In previous posts, I described how I constructed a measure of "economic thinking" and a measure of political ignorance. I also discussed some of the general contours of the debate about whether ignorance matters in the real world.
We'll now turn to the determinants of economic thinking.
The seminal work in this area has been done by Bryan Caplan. He finds that, in a survey of Americans and economists on questions of positive economics, the public is severely biased. Compared to economists, the public is very scared of foreigners, favor make-work schemes, pessimistic, and skeptical about business and markets. He finds that people with more education, higher income growth (not just higher income), and men think more like economists than do others, all else equal. There were of course other factors that reduced the extent of disagreement, but those were the big ones.
I checked correlates of my measure of "economic thinking" in the New Zealand Election Study. The results are in Table 3 of the full paper, available at SSRN.
You'll probably need to click the link to see the table properly.
The biggest absolute effect comes from having a very high income: being in the top income bracket increases your "economic thinking" score by 0.39 standard deviations. Second, Maori ethnicity reduces the score by 0.31 standard deviations. Next, having a university degree increases the score by 0.29 standard deviations. Being male increases the score by 0.25 standard deviations. Identifying with a left-wing ideology reduces the score by 0.2 standard deviations. Anything that has an effect close in absolute magnitude to having a university degree I count as being pretty important.
So, what about political ignorance? Well, a standard deviation decrease in political ignorance increases your economic thinking score by 0.23 standard deviations. Is this a big effect? If I re-run the specification so we can compare folks with a university degree to those with less than a high school degree, I find that the difference is 0.33 standard deviations: moving from the lowest possible education to the highest increases your economic thinking by a third of a standard deviation. How about moving from the highest amount of ignorance to the lowest? The difference between the highest and the lowest ignorance score is 4.9 units, so moving from the highest to the lowest level of ignorance increases economic thinking by more than a full standard deviation. That's a bigger effect than anything else in my specification. As a robustness check, I split the ignorance variable into the lowest, middle, and highest levels of ignorance (with anything more than 2 standard deviations above mean counting as highest and anything more than 1 standard deviations below mean counting as lowest). Compared to those with the highest levels of ignorance, those with the lowest are 0.46 standard deviations higher in economic thinking, an effect which still greatly dominates the effect of moving from the lowest level of education to the highest. I think this suggests that political ignorance is of substantial real-world importance.
Other fun facts on economic thinking. Caplan finds that expected income growth correlates with economic thinking. I similarly find that those with a better household financial situation as compared to the prior year also think more like economists (0.1 standard deviations), but those who expect the economy to do worse in the next year also think more like economists. As Caplan's study relied on data from 1996 and mine from 2005, perhaps those who think more like economists are better able to forecast economic trends. This is something I plan on testing in later work look back through prior iterations of the NZES.
Next time: ignorance, economic thinking, and policy preferences. Sneak peak: the politically ignorant really really like the death penalty.