High-School Students 'Fail' Test of Basic Economics

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American high-school students' "failing grade" on a test of basic economics concepts holds negative implications for the nation's prosperity, said a group of education, business, and labor leaders in releasing a new national survey.

Only 39 percent of the 8,205 students tested could define the Gross National Product, while 34 percent could define profits, and 25 percent showed a clear understanding of inflation.

The results of the study, sponsored by the Joint Council on Economic Education, were made public at a Dec. 28 press conference. The New York-based council develops curriculum materials and trains teachers in economics-education methods.

Students must understand fundamental economic concepts in order to function as wage-earners, consumers, and voters, according to Paul A. Volcker, former chairman of the Federal Reserve Board and one of several experts invited to speak at the press conference.

But more important, he said, is the fact that public understanding of economics is an essential element in the forging of national policy.

"The more basic knowledge the public has about economics," Mr. Volcker said, "the better, the more rapid, and the more effective economic policymakers can be."

"My colleagues at the 'Fed,' my friends, as well as the President-elect and Congress, have difficult decisions to make in the months to come," added Mr. Volcker, who is currently the Frederick H. Schultz professor of international economic policy at Princeton University. "They can only be well served by the public's grasp of some of the complexities of these decisions."

"In a democracy, an informed electorate must understand the basic tenets of our economic system," added Rudolph Oswald, director of research for the afl-cio. "Organized labor in this country owes everything to our market economy and it must be preserved."

To improve students' economic literacy, he and others suggested, schools should require all students to study the subject and ensure that teachers are adequately trained in it.

At the same time, Mr. Volcker added, the goal should not be to create "240 million economists."

"Quite frankly, I couldn't think of anything worse," he said.

"What economics education should be about," he continued, "is teaching simple concepts, such as how wealth is created, how simple markets work, how prices are determined, and why so many countries, including our own, are finding that incentives do indeed work."

"That's what economics is about and that is essential," he said.

Developed by a team of educators, the multiple-choice "test of economic literacy" was also reviewed by a panel of experts, including James Tobin, the Nobel laureate, and William J. Baumol, former president of the American Economic Association.

Despite these economists' participation, the test has generated some controversy. Editorial writers at The Wall Street Journal, for example, objected to the "right" answer for a question on what developing countries should do to promote economic growth.

The test makers intended students to respond that such countries should increase investment, the answer selected by only 30 percent of those tested. The Journal's editors argued that "if the other 70 percent of students picked [use the market system], rather than the hoary Keynesian answer, we won't worry too much about high schoolers."

According to the study, students correctly answered about 40 percent of the questions on the test. That level "represents a failing grade under even the most liberal grading standards," said William B. Walstad, the study's co-author.

"This level of economic knowledge among most high-school students is shocking," added Mr. Walstad, who is professor of economics and director of the National Center for Research in Economic Education at the University of Nebraska at Lincoln. "Our schools are producing a nation of economic illiterates."

Students performed particularly poorly on questions related to the national and international economy, he noted. They correctly answered only 34 percent of the questions on the national economy and 36 percent of those on the international economy.

For example, less than half of the students (45 percent) recognized that a government budget deficit results when spending exceeds revenues, Mr. Walstad pointed out. And just 27 percent realized that an increase in U.S. tariffs would have an adverse effect on international trade.

Student knowledge of fundamental and microeconomic topics "was only slightly better," Mr. Walstad said. Students correctly answered 43 percent of the fundamental questions, such as the definition of profit, and 44 percent of the microeconomic questions, such as the relationship between wages and productivity.

However, he said, only 27 percent of the students correctly answered a question about the true economic costs of going to college.

The results suggest that states and districts should mandate economics study for all students, participants at the press conference said.

While 28 states currently require some economics instruction, only 15 mandate it as a prerequisite for high-school graduation, according to the joint council.

In the past, "school people judged it to be a nice, but not necessary, addition to the school curriculum," said Harold Burson, chairman of the public-relations firm of Burson-Marsteller.

"Today, because of changes in global economic relationships and in the minds of a growing number of advocates and school officials, economic education has become a national imperative," added Mr. Burson, who serves as chairman of the joint council.

"Economic literacy," he said, "has now become a new basic skill or a basic survival skill which must be possessed by the majority of our citizens, now and in the future."

States also should ensure that teachers are qualified to teach economics, participants recommended.

"Teachers teach what they know, and most know little about our economic system," said Roxanne E. Bradshaw, secretary-treasurer ofthe National Education Association.

She noted that in Texas, which recently imposed a high-school requirement in economics, there are only 36 teachers who have taken as many as 24 credit-hours in the subject.

Only 5 percent of secondary-school teachers in Texas, and 1 percent of elementary teachers, Ms. Bradshaw said, had ever taken an economics course.

Ms. Bradshaw also stressed that teachers who are already versed in the subject must change their methods to enable all students, not merely the college-bound, to understand it.

"Unfortunately, economics has traditionally been regarded as a subject for the college-bound--the suburban high-school student who more than likely would take a college-level economics course anyway," noted Ms. Bradshaw. "This is no longer the case."

Copies of a report of the study, "A Report Card on Economic Literacy of U.S. High School Students," are available for $3 each from the Joint Council on Economic Education, 432 Park Avenue South, New York, N.Y. 10016.

Vol. 08, Issue 16

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