Designing a Heterodox Undergraduate Program of Macroeconomics James Juniper, Bill Mitchell, Andrew Nadolny & Martin Watts* Centre of Full Employment and Equity The University of Newcastle NSW, Australia

* Contact author: [email protected]

Because mathematics has swamped the curricula in leading universities and graduate schools, student economists are neither encouraged nor equipped to analyze real world economies and institutions (Hodgson, 2014:1).

Abstract Teaching mainstream economics is usually based on four undesirable principles tunnel vision, perceived irrelevance, suspension of disbelief and pseudo-science (Stilwell, 2005: 107). Tunnel vision arises from a pedagogy often underpinned by a single theoretical perspective which is highly contestable when tested with empirical evidence. Perceived irrelevance is due to a lack of congruence between students’ expectations and the limited insights about real world events gained from mainstream programs. Students must suspend disbelief when arcane theoretical structures are developed which provide minimal insight about economic phenomena, but must be learnt and repeated. Fourth, mainstream economics parades as a science, but economic research and knowledge accumulation is value-laden and economists need to understand the social, political and cultural elements that inform their discipline area (Stilwell, 2005).

A course which focuses on one theoretical and policy framework limits the capacity of students to develop skills which are crucial in terms of their own career trajectories, but also in terms of broader social and economic outcomes. In particular, the capacity to engage in critical thinking is limited by such a course.

The advent of the Global Financial Crisis and the persistence of its adverse real outcomes is a case in point. The economics curriculum in many universities has failed to reflect the ongoing debate about macroeconomic theory and policy in the mainstream media and blogs, and increasingly in academic journals. Students in some developed economies have expressed major misgivings about the undergraduate teaching of economics in general and macroeconomics in particular. Students should be provided with a deep understanding of this important phase of economic history which provides an ideal platform for the careful examination of competing theoretical and policy frameworks through the adoption of a pluralist pedagogy. Teaching Modern Monetary Theory (MMT) and neo-liberalism provide a sharp contrast of perspectives. MMT is grounded in institutional practices and combines the principles of chartalism and functional finance. While conceptually challenging, MMT is clearly articulated in the extant literature and can be readily applied to key policy questions. On the other hand, neo-liberalism defers to the primacy of markets, and views the control of inflation as the major policy goal which is achieved by the active use of monetary policy, which is complemented by the pursuit of so-called sound finance.

This paper will first detail the pedagogy which informs the design of a three year sequence of macroeconomics courses at the undergraduate level at the University of Newcastle, NSW, Australia. We argue that students should be exposed to a pluralist perspective from the outset but caution must be exercised in course design, because most of the first year students will have no prior knowledge of economics and will not study Economics beyond the compulsory first year course, because they major in one or more of the Business disciplines. The restructure of the macroeconomics sequence of the Economics major commenced in 2012.

Draft: not to be quoted without permission

Introduction

Teaching mainstream economics is usually based on four undesirable principles namely tunnel vision, perceived irrelevance, suspension of disbelief and pseudo-science (Stilwell, 2005: 107). Tunnel vision arises because the pedagogy is underpinned by a single theoretical perspective based on the primacy of the free market and the rational behaviour of agents. These features of mainstream (neo-liberal) economics are highly contested, however, because they lack internal consistency and have limited accord with knowledge developed in other disciplines, such as psychology and sociology. Also mainstream economics have minimal capacity to adequately explain economic phenomena, and generate predictions at odds with known empirical facts. Perceived irrelevance arises because of a lack of congruence between students’ expectations and the insights about real world events gained from mainstream programs. Students must suspend disbelief when arcane theoretical structures are developed. They provide minimal insight about economic phenomena, but must be learnt and repeated. Finally, mainstream economics parades as a science, but economic research and knowledge accumulation is value-laden and economists need to understand the social, political and cultural elements that inform their discipline area (Stilwell, 2005). A course which focuses on one theoretical and policy framework limits the capacity of students to develop skills which are crucial in terms of their own career trajectories, but also in terms of broader social and economic outcomes. In particular, the capacity to engage in critical thinking is limited by such a course.

The advent of the Global Financial Crisis and the persistence of its adverse real macroeconomic outcomes is a case in point. The dominant neo-liberal view, as articulated by Williamson (1990), OECD Jobs Study (1994) and subsequent OECD and IMF publications (e.g. IMF, 2010; OECD, 2011), is now under sustained challenge,1 with the evident failure of loose conventional (and unconventional) monetary policy and fiscal austerity to promote growth, particularly in the Eurozone countries (Sharpe and Watts, 2012).

There has been a resurgence of the ideas of Keynes, Marx and Minsky and the realisation that understanding macroeconomics requires complex thinking not gross simplifications. Students of economics should be provided with a deep understanding of this important phase of economic history, yet the macroeconomics curriculum in many universities has not been adjusted to reflect that many of the shibboleths of neo-liberalism are under major challenge, through ongoing debates about macroeconomic theory and policy in the mainstream media and blogs, as well as, increasingly, academic journals.

Many students in developed economies, including the UK, Europe and the USA, have expressed major misgivings about the manner in which macroeconomics (and economics in general) is taught and the inflexibility of the curriculum, despite the profound impact of the GFC on macroeconomic outcomes in most developed economies. These include the Post-Autistic Economics Movement (PAEM) in Paris2, Post- Crash Society at Manchester University (http://www.post-crasheconomics.com), the Cambridge Society for Economic Pluralism and organisations at UCL, LSE and Sheffield University.3 This student dissatisfaction has yet to materialise into a coherent outline of an appropriate macroeconomics syllabus.

1 This is not to deny that the OECD, in particular, made modest concessions to its critics, prior to the GFC (see, for example, OECD, 2006), but these concessions have not been reflected in later OECD publications (Watt, 2006), which remain steadfastly neo-liberal.

2 The PAEM precedes the Global Financial Crisis and began in June 2000, when economics students circulated a petition calling for the reform of their economics curriculum.

3 In November 2011, about seventy Harvard students walked out of Economics 10, in support for the “Occupy” movement’s principal criticism that conservative economic policies had contributed to increased income inequality in the USA. The students argued that there was bias inherent in the introductory economics course taught by Professor N. Gregory Mankiw.

Concerns have also been expressed about assessment processes, with both the absence of continuous assessment and an undesirable reliance on multiple-choice tests. Further the graduate attributes which universities such as Manchester are trying to engender in their graduates would appear to be inconsistent with the orthodox perspective of their courses (Post-Crash Economics Society Report, 2014).

This paper outlines the development, since Semester 1 2012, of a three year sequence of macroeconomics courses which is offered as part of an optional major sequence in Economics within the Bachelor of Commerce at the University of Newcastle (New South Wales, Australia) with the first year macroeconomics course (along with first year Microeconomics) currently being compulsory for all students in both the Commerce and Business programs.4 The majority of students in the Newcastle Business School will not study Economics beyond the compulsory first year courses, because they choose to major in one or more of the other disciplines in the degree programs, such as Accounting or Marketing. Accordingly, the content of a core macroeconomics course must be largely self-contained, with a judicious mix of theory and policy but remain relevant and accessible to terminating students. An international perspective is adopted throughout the course sequence which highlights major differences in prevailing institutional practices of important macroeconomic institutions, such as Central Banks.

We argue that, for a meaningful learning experience and one which promotes the acquisition of the University of Newcastle graduate attributes (which apply to all undergraduate programs), students must be exposed to a pluralist perspective from the outset. The impact of the GFC on macroeconomic outcomes in developed economies provides an ideal platform for the careful examination of competing theoretical and policy frameworks. Neo-liberalism (orthodoxy) and Modern Monetary Theory (MMT) provide a sharp contrast of perspectives. Neo-liberalism defers to the primacy of markets, and views the control of inflation as the major policy goal which is achieved by the active use of monetary policy, and is complemented by the pursuit of so-called sound finance. On the other hand, MMT challenges neo- liberalism’s privileging of the market system. MMT is grounded in institutional practices and combines the principles of chartalism and functional finance. While conceptually challenging, this perspective is clearly articulated in the extant literature and can be readily applied to key policy questions.

This sharp distinction between theoretical perspectives is important for first year students, most of who have no prior knowledge of economics5, but it does run the risk of dualistic (i.e. right and wrong) thinking being perpetuated, particularly since some key areas of contestation are founded on different views about certain types of institutional practice.6 We also recognise that a pluralist teaching strategy is a potentially risky strategy, since students could potentially flounder in a sea of conflicting theories and become disengaged from the course with a detrimental impact on performance and, of course, course evaluations.

Most macroeconomics textbooks, which acknowledge competing theoretical and policy perspectives, place orthodox theory at the centre of the analytical framework, with alternative perspective(s) treated as an afterthought. Since Semester 1 2014 Newcastle first year students have been referred to carefully chosen parts of the draft chapters of the forthcoming textbook by Mitchell, W.F. and Wray, R. L. which is entitled Modern Monetary Theory and Practice, so that MMT principles are embedded in the teaching program from the early lectures of the first year course. The general sequencing of the textbook material is being

4 In regional areas of Australia, most universities no longer offer an undergraduate economics degree program, but many offer a major sequence of study in Economics, typically within a Business and/or Commerce program. On the other hand, Group of Eight universities which are located in state capital cities, such as Melbourne and Sydney, typically offer an Economics program.

