The Reason website has an interview with economist Thomas Sowell about his forthcoming book on the financial crisis. Sowell makes several good points, including one about public ignorance of economics:

Reason: What do crisis like this, and public reaction, say about general public understanding of economics?

Sowell: I think in the U.S. and in most of the world the public understanding of economics is abysmal. But it's one thing not to understand something. I don't understand brain surgery. It's another to want to form policies on things on which you are ignorant. I hear the wonderful phrase "I want to make a difference" when it comes to policy. I would be horrified if I wanted to make a difference in brain surgery. The only difference is more people would die on the operating table.

The only encouraging thing about public reaction to the crisis is that going by polls citizens seem to have more misgivings about some of these policies than politicians or the media. Still, though there have been studies that indicate the New Deal prolonged the Great Depression by years, what is also clear is it was enormously popular. FDR was elected four straight times, and more than once without ever having brought unemployment down to single digits. An economic disaster does not necessarily mean a political disaster. If we could raise the average level of understanding of economics to what [prominent 19th century economist] Alfred Marshall had in 1890, the vast majority of politicians would be voted out of office.

I would add that public policy would be greatly improved if the average voter understood what Adam Smith knew about economics when he published The Wealth of Nations back in 1776. Reinforcing one of Sowell's points, I discussed how some politically popular New Deal programs helped prolong the Depression here and here. As Sowell suggests, the interesting thing about these programs is not just that they had extremely harmful effects, but that their authors didn't suffer any political punishment as a result - in part because most voters lacked the economic knowledge to understand what was happening.