations for an industry — like healthcare — the voting public allows it. It should be no wonder that when a politician comes along and says the system is broken, so many of us believe.

The numbers, however, tell a different story. Our economy is freer, richer, and a much better deal for the American worker than people probably imagine. Corporations aren’t fleecing you every time you go to the store; on average, they’re lean, hard-working, and turn a lot of their productivity over to you, in the form of the lowest prices that they can charge. Your material circumstances are on average a lot better than those of your parents or grandparents. And the government has had very little to do with any of it, except insofar as it’s been staying out of the way.

Jason Kuznicki is a research fellow at the Cato Institute. He received his Ph.D. in history from Johns Hopkins University in 2005.