5 The indoctrination of high school students in economics courses with claims about the virtues of the market system is a mixed blessing anyway.

6 An example is the orthodox money multiplier versus credit creation by banks based on cautious risk assessment. It is somewhat hard to justify the textbook version of the former, rather than the acknowledged practice of the Bank of England (McLeay, 2014) and the claims made by Constancio, Vice President of the ECB (Constancio, 2011) about the process of credit creation. followed, (with some notable topics being omitted in the first year course without a loss of continuity), but not the depth, because the book covers both Introductory and Intermediate Macroeconomics and at this stage the separation of this content has not been finalised. The students undertaking Intermediate Macroeconomics have also been referred to the textbook.

It should be noted that the restructuring of the three year sequence is incomplete. Major logistical problems were experienced, which, with hindsight were inevitable, when trying to introduce a restructured set of sequential courses, due to the macroeconomics backgrounds of the later year students differing according to when they first enrolled, whether they undertook an ordinary (3 year) degree or combined (4 year) degree and whether they had had periods of absence from University study. This has meant that there is some reiteration and reinforcement from one year to the next. Constructive advice on changes to content, and sequencing, particularly in the third year course are welcomed.

Finally the Economics Discipline at Newcastle University faces two profound challenges. The first is the current review of the Commerce and Business degree programs. Since the 1980s when Accounting became dominant in terms of the number of academic staff in most Australian universities and later when Business degrees started to be taught following amalgamations with other higher education institutions, there has been ongoing pressure to reduce the Economics component of these degree programs. Second, the University is moving to flipped classrooms and a reduction to two contact hours per week for each course, from three or more. This largely untested innovation will have a profound effect on academic teaching practices.

This paper will first detail the pluralist pedagogy which informs the design of the three year sequence of macroeconomics courses. Second, the set of Graduate Attributes (GAs) for all undergraduate courses at the University of Newcastle will be outlined. Following O’Donnell (2010, 2014) and by reference to our assessment practices and strategies to promote student engagement, we will argue that innovative teaching practices, in addition to a pluralist pedagogy, can enhance students’ acquisition of skills which constitute the GAs. We then outline the current sequence of content which makes up the three courses. Concluding comments complete the paper.

Pedagogy

Introduction Economics is a contested discipline in respect of the choice of analytical and policy frameworks. This fact informs the consideration of an appropriate pedagogy. The philosophical justification for pluralism is based on ontological claims that the nature of the world is such that it is beyond the explanation of a single theory (Dow, 2008; Holcombe, 2008), and epistemological claims that no single standard exists for declaring the one ‘best’ theory because all theories are fallible (Budzinski, 2008; Mearman, 2008; 2012). Also economic policy impacts unevenly on members of the population, which typically leads to the emergence of interest groups to propagate competing perspectives (Denis, 2009).

The evidence supports arguments that a pluralist economics curriculum develops cognitive capacities of criticism, comparison and analysis which in turn, cultivate judgement, an improved capacity to learn and integrate new material, and acquire better writing skills (Barone, 1991; Denis, 2009; Earl, 2009; Mearman, 2012; Reardon 2009; Fullbrook, 2009). Pedagogical practice which considers multiple perspectives concurrently has the benefit of allowing the student to ‘make tentative commitments to theoretical positions, whilst acknowledging that others exist’ (Mearman et al., 2012: 54).

Further, because ‘pluralism is a challenge to the heterodox and orthodox alike, it has relevance for those paradigmatically attached to the current mainstream because, as Denis (2009: 12) observes, ‘a pluralist pedagogy … promotes deeper learning of orthodox theories, by contrasting them at every point with their rivals’ (see also O’Donnell, 2010). These are positive attributes for developing life-long learning. Further a pluralist pedagogy can also spark student interest, either as a purely instrumental response or one which recognises the vocational relevance of the material (Mearman, 2012).

There are challenges nevertheless with promoting a pluralist pedagogy in Economics. Clearly, some shared perspectives on the subject matter of economics and underlying concepts at the beginning of the course are essential for all students. Mearman (2007; 2012) notes that students need to have the knowledge and confidence to critique a theory or model, and realise that their confusion is not merely their own fault. Nurturing and encouragement via positive feedback is essential when interacting with (first year) students.

A potential risk with introducing pluralism is that pushing students too quickly in this way could risk confused, nihilistic or disengaged students (Earl, 2009).7 Pluralistic thinking takes time to develop, with most students starting as dualistic thinkers. It is imperative that the lecturer communicates early and regularly with students about what s/he is trying to do (Earl, 2009; Mearman, 2012). If these opposing views are communicated and presented clearly, then this should not confuse the learning experience but rather, enhance and deepen it.

The inference then is that students should be introduced to pluralist perspective at the beginning of the teaching program. An opposing argument is that, given the complexity of macroeconomics in particular, the first year course should provide students with the capacity to understand orthodox economic principles. They should then be exposed to a diversity of views in the later year courses of the Macroeconomics sequence. With few heterodox introductory macroeconomics textbooks on offer, this is an understandable, albeit misguided, strategy to adopt in our view.

The embedding of a single approach in the first year macroeconomics course would convey the wrong impression to students about the contested nature of the discipline, so they may conclude that success in the first and later year courses merely required the learning and regurgitation of the received wisdom, rather than the engagement with and understanding of competing perspectives. Newcastle students have mentioned that the third year macroeconomics course, which has incorporated MMT principles for some years, differs from ‘orthodox’ third year courses, due to its focus on understanding, rather than rote learning (see also O’Donnell, 2014). In addition, sloppy habits of thought which are readily learned in an orthodox macroeconomics course, and are, in many instances, quite intuitive, are very difficult to unlearn.8 Some Newcastle students found that being challenged about their orthodox macroeconomic principles in second or third year to be quite confronting (see also, O’Donnell, 2014).

As teachers of economics, my colleagues and I consider that would be abrogating our responsibilities if we neglected to provide our first year students, most of whom, as noted, are terminating their study of macroeconomics, with the analytical tools to make informed judgments about the current policy debates at least in respect to exchanges in the media. The adoption of orthodoxy as the sole macro-analytical framework in the first year course means that the crucial debates about the conduct of policy to improve the life chances of citizens are somewhat distorted, via the limited analytical framework. These are not arcane exchanges which are confined to high level heterodox and orthodox academic journals, but have also been regularly debated in the mainstream media, as well as blogs, particularly since the onset of the GFC. For example, the failure to make the key distinction between sovereign and non-sovereign economies

7 The early exposure of students to blogs is very tempting in the current macroeconomic climate with the ongoing EZ soap opera, starring the ECB which continues to recommend the adoption of ineffective policies, such as Quantitative Easing, which are resisted by the Germans. Until the operation of monetary and fiscal policy and the distinction between currency issuing and currency using economies are familiar to students, a policy analysis drawing on blogs and contemporary media reports would be at best confusing and somewhat offputting.

8 An example is the assumption that all governments are subject to a budget constraint. in terms of their ability to issue their own currency, which has been highlighted during the GFC9, makes it impossible to explain the particularly adverse economic outcomes experienced by countries in the Eurozone.10

Heterodox Economics and MMT

Mearman et al. (2012: 52) suggests that ‘because heterodox theories are partly critiques of the mainstream, they are inherently (albeit not exhaustively) critical’. Pluralism is the tradition of controversy (Freeman, 2009, cited in Denis, 2009). All major economic doctrines are born and sustained in controversy. However some students perceive Heterodox Economics to be incoherent (Mearman et al., 2008; 2012; Webber and Mearman, 2012). Also, with its critical focus, Post Keynesian economics still remains vulnerable to Kregel’s observation that: ‘[M]any in the economics profession look at Post Keynesian economics as a gadfly buzzing around trying to be a nuisance by providing negative comments and critiques on such minor problems like the Cambridge controversy, but when it comes to the hard questions or providing a serious alternative theory to neoclassical economics Post Keynesians have nothing to say’ (Kregel, 1973).

A number of journals have had special issues in which heterodox economists responded to the policy issues arising from the GFC (e.g., Cambridge Journal of Economics, 36(1) and 37(3); International Journal of Political Economy, 41(2); and Review of Keynesian Economics, 1(1)). Contributors typically focused on a critique of mainstream economics, particularly in the context of the austerity debate and the associated role and conduct of fiscal policy. There is the absence of an integrated theoretical framework, however, because heterodox economics in general incorporates a number of schools of thought, including Post Keynesian, Marxian and neo-Ricardian (Sraffian).

Also, in this recent literature there has been limited formal engagement with MMT principles (Juniper et al., 2014). The choice of MMT as the competing perspective to orthodoxy is founded on its adoption of a clear, albeit counterintuitive, conceptual framework, which we embed in the early first year lectures to avoid creating confused habits of thought.

Dissatisfaction with excessive theorisation and a perceived disengagement with reality can reduce student interest in Economics (Mearman, 2012; Millmow and Bookallil, 2006). On-line survey findings suggest that confusion creates a negative perception of Economics arising from frustration, and undermines the view that an understanding of Economics helps people make better decisions, which is important to supporting the argument about the relevance of Economics to the two Business programs. Thus a sound conceptual framework rather than a surfeit of formal theory should be more favourably received by students.

