"Economic ignorance is the breeding ground of totalitarianism."
-John Jewkes, British Economist

Students are not studying facts or learning economics; instead they are digesting the political opinions of authors with hidden and not-so-hidden agendas. . . . Michigan's students need to be told the unvarnished truth. Anything else is a disservice and a travesty.

As we embark upon the twenty-first century, it is natural for us to gaze at our children and wonder what kind of future they will build.

A global techno/economic revolution of unprecedented proportions swirls about their heads, weaving the world into ever-more-complex configurations. Will they be able to sort the wheat from the chaff? Will they be able to find their way through the jungle of possibilities? Will they uncover the vast realms of hope and opportunity that will become available?

Or will they be swamped by the sheer multiplicity of details, miss the best opportunities, and lose their way—and their hope—for want of a clearly marked roadmap?

Unfortunately for Michigan teenagers, the latter outcome is a distinct possibility if they rely on what they learn in their economics textbooks.

As this report reveals, it is highly doubtful that most of Michigan's high-school students are obtaining a basic understanding of the principles of economics from the textbooks they use in class.

Indeed, despite a surging U.S. economy, economic turmoil in Southeast Asia, dynamic new technologies, an overhaul of U.S. farm and welfare policies, wild swings in exchange rates, changes in monetary policy, roller-coaster stock markets, capitalism in Russia,vast loan restructuring and bailouts, and the potential for an international financial crisis at any moment - many Michigan students are being taught no economics at all.Those who are required to take classes in economics learn—with few exceptions—from textbooks whose authors show a serious lack of understanding of the economic lessons of this century.

Yet, such an understanding is more vital today than ever before in our history. As George Reisman, professor of economics at Pepperdine University has written, without basic knowledge of the economy, our young people are like "a crowd wandering among banks of computers or other highly complex machinery, with no understanding of the functioning or maintenance or safety requirements of the equipment, and randomly pushing buttons and pulling levers. This is no exaggeration."

Dr. Reisman continues: "In the absence of a knowledge of economics, our civilization is perfectly capable of destroying itself, and, in the view of some observers, is actually in the process of doing so."

Given such warnings, it is understandable that concern over what Americans know about economics is becoming widespread. As Arthur Levitt, former chairman of the New York Stock Exchange once wrote, "the American economy is the eighth wonder of the world; the ninth is the economic ignorance of the American people." And a late 1980's survey of high school students revealed that

  • only 30 percent know that low income results from the lack of marketable skills;
     

  • 48 percent think that high wages are a result of minimum wage laws, government actions or socially responsible business leaders;
     

  • only 34 percent can identify profits as revenues minus costs; and
     

  • 45 percent realize that government deficits result when spending exceeds

    revenues.
     
    (Source: Calvin K. Kazanjian Economics Foundation, Inc., www.kazanjian.org.)

In this study we have systematically examined sixteen economics texts used in Michigan high schools. We have graded them on the basis of twelve criteria that form the basis for the sound study of economics: 1) the price system and production; 2) competition and monopoly; 3) comparative economic systems; 4) the distribution of income and poverty; 5)the role of government; 6) the role of the entrepreneur; 7) public choice theory; 8)taxation; 9) the business cycle; 10) wages and unions; 11) trade and tariffs; and 12)money and banking. All good economics texts need to give students a basic understanding of these issues.

As we read these texts, we discovered that while some used strong evidence from recent research and instilled "an economic way of thinking" about problems, most of the texts were partly and sometimes almost completely deficient. We often found a dismal level of understanding or outright bias on the part of the text authors.

In fact, opinion is often expressed as fact. Michigan students read, for example, that competition is dangerous and causes many economic problems, that Americans are undertaxed,that government spending creates new wealth, and that politicians are better long-term planners than private entrepreneurs. Some authors are consistently critical of free enterprise and private property, yet present government intervention with little or no scrutiny. "As societies become more complex," one text assures us, "the need for government power tends to increase." Another author tells students:"Despite fears by some Americans that governmental tampering with the free-enterprise system would be harmful, most governmental policies have met with success." Yet a third text warns students that under a balanced budget, the government would "not be able to do things that many people think it should do, like building roads and providing for the needy. . . . The poor have been hurt by spending cuts." In other words, in these and many other cases, students are not studying facts or learning economics; instead they are digesting the political opinions of authors with hidden and not-so-hidden agendas.

We are not so naïve as to assume that political or ideological agendas finding their way into school textbooks is anything new. The problem is that we are living at a time when economic issues—from Social Security to the national debt—are more important than ever in shaping our nation's future. We can no longer afford to send out to the world armies of students inculcated in politically biased economics teaching. Michigan's students need to be told the unvarnished truth. Anything else is a disservice and a travesty.

Sound economics, stripped of ideological bias, teaches us that everything of value has a cost that somebody must pay. It informs us that a higher standard of living, if it is not to come at someone's expense, can only come about through greater production. It tells us that nations become wealthy not by printing money or spending it, but through capital accumulation and the creation of goods and services.

Sound economics reminds us to think of the long-term effects of what we do, not just the short-term or the flash-in-the pan effects. It tells us a great deal about the critical role of incentives in shaping human behavior. In short, sound economics is a blueprint for a sound economy, which is indispensable to satisfying human wants and needs.

