The Critical Importance of Critical Thinking in Economics Education

More and more (and more and more) tax payers are becoming stressed and disillusioned about education’s promise to improve lives build a better society.

Many ask why school doesn’t teach more practical things that are necessary for life in the real world. These practical (and therefore perceptually more useful) things no longer include activities like auto mechanics, woodshop, or home economics (baking and sewing). Practically speaking, financial education, the art of managing and making money, is only the only remaining practical skills class that is offered, to manage and make money.

Enter Economics

The Council for Economics Education (CEE), one of the main organizations responsible for Econ curriculum development and teacher training, conducted a survey in 2020. The survey found only half of the states required economics courses for high school graduation. 21 had personal finance mandates. Usually, a personal finance unit is folded into a semester-long economics class senior year. Of course, CEE advocates that all states require at least one, and it is entirely possible that when it comes to education, this is one area of bipartisan agreement.

If the public education sector has long been scrutinized and rife with division, 2020 escalted the vitriol. Outrage is escalating over what is taught (require ethnic studies or outlaw anti-racist education); who can attend (CA just became the first state to mandate COVID-19 vaccines for all students); and how teaching and learning happen (on computers? virtual? in person? hybrid? how?).

A clear call for more economics and personal finance courses ringing across the demographic, geographic, and socio-political divides feels almost refreshing.

Except that economics education carries loads of unexamined baggage.

Economic Assumptions

Core Economic assumptions propose a world of scarcity and self-interested behavior that can be explained and managed by simple supply and demand curves. What are the implications of systems based upon false assumptions?

Economic Purpose

Economics has a mission: to manage infinite human wants amidst scarcity, to allocate the scarce resources, and to observe human behavior within that scarcity. Could there not be a loftier goal for a social structure that pervades and influences every aspect of our lives?

Taking no cues from human psychology, philosophy, or ecology, economics brazenly defines and manages human needs and wants… so we don’t have to.

“Economists often talk about people’s needs and wants. A need is a basic requirement for survival, such as food, clothing, and shelter. A want is simply something we would like to have but is not necessary for survival.” (Generic Econ Text, Chapter 1)

Economics audaciously (and fallaciously) takes on scarcity:

The fundamental economic problem facing all societies is that of scarcity. Scarcity is the condition that results from society not having enough resources to produce all the things people would like to have. As Figure 1.1 shows, scarcity affects almost every decision we make. This is where economics comes in. Economics is the study of how people try to satisfy seemingly unlimited and competing wants through the careful use of relatively scarce resources.” (Generic Econ Text, Chapter 1)

Apparently, the best way to understand the world we live in is through economics, which both describes and circumscribes it.

“Many young people find out about economic issues the hard way. They discover, however, that a basic understanding of economics can help them make sense of the world they live in.” (Generic Econ Text, Chapter 1)

Simple assumptions and a mission amidst scarcity make measuring economic success somewhat straightforward: we measure money. (Except, of course, when we don’t. Like when trillions are hidden in offshore tax havens.) How money is measured matters.