Graduate Attributes and Learning Outcomes

Introduction

Stillwell makes the distinction between content and pedagogy in discussing the teaching of economics from a pluralist perspective (Stilwell, 2005; 2011; 2012, reported in O’Donnell, 2014), with the latter being associated with the selection and organization of the material and the nature of the relationships between students and the teacher, such as ‘openness to students’ views, questions and research interests’. From this perspective, a limited set of graduate attributes can be acquired, namely ‘analytical thinking, critical

9 We acknowledge that currency issuing Governments are often subject to a range of political and economic constraints, which can limit their discretionary decision making capacity. 10 This failure is not confined to macroeconomics textbooks (see Juniper et al, 2014). thinking and reflectiveness’ (see Stilwell, 2006: 44; 2011: 41, 50, quoted in O’Donnell, 2014:13; see also O’Donnell, 2004: 2010).11

O’Donnell argues that the justification for a pluralist approach to teaching can be enhanced via a broader view of both content and pedagogy. Content should be broadened to include methods of teaching that can develop the desired attributes. ‘Significant class-time needs to be devoted to activities; the activities must possess synergy (or dynamic complementarity) with the intellectual content; and activities should target multiple attributes.’ (O’Donnell, 2014:13). He outlines the learning activities which his students were engaged in, when they undertook his third year course entitled Alternative Perspectives in Contemporary Economics. Below the teaching and learning activities across the three year sequence of macroeconomics are outlined and their relationship to the acquisition of Graduate Attributes will be assessed.

The Business Council of Australia (2006) highlights the importance of innovation in promoting global competitiveness, through increased productivity. Thus, while important, the acquisition of a narrow set of technical skills by graduates is insufficient. Skills such as communication; teamwork; problem solving; creativity; ongoing learning; cultural understanding; entrepreneurship, and leadership are essential to promote innovation (see also O’Donnell, 2010:263).

O’Donnell (2010) argues that innovation is inevitably disruptive to current thinking and established practices, so there are strong parallels with pluralism. Further these graduate attributes, which clearly benefit business and the economy, also positively impact on individuals, non-business interests, and society as a whole. Thus skill development must be placed at centre of course design, along with content. He concludes that innovation outside the classroom requires innovation within it (O’Donnell, 2010:272). A scorecard is developed in which pluralism and orthodoxy are compared in respect of their respective capacities to deliver a list of desired skills (O’Donnell, 2010:271).

The University of Newcastle Graduate Attributes

Most Universities have consolidated the type of skills that they wish their graduates to acquire into a set of Graduate Attributes. A common set of Graduate Attributes (GAs) and the associated Learning Outcomes underpin all undergraduate programs at the University of Newcastle. Attributes reflect the University’s scholarly values in relation to teaching and research, the employability of its graduates and its partnerships with the community. Table 1 quotes the GAs in full (see Appendix 2 for more details). These GAs loosely align with the set of skills listed by the Business Council of Australia (2006).

We would contend that the design of our Macroeconomics sequence embraces these Graduate Attributes through i) the accumulation of well-founded knowledge and skills … (Professionalism); ii) the capacity to develop a perspective and engage in constructive public discourse to sustain communities through the teaching of these courses via the adoption of a pluralist pedagogy which has a major policy focus (Community responsiveness); and iii) the adoption of a scholarly attitude in respect of an appreciation of competing perspectives and the capacity to employ logical, critical and creative thinking to the advancement of knowledge within an international context (Scholarship).12

11 As noted above, students who undertake an economics course which adopts a single and restrictive framework of analysis, such as orthodoxy, have even less scope for acquiring graduate attributes.

12 It is noteworthy that the Post-Crash Economics Society Report (2014:34) argues that the teaching of Economics at Manchester University falls a long way short of many of the standards specified in the Manchester Matrix. This document sets out standards concerning what students should be taught and their graduate attributes. The underlying philosophy associated with the GAs is very similar to those that have been adopted at the University of Newcastle.

Table 1 Graduate Attributes at the University of Newcastle Professionalism: an attitude or Graduates of the university, through well-founded knowledge and stance towards work and activity skills within their fields of study will be enabled to act professionally with honesty and integrity within a global context. They will have the capacity to act effectively and ethically in decision-making and problem-solving and to work both autonomously and collaboratively. They will have the ability to respond effectively to change, and to seek continuous improvement in practice. Community responsiveness: an Graduates will be enabled to play effective and responsible roles as attitude or stance towards members of local, national and global communities. They will have a society capacity for perspective forming and an appreciation of the philosophical and social contexts of their disciplines. They will have the ability to engage in constructive public discourse to sustain communities. Scholarship: an attitude or Graduates of the university will have a scholarly attitude towards stance towards knowledge and knowledge and learning, demonstrated in a commitment to the learning expansion of knowledge and a respect for intellectual integrity and the ethics of scholarship. As scholars with an international perspective, they will be enabled to apply logical, critical and creative thinking to the advancement of knowledge and understanding through a capacity for rational enquiry and self- directed learning. They will be able to communicate their knowledge effectively.

Student Engagement and Assessment13

Introduction

At present, each course has a two hour lecture and a one hour tutorial. The first year course also has a one hour workshop, which is designed to enhance students’ quantitative skills by examining algebraic problems of relevance to macroeconomics. A perennial problem for teachers of large first year courses, which often include unwilling recruits, is that a relatively small proportion of students attend lectures, ostensibly given the availability on online resources, which include lecture slides being posted a few days before the scheduled lecture. The lecture is also recorded using Echo and is available to all students.

The laudable teaching objectives of Australian academics must be tempered by an awareness of the economic and social circumstances faced by the current generation of students. Most must undertake part-time work to meet living costs, at a time when a Bachelor’s degree has become increasingly necessary as a means of accessing even relatively mundane jobs. Students are also confronted by the likelihood of deregulated fees and hence higher post-University debt than was anticipated.14

13 The section draws from an earlier conference paper entitled Challenges of teaching Economics as a contested discipline, co- authored with Andrew Nadolny (2014). 14 Students can take out a contingent loan (HECS_HELP) to meet tuition costs. This scheme, which was designed by ANU economist Bruce Chapman, requires that they repay a rising percentage of their accumulated debt once their taxable income has reached a given threshold. Successive governments have increased the repayment terms. Under the recent Coalition Government budget the rate of interest on the loan will exceed the rate of inflation which is particularly disadvantageous to female students. A tax payment of 4% is required in 2013-2014 for annual incomes over $A53,345, rising in increments of 0.5% up to 8% for incomes over $A95,288. Across the OECD countries, 30% of tuition costs are recovered from students, on average, whereas in Australia the average is 55% (OECD, 2014), - prior to the proposed reforms which are meeting political opposition. Thus most students appear to be adopting an increasingly instrumental attitude to university study rather than being motivated by a deep intellectual curiosity. These salient facts undoubtedly influence their choice of undergraduate program and courses, as well as their study habits. They fail to engage with the material, so reluctant rote learning of the material occurs when exams loom, rather than a longer term commitment in understanding the material. Second, with their instrumental mindsets, students do attend tutorials if sufficient assessment marks can be earned but the extent of their participation tends to be low. Consequently, past tutorials often degenerated into a monologue by the tutor with the occasional contribution from the more engaged students.

Tutorials

In Semester 2, 2012, we introduced a new structure for the tutorials in ECON1002 to promote more active engagement by students. Four tutorial questions are set each week (following a lecture on the topic) for the following week, with the first question being assessable, if the student chooses to submit a typed answer at the beginning of the following tutorial.

At the beginning of each tutorial the class roll is taken by the tutor, who then divides the students into 4 groups. The tutor may give specific guidance for particularly challenging questions. The 4 groups of students are then each allocated one of the four questions, including the assessable question. For up to 20 minutes students then have the opportunity to jointly formulate an answer to their allocated question. During this time, the tutor monitors the discussions, possibly asking group members questions and providing guidance.

Each group then has a maximum of 5 minutes to outline their answer to the question. There is a main speaker, but another member of the group may also speak. Each member of the group is entitled to earn one mark each week, based on the quality of the group answer which is presented. The fourth question tends to be more discursive and policy oriented, in case time is running short. The questions are designed to require students to demonstrate their understanding of material rather than merely reproduce factual material. This leaves up to 10 minutes for further discussion of the answers, which is led by the tutor. In the next tutorial, students are assigned to different groups15, questions are again assigned16 and different students must present the answers. Each student must act as a main speaker at least once during the semester.

Assessment Structures

The tutorial format remains more or unchanged, across the three years at present, although there is some variation of assessment weight. The course content across the 3 years is still in a state of transition, given the need to accommodate students who have not undertaken earlier courses in the new sequence. A broader range of economic perspectives will be introduced in third year, so there will be scope for other forms of interactive assessment in tutorials, including debates, creative writing and games, which are conducted in the third year course described by O’Donnell (2014) and contribute to the acquisition of Graduate Attributes.

