So here is the question……

As I have explained in a number of different ways in my Free Markets series, economics isn’t really all that complex. When a commodity is in short supply, the price rises and that price signal encourages (1) consumers to ration their use of it, (2) producers to increase the production of it, and (3) entrepreneurs to find unused supplies of it elsewhere and import it to the region suffering the shortage.

Conversely, when there is a surplus of a commodity, prices fall and that price signal encourages (1) consumers to use more of it, (2) producers to produce less of it, and (3) entrepreneurs to look around and try to find a place that is short of the commodity, so they can make money moving some of the surplus to the shortage area.

Not hard, is it? Pretty much common sense. But unfortunately neither voters nor politicians appear to understand even these simple principles, choosing instead to believe a number of ideological myths completely unsubstantiated by evidence or experience. And we get terrible, counterproductive public policy as a result – like out-of-control medical costs, unsustainable pension promises, a ballooning federal debt and a steady loss of jobs to other nations with more rational policies..

So here is the fundamental question: can a democracy really work if the voters don’t understand even the basics of economics, and are so gullible that ambitious politicians can get elected and re-elected proposing the most nonsensical and absurd economic policies (like reducing the federal debt while not touching Medicare, Social Security or defense, which account for most of the budget)?

The proper functioning of a democracy depends upon an intelligent, educated, engaged electorate, which is why democracy fails so badly in many third world countries. Judging by the popular economic myths prevalent in the nation, by the proportion of the population who can’t even make correct change, let alone do fractions or understand the terms of a home mortgage, we may not be adequately educated to run a successful democracy.

Sarah Palin’s complete misunderstanding of the Paul Revere story is funny, but before we laugh too loud we should be aware that she is typical of the educational level of the country as a whole, which may be why she has such a following. Can a democracy continue to function with a populace so disconnected from reality?