EVENTS

Date:	Monday, December 5, 2005
Time:	9:00 AM -- 11:00 AM
Location:	Wohlstetter Conference Center, Twelfth Floor, AEI 1150 Seventeenth Street, N.W., Washington, D.C. 20036

December 2005

What Does the Public Know about Economic Policy?

Clearly, public reaction to policy initiatives is a key determinant of legislative outcomes. Policies often rise or fall based upon public opinion. But where do those opinions come from? Which media are most relied upon by the public for economic information? Recent survey work performed by Princeton economist and a former member of the President’s Council of Economic Advisers, Alan S. Blinder, examines what the public knows about economic policy, and perhaps more importantly, how they learn it. On December 5, a panel of experts from the media and the economic policy community discussed this timely research.

Alan S. Blinder
Princeton University

Motivated by a desire to illuminate the rationale for public policy, Alan S. Blinder and Alan B. Krueger’s paper “What Does the Public Know about Economic Policy and How Does It Know It” addresses the issue of public opinion’s input into policy formation.

Using data from a random digit dialing survey, Blinder and Krueger document how self-interest, ideology, knowledge, and demographic variables affected public opinion in 2003.

First, Blinder and Krueger find that 74 percent of respondents, regardless of demographics, said it is extremely important or very important to be informed about economic policy. Yet, only 22 percent of respondents said that economic policy information affected their voting decisions. The drop in percentage points may be reflected by the news medium from which most respondents were informed. Of the respondents, 46.7 percent claim television is their most important news medium, compared to only 1.1 percent that cited economists.

When probing for economic knowledge, Blinder’s results demonstrate surprisingly accurate means, but an enormous standard deviation of 16.7 percent. While socioeconomic factors increased scores between 6.3 to 8.6 percentage points on average, one has to be cautious of drawing conclusions with such a high standard deviation. In addition, demographic variables such as age and sex were negligible, and political respondents scored higher than their non-political counterparts, regardless of political ideology. A comparison of knowledge scores to information sources displays that people who watch television, the most popular news source, are far less knowledgeable than those that are informed through literary sources.

A subsequent string of policy questions were analyzed using an ordered probit model. Blinder and Krueger’s results are shocking to the economic community. Public opinion of economic policy depends strongly on ideology, less so on knowledge and education, and even less on self-interest. Considered a cornerstone of economic theory, self-interest only influenced respondents in questions that affected their wage rate. On other policy issues with huge economic implications, such as the Bush tax cuts, the budget deficit, and Social Security taxes, self-interest was not a factor.

Blinder speculated on the reasons for such controversial findings: First, people may be confused about their self-interest. Second, generosity toward the commonwealth may be more influential than economists admit.

Jeffrey H. Birnbaum
Washington Post

Birnbaum’s initial reaction was to advise economists and public policymakers not to overemphasize the results of any one study, urging Blinder to pursue further research with a larger sample size. Additionally, Birnbaum voiced skepticism of a study based on subjective responses as opposed to an objective analysis of respondents’ actions.

Based on the principles of representative government, Birnbaum believes Blinder’s questions were at times unrealistic. Birnbaum reminded the audience that in a republic a citizen is only responsible for obtaining the knowledge necessary to delegate responsibility to a representative. The knowledge necessary to craft policies is superfluous to the average citizen with substantial time constraints. To prove his point, Birnbaum admitted that he does not know the dollar quantity of the average Social Security check, but is still a constructive participant in the political process.

Although disapproving of some of Blinder’s survey questions, Birnbaum believes that Blinder’s study is helpful in determining how public policy is shaped. Isolating the composition of a political class, which he classified as those who invest time and money in the political process, reveals which levers must be pulled in order to improve public policy.

Citing his observations of the lobbying industry, Birnbaum still believes self-interest is an appropriate lever to pull. To Birnbaum, lobbying has increasingly become an effort to identify and educate the political class in a subjective manner so as to mold the political class’s self-interest.
     
Douglas Holtz-Eakin
Congressional Budget Office

Having coauthored a paper with Alan S. Blinder on this subject, Holtz-Eakin emphasized the importance of the research topic and offered a critical analysis of Blinder’s present study. Because constituent pressure is vital in order to enact positive, long-term economic policies, Holtz-Eakin believes there are three crucial questions that researchers must address: What do people know? How do they come to know it? And how does this knowledge affect public policy decisions? In light of these questions, Holtz-Eakin views Blinder’s efforts as “valuable,” but ultimately producing more facts than definitive results.

Holtz-Eakin prefaced his critique by echoing Birnbaum and noting the difficulty of a study based on surveys, which gauges one’s reported actions instead of one’s true actions. Such complicatedness is reflected in the fact that Blinder’s previous study on the subject drew different conclusions. In 1984, Blinder found that political affiliation, ideology, and personal circumstances were less important determinants of public choice than economic rationales. In his present study, Blinder proclaims ideology is the most important determinant in public opinion while self-interest is the least important.

Holtz-Eakin believes Blinder’s results may by inaccurate due to imprecise language. Questions on Bush’s tax cuts and on the estate tax were oversimplified into a single dimension, thus neglecting the complexity of the topics and possibly confusing respondents. Holtz-Eakin claimed it is understandable that a survey respondent would not know specific numerical values, such as the budget deficit, because there are multiple projections depending on the treatment of fiscal policy and time horizons. Even citizens with exposure to economics may be unable to answer numerical citation questions because economic classes emphasize concepts. Summary statistics were also plagued by generalizations. A particular ideology, for example, contains many variations.  

Augmenting his disturbance with vague language, Holtz-Eakin was particularly bothered by Blinder’s inherent assumption that people do not understand who really pays taxes. Thus, while Holtz-Eakin is appreciative of Blinder’s efforts, he found substantial flaws in Blinder’s execution.
     
Steve Liesman
CNBC

Blinder’s paper reminded Liesman of the financial press’s responsibility. Liesman stated that due to a lack of knowledge of their viewers’ desires, the press is uncomfortable airing economic policy issues. As a result, members of the press do not embrace their responsibility to educate the public. Blinder’s paper sparked Liesman to recall the growing conspiracy theorists who believe that the government’s economic data is tainted. He implied that such false claims are a function of a poorly educated public. Liesman stated the need for a new type of “economist/politician.” Stressing the importance of implementation, Liesman believes it is not enough for a tax panel to cite problems with the tax code; a subsequent panel is necessary to craft a plan for implementing the first panel’s findings.

Turning to specific aspects of the paper, Liesman noted that the correlation between one’s position on an economic policy issue and one’s knowledge level is “powerful.” Liesman did not derive policy prescriptions from Blinder’s data, but postulated on the interplay between ideology and self-interest. He believes self-interest may be manifesting itself in ideology via party affiliation. While issues within a party platform are contradictory and can oppose one’s self-interest, supporting a party for ideological reasons is a form of expressing self-interest more broadly. If party identification embodies ideology and overall self-interest, then a person can act in their own self-interest while lacking knowledge of particular issues.

AEI intern Benjamin Hamlin prepared this summary.