15 O’Donnell (2010: 268) argues that in his third year course at least, groups have relatively constant membership to promote teamwork. A problem is that students who have language difficulties may end up being concentrated in particular groups, which is likely to lead them to usually achieve poor marks. There are also socialisation benefits to all students being required to interact with students from different cultures. Also groups with a consistent composition and undertaking more substantial ‘projects’ need to have a set of protocols to address problems associated with some members not pulling their weight.

16 Records are kept of the questions assigned to each student, and hence the group to which they belonged. A significant percentage of the overall weight of assessment is devoted to examinations associated with different degrees of formality, but the overall assessment weight of examinations diminishes from 80% to 60% over the 3 years. While examinations are imperfect forms of assessment, to the extent that they are designed to test understanding, rather than the recollection of facts, they are a useful gauge of students’ competence in a course. There is limited reliance on multiple choice questions, so structured short answer questions and longer essay questions are set, as well.

Table 2: Student Learning Outcomes in the Three Year Sequence of Macroeconomics ECON1002: Macroeconomics & the Global Economy 1. Utilise basic macroeconomic concepts and theoretical principles to understand the evolution of the macroeconomy and how it impacts on both the welfare of households and the sustainability of business organisations. 2. Access economic data which are pertinent to contemporary macroeconomic debates and use numerical and graphical techniques to analyse these data. 3. Demonstrate that Macroeconomics is a contested discipline with different intellectual perspectives on the most appropriate way to manage the macroeconomy. 4. Adopt critical and adaptive thinking to assess current media and government reports about macroeconomic analysis and policy, with particular reference to the Global Financial Crisis. 5. Interpret and effectively communicate economic processes and policies to suit the context and audience. 6. Demonstrate that a solid understanding of Macroeconomics is important for a well-rounded education in the Business and Commerce disciplines, since it underpins informed business decisions. ECON2002: Intermediate Macroeconomics 1. Assess competing theoretical arguments about the operation of the macroeconomy. 2. Access and analyse macroeconomic data which are pertinent to contemporary macroeconomic debates in Australia and overseas. 3. Engage in critical thinking through the comparative assessment of competing macroeconomic models and policy frameworks. 4. Collaborate with fellow students in the evaluation and presentation of arguments about macroeconomic theory and policy.

ECON3008: International Macroeconomics 1. Assess competing theoretical arguments about the operation of the macroeconomy and its impact on the labour market; 2. Demonstrate a deep analytical understanding of contemporary public policy issues; 3. Access and analyse macroeconomic data which are pertinent to contemporary macroeconomic and labour market debates internationally; 4. Engage in critical thinking through the comparative assessment of competing macroeconomic and labour market models and policy frameworks; 5. Engage in team processes to analyse and communicate data outcomes.

The major essay in third year is designed to develop research skills in the composition of a structured, coherent piece of work, in which a body of literature is being assessed (see Table 4). The capacity to write relatively short answers to structured tutorial questions is also a valuable skill, because it provides students with the experience to identify key points from a web search or from specific references. For example policy advisors to government ministers need to be able to generate short summaries of key points about issues of the day.

At this stage, no formal study has been conducted about student perceptions of this form of tutorial structure or the structure of assessment as a whole. The difficulty of assessing its desirability as compared to the more traditional tutorial format in first year Microeconomics, is that the comparison will be biased by views about the challenges of understanding the content of the two courses and other distinctive features of the courses.

Table 3: Assessment in the Three Year Sequence of Macroeconomics ECON1002: Macroeconomics & the Global Economy Description Weight (%) Quiz SLO 1 & 3; 10 multiple choice questions: 15 minutes 10 Mid-semester Test SLO 1 - 3; 5 multiple choice questions + 4 short answer questions: 50 20 minutes Tutorials: Assessment of Group Work SLO 1-6; See main text 10 Assessable Questions SLO 1-3; See main text 10 Final Exam SLO 1 – 3, 6; 4 Compulsory Questions: Monetary Policy; Fiscal Policy; 50 GFC; & Debates in Macroeconomic Policy +2 Questions out of 4: 2.5 hours

ECON2002: Intermediate Macroeconomics Written Assignments SLO 1-3; 5 assessable tutorial questions + engagement in tutorials 30 Quiz SLO 1 & 3; 1 question out of 2: application of critical thinking & 10 problem solving in assessing theory and policy. Class Exam SLO 1&3; 3 short answer questions: 50 minutes 20 Final Exam SLO 1&3; 7 essays and short answer questions 40

ECON3008: International Macroeconomics Tutorials: 10 Assessment of Group Work SLO 1 – 5; See main text 10 Assessable Questions SLO 1 –4; See main text Major Essay SLO 1 –4; 2500 words with choice of three topics. Assessment criteria 20 shown in Table 3. Mid-Semester Test SLO 1 –4; 3 Questions out of 5: 45 minutes 15 Final Exam SLO 1 –4; 4 Questions out of 7: 2.5 hours 45 SLO denotes Student Learning Outcomes, see Table 2. All exams and tests are closed book.

The anecdotal evidence is that this format provides a more informal tutorial environment, which improves the relationship between the tutor and students, as well as engaging students more directly with the material in general, rather than a single assessable question each week. Some first year student find the format, at least initially, somewhat intimidating, with responses to evaluations along the lines of how would they be expected to understand the material sufficiently to be able to provide an oral answer. Clearly there is much to learn about first, how the lecture material should be presented, given students’ disinclination to read recommended references, and how the questions should be framed. The view of many students appears to be that if they do not have immediate understanding, then too bad, at least until the final exam arrives, when, as noted above, rote learning is the preferred mode of study. As teachers we continually try to emphasise the importance of understanding, which while challenging, is a much more satisfying learning mode. This requires that we make clear to the students what the learning expectations are. The shift from passive to active learning is crucial, not merely due to the tutorial format, but also the contested nature of the material.

This transition to a more active form of student learning and engagement has turned out to be timely, because the University of Newcastle is moving towards flipped classrooms, which will occur across the whole Business School when the Faculty of Business and Law moves into Newcastle from West Newcastle in 2017. The limited space at the new site precludes the building of large lecture theatres. Under the flipped classroom arrangement, it is anticipated that courses will run for two hours per week in the form of ‘lectorials’, rather than the two hour lecture, one hour tutorial format. The new arrangement is also designed to reduce the demands on teaching space. It is likely that each two hour session will consist of a sequence of short segments of material, via a recording by the course coordinator or a video acquired from the internet. These segments will be broken up by a series of classroom exercises, which require that students have already engaged in some preparatory work and are able to engage actively in these tasks, some of which will be assessable. The design of courses under this arrangement will be a major challenge to academic teachers, given their reduced face to face contact with students. An analysis of the pedagogic benefits of this form of teaching is beyond the scope of this paper.

Table 4: Assessment Criteria for Major Essay in ECON3008 Structure: Research Skills: • Relevance to the topic as set • Awareness of appropriate and/or relevant sources • Depth of treatment of the topic • Breadth of preparatory reading • Clear indication of aims/intentions/objectives • Depth of preparatory reading • An appropriate conclusion • Use of all sources • Adequate/appropriate acknowledgement of sources • Correct or consistent citation/referencing technique

Argument/Analysis: Writing Style • Logically developed argument • Meets essay preparation guidelines • Clear understanding of relevant terms/concepts • Fluency of writing • Accurate presentation of data/evidence • Succinctness/precision of expression • Accurate presentation of the views of other writers in • Grammar/sentence construction the field • Spelling/proof-reading • Original or creative approach • Appropriate use of paragraphing • Appropriate length • Legibility and lay-out

Course Content

Introduction In this section we provide a summary of the current course content over the three year sequence. It should be noted that the completion of the three year undergraduate program yields an ungraded pass degree. Proficient students, with a Grade Point Credit Average (65%) or above, have the opportunity to undertake a fourth year (graded) Honours program, which currently consists of five courses and a research thesis of 15,000 words. These students are exposed to more analytically challenging material. The Honours program provides students with improved access to career positions in both the public and private sectors and Honours 2:1 normally secures entry into the Research Higher Degree program i.e. Masters or PhD, with a four year scholarship available to students who secure First Class Honours and undertake a PhD.

In the following discussion, we focus mainly on the first year course in which the MMT conceptual framework is introduced. The majority of this class are unwilling conscripts, which makes teaching that much more challenging particularly when students are still coming to terms with the challenges of University study and have a high rate of attrition.

First Year Course The starting point of the course is a statement about the subject matter of economics, in general, in which the mainstream is contrasted with a heterodox perspective. The fundamental question is whether the economic system is naturally self-correcting due to the laws of supply and demand and will ‘naturally grow’ or whether the government should intervene in the economy.

Orthodoxy views individual behaviour as rational and the market system as inevitable in that it has an essential logic (Husserl). Markets resolve the problem of allocating scarce resources among unlimited wants (‘the economic problem’). On the other hand, heterodox economics emphasises that humans are, above all, social animals and are interdependent, with their behaviour being influenced by institutions, culture and society. Economics is about ‘the study of the social creation and social distribution of society's resources’ (Mitchell and Wray, 2014:5). Neoclassical economics presumes resources (including labour) are scarce, but the most important resource in any economy is labour. However in capitalist economies labour is almost always in excess supply (unemployed).

