Friday, March 04, 2005

Economics 101


Deficit as % of GNP
From AP:
WASHINGTON -More states are requiring students to learn about managing money, but personal finance remains a fringe topic in schools and a major source of federal concern. In a national survey last year, only 52 percent of high school seniors answered correctly questions about personal finance and economics. The students struggled, for example, with questions on income tax, stocks and bonds, credit card liability and retirement plans.
It's a good thing that the National Council on Economic Education recognizes there's a problem, but the bad news is that it's this generation that's going to have to come to grips with the entitlement programs and account deficits that are a drag on the economy.

And nobody seems to be teaching the benefits of free trade, dynamic labor markets, de-regulation, savings and capital, low taxation, time value of money, and compounding at the high school level where basic macro & micro-economic principles can prepare students to be informed citizens and financially independent. If they did, perhaps this guy wouldn't be so popular at his college.

But the least prepared people to address economic issues seem to be in the news media. Outside of the business-related shows like Kudlow's, the White House beat reporters are terrible at reporting economic news.

The federal budget deficit should never be reported as simply a number, but always as a percent of GDP. And this percentage has to be viewed in light of the prevailing interest rates and corresponding debt service. But reporters love to breathlessly announce a really big number, "the biggest deficit ever!."

And Social Security: one's "benefits" are simply IOUs on a future generation's ability to pay. There ain't no account with money in it, compounding away with your name on it.

And the mysterious descriptor "lower than expected." Pre-election, every economic statistic was lower than expected. After the election, those doing the expecting seem to have vanished.

And the constant reporting of the change in the consumer confidence survey numbers serves no purpose other than to confuse the public and distract from the fundamentals: "consumer confidence drops unexpectedly!" Oh my. Better sell.

Economics, finance, and investing should be required in the high school curriculum. Then kids could understand and appreciate good news like this.