OpEd: Should companies train their employees in economic literacy?

Harvard's Ted Levitt summed up the need for economic literacy training when he wrote more than 25 years ago: "‘It appears the biggest problem we have in America today is ignorance and apathy, don't you agree Burns?’ Burns answered, 'I don't know and I don't care.' "

In America and many other developed economies, we are bombarded daily with headlines relating to income inequality, decreasing upward mobility, the impact of our accumulating public debt on middle-class purchasing power, government mismanagement, and all the rest.

Yet many bright, intelligent knowledge workers exhibit an almost unbelievable ignorance about the real economic (and related) issues that face our countries in the months and years to come.

Most senior-level executives over 50 we’ve spoken to cannot understand the ignorance and the apathy of those who should know better. Current and former CEOs of organizations such as General Electric, McDonald's, Home Depot, Wynn Resorts are appalled at what's happening in America today.

Those with experience and knowledge can simulate what's apt to happen if present trends continue. They pray what we are experiencing is really "an incident" and not a trend.

"How to think" not "What to think"

Make no mistake: Under no circumstance should economic literacy programs be constructed in such a manner as to attempt to teach people "what to think." They must focus on "how to think" about today's economic issues and the consequences of varied choices.

First we make choices. Then, our choices make us.

David Mamet, the Pulitzer Prize winning author and former liberal, tackles key issues of our time in his New York Times bestseller SECRET KNOWLEDGE which explains the notion of "how to think" versus "what to think":

"My revelation came upon reading Friedrich Hayek's "The Road to Serfdom". It was that there is a cost to everything, that nothing is without cost, and that energy spent on ‘a’ cannot be spent on ‘b’, this is the meaning of cost…

"He wrote that there are no solutions; there are only trade-offs – money spent on more crossing guards cannot be spent on books. Both are necessary, a choice must be made, and that this is the tragic view of life."

Mamet further explains that if a special interest group – such as an environmentalist lobby – demands fewer trees be cut in our forests, there is a trade-off.

If environmentalists’ demands are met, what is the impact on the employment of loggers? They will be standing in line for unemployment benefits.

Fewer trees being cut results in a decreased supply of lumber. This leads to increased home building costs.

This could lead to a family being denied homeownership because the cost of a home becomes too pricey. And, if this does happen, few will relate it to complying with environmentalist demands.

My point? We must educate/train people to articulate/understand the trade-offs in every economic and related decision. That's teaching people how to think. If they accept the trade-offs, then that's their decision. At least, it's a conscious one.

The trade-offs between entitlement programs and middle-class purchasing power

Very few people really understand the trade-off between ever-increasing entitlement (i.e. social welfare or benefits) programs and inflation. Very few can articulate the choices that must be made.

The deficit is the yearly shortfall between what the government spends and what the government takes in with respect to revenues.

The accumulated public debt is the summation of the yearly deficits. Currently, the United States is approaching $18 trillion in accumulated public debt.

What's the trade-off that must be understood? The short answer: The more we spend on entitlement programs, the higher prices will be for the goods and services we buy. What's the reasoning behind this?

How does the government finance the gap between monies received and monies spent? In other words, how does government finance yearly deficits and, for that matter the accumulated public debt?

Deficits are financed in one or a combination of two ways–namely: (1) printing more money (i.e. quantitative easing) or; (2) raising tax levels.

The consequences of solution #1: Printing more money

Printing more money almost always equates with inflation. More money in circulation without corresponding increases in goods and services translates into "too much money chasing too few goods."

Jay Prag, an economics professor at the Peter F. Drucker School of Management, provides an easy-to-understand explanation between money and prices:

"Simplifying things a bit, suppose the economy is 100 apples that are sold once a year and the money supply is $100 that is used once a year. The price of apples would be $1 per apple.

"If we increase the money supply to $1000, but we don't change the number of apples or the frequency with which money is used, the price of apples would rise to $10 per apple; more money is chasing the same amount of goods.

"If the money supply increases every year by more than the supply of apples, the price of apples will rise every year and inflation occurs: a sustained increase in prices."

Bottom line: In a very real sense this is what's happening. The government is printing more money. But they're not doing anything that's working to produce significantly more "apples" (i.e. goods and services).

Inflation’s effect on the middle class

Why is the government printing more money? In large part, to finance ever-increasing entitlement programs.

How does this impact middle-class incomes? Printing money causes inflation. This translates into less money to spend, that is, decreased purchasing power.

Peter F. Drucker wrote in 1995 the consequences of entitlement spending inflation on the middle class:

"Entitlements will be cut in all developed countries… the only question is by what method… the least painful way is to do it openly – for instance, by raising to 75 the age at which Americans get full social security benefits…

"If this is not accepted, middle-class entitlements will be cut by inflation, that is, by destroying the purchasing power of middle-class incomes… or there will be draconian increases in taxation – in the United States most probably through substantial consumption taxes on top of already high income taxes."

The consequences of solution #2: Raising taxes

Again, why would the government want to raise taxes? Because the government has to pay for a swelling accumulated public debt.

Increasing taxes reduces individual discretionary income. Reduced discretionary income results in people buying less goods and services. When people buy less goods and services, companies "right size." That means less business investment, more unemployment, and other horrific economic consequences. (For more information, please read: Without productivity improvement, inflation will get us in the end).

Should companies mobilize to providebasic economic literacy programs to their employees?

There are more than 130 million employees of small, mid-sized, and large corporations in America. Should they educate employees to today's economic realities and provide an unbiased view of the facts concerning the employer mandate? That's for each individual organization to decide.

Dozens of conversations with senior-level executives in organizations of all kinds and sizes leads me to believe we are all on the same page. Few disagree the United States is in big trouble. Most wish someone else will solve the problem with respect to economic ignorance and apathy. But that won't happen.

Internal training organizations are perfectly positioned to design, develop, and implement systematic, well-organized learning programs that provide the thinking and the knowledge required to build a "hopeful society."

To repeat: We must decide on the type of content that is meaningful, unbiased, and purposeful in terms of teaching people how to think.

We have gleaned from those in the know very specific ideas on the subject matter of economic literacy programs. We are very much in favor of distilling the incredible thought processes and prescriptions of Peter F. Drucker, Philip Kotler, Milton Friedman and Friedrich Hayek.

We think a five-hour online economic literacy certification program would work wonders in helping America restore our "culture of character and developing the firm as a moral community as well as a producer of outcomes and results."

Everything big starts small. Let's get started if that's the direction we should go. We can make a huge impact on the future of our nations.

There's a critical point in time when it becomes essential to stop thinking about doing something and start doing something about your thinking. This is the time!

But what do you think? Have we, as a society, omitted an important piece of executive/knowledge worker education? Do you think that companies should educate their employees on how to think about economic issues?

Editor's Note: This will be one of the hot topics for discussion at Corporate Learning Week this May in San Jose, California.