Decision making is confronted by endemic uncertainty. The distribution of income is not determined by an impersonal market system but by the interaction of forces including power, discrimination, collusion, corruption and cooperation, which in some societies, such as the USA, is leading to rising inequality. Market prices are largely administered by firms with market power, whereas wages are set through bargaining processes in which employers typically have more power. Simple principles of output and employment determination are outlined, with a focus on wages being both a cost of production (supply) and a major source of income (demand impact).

The distinction between microeconomics and macroeconomics is made and to overcome the simple minded view that macroeconomics is simply micro ‘added up’, reference is made to the fallacy of composition, which is explored in greater detail in Lecture 2. The core macroeconomic proposition is outlined, namely that total spending equals total income and total output. In turn, total employment is determined by total output. Key macroeconomic questions and policy objectives are outlined. Since transactions are enacted by the use of currency, the role of government is argued to be central, since in most developed economies, a fiat currency is issued by the national government. Through its spending the currency-issuer potentially has a significant impact on the level and growth in output; the rate of unemployment; and the rate of inflation. The relationship between the balances of the government and the non-government sectors is shown, with the surplus of one sector being matched by a deficit of the other. More generally, students are given an understanding of the operation of currency regimes and the constraints they impose on government, i.e. the subject matter of Modern Monetary Theory.

Lecture 1 concludes with a discussion of macroeconomics and the public purpose which identifies a clear role and capacity for government, since the operation of the invisible hand is denied. Public purpose is hard to define precisely and it is evolving, but must include i) the human rights identified in the UN Charter which more broadly can be identified with social inclusion, and hence the need for a reduction of racial, ethnic, and gender inequalities across the full socio-political-economic spectrum; ii) the objective of raising living standards, particularly for those at the bottom of society; and iii) environmental sustainability.

In Lecture 2, the fallacy of composition is outlined in detail to emphasise the importance of the separate study of macroeconomics. Reference is made to framing and metaphors, because the language by which economics is communicated is very powerful and influential (Mitchell and Wray, 2014). For example, in reference to the budget deficit, in Australia, and no doubt elsewhere, statements are made about the ‘budget black hole’ and the country ‘living beyond its means’. Likewise quantitative easing is viewed as ‘printing money’ by the central bank, as opposed to the CB initiating an asset swap. Another misleading claim is that financial prudence is essential for households and equally applies to a federal Government which issues its own currency.

Examples are provided of the phenomena that a macroeconomist should be able to explain, including persistent unemployment, periods of high inflation, and the impact of persistent deficits on interest rates and inflation rates, which are informed by the type of currency regime which is operating. A brief discussion is provided of the rise of monetary capitalism and its defining features. It is emphasised that there is nothing natural or inevitable about this particular form of economic system. In the second half of Lecture 2, we choose to provide the students with an elementary treatment of the labour market accounting framework, which incorporates a broader measure of labour underutilisation which includes discouraged unemployment and underemployment. The exact scheduling of this segment of the course is optional. However the discussion of the individual and social costs of labour underutilisation and the definition of full employment provides a link to and reinforcement of the earlier sub-topic, Macroeconomics and the Public Purpose.

The national accounts lecture (L3) provides a fairly traditional treatment via the three forms of measurement of GDP. As is customary, attention is paid to the exclusions from GDP and its deficiencies as a measure of welfare, including inequality which is measured via the Gini coefficient. Nominal and real GDP are defined. Students are introduced to the distinction between horizontal transactions between agents belonging to the non-Government sector and vertical transactions between the government and non- government sector. Also the distinction is made between stocks and flows.

The unique status of a government with a sovereign currency as a currency-issuer is re-emphasised in Lecture 4. Amongst orthodox economists ‘money is what money does’, so the discussion of a monetary economy typically follows the real expenditure model. Amongst heterodox economists the origins of money are a source of some dispute (for a summary, see Juniper et al., 2014), but for practical purposes the fact is that the government authorises what is the accepted money of account (currency) for the payment of taxes, which is the unit of account for measurement purposes. In this section the features of a fiat currency are outlined. Finally the point is made that, as the currency issuer, the Treasury can never run out of money and/or default on debt denominated in its own currency

In the Keynesian cross (aggregate expenditure) model (L4 and L5), government spending and taxing should be viewed as central to the operation of the real economy, rather than commencing the analysis with a simple economy consisting of consumption and investment expenditure, which is then supplemented with the inclusion of government spending and taxation, and then net exports.

Entry into both Business Programs is based on high school mathematics being what is euphemistically referred to as ‘assumed knowledge’. Consequently most students are relatively weak in algebra, so that blinding the students with elaborate algebraic expressions to illustrate the variation of the multipliers under models of increasing complexity (e.g. an open economy) is counter-productive and could lead to students failing to recognise the relatively straightforward messages from the AE model. These are i) the principle of effective demand: total expenditure determines total production, income and employment; ii) the resulting level of employment is not necessarily consistent with full employment; iii) the presence of endogenous components of expenditure means that the multiplier effect exceeds unity; and iv) the paradox of thrift. This summary is outlined at the beginning of the topic.

A simple markup pricing model is used to motivate the assumption that the price level is relatively stable until full employment is reached, so that the AE model can be considered as a model of real spending. The important distinction is made between the stock of capital and its utilisation. The markup pricing model is also useful in understanding inflationary dynamics.

Three models of the inflation unemployment relationship are presented in Lectures 6 and 7, which at first sight would appear to be an unnecessary theoretical indulgence, given the quality and commitment of many of the students. The period after World War 2 when the full array of macroeconomic policy instruments was used to target a low unemployment rate in many countries, including Australia, is notable because it has not been replicated since then. The Phillips curve tradeoff is introduced along with Lipsey’s explanation of labour markets tightening prior to full employment.

We provide a simplified treatment of the Expectations Augmented Phillips Curve. The long-standing influence of this model on macroeconomic policymaking means that it cannot be ignored. The alleged cyclical insensitivity of the Natural Rate of Unemployment (NRU) means that the NRU can be considered as a barrier to a lower unemployment rate. Thus the unemployment/inflation space is divided at the NRU with lower unemployment being associated with rising inflation and higher unemployment being associated with a declining inflation rate.

The so-called modern theory of inflation denies that the official unemployment rate is the only labour market variable which impacts on the inflationary process. Reference is made to the composition of total unemployment between short and long term unemployment, and the incidence of underemployment, all of which impact on inflation. The NRU can no longer be considered insensitive to the business cycle, so that hysteresis is present. Under plausible assumptions the long run tradeoff between inflation and unemployment is restored.

Also in Lecture 7, some introductory statements are made about the roles of the Central Bank. A simple example of a transaction involving the shift of deposits between customers of different banks (a shopper and a retailer) is presented which provides a justification for the operation of the payments system (and hence the need for commercial banks to hold reserves at the Central Bank). It is emphasised that outlining the manner in which Central Banks claim to perform their roles (e.g. Open Market Operations) is not based on abstract theorising as such, but is institutional practice designed to ensure the interbank rate hits the target. This does not mean that some practices are not above criticism. For example the UK Treasury provides a somewhat dubious justification for the full funding of its (fiscal) financing requirement.17 An introductory understanding of financial assets is developed with a particular focus on the inverse relationship between the asset price and rate of return.

In Lecture 8, a balance sheet analysis is then employed to illustrate how the Central Bank affects an announced change in the target interbank rate via Open Market Operations (OMO). The yield curve (YC) is introduced and then the hypothesised effect on the YC and aggregate spending following a change in monetary policy is outlined. A comprehensive evaluation of the advantages and disadvantages of monetary policy is provided. An introduction to the role of a Treasury in a sovereign economy in terms of spending and taxing is provided. The relationship between the balances of the government and non-government sectors are noted.

In Lecture 9, the sectoral balance relationships are explored in more detail by an initial reference to a closed economy and then an open economy. These fundamental relationships are only revealed via a macroeconomic treatment of the economy. Automatic stabilisers are explained. A balance sheet analysis is used to illustrate net spending by Treasury and its implications for monetary management by the Central Bank. For ease of explanation, it is assumed that the Central Bank can purchase Treasury debt on the primary market.18

The competing perspectives about the impact of expansionary fiscal policy are illustrated via reference to the identity:

(G - T) + iB ≡ ∆HPM + ∆B

which is interpreted an ex ante Government Budget Constraint (GBC) by orthodox (and some heterodox) economists and as an ex post relationship by others, including MMT advocates. The GBC is the vehicle by which the orthodox critique of expansionary fiscal policy can be illustrated, with reference to both crowding out and inflation.19 Whether the CB has the discretion to set the composition of the RHS of the

17 [T]he Government believes that the principles of transparency and predictability are best met by full funding of its financing requirement; and to avoid the perception that financial transactions of the public sector could affect monetary conditions, consistent with the institutional separation between monetary policy and debt management policy. (HM Treasury, 2012: 8; emphasis added) quoted in Juniper et al. (2014: 292).

18 MMT advocates assume that Treasury and the Central Bank can be consolidated for purposes of introductory exposition. Via a balance sheet analysis, Tymoigne and Wray (2013) show that there is no practical difference if the Central Bank is confined to the secondary market when it purchases Treasury debt (see also Lavoie, 2013; Juniper et al., 2014; Tymoigne, 2014).

