Download Teaching of Macroeconomics After the

Teaching of Macroeconomics
After the ‘Great Contraction’
Anca Voicu
Rollins College, FL
Somnath Sen
University of Birmingham, UK
Rollins College, FL
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Motivation of Paper
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The Great Contraction of 2008 onwards, which followed the Great
Moderation of the previous decade, highlighted the various challenges
that macroeconomists face in explaining their subject to
undergraduates
The multitude of possible approaches to explaining and solving the
Great Contraction puzzle, and the concomitant non-conventional policy
measures required, adds a new challenge to the task of teaching
macro economics
Both the structured content of a traditional macroeconomics course
as well as teaching strategies will prove to be highly important in
delivering expected outcomes i.e. teaching to students who wish to
understand economic reality but within a structured framework
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Motivation of Paper: Context
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Discussion on this issue has been continuing for the last half decade but with
little structural change in content and form of macro courses
Informal discussions with colleagues who teach the subject in the UK shows
that traditional books such as Mankiw are still the core of the syllabus – nothing
much has changed!
Yet, THE JOURNAL OF ECONOMIC EDUCATION, 41(4), 2010 had a series of
papers by eminent macroeconomists asking for changes in the intermediate
courses for the teaching of macroeconomics
Shiller, Blinder, Friedman all call for a reorientation of macroeconomics
teaching in a special issue, edited by David Colander, of this pedagogic journal
In a major conference hosted by the Bank of England in 2012, ‘What PostCrisis Changes Does the Economics Discipline Need?’ similar sentiments were
expressed by European and British economists
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Motivation: what practioners think
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The Bank of England conference also discussed with academics, policy makers and
employers the need for a re-orientation of macroeconomics courses and syllabi
According to the Royal Economics Society newsletter:
The conference reached some shared conclusions about the way young economists are
trained. There was broad agreement that students need:
Greater awareness of economic history and current real-world context;
Better practical data-handling skills;
Greater ability to communicate economics to non-specialists;
More understanding of the limitations of modelling and current economic methodology;
A more pluralistic approach to economics;
A combination of deductive and inductive reasoning.
http://www.res.org.uk/view/article7Apr13Features.html
http://www.theguardian.com/education/2014/may/04/economics-students-overhaul-subjectteaching
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So, what is the problem?!
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My mnemonics is ‘PPP’
Paradigm shift, do we need to change our whole
model
Practical issues and problems in constructing a
course
Perspectives and viewpoints, are they reconcilable
Let me use a few simple quotations from the papers
from the Journal of Economics Education from
eminent macroeconomists to explain what I mean
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Quotes: Paradigm changes
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Paradigm? “Five such lessons are that we live in a monetary economy and
therefore aggregate demand and policies that affect aggregate demand are
determinants of real economic outcomes;
that what actually matters for this purpose is not money but the volume,
availability, and price of credit;
that the fact that most lending is done by financial institutions matters as well;
that the prices set in our financial markets do not always exhibit the “rationality”
economists normally claim for them;
and that both frictions and the uneven impact of economic events prevent us
from adapting to disturbances in the way textbook economics suggests”
(Benjamin Friedman)
We could move to the other extreme and explain in terms of heterodox
macroeconomics such as in the writings of Godley and Minsky
Necessary pluralism in the economics curriculum: the case for heterodoxy:
http://www.res.org.uk/view/art6Oct14Features.html
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Quote: Practical problems
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Practicalities?
“Two tradeoffs are paramount and must be faced by every
instructor:
(1) how much additional complexity must be and can be
introduced in a principles course in which the students are
relatively unsophisticated;
and (2) although it is easy to think of new topics that recent
events “demand” instructors add, it is much harder to think of
topics to delete. Yet economists should understand the
necessity of choice forced by (time) budget constraints.”
(Alan Blinder)
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Quote: Perspectives and
viewpoints
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Perspective:
“Then (Great Depression) and now, a good number of students have felt that
their lectures bear little relation to the economic crisis raging outside the halls of
academe.
