Here’s a simple reason why most Americans just don’t get economics: we don’t feel its impact in our day-to-day lives. Most of us realize economics impacts us only when an economist on CNBC tells us things are getting more expensive or we actually stop and consciously analyze it.
Before the comments start coming, let me just say that I’m not talking about the price of gas rising at the pump here. Let me explain with a little. To me, there are two kinds of knowledge: the kind that comes from reading a book, and the kind that comes from first-hand experience. It’s the latter that, over time, becomes intuition.
In business school, American students (except for the few who majored in economics as undergrads) had a much harder time in our first-year core macroecon class than any of the foreign students. Most of them waived the class and took an elective instead, but for the few who stayed, the class was a joke. Whereas we struggled with grasping the difference between a fiscal policy and a monetary policy, what it meant to have a pegged versus floating currency, how interest rates and inflation related through equations, or the difference between nominal and real, foreign students already knew this stuff from living it in their daily lives.
Instead, for the average American, daily life in the US means never having to think or convert to another currency unless you happen to be traveling, not having to care that the US dollar has slid vs. the Euro, and not paying much attention to inflation, either. For now at least, the US remains the engine that drives the rest of the world.
A couple of years ago, my husband and I went to the Dominican Republic (home of MLB giants such as Pedro Martinez and David Ortiz) to visit his family. The island was suffering from power shortages, and blackouts of 4-5 hours a day were regular events. Those with electric generators turned them on during these times, but those who didn’t (by far the majority of the population) simply had to stick it out in the heat. Many Dominicans are illiterate, and life in general there just can’t be compared to anything close to life in the US.
One Sunday, we were all sitting together watching his father’s favorite TV show, an hour-long program shown three times a week called Triálogo in which three respected economists sat around a desk and answered questions from callers. (Picture the excitement of C-SPAN or Meet the Press, without any TV monitors in the background, and everything conducted in Spanish.) The topics ranged from the economic implications of the creation of certain free-trade zones the government was considering to how the Dominican Peso’s valuation might be impacted depending on what the government did next. Then, during a commercial, the following dialogue took place between my husband’s father, my husband (both of whom are extremely knowledgable about economics) and myself:
Me: “So, who are these people who are calling in?”
Me: “Yeah, but, I mean are these grad students studying economics who are calling in and asking questions?”
Them: “No, just average people.”
Me, after a pause: “Really. You mean the ones who are well-off and well-educated, right?”
Them: “No. Just the people you see everyday.”
Me: “Really? Are you sure?”
Them (calmly, although my incredulity must have sounded condescending): “Yes.”
Me: “What? But how can that be?” And then, after trying to imagine how many Americans would call in to a Q&A program featuring Federal Reserve members, “Why would the average Dominican call into a program like this? This would never happen in the US!”
Of course, how that could be was very easily explained to me, Ms. US-centric. When you live in a Latin country so closely impacted by US policies and whose currency periodically crashes precipitously against the US dollar, you don’t need any formal education to feel its impacts. At the time we visited, one US Dollar was equivalent to around 40 Dominican Pesos (RD$) after having hit a peak of RD$54 earlier that year. The year before, it had traded as low as RD$20. When we went shopping, I noticed that prices had not yet been adjusted downward to reflect the change in the peso’s value. In other words, a shirt that under “stable” circumstances was priced at RD$150 (say, around US$5 with a 30:1 exchange rate) would be adjusted up to RD$270 quickly to reflect the peak exchange of 54:1, but then left there instead of being adjusted to RD$200 when the exchange rate had dropped to 40:1.
Boy, did I feel like a Dumb American that trip. How embarassed I felt that someone like me with so much supposed education and who grew up the US knew bupkis about economics when people who had much less were so much savvier. It was great that I lived in a country with so much less corruption than most others that it provided economic stability and financial opportunity; yet I never realized what that meant. This is why I value traveling, as in real traveling where you actually talk to people who live there, so much. But I doubt even if I read tons of books on the subject that economic tenets would ever sink in as much as if I were impacted by them every day.
In the past few years, I’ve tried to become more knowledgable about economics and what’s going on in the rest of the world rather than stay insulated within the media and borders of the US. In my opinion, you don’t get much sense of what other countries are really like when you watch mainstream US news. When we were living in Belgium, CNN constantly ran commercials for Croatia featuring coastlines and beautiful beaches (much like how Cancun is advertised in the US). I’d never gotten the impression from being in the US that they were known as vacation spots for a weekend getaway, just war-torn conflict or danger zones to avoid.
My husband says the same about the Dominican Republic. There’ll be an election on the island, people will gather to party or protest, and maybe one, ONE small group will start shouting, or someone will set a tire on fire, but you can be sure the cameras from US media are there to zoom in on that one tire as it rolls down the street. Denizens of those countries see this on satellite TV, look at each other, and ask, “Is this the same country we’re living in?”
Though learning about economics and current events in other countries is alternately confusing and enjoyable, if you consider investing outside US markets, understanding and keeping up-to-date on them is a must. But it certainly hasn’t been easy. To be honest, I find economics tougher than physics since it seems that in economics, you can use a body of evidence to draw one conclusion and immediately turn around and argue the complete opposite conclusion just as easily. Hopefully, it’s just a matter of time, practice, learning new terminology, and a different way of thinking, just like physics was. Wish me luck.