19 The arguments about inflation, via the quantity theory of money are outlined in Lecture 10. identity depends on the prevailing institutional arrangements, noting that the first stage of the enactment of expansionary policy is necessarily an increase in the stock of high powered money (equaling the net injection of spending) via the expansion of the bank deposits of the private sector. An elementary and intuitive algebraic discussion is provided of the relationship between fiscal deficits and the accumulation of debt, noting the key parameters of interest rate and real growth rate. The different interpretations of the relationship between deficit and debt dynamics are highlighted, as well as the limitations of the algebra, which are informed by MMT thinking.20

In Lecture 10, a series of broad policy issues are outlined before some key debates are explored. The policy independence which arises from currency sovereignty is articulated and the priority which should be afforded to full employment as a policy goal. It is argued that sustained balanced or surplus budgets cannot be a universal policy objective for national governments which pursue the goal of persistent full employment.21 The relationship between the conduct of macroeconomic policy and inflation is explored by reference to the targeting of the money stock and interest rate targeting. These debates incorporate the question of the exogeneity of the money supply, the money multiplier and the quantity theory. The Bank of England has now conceded on the first two of these issues, but doggedly adheres to the quantity theory of money. The implications of exploiting employment buffer stocks, by utilizing a Job Guarantee, as compared to unemployment buffer stocks, are explored, with the latter being characteristic of contemporary macroeconomic policy in most developed economies. The lecture concludes with a comparison of the efficacy of a Job Guarantee as opposed to pump priming. At this stage students have gained some understanding of the way monetary and fiscal policy is conducted. They can now further develop their critical facilities by being exposed to contemporary economic commentary, from both mainstream media as well as blogs.

Lecture 11 provides an introductory treatment of trade and exchange rates, reflecting the fact that Australia is a relatively open economy. The topics include the balance of payments, the foreign exchange market; determinants of exchange rates based on the simple flow of funds theory and one based on expectations of key economic variables; the two speed economy; fixed and flexible exchange rates; international competitiveness and the sterilisation of capital flows as a part of monetary management. The point is made that integral to the MMT policy framework are flexible exchange rates. Brief reference is made to the view that the composition of the balance of payments does not matter.

The final lecture, before the revision lecture, is dedicated to a chronology of the emergence and impact of the Global Financial Crisis. So, in summary, students are exposed to the reasons for the widespread issue and sale of collaterised debt obligations and also credit default swaps and the fact that, while the US housing market was continuing to boom, the key participants in promoting the growth of home lending were not subject to risk. The circumstances leading up to the collapse of house prices, the ensuing financial crisis and how a real crisis was initiated are documented. Finally the disparate economic outcomes for the sovereign, as compared to non-sovereign, economies are analysed, which reinforces the key message about the importance of policy sovereignty. First year students are not exposed to the broader Minskian analysis of capitalism, per se, which is founded on the premise that economic stability is inherently destabilising.

20 For example, both the interest rate and growth rate are typically assumed to be exogenous, yet the central bank sets the target interbank rate and even the ECB has the capacity to influence longer term rates, as illustrated by the impact of Outright Monetary Transactions in 2012 on the rates for peripheral economies. The growth rate is assumed independent of the conduct of fiscal policy.

21 This simple application of national accounting identities challenges the neo-liberal prescription of sound public finance.

The lecture material is challenging for first year students, but those who gain an understanding of the material, rather than trying to rote learn it, are in a position to understand debates about economic policy which are reported in the media and also engage in informed discussions of policy themselves.

Second Year Our discussion of the second year curriculum is rather briefer. The broad objectives of the course are threefold, namely to i) provide context for the MMT analytical and policy framework, through a discussion of Keynes and the Classics, and the Z/D model and by replacing simplifications, such as the CB buying newly issued Treasury debt on the primary market, by real world practices; ii) consolidating the orthodox analytical framework, via the IS-LM model22 and a more rigorous treatment of the Expectations Augmented Phillips curve; iii) exploring modern schools of economic thought and iv) addressing contemporary policy issues such as the ageing population and twin deficits and outlining and critically assessing unconventional forms of macroeconomic policy, including Quantitative Easing and Overt Monetary Financing.

Students are reminded of key concepts underpinning the MMT and orthodox analytical and policy frameworks in Lecture 1, which includes a brief review of the first year course. A detailed analysis of Keynes and the Classics is introduced in Lecture 2. The Z-D analysis is introduced in Lecture 3, which builds on markup pricing theory which was developed in the first year course. The integration of price theory into the model of employment determination is highlighted, which differentiates it from the AE model. The IS- LM analysis is carefully developed and critically assessed from a heterodox perspective in Lectures 4 and 5. A more technically advanced treatment of inflation theory is outlined in Lectures 6 and 7, which illuminates the properties of different inflation specifications, including that associated with the presence of a Job Guarantee, which is underpinned by the notion of the NAIBER – the Non-Accelerating Inflation Buffer Employment Ratio.

Further reiteration of key MMT concepts and the institutional practices which underpin the conduct of monetary and fiscal policy is provided in Lectures 8-9.23 The distinction between Functional Finance and Sound Finance was again made in Lecture 8 and the role of the Central Bank in liquidity management in the context of the operation of fiscal policy is outlined. The simplification that the CB can purchase newly issued Treasury debt on the primary market is removed, so that Treasury must sell debt to the non- Government sector, prior to spending. A more rigorous treatment of the deficit debt relationship is presented in Lecture 8. The possibility of bondholders’ income constraining the incumbent government’s fiscal program is also considered. The argument that taxes drive money is again spelt out.

The implementation of monetary policy and its ostensible objectives are reiterated in L9. The advantages and disadvantages of exploiting unemployment buffer stocks as a means of controlling inflation via MP with/out Inflation Targeting are examined. The process of Quantitative Easing (which is enacted differently in USA, UK and Japan) is described, along with its ostensible objectives. The concept of the money multiplier and the associated claim that QE is inflationary due to ‘Money Printing’ is critically assessed. Overt Monetary Financing (OMF) is defined and the motivation for its implementation is explained. The promotion of OMF raises some interesting questions about the degree of independence of the Central

22 We do not build on the IS/LM framework to establish the Aggregate Demand and Supply model, which is typically employed in Introductory and Intermediate textbooks. We would argue that the latter model adds nothing to students’ understanding of the macroeconomy and has flawed theoretical foundations based on contested self-correcting mechanisms (see, for example, Hall and Treadgold, 1982).

23 A small number of the second year students in 2014 undertook an orthodox first year course at Newcastle prior to 2012. Hence some reiteration, over and above the summary of the first year course in Lecture 1, was necessary. Bank and its relationship with Treasury, with advocates of OMF all supporting the view that the CB should have the capacity to constrain Treasury spending. This opinion is critically assessed.

In L10 open economy and trade issues are reviewed. The significance of the Balance of Payments for sovereign and non-sovereign economies is considered. A formal analysis of trade within the aggregate expenditure model is undertaken. The interpretation of the twin deficits identity is carefully outlined. In L11 Modern Schools of Thought are reviewed, notably New Classical, Real Business Cycle, New Keynesian, New Monetary Consensus Macro (and DSGE Models) and Heterodox: Post Keynesian, Institutionalist, Marxist, and MMT.

In Lecture 12 a number of contemporary policy debates are analysed, including the ageing crisis. Within this broad policy framework, the rationale for the Australian Commission of Audit’s terms of reference and its recommendations for expenditure cuts, tax increases and cuts in transfers to improve the budget outcome are critically assessed.

Third Year (2015)

The lectures start with a revision of material undertaken in second year. A series of policy topics are developed, all of which draw on contemporary documents, namely Supply Side Reform, Austerity, the reform of the Eurozone or its break up, Currency Crises and Capital Controls and Environmental Sustainability and Economic Growth. The supply side reform topic juxtaposes the initiatives taken by governments to improve the employability of the unemployed with the reality that vacancies are typically dwarfed by the level of unemployment, let alone underemployment and discouraged unemployment.

The Austerity topic will provide some case studies of the adoption of austerity measures (including since the GFC) and how policymakers have responded to the emerging contradictions between their policy claims and macroeconomic outcomes. Reference will be made to the recent book by Mark Blyth, entitled Austerity: History of a Dangerous Idea. The Eurozone topic contrasts the proposals for the internal reform of the Eurozone with its breakup, with particular reference to the restoration of policy sovereignty for countries which leave the Eurozone and restore their own currencies.

The lecture on Currency Crises and Capital Controls documents some important crises including the Asian Financial Crisis, the events leading to the departure of the UK from the Exchange Rate Mechanism and the Mexican Peso Crisis (see Mitchell and Wray chapter). This topic enables a careful examination of the merits of fixed versus flexible exchange rates and could be rescheduled to the Trade topic in the second year course. The final policy debate surrounds Environmental Sustainability and its compatibility or otherwise with economic growth. The topic explores the applicability of a Job Guarantee to mediate the potential conflict between these two policy objectives, since the commitment to full employment counters the inevitable pressure to maintain environmentally unsustainable industries, such as the logging of old growth forests and coal mining, but, at the same time, enables the promotion of sustainable energy sources through public investment and training. This topic represents a strand of the Triple Crisis, as articulated by Christine Lagarde, Managing Director of the International Monetary Fund.

