THE TEACHING ECONOMIST - William A. McEachern                 

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Issue 27, Fall 2004

William A. McEachern, Editor

Cultural and Economic Literacy

A dozen years ago, I discussed in these pages the economic content of The Dictionary of Cultural Literacy: What Every American Needs to Know. That much heralded reference has since been revised twice and just recently went online ( Given economic developments since the book first appeared and given the praise heaped on it over the years (The New York Times called it "an excellent piece of work...stimulating and enlightening."), let's catch up with the latest edition.

The New Dictionary of Cultural Literacy: What Every American Needs to Know, third ed. (Houghton Mifflin, 2002) by E.D. Hirsch, Jr., Joseph F. Kett, and James Trefil, attempts to pull together "that shifting body of information that our culture has found useful, and therefore worth preserving." The latest edition still contains 23 sections, one of which again covers "Business and Economics." This section still defines about 400 terms and is still written by Joseph F. Kett, a history professor at the University of Virginia.

In the section's opener, Kett continues to assure readers they need not become professors of economics to know what's going on. He says, however, that people should understand the difference between stocks and bonds and why the stock market declines when interest rates rise. I disagree. I think it's more important, for example, to learn something about the benefits of specialization and exchange based on comparative advantage. Regardless, neither his nugget of cultural literacy nor mine gets covered. Readers are told that bonds, unlike stocks, have a definite yield, but that's about it. The interest rate gets one sentence, and there is no cross reference between the interest rate and the stock market.

The terms that Kett does select seem oddly negative. For example, recession and depression are defined but recovery, expansion, and economic growth are not listed. Individuals profiled are primarily those whose contributions focus on some sort of market failure or economic pathology, such as Thomas Malthus, Karl Marx, Cesar Chavez, Ralph Nader, and robber barons, such as Cornelius Vanderbilt . Each of these gets at least twice the coverage accorded Adam Smith, arguably the most important economic figure ever. Consumers in Kett's economy face a grim marketplace of caveat emptor, planned obsolescence, boycott, monopoly, oligopoly, cartel, trust, and OPEC. Competition, market competition, and perfect competition apparently are not significant enough to make the list; only destructive competition is included. There is no mention of the gains from exchange, utility, consumer surplus, innovation, or any other way that consumers might actually benefit from market activity.

In Kett's accentuate-the-negative mode, tax avoidance gets prime coverage, with tax break, tax haven, tax loophole, tax shelter, investment tax credit, itemized deduction, and depletion allowance. Labor unions also get more coverage than seem warranted given their dwindling claim on the work force. More generally, some included terms seem dated, even archaic, such as absenteeism , journeyman, peonage, and organization man.

Readers may grow more literate about economic pathologies, tax dodges, labor unions, and some dated expressions, but they will learn nothing about the missing terms already mentioned or other missing terms such as opportunity cost, economies of scale, specialization, comparative advantage, public goods, externalities, aggregate demand, and aggregate supply.

Some definitions are still fuzzy. For example, elasticity is defined as "A shift in either demand or supply of a good or service depending on its price. Demand is said to be elastic when it responds quickly to changes in prices, and inelastic when it responds sluggishly." This tangle remains word-for-word as it appeared in the first edition.

A handful of new terms has been added since the first edition, including dot-coms, Enron, euro, information economy and the Family and Medical Leave Act of 1993. Missing still are such timely developments as welfare reform, earned income tax credit, federal funds rate, outsourcing, privatization, emerging market economies, and the World Trade Organization. Although promoted as "completely revised and updated," the biggest change since the first edition, at least based on my reading of "Business and Economics," seems to be the addition of the word "New" to the book's title.

As I argued a dozen years ago, Professor Kett has drained the life from the subject, dissected the cadaver, and put some of the vital organs in jars. He then describes what's in the jars. To be sure, the market economy is far from perfect, but he presents a truly dismal science. This history professor is a poor guide to the vitality and relevance of the discipline. That's what happens when specialization and comparative advantage are ignored.

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