I’m not sure how much understanding the issues is a factor in democracy functioning well. I think it has more to do with widespread belief in democratic and rule-of-law identity, such that voters will reliably punish those who violate those tenets, and structures set up to resist the kind of rot that targets inherent weaknesses in democracy, especially to prevent capture of media and lobbying by rich minority interests. These reduce the effects of directed exploitation of voter ignorance, and block democratic attacks on democracy itself.

Both of those factors are, to use the scientific term, completely fucked in the US, which is why we’re where we are now. We’re not here because people think that we spend 20% of our budget on foreign aid, but rather, people think that because of concentration and capture of media ownership, and intense lobbying. The ignorance would be there either way, but the direction and form of it is carefully cultivated, and allowing that cultivation is the problem.

The generation of hard data demonstrating that voters (more or less) don’t know jack-shit about anything goes back to IIRC the 1950s, and the best answer Poli Sci has for why this results in a functioning system at all is that voter behavior is fairly erratic (much of it amounts to “do I perceive that things are bad, even that have nothing to do with the government or with me? Then throw the bums out!”) and (this was once accepted but is now controversial) that voter ignorance kinda balances out by virtue of being chaotic. If that ignorance becomes directed, however, both of these things are weaponizable or breakable.

Many of the founders of the US wrote about the importance of an educated populace and feared that an uneducated voting public would ruin the system.

What you describe are both results of an uneducated voting public in my opinion. At least as I see it, those are two important effects with the root cause being a lack of education and critical thinking.

If people were better educated on how our systems work and issues that impact them directly, and willing to think critically and listen to, or engage in, reasoned debates we wouldn't have to worry about what shit they may hear or see in the media, or from politicians, lobbyists, etc.

The solution at the time largely involved not letting groups unlikely to be educated… vote at all.

I’d definitely be interested in evidence that there are democracies with voters who are significantly better at understanding the function of their government, the breakdown of the budget, how basic functions of it work, et c, than in the US before, say, 1975.

I'm not totally sure whether you meant the 1975 point as a comparison of democracies today versus 1975 US, or democracies from 1975 compared to the US.

This is anecdotal since I don't have evidence handy, but I've been impressed with Swiss voters that I've met and they have all spoken highly of both their Democratic model and their voters. I don't know all the intricacies of it, but my understanding is that their system pushes any meaningful change to a vote. Its slower and requires more voter engagement, but at least from my experience that has succeeded in building a better informed public.