People in Austria often complain about the lack of economic education among broad circles of the population. But after a year as director of IHS, I have come to the same conclusion, as the recently deceased Nobel laureate in economics Robert E. Lucas: it is primarily a problem of the educated elites.
This is not to say that economics education can be neglected for the rest of the population. However, it is the case that educated elites are ultimately responsible for far-reaching decisions that affect a large proportion of Austrians. Their lack of economic knowledge can therefore, in the worst case, lead to bad decisions for many.
The difficulty is: Often there is a lack of understanding of what a market is in the first place, that prices in markets are formed by the interplay of supply and demand, that there are opportunity costs and that resources are scarce. The consistent application of these principles of economic thinking has, initially, nothing to do with ideological or political attitudes, although this is repeatedly suggested in the public debate.
The ongoing discussion about fighting inflation provides a good illustrative example. The price elasticities of supply and demand determine the distribution of the tax burden between consumers and producers caused by the introduction of a value-added tax. If demand is not very price-elastic, consumers bear the main burden of the tax, whereas if demand is very elastic, suppliers tend to bear the burden. As a consequence, the abolition of the VAT for a product does not lead to a decrease of the price of this product by the amount of the VAT! There may even be price increases if production capacity is limited.
For example, although the price of diesel at German service stations fell immediately after the tax reduction came into force, after just two weeks it was already higher than before the measure, and after three months it was even a third higher - taking into account the movement in the price of crude oil. The possibility of hoarding also contributed to the price increase, as can be seen from the price comparison between federal states with a ban on fuel storage and those without such a regulation. This is just one example of how basic economic knowledge can lead to sustainable and good decisions.