An Empirical Test for Economic Theories

Is economics a hard science, like physics? Or is it more like sociology and history? Many economists would like us to believe that the first is true, that economics is now firmly rooted in mathematics and empirical evidence.

In Seven Bad Ideas: How Mainstream Economists have Damaged America and theWorld, author Jeff Madrick asserts that the myth that economics is a science is one of the ideas that have inflicted damage on our country. In particular, he writes that for all the talk about being a science, many economists don’t care much about how their theories work in the real world. In Paul Krugman’s review of the book, he wrote, “Economists presented as reality an idealized vision of free markets, dressed up in fancy math that gave it a false appearance of rigor.”

It seems to me it’s time to do an empirical test of economic theories; an objective analysis of real-world results. For forty years from about 1930-1970, the policies of John Maynard Keynes were followed. Keynesianism included a strong role for government in regulating business and the markets.

In the 1970s a different economic model began to gain popularity, and in the U.S. the main proponent was Milton Friedman, so I’ll call this model Friedmanism. This model claimed that markets work best without government interference, because markets had an inherent tendency to always find perfect states of equilibrium. By 1980, with the ascendancy of Ronald Reagan and Margaret Thatcher, this new economic thinking began to dominate western economic thinking.

We now have forty years of Friedmanism to contrast with the forty years of Keynesianism. How do those two periods compare? Keynesianism produced strong economic growth and a relatively equal society with no major financial crashes. Friedmanism has led to poor economic growth, an increasingly unequal society, and regular and painful financial crashes. Interestingly, somehow these crashes are, in the end, only painful to the middle and lower classes; they are strangely rewarding to the 1%.

Literacy

Today during our daily rehearsal my husband and I did “Follow the Drinking Gourd,” a beautiful song from the era of slavery in this country. In the lyrics were embedded instructions to escape from the South, a way for illiterate slaves to remember the long detailed directions to find their way to Ohio. The “drinking gourd” was the big dipper, which points to the north.

A recent New Yorker article, “Turning the Page: How Women Became Readers,” by Joan Acocella (10/15/12) is a fascinating look at the history of literacy. (The article is a review of a new book, The Woman Reader, by Belinda Jack.) Nowadays we take it for granted that everyone should be able to read, but not long ago the wealthy and powerful realized that literacy was a source of power and attempted to prevent women and the poor from acquiring the skill.

Men feared that if women read books they would begin to think independently, because, as Acocella writes, “there would be no one there to guide their thinking” as they read. “Accordingly, they might cease displaying the attractions—sweetness, soft voices, compliance—that were the product of their dependence on male approval. Indeed, they might start talking back to men.” Also, women might start realizing there were other possibilities in life: novels portrayed romance and excitement. Women started dreaming of having better lives for themselves.

Female literacy has been a major contribution to both the precipitous drop in the birthrate across the globe in the last fifty years and the improvement in living conditions in many poor countries. The UN Economic and Social Council reported in April 2011:

Higher levels of education, particularly among girls, had a strong correlation to declining fertility and better development outcomes, delegates and experts said today as the Commission on Population and Development continued its forty-fourth session…

Another notable success story was that of Mauritius, whose representative recalled that experts had predicted in the 1960s that the Indian Ocean island nation would collapse under the weight of its large population and low levels of development.  Instead, Mauritius had reduced its fertility rate by implementing strong reproductive health education programs, she said, adding that national maternal and child mortality rates had dropped as living conditions had improved.  Mauritius now enjoyed a 95 per cent literacy rate among people aged 15-24 years, she said.

According to Ms. Acocella, as recently as the mid-1800s the number of people who were literate was still shockingly low even in advanced nations —in Europe the literacy rate was about fifty percent. But this was not shared evenly across countries; in Sweden the rate was 90 percent, England 65-75 percent, Spain 25 percent, and Russia 5-10 percent.

Compulsory education began in most industrialized countries in the 19^th century because the industrialists realized they needed an educated workforce. But at the same time they realized that education was dangerous—thinking laborers would not put up with sweatshops and unsafe working conditions.

Perhaps this explains the conservative attack on public education that has been happening in this country in the last few decades. By promoting vouchers, they can pull taxpayer money away from the public system and put it into the private schools where they send their children. Educate the poor just enough to make them employable, but not enough so they can question anything.

Recently I saw Werner Herzog’s latest film, Into the Abyss, which delves into the lives of people connected with the senseless murder of three people: the two killers, their friends, and family members of the victims. One of the killers’ acquaintances, perhaps thirty years old, admitted that he couldn’t read until, as an adult, he went to prison for the first time. He wasn’t happy about having been in prison, but was very grateful for the gift of literacy. Life as an illiterate was hard, he said.

This film was set in a small Texas town, so I looked online for some statistics on literacy in Texas. I found “Literacy Texas,” a group working to improve literacy in Texas, which has this information on their website:

Adult low literacy can be connected to almost every socio-economic issue in the United States:

·    More than 60 percent of all state and federal corrections inmates can barely read and write.

·    Low health literacy costs between $106 billion and $238 billion each year in the U.S. — 7 to 17 percent of all annual personal health care spending.

·    Low literacy’s effects cost the U.S. $225 billion or more each year in non-productivity in the workforce, crime, and loss of tax revenue due to unemployment. (ProLiteracy)

·    85% of all juveniles who interface with the juvenile court system are functionally illiterate. (National Assessment of Adult Literacy, 2003)

·    Correctional populations report lower educational attainment than do those in the general population.  An estimated 40% of State prison inmates, 27% of Federal inmates, 47% of inmates in local jails and 31% of those serving probation sentences had not completed high school or its equivalent while about 18% of the general population failed to attain high school graduation.  (Bureau of Justice Statistics Special Report 4/15/03 - Education and Corrections Populations - full report attached.)

·    50% of the chronically unemployed are not functionally literate.
(U.S. Dept. of Education, Office of Vocational and Adult Education, Presentation: Dr. Susan Sclafani, April 2005)

The National Assessment of Adult Literacy, a major research program completed in 2003, found that 14% of adults in this country performed at “below basic,” which meant they had no more than the most simple and concrete literacy skills. They found that 11 million adults were “Nonliterate in English.” These could be divided into two groups: 7 million who could not answer simple test questions and 4 million who could not take the test because of language barriers.

I am a great fan of public education. I think it is a fundamental component of a democracy: there’s a leveling effect when children are given the same basic education, and a positive effect when children from different backgrounds are mixed in a classroom.

Human beings are our greatest national resource, and yet we callously throw away countless lives, condemning those people to poverty and ignorance, unaware of the cost to our nation and our selves.