Economic Measures

• The amount of money that has been moved around in a country, as with the Gross National Product, or GNP.
• The number of people who are not working. The stated goal is a “natural” unemployment rate, where 4–5% of eligible workers are without a job. The idea is that if more people had a job, wages would rise, so prices would rise, the value of money would decline, and an economic crash would be an inevitability. This number does not take into account the population of eligible workers who have never entered the workforce, are under-employed, or the suffering that comes with subsisting without an income.
• The interest rates of the Federal Reserve. The source of money creation in the United States is “the Fed” which creates money by loaning it out to the government and to central banks. Low interest rates on these loans give relatively easy access to money and incentivize borrowing. Thus, the economy is temporarily injected with more money. Commercial banks make loans to those who qualify (usually not the poor). Governments spend on projects, promising future taxes as repayment. For a number of reasons, this method of issuing money is not ideal. Government debt and a top-heavy economy are a couple of indicators that demonstrate the lack of efficiency and fairness with the centralized debt-based system of money issuance. Other Issues include: No accountability for whether or not money actually makes it into circulation where it can help communities trade and meet needs, inherent boom bust cycles; this design funnels out of communities and up. This is what happened during the Great Depression and the Great Recession. It is also what happened in 2017, when Oxfam noted that 87% of money went to 1% of the population.
• Inflation rates. Oh inflation. Let’s just say for now that in order to keep up with the declining value of money (largely because it was created as debt), the market needs to expand each year, at the cost of the environment and wage earners. For example, the cost of living, or inflation, has tended to increase at 5.4% each year. Therefore, if your salary did not go up 5.4% each year, your paychecks are becoming worth less and less.
• Asset values in the stock market. The stock market represents money put aside to create future security. Any money an individual does not need today, must be put somewhere. In order for that money to maintain its value, it must grow more than the rate of inflation. Because the economy is not always growing, money managers invented ways to grow investments. These include strategies such as calculating compound interest, or interest on interest. The magic of compound interest makes earning passive income possible for an investor, while for the debtor, paying interest on interest means continued scarcity and what is understandably referred to as “debt slavery.” Other strategies have included creating tertiary money-based products to invest in. These are known as “derivatives.” Derivatives do not represent goods and services in a growing economy, but represent speculation, or bets, that as more people invest in them, their value will grow. As long as there is a growing amount of money pooling among those who do not need to spend it, there will be a growth in derivative products. Currently, an estimated quadrillion dollars is in derivatives, each one expected to grow with compound interest. Where will that come from? The vacuum power grows while the assets grow, waiting to be spent. Usually, this is when an economic bubble bursts so inflated asset values temporarily crash, and can be purchased for pennies on the dollar. For example, someone’s home.
• Housing values. Investing in property represents the most accessible way for a family to grow future wealth. For many, purchasing a home requires a lifetime of hard work and investment, and increasingly, family support by passing along accumulated wealth. But families are in direct competition with investors. Because there will always be a demand for housing, especially as the population grows, housing is also one of the most reliable and attractive assets for investors. In order for a home to increase in value, it must sell for more than the amount owed to the bank. If the interest rate is 5% on the loan (compounding), the sale price must far exceed the amount paid. This drives up the cost of homes each year, far more than demand from a growing population. It is easier to make money on the investment if the buyer has cash and doesn’t have to borrow from a bank. So wealthy land investors can easily outbid families on homes. Therefore, the housing market will continue with 1.) collapsing housing bubbles, when borrowers can no longer afford to keep up with growing home prices and the declining value of wages; and 2.) housing insecurity and homelessness. Across the board, the result is also economic insecurity and inequality, in addition to lives destroyed.

None of these economic indicators are measuring whether or not people and planet are healthy and able to continue to thrive together and meet the fundamental needs and wants of life. What the economic indicators have done is support the flow of hyper-abundant money out of markets and into savings, where it isn’t circulating, is not being put to productive use, and instead is metastasizing, growing as it kills what it is feeding on.

Our reliance on this system is currently so complete, that all financial education teaches us is to not spend more than you earn, be aware of the importance of avoiding compound interest as a debtor, and to embrace it as an investor, without consideration of anything more than feeling smarter than the debtor. The reward of profit is proven to boost our sense of self righteousness and rationalize deserving it.

If economics isn’t personal, but financial education is, both underscore the idea that growing personal wealth happens in competition with others. The economy as a whole reinforces the same self-interested behavior that it presumed from the outset.

In this way, a debt-based monetary monoculture creates universal dependency on increasing the amount of money we have. The money naturally siphons up and out of communities and pools among the who must find new ways to maintain or grow its value, lest that money be lost. Entranced by this system that is widely legitimized and minimally analyzed, new ways to store and grow wealth, such as Bitcoin and Non-Fungible Tokens, are far more attention grabbing than the efforts to preserve life.

Today, we are witnessing the impacts of our economic system. While the Sustainable Development Goals represent a laudable effort to improve the quality of life for people and protect and restore the planet, economic growth and the declining value of “decent work” are still at the center. To propose solving poverty, let alone climate change, with the same economic and monetary designs we are implementing now, is like promising to make apple juice by slicing the fruit and putting in the dehydrator.

The scarcity suffered by the majority of humanity are scarcities of time and money. Lack of money and pressure on time to make the money are both pervasive life experiences that are directly related to and exacerbated by a debt-based monetary monoculture.

Designing for human flourishing must include defining flourishing, and then designing economic ecosystems that incentivize and account for it.