I have recently found many reasons to contemplate the lack of education that we, as a country, provide relating to all matters financial. In reading Animal Spirits I was struck by how difficult it was to understand the economic principles referenced and discussed. It was clear that they expected their readers to have an understanding of fundamental principles of economic theory. While this may not be an unreasonable expectation, it would seem to preclude a significant portion of the population.
I am one of those readers, apparently without foundational knowledge of how economic theory works, but how did I end up this way? I was raised in a wealthy suburb, outside of Chicago, and attended one of the better public schools in the country (as they were keen to remind us). I then went to a highly regarded liberal arts school, and mingled with similarly well to do peers. Raised with the ethos that money does not buy happiness, I was content to enjoy the freedom that money afforded me to pursue my interests, whatever they may have been. I now realize that to pursue my goals, I will need to create my own financial education.
I would wager that this will not be a problem for me, I am intellectually curious, motivated and have the benefit of being born to prosperous parents. But I find myself wondering how can we expect the economy, and therefore the human enterprises and relationships that define it, to succeed when so many of its members likely have less access to even the resources I had.
Akerloff and Shiller suggest that people’s psychology is inadequately accounted for in economic models that assume the rationality of markets and human behavior. As much as the emotional reactions of individuals may drive economic decisions and have implications for the system as a whole, it seems that widespread financial ignorance would prevent the system from maximizing its potential. In a world where those with knowledge benefit from the folly of those without, this continued ignorance may be beneficial, but if our goals were rather to synthesize the contributions of the many into a more potent and higher functioning system, it may be time to reconsider what we value in education.
When considering systems, be they natural or financial, a hierarchy based strictly on extraction is ultimately finite. While we may be able to increase the speed with which the resource is extracted or the efficiency with which it is used, we will ultimately consume it entirely. I fear that our current system is based not only on the extraction of natural resources, but also human resources. When we look to successful systems in nature, there is a more complicated relationship that generates abundance. Relationships are more often a symbiotic reciprocation where the solution to problems creates opportunities for each of the affected parties (consider here our emerging understanding of bacteria and their beneficial influence on humans). By creating opportunities for all participants in the economy, through a fundamental education of the system of which they are part, their individual success can allow the system as a whole to flourish.
For those of you who need help understanding the money illusion, or nominal vs. real money, may I suggest this article? http://www.nytimes.com/2016/01/12/upshot/star-wars-and-how-a-force-helps-the-federal-reserve.html?_r=0
And for those who need to catch up on the basics like I do, but have the sensibilities of a first grader: https://wetheeconomy.com/