studying the public's beliefs about economics...income growth seems to increase economic literacy, even though income level does not. In other words, poor people whose income is rising—like recent immigrants—have more than the average amount of economic sense; rich people whose income is falling—like the Kennedy family—have less.
Caplan goes on to argue that this means that countries that stagnate will tend to become "trapped," because economic knowledge will decline in those countries, leading to bad policies.
My view is that one of the most important ideas in economics is learning from failure. That is, by rejecting failed business models, the economy learns. Caplan is saying that people who live in stagnant economies do not learn from failure. From my perspective, if a stagnant economy is one which does not learn from failure, then Caplan is saying that people who live in an economy that does not learn from failure do not learn from failure.
For Discussion. According to Caplan's theory, I would think that growth in Argentina or Japan have created a "virtuous cycle" of better economic policies and better growth. What accounts for the actual result?