The economics profession seems unusual, when compared with some other
professions, in complaints that the teaching is irrelevant to practical lives
Students mostly recognize that their teachers are struggling with the conceptual
difficulties that are inherent in the field. Teachers can encourage such
recognition and best serve their students if they refer regularly and respectfully
to the history of economic thought, conveying the reasons for the theoretical
constructs of other times and the tentativeness of current theories (Robert
Shiller)
See also the Lindau conference: http://www.theguardian.com/business/economicsblog/2014/aug/24/nobel-winning-economists-challenge-conventional-thinking
International Student Initiative for Pluralism in Economics
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Cartoon
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Cartoon
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Cartoon
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Structuring a core or intermediate
macroeconomics course
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Use the ‘pedagogic or teaching model’ used by development economists
Traditionally, development economists in their teaching methods used what Adelman called
the ‘KISS’ principle, Keep it Simple (Stupid)
Simple explanations (often couched in intensive mathematical reasoning) and universally
valid principles
Leads to: single cause theories; single (or few) criterion for successful development;
development as an unidirectional or (log)linear process
Traditional macro economics uses the ‘R-models’ to again pinpoint few causes of business
cycles and its elimination without major policy interventions
The many R’s:
Ricardian equivalence (and fiscal neutrality)
Real Business Cycle
Representative agent
Rational Expectations
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Risk neutrality
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The fallacy of an universalist
‘model’
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Rajan calls it the ‘irrelevance theorems’: THE JOURNAL OF ECONOMIC
EDUCATION, 41(4), 398–402, 2010
“Using the frictionless representative agent framework, we get a lot of
irrelevance theorems both in finance, such as the Modigliani Miller theorem,
which shows that the capital structure of firms doesn’t matter; and in
macroeconomics, such as the Ricardian equivalence theorem, which suggests
that it does not matter whether the government finances its spending by taxes
or bonds.
All these irrelevance theorems give one the sense that policy does not matter
much.”
Therefore inform the students that there is no universal answer and that a few
models will point out the perspectives and principles
There is no mega or encompassing models with specific case studies
becoming special cases
After that we need to be eclectic (ad hoc?)
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Macroeconomics course from the
lens of ‘Alternative Perspectives’.
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To get rid of this universalist mindset, treat each mega-model as one
element of an ‘Alternative Perspectives’ framework
So, each mega-model is simply a core paradigm or a fundamental
perspective, which may be useful in some institutional circumstances,
but not in others
Use a core textbook such as Mankiw, if it is helpful, but warn students
there are no ‘general cases’ from which specific cases can be drawn
Do not use terms such as ‘Mother of all models’
Use as many visualization tools, games, websites, newspaper articles,
policy blogs as you can to make the subject interesting
Reduce the amount of formal theorizing
Stress that policy-making is an ‘art’ and not a ‘science’
Have structured lectures on Classical, Keynesian, Minsky models plus
some historical analysis. 7/5/2017
Why history?
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Finance is History! Harold James, Princeton University
“A new sensitivity to the significance of historical experience has developed since the 2007
financial crisis. A recent report by the UK Chartered Financial Analyst (CFA) Society
castigates “financial amnesia” among individuals, markets and regulators, and argues that
“it causes risk to be mispriced, bubbles to develop and crises to break.” The report
suggests formal requirements for investment professionals to study financial history as a
remedy.
Before the crisis, risk models were usually constructed on the basis of “historical” data that
covered only a relatively short time span, ten or often only five years. The reasons are selfevident: beyond that limited range of dates, data comparability becomes a problem; current
financial products do not have exact analogues in older trading instruments; regulatory
practices have changed; and monetary policy is conducted in different ways. So history is
bunk. Financiers thought that they had arrived at the “end of history””
But students need a major dose of perspective and at least in macroeconomics it is
important to have a long-term perspective
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An example: Monetary policy
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Start with a core monetary policy model, synthesizing classical and Keynesian
theories: Mankiw Chapter 3, 4, 11, 12
Use the liquidity trap to show issues of Zero Lower Bound
Students play Games for monetary policy, and are monitored on the why and
how:
Federal Reserve:
http://sffed-education.org/chairman/
http://www.federalreserveeducation.org/resources/detail.cfm?r_id=83165294571e-4940-af70-8939434adb28
European Central Bank:
https://www.ecb.europa.eu/ecb/educational/economia/html/index.en.html
Bank of England:
http://www.bankofengland.co.uk/education/Pages/resources/inflationtools/ballo
on/default.aspx
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An example: Monetary policy
Explain and demonstrate: Simple DSGE type models (Mankiw Chapter 15)
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What are the policy objectives of CBs? Why doesn’t the CB target asset
inflation? Can aggregate demand effects counteract positive and negative
supply shocks?
