Teaching of Macroeconomics After the

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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

• 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

• 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 Post-Crisis Changes Does
  the Economics Discipline Need? similar
  sentiments were expressed by European and British
  economists

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Motivation what practioners think

• 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.h
  tml
• http//www.theguardian.com/education/2014/may/04/e
  conomics-students-overhaul-subject-teaching

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So, what is the problem?!

• 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

• 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/vie
  w/art6Oct14Features.html

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Quote Practical problems

• 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

• 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/economics-blog
  /2014/aug/24/nobel-winning-economists-challenge-co
  nventional-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

• 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 Rs
• Ricardian equivalence (and fiscal neutrality)
• Real Business Cycle
• Representative agent
• Rational Expectations
• Risk neutrality

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The fallacy of an universalist model

• Rajan calls it the irrelevance theorems THE
  JOURNAL OF ECONOMIC EDUCATION, 41(4), 398402,
  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 doesnt 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.

• 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.

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Why history?

• 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
  self-evident 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

• 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/d
  etail.cfm?r_id83165294-571e-4940-af70-8939434adb2
  8 
• 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/res
  ources/inflationtools/balloon/default.aspx

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An example Monetary policy

• Explain and demonstrate Simple DSGE type models
  (Mankiw Chapter 15)
• What are the policy objectives of CBs? Why
  doesnt the CB target asset inflation? Can
  aggregate demand effects counteract positive and
  negative supply shocks?
• 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-unfortun
  ate-uselessness-of-most-state-of-the-art-academic-
  monetary-economics/

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Actual short course at RollinsResearch
Questions on Teaching Strategy

• 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

• 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

• 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)
• 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?

• 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?

• 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 classroom-based
  examples illustrating the use of the teaching
  strategies included on the site for review and
  cataloging.

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Course Objectives

• 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 recessions 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

• 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

• 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

• Joseph Stiglitz Nobel prize winning economist
  calls the period between 2001 and 2007 a period
  of corporate welfare.
• Ron Paul well-known politician with a
  libertarian platform vocal exponent of
  laissez-faire capitalism.

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Sample Video Clips Presented

• Dan Ariely proponent of behavioral economics he
  proposes behavioral economics as complement for
  mainstream economics and not as a replacement.
• 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

• 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.
• Barry Schwartz The real crisis? We stopped
  being wise He claims that everyday wisdom will
  help rebuild our world. http//www.youtube.com/wat
  ch?vlA-zdh_bQBo

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Teaching Economics Using Media Hearing From The
Experts

• 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.
• 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

• 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_enh.html

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Teaching Economics Using Media Professors
Experience

• 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

• 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

• 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

• Content related
• The course was very informative about whats
  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
  whats going on in the world because of this
  course.

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Conclusion

• 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!