In Lecture 7 an advanced theoretical treatment of the Global Financial crisis is presented in which a Minskian perspective is adopted (drawing on Wray’s work) which is based on the proposition that economic stability is inherently destabilising. A lecture on Financial Instability and Reform explores contemporary policy proposals, but notes the inherent tension with the Minskian proposition. This lecture draws on the insightful work of Tcherneva concerning the ineffectiveness of trickle down policies and hence the need to adopt policies that promote consumption expenditure. The course concludes with a series of three lectures which focus on the labour market, with firstly an examination of Australia’s wage fixing arrangements, that has a particular focus on the principles for annual Minimum Wage setting. The second lecture explores the competing theoretical models of the determination of executive pay, with a particular emphasis on Australia and the USA, and examines various policy proposals to address the issue of ‘excessive’ pay. Finally wage and income inequality is documented and competing theoretical explanations are examined. It is noted that Piketty’s recent book investigates the economic fortunes of a small minority of the working population, so while policies need to be designed to address the inevitable equity issues, more attention needs to be devoted to the economic outcomes of the remaining 99% (or 99.9%!) of the population, which points to full employment guarantees, regular active minimum wage adjustment and a growing social wage. The topic of income inequality is also highlighted as the third strand of the Triple Crisis, which according to Lagarde requires a coordinated policy response.

Conclusion

The objective of the three year sequence of macroeconomics is to provide students with a clear understanding of how most topics are highly contested, which justifies the pluralist teaching model from the outset. The decision has been made to place MMT and orthodoxy at centre stage, since they are quite distinct analytical and policy frameworks. In 2015 course content should stabilise, with the reduced need for repetition, so competing perspectives will be taught, in both the second and the third year course. Students are not expected to graduate with refined theoretical modelling capacity, which is developed in the Honours year, but rather have a keen appreciation of the nature of the contestation, and most importantly an understanding of the policy debates which are played out almost daily in the media, blogs and in the academic journals.

While we are convinced of the benefits of a sequence of pluralist courses for students’ acquisition of Graduate attributes, we still need to persuade our reluctant conscripts in the first year course that economics course(s), while challenging, provide a critical understanding of key policy issues. This is both relevant to them as students in Business and Commerce programs, but also in their future professional careers and is intrinsically interesting to them both as citizens. Our experience is that students need to be consistently reminded about the foundation role of economics in Commerce and Business programs and hence the strong links between economic concepts and theory and Discipline areas such as Accounting, Finance, Marketing, IRHR and International Business. We want our students to develop an ability to think logically, laterally, critically and creatively; as well as be able to synthesise a range of perspectives.

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Wray (2014) Modern Monetary Theory and Practice, mimeo O’Donnell, R. (2010) 'Economic Pluralism and Skill Formation: Adding Value to Students, Economies and Societies', in Economic Pluralism, Garnett R., Olsen E., & Starr M. (eds), Routledge: London: 262-77. O'Donnell, R.M. (2014) ‘What do Graduate Attributes Have to do with Political Economy?’, in Schroeder S. and Chester L. (eds), Challenging the Orthodoxy, Springer, 57-76. OECD (2011) ‘The Fiscal Imperative’. OECD publications, Paris. Available at: http://www.oecd.org/document/10/0,3746,en_2649_201185_46847370_1_1_1_1,00.html OECD (2014) Education at a Glance 2014: OECD indicators, OECD publications, Paris. Post-Crash Economics Society Report (2014) Economics, Education and Unlearning: Economics Education at the University of Manchester Reardon, J. (ed) (2009) The Handbook of Pluralist Economics Education, London: Routledge. Sharpe, T. and Watts, M.J. (2012) ‘Policy Advice in Crisis: How Inter-Governmental Organisations have responded to the GFC’, Journal of Australian Political Economy, 69, Winter: 103 – 133. Sharpe, T. and Watts, M.J. (2013) ‘Unconventional Monetary Policy in the UK: A Modern Money Critique’, Economic Issues, 18(2)41-63 Stilwell, F. (2005) 'Teaching political economy: Curriculum and pedagogy', Proceedings of the 11th Australasian Teaching Economics Conference, Sydney. Tymoigne, E. and L.R. Wray (2013) ‘Modern Monetary Theory 101: A reply to critics’ The Levy Economics Institute working paper no.778, November. Tymoigne, E. (2014) ‘Modern Monetary Theory, and Interrelations between the Treasury and Central Bank: The Case of the United States’, Journal of Economic Issues, 48(3): 1-22. Watt, A. (2006) Assessing the reassessment of the OECD jobs Strategy: eppur si muove ? European Economic and Employment Policy, ETUI Policy Brief, 2. Watts, M.J. (2010) ‘How should Minimum Wages be set in Australia?’, Journal of Industrial Relations, 52(2), 131-149 Watts, M.J., Sharpe, T.P., and J. Juniper (2014) ‘Reformation or exodus: Assessing the future of the euro’, The Economic and Labour Relations Review, 25(3), 465-483. Webber, D. J. and Mearman, A. (2012) Students’ perceptions of economics: Identifying demand for further study. Applied Economics, 44 (9). 1121-1132. Williamson, J. (1989): ‘What Washington Means by Policy Reform’, in: Williamson, J. (ed.): Latin American Readjustment: How Much has Happened, Washington: Institute for International Economics. Appendix 1: Course Outlines

Table A1: First Year Macroeconomics, 2014 Lecture Topic References Lecture 1 Introduction: Chapter 1 Introduction • What is Economics? Two Views (Subsections 1.1 -1.3) • What is macroeconomics? • Macro & the public purpose: Human Rights and the Public Purpose

Lecture 2 Fundamentals of Macroeconomic Theory & the Macroeconomy: Chapter 4 How to think • Thinking in a Macroeconomic Way & do Macroeconomics • What Should Macroeconomic Theory be Able to Explain? (4.1 - 4.2) • Overview of capitalism

Introduction to Labour Markets: Chapter 14 Introduction • Introduction to labour markets (14.1 • Labour underutilisation – 14.3; 14.5; 14.7) • Individual and Social costs of labour underutilisation • Full Employment

Lecture 3 Introducing GDP: Chapter 3 National • How do we measure economic performance Income Accounting (3.1 • Measuring National Output: defining GDP – 3.6 • Three measures of GDP: • Expenditure approach • Income approach • Value-added approach • Limitations of GDP • GDP Versus GNP • Real and Nominal GDP

• Circular flow of Income

• Economic role of Government: Vertical & Horizontal transactions Chapter 5.1 only ‘Basics • Stocks and flows: of stocks and flows’

Lecture 4 Introduction to Sovereign Currency: Chapter 6 Introduction • National currencies to Sovereign Currency • Sovereignty and currencies (6.1 - 6.5) • What might ‘back up’ a currency? Gold? • Legal tender and fiat currency • Taxes drive money • How stocks and flows are denominated in the money of account • Money as an electronic scoreboard • Floating versus fixed exchange rate systems • Money as different forms of IOU

The Aggregate (or real ) Expenditures model: Chapter 12 The real expenditures model • The Aggregate Expenditures model: consumption & savings (12.1 - 12.10) • Introducing Private Investment

Lecture 5 The Aggregate Expenditures model (continued) • The expenditure multiplier • The Paradox of Thrift • Conclusion

Aggregate Supply: Chapter 13 Aggregate • Aggregate supply: an employment- output function Supply (13.1 - 13.4) • Wage Determination • Price Determination • Properties of the Aggregate Supply function

Lecture 6 Unemployment and Inflation: Chapter 17 • What is inflation? Unemployment & • Demand-pull and cost-push inflation Inflation (17.1; 17.7 - • Conflict theory of inflation 17.12) • Mark-up, the real wage, conflict & inflation • Impacts of Inflation: • Hyperinflation • Deflation • Inflation theories: three historic phases • Phillips curve • Expectations Augmented Phillips Curve

Lecture 7 • Unemployment and Inflation (continued) • Inflation theories: three historic phases (cont.) • Modern theories recognising precarious employment • Hysteresis: Chapter 14.8

Central bank & monetary management • The Central Bank: Chapter 9.1 • Monetary Management

Lecture 8 Central bank, monetary management & monetary policy • The Conduct of Monetary Policy • Introduction • ESA Reserves • OMO: Cash Rate increase* RBA on OMOs: • Yield Curve http://www.rba.gov.au • How Does MP Impact on the Macroeconomy? /mkt-operations/dom- • Official Rates mkt-oper.html • Annualised CPI growth • Evaluating Monetary Policy

• What are Public Bonds?

