Most of us have long lamented the general public's lack of understanding of economics. A new paper by David Leiser and Zeev Kril sheds interesting light upon this.
The human mind, they say, "is not particularly equipped to think about economics":
People are remarkably poor at combining causal links into a system [and] are ill-equipped to cope with the aggregate effects of the individual decisions of many people...Thinking in terms of how an interlocking system of causal links produces an emergent outcome does not come naturally to laypeople.
This helps explain the bias against markets of which John Rentoul and Bryan Caplan have complained: because people underestimate the tendency of emergent processes to produce benign outcomes, demands for price and rent controls are stronger than most economists think they should be.
Faced with this complexity, say Leiser and Krill, people resort to metaphors - the most notorious being that governments should manage the public finances as if it were a household. Worse still, they are often overconfident about the applicability of these metaphors. Both of these habits were encapsulated by the silly BBC Question Time audience member who was so ably corrected by Yanis Varoufakis.
There is, though, another heuristic laypeople use, which Leiser calls the "good begets good heuristic" (pdf). He shows that people believe that good things cause good things to happen, and bad things to cause bad things. For example, they think a rise in unemployment is associated (pdf) with a rise in inflation because both are bad - in contradiction of the standard economists' belief in a short-term Phillips curve.
Such a belief, whilst irrational, is not always wrong*: the standard Phillips curve doesn't jump out of the UK data, in part because supply shocks are common. What might be more problematic is that people think government spending is bad, and so associate it with rising unemployment.
I've got three observations here. First, the poor public understanding of economics is NOT a partisan matter. It leads both to anti-market attitudes and to anti-Keynesian ones.
Second, the issue here is not confined to the UK: the bad habits described by Leiser can be found among Israelis, Americans and Australians (and I suspect Europeans too) as well as Brits.
Thirdly, our political and social institutions do not adequately correct these problems, and might exacerbate them. Politicians and the media tend to pander to misconceptions rather than correct them: Mr Varoufakis's reply to that audience member was welcome because it was so rare. There seems little effort to educate the public in economics: the BBC, perhaps because of its commitment to due impartiality, has failed. And I'm not sure academia can or will do the job. It's not just economists who should lament this, but everyone who cares about the quality of our democracy.
* The distinction matters; rationality is about how beliefs are formed, rightness about their congruence to reality. You can be rational but wrong or irrational but right.