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Provide a Critique of excessive formalism:
“The Bank of England in 2007 faced the onset of the credit crunch with too much
Robert Lucas, Michael Woodford and Robert Merton in its intellectual cupboard. A
drastic but chaotic re-education took place and is continuing. I believe that the
Bank has by now shed the conventional wisdom of the typical macroeconomics
training of the past few decades. In its place is an intellectual potpourri of factoids,
partial theories, empirical regularities without firm theoretical foundations, hunches,
intuitions and half-developed insights. It is not much, but knowing that you know
nothing is the beginning of wisdom.” Wilhelm Buiter
http://blogs.ft.com/maverecon/2009/03/the-unfortunate-uselessness-of-most-stateof-the-art-academic-monetary-economics/
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Actual short course at Rollins:
Research Questions on Teaching Strategy
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Why are teaching strategies important and how did
their use in the “Great Recession: An Economic
Analysis” course influence its outcome?
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Profile of Students Involved
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This course was offered intensively (five and a half
hours every day) for a week during Intersession in
January 2012.
The course gathered junior and senior students from
the following majors: Psychology, International
Relations, International Business, Economics.
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Challenges
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Short course required filtering the vast amount of
information to present what is most relevant.
Students from a variety of academic disciplines.
Students had varying exposure to the study of
economics.
Presenting students with readings and media
resources (e.g. video clips) articulating multiple sides
of a familiar debate and ask them to arrive at their
own reasoned position on the topic.
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Literature Review
Literature on Teaching Economics (General)
 Becker & Watts (1996)
 Colander & McGoldrick, (2009)
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Literature on Critical Thinking
Ennis (1992)
McPeck, (1981)
Thoma (1993)
Weinstein (2005)
“Starting Point: Teaching and Learning Economics”
http://serc.carleton.edu/econ/project/index.html
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What is “Starting Point”?
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“This project grew out of recent work by Mark Maier and Scott Simkins
(National Science Foundation Grants DUE 00-88303 and 04-11037)
investigating pedagogies more commonly used outside of economics
and adapting them for our discipline. Their work reveals that there are
many pedagogical innovations that economists were unaware of, at
least those teaching in the U.S. This project grew out of the recognition
that a readily accessible, comprehensive set of resources for a wide
range of pedagogical practices was needed.
Starting Point: Teaching Economics is a National Science Foundation
funded project (DUE 0817382) that is being developed in collaboration
with the Science Education Resource Center (SERC) at Carleton
College (MN) and will build on their successful Pedagogic Services
framework that makes pedagogical modules accessible to practitioners
across disciplines via a central pedagogic database.
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What is “Starting Point”?
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Starting Point is an economics pedagogic portal that seeks to:
introduce economists to innovative teaching strategies
developed both within and beyond the discipline of economics.
We are especially interested in promoting cross-disciplinary adoption
and adaptation of research-based teaching/learning practices.
provide instructors with the tools to begin integrating and
assessing these teaching strategies in their own classrooms.
Each teaching strategy included in the portal will include background
knowledge about the strategy and how best to use it, reasons for using
the strategy, and examples illustrating the teaching strategy in
practice.
promote the sharing of teaching innovations among instructors.
The Starting Point site will encourage instructors to submit classroombased examples illustrating the use of the teaching strategies included
on the site for review and cataloging. “
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Course Objectives
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To provide students with a set of concepts
and an environment to analyze and debate
the causes of the recession;
To equip students with the tools and
necessary knowledge for them to understand
and be able to explain the recession’s
unprecedented global extent;
To discuss the various approaches taken by
the U.S. and world governments to contain
the crisis and repair their economies.
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Course Objectives
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To emphasize the impact of the current crisis on the economics
profession and discuss the direction that the profession will take
from here. In doing so we explained the different approaches to
economics such as Keynesian economics, neo-classical vs.
heterodox (non-mainstream) economics, as well as behavioral
economics and their importance in better understanding that the
different explanations for the current recession offered by
economists are based on their beliefs and affiliations. This is the
reason why various economists offer explanations of the causes
and effects of the current recession that are often times in
opposition with one another.
