Alan B. Krueger

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What Does it Matter if the Public is Poorly
Informed about Economics?
Alan B. Krueger Princeton University
June 28, 2007
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Motivation

• Public opinion has a powerful affect on
  politicians in a democracy.
• Blinder and Krueger (2004) study what determines
  public opinion on economic policy. Self-interest?
  Knowledge? Ideology? Surveyed 1,002 Americans in
  Spring 2003.
• Economic models normally assume that people are
  well informed. But Blendon et al. (1997) and
  Blinder and Krueger (2004) find that many
  Americans are poorly informed about economic
  matters.
• Related questions How do ordinary people get
  their information about the economy? What
  information sources lead to more accurate
  understanding?

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Knowledge Questions 1. The share of income
that a typical American family pays in taxes 2.
Whether most people pay more in payroll or income
taxes 3. The size of this years federal budget
deficit (in billions) ?Asked of half the sample
informed the other half 4. The level of the
federal minimum wage 5. The size of the average
Social Security benefit check 6. Whether Medicare
covers prescription drugs for outpatients 7. The
percentage of Americans who do not have health
insurance
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Economic Knowledge Actual vs. Survey Estimates
Nonresponse rate was 48 percent for deficit
question.
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Distribution of General Knowledge Scores
Mean 43.3 Std. Dev. 16.7
Scoring of Exam Score answers to each question
in terms of percentile rank, and then average
scores. Give 0 credit if no answer.
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(No Transcript)
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Split Ballot Experiment on Deficit This years
federal budget deficit is approximately 300
billion. This works out to around 3,000 per
household. Note The median estimate for those
who were asked to estimate the size of the
deficit was only 90 billion. So the 300 billion
frames the issue for most respondents.
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In 2001, Congress passed a series of income tax
cuts that were scheduled to take effect over a
period of ten years. President Bush has now
proposed that these tax cuts should become
effective immediately. Do you favor or oppose
that idea, or do you have no opinion?

Favor 43 Oppose ... 26 No Opinion
. 31
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• Example of Analysis Estimated Ordered Probits
• Outcome variable 1 if oppose 2003 Bush tax bill,
• 2 if no opinion, and 3 if favor it.
• Explanatory variables self-interest (income)
• ideology/politics (liberal, moderate,
  conservative favor tax progressivity) general
  knowledge score and specific knowledge about
  taxes beliefs (e.g., taxes too high) and
  demographics.
• -Main results
• Self interest has little effect.
• General knowledge More knowledgeable ? less
  supportive.
• Ideology (general and specific to taxes)
  mattered tremendously.

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Determinants of Policy Positions Summary
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Case Study of Misinformation Hungarian Govt
Deficit

• PM Ferenc Gyurcsany, tape released Sept. 17, 2006
• "There is not much choice. There is not,
  because we screwed up. Not a little, a lot. No
  European country has done something as boneheaded
  as we have.
• "Evidently, we lied throughout the last
  year-and-a-half, two years... You cannot quote
  any significant government measure we can be
  proud of, other than at the end we managed to
  bring the government back from the brink."
• "We lied in the morning, we lied in the
  evening."

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What was the reaction?
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Ratio of Hungarian Forints to Avg. of Czech,
Polish, and Slovak Currencies, March 2006-March
2007
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Conclusions

• Americans express strong desire to be
  well-informed.
• People (e.g., Hungarians) dont like to be
  misinformed.
• Knowledge is imperfect, but not terrible on
  average.
• Public opinion on economic policy depends
  strongly on ideology, less so (but not
  insignificantly) on knowledge and beliefs
• Knowledge matters more and is better for issues
  that people can relate to (minimum wage vs.
  deficit)
• People want to solve problems if they perceive
  them to be bigger (e.g., uninsured and universal
  health insurance).
• Providing information can have counterintuitive
  effects on policy positions (e.g., deficit) and
  can be polarizing.
• Objective self-interest matters less than one
  might think. Why? (a) confusion People dont
  understand their self-interest. (b) generosity
  People care more about the commonweal (but differ
  in how to advance it).