Economic education: Is the glass half full or half empty?

The National Assessment of Educational Progress released the results of its first-ever assessment of economics on Aug. 8. At first glance, the results seem positive, particularly when they are compared with the results of NAEP assessments in other subjects, but don’t get too excited too fast.

The economics results show that 79 percent of high school seniors performed at the basic level (a passing grade) or higher, and 42 percent performed at the proficient level or higher, including 3 percent at the advanced level. This performance stacks up well compared to the results in other subjects. For example, in the most recent NAEP assessments, only 47 percent of high school seniors passed the U.S. history test, 61 percent passed the mathematics test, and 73 percent passed the reading test.

These relatively positive results may be due to more students taking economics in high school. Although less than a third of the states require an economics course, two-thirds of high school graduates have taken one. Some 16 percent take economics at the Advanced Placement or International Baccalaureate level. The percentage of students taking economics at advanced levels is particularly high in comparison to other subjects.

The argument for economic education is that a more economically literate population will make choices and support public policy that best provides the goods and services that we need. It is not uncommon, however, for textbooks to portray such things as free market competition, private property and entrepreneurship in a suspicious light, while presenting government intervention and its economic aftermath with little or no critical scrutiny.

What do the NAEP test results reveal about market solutions versus government solutions to economic problems? The answer to this question depends on what was on the test and whether knowledge of economics translates into more pro-market policies.

NAEP did not release the entire test, but the sample questions shown below represent sound economic reasoning. The numbers represent the percentage of students who provided the correct answer on a multiple-choice question or wrote an answer to an essay question at the basic level.

  • 73 percent understood the benefit and opportunity cost of giving up a part-time job to go to college.

  • 60 percent knew the cause of a government budget deficit.

  • 51 percent knew that removing restrictions on trade decreases the price of imported goods.

  • 46 percent knew that a government-imposed price floor on chocolate causes a surplus of chocolate.

  • 40 percent understood that governments impose trade barriers even though they hurt the economy because the cost for any one consumer is small and the benefit to the affected industry is large.

  • 36 percent knew that businesses maximize profits where marginal revenue equals marginal cost and hire workers based on the marginal revenue and marginal cost of the worker.

  • 36 percent knew that the personal income tax is the largest source of revenue for the federal government. Thirty-one percent thought it is the sales tax.

  • Based on these results, students might oppose the minimum wage, support free trade and understand why legislators might pass trade restrictions. However, these results hardly support a finding of widespread economic literacy.

    The question of whether a greater knowledge of economics causes more pro-market policies is difficult to answer because there is little research on it. One of the more recent and extensive studies of economic education in high school and attitudes toward markets was conducted by William J. Boyes of Arizona State University and Amy M. Willis of the Arizona Council on Economic Education.

    This study tested 1,715 Arizona high school students on both economic knowledge and confidence in markets. Only 3 percent of the students agreed "completely" or "with slight reservations" that the price mechanism should be used to allocate resources in 10 hypothetical economic scenarios. However, economics education does improve this dismal situation. In nine of the 10 scenarios, students taking an economics course favored the price mechanism more than students who had not taken economics. Advanced Placement and International Baccalaureate students did even better, with 11 percent favoring the price mechanism in all 10 scenarios. The authors concluded, "Economic literacy and agreement with market allocation tend to be positively related, while literacy and agreement with government mandate tend to be negatively related. In general, then, literacy and acceptance of market allocation are related."

    The bottom line is that the NAEP economics results are better than many economics educators expected. Well-trained teachers increase economic knowledge and economic knowledge increases acceptance of the market. But until economic literacy is widespread, don’t hold your breath waiting for voters to defeat referendums that increase the minimum wage, build new sports stadiums or mandate health coverage.

    A writer and presenter of economic education, John Morton is senior program officer of the Arizona Council on Economic Education and formerly the vice president for program development at the National Council on Economic Education.