Treasury & the conduct of fiscal policy

• The Treasury: Chapter 9.2 • Stocks, flows & balances: Chapter 1.2 • Automatic stabilisers

Lecture 9 Treasury & the conduct of fiscal policy • Coordination of Monetary & Fiscal Policy • Government budget constraint: competing views: Chapter 19.1 • Functional Finance: MMT:

Debates in Macroeconomic Policy • Deficits and Debt

Lecture 10 Debates in Macroeconomic Policy (ctd.) • Currency Sovereignty & Policy Independence: Chapter 9.5 • FE as a policy goal: Chapter 19.3 • Macroeconomic Policy and Inflation: • Monetary Targets versus Interest Rate Targets: Chapter 20.1. • Horizontalism: Chapter 20.2 • Fiscal Policy & Inflation: Chapter 19.4 • Buffer Stocks: Chapter 18.1, 18.2, 18.4

Lecture 11 Open Economies Chapter 21.1, 21.2 • Introduction • Balance of Payments • Foreign Exchange Market • Exchange Rate Determination • Flow of Funds • Underlying Economic Factors • Two speed economy • Fixed v Flexible Exchange Rates • International Competitiveness: Chapter 21.2 • Sterilisation of Capital Flows: Open Economy Considerations: Chapter 9.4

Lecture 12 The Global Financial Crisis: A Chronology Watch The Crisis of • What Caused the Crisis? credit: • Financial Crisis (FC) to Real Crisis http://crisisofcredit.com • Falling growth, rising U • Eurozone (EZ): European Union • GFC: Policies • Why are EZ countries performing so poorly? • What are the Solutions? • Maintain the EZ • Peripheral Countries leave the EZ?

Lecture 13 Revision Chapter references refer to Mitchell and Wray (2014)

Table A2: Second Year Macroeconomics, 2014 Lecture Topic References Lecture 1 Introduction: Review of major concepts & theories from 1st year macroeconomics Lecture 2 Keynes & the Classics Chapter 15 Lecture 3 Review of AE models. Development of (Post) Keynesian Z-D Analysis Chapter 11 Lecture 4 The IS-LM model I Chapter 16 Lecture 5 The IS-LM model II Chapter 16

Lecture 6 Advanced Treatment of Unemployment & Inflation I Chapter 17 Lecture 7 Advanced Treatment of Unemployment & Inflation II Chapter 17 Lecture 8 Advanced Treatment of Fiscal Policy Chapter 19 • Fiscal Policy in Sovereign Nations • Functional Finance versus Sound Finance • Debt Sustainability

Lecture 9 Advanced Treatment of Monetary Policy Chapter 20 • Monetary Policy – Costs of Inflation Targeting • Fiscal Policy & Monetary Management • Quantitative Easing • Overt Monetary financing • Independence of the Central Bank

Lecture 10 Open economy Chapter 21 • International Competitiveness • International trade & the aggregate expenditure (AE) model. • Current Account Balance for Sovereign & Non-Sovereign Countries • Twin Deficits

Lecture 11 Modern Schools of Thought Chapter 24 • New Classical • Real Business Cycle • New Keynesian • New Monetary Consensus Macro (and DSGE Models) • Heterodox: Post Keynesian, Institutionalist, Marxist, and MMT

Lecture 12 Policy debates: Chapter 25 • Commission of Audit report • Ageing, Social Security, & the Intergenerational Debate

Lecture 13 Revision Chapters refer to Mitchell and Wray (2014)

Table A3: Third Year Macroeconomics, 2014 (key references) Lecture Topic & References Lecture 1 Course Overview & Revision Lecture 2 Debates in Macroeconomic Theory & Policy: (1) Supply Side Reform Dogs & Bones parable (compulsory reading!) http://e1.newcastle.edu.au/coffee/education/education_view.cfm?ID=1 OECD (1994) The OECD Jobs Study, Facts, Analysis, Strategies, Paris: OECD Publications, 45-53. http://www.oecd.org/dataoecd/42/51/1941679.pdf OECD (2006) Boosting Jobs and Incomes: Policy Lessons from Reassessing the OECD Jobs Strategy, Paris: OECD Publications. OECD (2009) Beyond the crisis: Medium term challenges relating to potential output, unemployment and fiscal positions, Chapter 4, OECD Economic Outlook, 85, Paris: OECD Publications. Watts, M.J (2012) ‘The role of the OECD in the design of macroeconomic and labour market policy: Reflections of a heterodox economist’, mimeo, Centre of Full Employment and Equity, 4-5, 7-8. Mitchell, W. (2006) ‘The failed vision of the Welfare-to-Work package’, Centre of Full Employment and Equity Working Paper No. 06-03, The University of Newcastle, 6-16. Lecture 3 (2) Austerity Agenda Blyth, M. (2013) Austerity: History of a Dangerous Idea, New York, Oxford University Press. TBA Lecture 4 (3) Eurozone: Internal Reform or Breakup? Watts, M.J., Sharpe, T.P., and J. Juniper (2014) ‘Reformation or exodus: Assessing the future of the euro’, The Economic and Labour Relations Review, 25(3), 1-19. Auerback, M. (2012) A(nother) Proposal for Saving the Euro Zone: Guest post. http://yanisvaroufakis.eu/2012/06/28/another-proposal-for-saving-the-euro-zone- guest-post-by-marshall-auerback/ Lecture 5 (4) Currency Crises and Capital Controls Mitchell and Wray (2014) Chapter 21.5- (Billy Blog (2013) External Economy Considerations parts 5-10.) Lecture 6 (5) Environmental Sustainability & Economic Growth Mitchell and Wray (2014) Chapter 25.5. Lecture 7 GFC: Advanced Theory Wray, L.R. (2009) ‘Money Manager Capitalism and the Global Financial Crisis’, Working Paper No. 578, The Levy Economics Institute of Bard College. Wray, L.R. (2011) ‘Minsky Crisis’, Working Paper No. 659, The Levy Economics Institute of Bard College. Mitchell and Wray (2014) Chapter 26: Macroeconomics in the light of the Global Financial Crisis Lecture 8 MID-SEMESTER TEST Lecture 9 Financial Instability & Reform Mitchell and Wray (2014) Chapter 23 Stabilising the unstable economy. Mitchell, W.F. (2012) ‘New central bank initiative shows governments are not financially constrained’, Billy Blogs Tuesday, January 24, http://bilbo.economicoutlook.net/blog/?p=17889 Lecture 10 Wage Determination: (1) (Minimum) Wage Policy LaJeunesse, R., Mitchell, W.F. and Watts, M.J. (2006) ‘Economics and Industrial Relations: debunking the Myths’, Teicher, J and Lambert, R (eds.) Workchoices: the New Industrial Relations Agenda, Pearson Education, Camberwell, Victoria, Australia. Watts, M.J. and Mitchell, W.F. (2008) ‘Wages and Wage Determination in 2007’, Journal of Industrial Relations, 50(3) 408-412. Fair Work Australia (2012) http://www.fwa.gov.au Watts, M.J. (2010) ‘How should Minimum Wages be set in Australia?’, Journal of Industrial Relations. 52(2), 131-149. Lecture 11 (2) Executive Pay Capezio, A., Shields, J. and O’Donnell, M. (2006) ‘CEO Pay-Performance Sensitivity in Australian Listed Companies, 1999 to 2005’, mimeo, University of Melbourne, especially 1-3, 7-9. Shields, J. (2005) ‘Setting the Double Standard: Chief Executive Pay the BCA Way’, Journal of Australian Political Economy 56: 299–324. Productivity Commission (2009) Executive Remuneration in Australia, Productivity Commission Inquiry Report No. 49, 19 December. Chia, G. and Miller, P. (2008) ‘Tertiary Performance, Field of Study & Graduate Starting Salaries’, Australian Economic Review, 41(1), 15-31. Lecture 12 (3) Wage and Income Inequality (Triple Crisis) Watson, I. (2002) ‘Wage Inequality and Underemployment: Australia in the 1990s’, Journal of Industrial Relations, 44(1), 88-107. OECD (2008) Income inequality and poverty rising in most OECD countries, http://www.oecd.org/document/25/0,3343,en_2649_201185_41530009_1_1_1_1,00.html OECD (2011) Divided We Stand Why Inequality Keeps Rising, OECD. http://www.oecd.org/dataoecd/40/58/49170768.pdf OECD (2011) Divided We Stand Why Inequality Keeps Rising, Country Note: Australia, OECD, Paris. http://www.oecd.org/dataoecd/50/48/49177643.pdf Rodgers, J.R., Siminski, P. and Bishop, J. (2009) ‘Changes in Poverty Rates during the Howard Era’, Australian Economic Review, 42(3), 300–320. Lecture 13 Revision

Appendix 2 4.4. Within each of these overarching attributes is a combination of six overlapping clusters of skills and abilities: i. Oral and written communication: Graduates of the University will recognise and value oral and written communication as tools for negotiating, creating, interacting, relating to others, supporting new understanding, and furthering their own learning; ii. Teamwork: While graduates of the University are able to work independently, they also understand and recognise the importance of collaboration and being a reliable, committed, responsible and productive team member; iii. Information literacy: Graduates of the University are able to locate, analyse, evaluate and synthesise information from a wide variety of sources; iv. Ability to use technology: Graduates of the University are proficient in the appropriate use of contemporary technologies and are adaptable to emerging technologies within their disciplinary context; v. Problem solving: Graduates of the University are curious and imaginative thinkers with a desire to meet new challenges and uncover creative solutions; and vi. Ability to critically analyse: Graduates of the University will question existing knowledge by identifying, defining, analyzing and resolving problems. Our graduates have the curiosity to explore, create, be imaginative when presenting alternative solutions.