To expose students to ideas of various economists belonging to
different schools of thought and help them realize how diverse
these ideas really are and why.
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Teaching Strategies
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Socratic method of teaching.
Lecturing.
Film screening in class (PBS, Inside the
Meltdown).
Use of video clips (rather than print sources) of
multiple contemporary economists.
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Sample Video Clips Presented
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Joseph Stiglitz: Nobel prize winning
economist calls the period between 2001 and
2007 a period of “corporate welfare”.
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Ron Paul: well-known politician with a
libertarian platform; vocal exponent of
laissez-faire capitalism.
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Sample Video Clips Presented
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Dan Ariely: proponent of behavioral economics; he
proposes behavioral economics as complement for
mainstream economics and not as a replacement.
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Nouriel Roubini: “Dr. Doom” describes the
doomsday scenarios of a recession with long lasting
effects which he refers to as a W-shaped recession.
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Sample Video Clips Presented
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Nicholas Taleb: former senior Wall Street trader, risk
expert and practitioner of mathematical finance. He
has been credited with making warnings about the
financial crisis.
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Barry Schwartz: “The real crisis? We stopped being
wise” He claims that everyday wisdom will help
rebuild our world.
http://www.youtube.com/watch?v=lA-zdh_bQBo
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Teaching Economics Using Media:
Hearing From The Experts
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“Teaching economics through media is a response to the
work done by William Becker and Michael Watts (1998,
2001, 2003, 2004, 2006) who examined the way that
economics was taught at the college level and found that
the discipline had been slow to adopt innovative
approaches to teaching.
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Preliminary evidence from Girardi (2008) and Raehsler
(2009) suggests that using media in introductory courses
makes economics more relevant to students, increases
class attendance, and raises examination scores.
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Teaching Economics Using Media:
Hearing From The Experts
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Using media is especially good for cognitive
reasoning. Bloom's (1956) taxonomy lists the
following cognitive functions: data recall,
comprehension, application, analysis, synthesis, and
evaluation. Many media provide the opportunity for
instructors to activate all six cognitive domains. “
Source:
http://serc.carleton.edu/econ/media/using_media_en
h.html
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Teaching Economics Using Media:
Professor’s Experience
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Topic immediately engaged students since
they saw its significance in their daily lives.
The choice of multiple viewpoints through
video clips emphasized the complexity of the
issue and the positions on them, moving
students away from the fiction that debates
invariably have neat pro- and con-divisions.
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More Lessons From A Personal
Perspective
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The variety of teaching methods used in this
course, mostly the non-traditional teaching
techniques such as the use of video clips
connected to the “Mysterious character” as
well as the “Where Do I Stand” exercises that
the students had to carry out, increased
students in class participation and their
interest in the course significantly.
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Lessons From The Students’
Perspective
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This strategy paid off in multiple ways as reflected by
the student evaluations.
First, it increased the appeal of the presentation and
offered opportunities for critical thinking while
allowing for extensive use of multimedia.
Second, it made economics less abstract and easier
to understand by clearly connecting it to reality.
Third, it allowed students to present a character of
their own choice (and theory; one not presented in
class) – an eloquent proof of independent critical
thinking which has shown that the course has
attained its objectives.
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Course & Instructor Evaluation By
Students: Narratives
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Content related:
“The course was very informative about what’s happening in
the world today” and was “very applicable to current events”.
“I learned more than I expected in the course of a week”.
“The course helped me thoroughly understand the causes and
possible routes the US could take to resolve the problems with
our economy”.
“The course made me a more informed citizen”.
“I felt much more enlightened after taking this class. I feel like I
am so much more aware of what’s going on in the world
because of this course”.
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Conclusion
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Overall, the short course was a success.
Four factors are responsible for its popularity:
Its emphasis on a contemporary topic (the current recession)
and using DVDs and video clips of multiple contemporary
economists (rather than print sources).
Its significance to students’ daily lives.
Its ability to convey a large amount of up-to-date information in
a short time and a palatable way by using carefully chosen
multimedia materials.
Its ability to generate critical thinking by offering students’ the
freedom to voice their own opinions and defend them in front of
a peer audience.
Can we replicate this for a semester-long course? We will try in
the fall of 2015!
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