We have written lengthy evaluations of each of the sixteen texts and analyzed how well each met our twelve criteria of sound economics. As a shorthand device, we have summarized each evaluation with a grade for the text. The results: On the positive side, three texts received A's and three others earned B's. However, three received C's, there were five textbooks only worth a D, and we handed out two F's.

In this brief report, we have included only a short summary of each text that explains something about its contents and why it received its grade. The unabridged report, which includes the detailed reviews of the texts, is available from the Mackinac Center for Public Policy Website at www.mackinac.org, or by calling (989) 631-0900.

One piece of good news is that the newer texts tend to be better than the older ones. Written by younger authors, the newer texts are less wedded to Keynesian ideas that have been discredited in the last thirty years. John Maynard Keynes was a British economist of the 1930s who argued that massive government spending could promote a prosperous economy.These younger textbook authors, many of whom have seen and studied failed government policy, seem to be more open to market-based solutions to public problems.

Another piece of good news is that most texts scored well in describing trade, the failure of communism, and the impact of entrepreneurs. In describing the economics of trade, for example, most texts noted that free trade is the natural state of human action; tariffs result when special interests lobby for favors. And when tariffs pass, retaliatory tariffs often follow.

On the negative side, most of these texts are deficient in three important areas: competition and monopoly, the economics of taxation, and the lessons of the Great Depression.

For example, most texts argue that antitrust laws improve competition. But they fail to expose students to the view—increasingly prevalent among economists—that monopolies are usually the result of government protective action that makes it difficult for competitors to enter the market. The historical evidence suggests that in truly free markets, monopolies are difficult to start, harder to maintain, and tend to wither away over time.

Second, most texts fail to see the economic response to taxation as a dynamic process. Raising tax rates does not necessarily increase revenue for the government. Lowering tax rates does not necessarily reduce revenue to the government and it often stimulates investment—which increases wealth and taxable income. The tax cuts under Democratic and Republican administrations of the 1920s, 1960s, and 1980s all had the effect of stimulating private investment and sharply raising revenue for the government.

Third, the best historical and economic evidence indicates that government interference helped trigger the Great Depression—and further government intervention tended to perpetuate it. Recent scholarship, for example, suggests that the New Deal programs did not promote economic growth. They merely transferred money from taxpayers to special interests (e.g. farmers, silver miners, and veterans).

How do ideas contrary to an economic way of thinking find their way into textbooks? As we mentioned earlier, many of the older authors learned their economics from the Keynesians of the 1930s. The idea that government could fine tune and direct economic activity was widely believed during the Great Depression. But younger economists, authors of the newer texts, have sifted through the evidence and come up with different conclusions.

Second, the influence of publishers sometimes leads to the production of flawed texts for the classroom. Publishers believe that arguments for government intervention sell textbooks. We asked all of the authors of texts used in this study to respond to our reviews. More than half of them responded and several of them suggested that their publishers pointed them in a statist direction. For example, one author, whose text received a low grade, responded:

"I agree with your review of my economics textbook. In fact, I have in the past made suggestions to the publisher for changes along the lines of that in your review. The problem is that I'm not in control of what is going into the text. The publisher dictates the final result of what will be in the text. The publisher has full and complete veto power over the contents of our text. And the publisher wants a more liberal view presented in the text, and so that is what is in there. They especially want government intervention treated with favor in several chapters of the text."

Why wouldn't publishers prefer to see the strongest economic ideas presented? Why would they want to bias the results toward a certain point of view? This author clarified that issue when he said the following:

"The publishers looked at the problem as one of satisfying constituencies, not necessarily teaching sound economics. When I made the case for a free-market approach, they were sometimes bemused. They would say that if I appreciated free markets then I should appreciate their need to reach school markets and that I should want to write a text that would appeal to many teachers even if it did not say what I thought a text should say.

"One remarkable example of our discussion occurred when I suggested that my text ought to include a segment on school choice—the idea that parents should be allowed to use tax credits (or vouchers) to send their child to the school of their choice. The publisher responded as though I had advocated including Satanism in the text. `Do you know what the teacher unions would do if we put that school choice stuff in there? They would boycott this text and we would never go into another edition.' I was told to absolutely avoid anything such as school choice that would upset the teacher unions.

Another textbook author confirmed the notion that at least some publishers strongly shape the contents of the text to appeal to teacher unions. "The road to the free market sometimes requires little steps," he said, "particularly when your audience consists of teachers paid by the state." "I'll use your review for the next edition," he said, "but I'll never be able to sell a text" that presents too much evidence for free enterprise.

Many of these problems will take a long time to resolve. Our concern here is to increase the level of economic understanding in Michigan high schools. We want students to be taught sound economics and the economic way of thinking.

We recommend that

  • Schools that do not now offer economics to their students do so;
     

  • Schools use one of the highly graded texts noted in this report;
     

  • School boards in districts where economics is offered check to see what economics text they are using;
     

  • Schools using a text that received a poor grade switch to a better learning tool. There are several good texts on the market and we recommend that Michigan high schools adopt one of the highly graded texts.