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