The Economic Crisis: a challenge for Economics Education

1. The Economic Crisis: a challenge for Economics Education Steve Hurd, UK, EU, WorldDoris Valente, Italy, EU, WorldBirgit Weber, Germany, EU, World

2. Stages in the Economic Crisis • THE GOLDEN AGE? Pre-2007 World Economy expanding rapidly • Freer trade and globalisation • Growth of financial markets & instruments • Debt financed expansion • Rising real incomes • Convergence of living standards across Europe and the World • Infrastructure investment – boom in domestic housing and commercial building. • Universal Happiness !!??

3. Stages… • 2007 SHOCK OF FINANCIAL CRISIS • Lehman Brothers – sub-prime mortgage collapse • Major Clearing Banks left with bad debts • Bank bailouts  Rise in government debt • Collapse of housing markets • Banks and governments at mercy of rating agencies

4. Stages… • RESPONSE TO THE SHOCK • Banks: collapse, recapitalise or nationalised • Governments: cut spending & raise taxes • EUROZONE problems – loss of national control of: • Exchange rate • Interest rates • Fiscal policy Insufficient free movement of labour and capital, fiscal harmonisation and regional transfers.

5. Stages… • EFFECTS OF CRISIS • Consumer and business confidence collapses • Fall in investment and economic growth • Export markets collapse • Unemployment rises • Borrowing and Debt “Increases” • Credit ratings fall • Regional and international inequality grows • Political divisions within Europe – mutual blame • Universal Sadness!!??

6. How do we begin to teach this? Effective teaching starts by: • Discovering what students know and believe already • Engaging with and building upon this Current economic crisis is a perfect opportunity to ask students to apply and explore the limitations of the economics they are being taught. But syllabuses and assessment must allow this.

7. Survey of European Students • What do students know about the crisis? • What questions are they asking? • What causes are they stating? • What evidence is there of misunderstanding of facts and processes? • How do we need to modify our teaching and learning approaches?

8. EU student perceptions of the crisis Key words (n=404) Questions (n=1013)

9. Two Groups of Students Key words exercise GROUP A GROUP B From ITALY (n=168) From GERMANY (n=93)

10. Students’ questions ITALIAN Group (n=505) GERMAN Group (n=245)

11. To what extent do you agree that the following have contributed to causing the current economic crisis?

12. In order to solve the crisis in YOUR COUNTRY it is necessary to...

13. In order to solve the Crisis in the EUit is necessary to

14. We all have a mission! Hope Economics Teachers LIGHT The Confused Masses ECONOMIC CRISIS EU Politicians

15. Contribution of Economics Education • Knowledge of economic institutions, concepts and theories • Skills and competencies (application/research) • Distinguishing “cause” and “effect” • Understanding trade-offs between desirable objectives – opportunity cost • Being clear about “attitudes” and “values”

16. Useful concepts and theories… Free Markets & Market Failure How Economies Adjust to Shocks Keynesian& New Classical Theories Theory of Optimal Currency Areas Asymmetric Information Market Regulation/ Deregulation Theory of Clubs/ Moral Hazard

17. Club Theory In this club we take care of all our members But we do expect all our members to keep to the dress rules But I prefer to wear denim Basic trade-off is between desire of a club to grow and retain members while preserving the club rules..

18. Optimal Currency Area Conditions(After Mundell) • Sufficient similarity among countries to prevent asymmetric shocks. • A high degree of labor mobility and/or wage flexibility. • A centralized fiscal policy that transfers resources from countries that are doing well to those that are doing poorly.

19. The Values Dimension • The welfare of all human beings is equally important! Social equity/fairness. • Need to empathise with the predicament of each country e.g. Greece, Germany. • Recognition that the health of the European Economies matters to the nations of Europe, and also to the rest of the world. • With the need for global cooperation on environment and climate matters we need to avoid “beggar my neighbour” policies/ protectionism.

20. End Time for questions & discussion

21. Supplementary slides

22. The Survey: Countries 680 Participants, 97 % from EU by July 2012 • Italy 30 % 189 • Austria 23 % 148 • Germany 20 % 129 • Ireland 12 % 76 • France 6 % 35 • United Kingdom 6 % 35 • Bulgaria 2 % 11 • Netherlands 1 % 7 and others …

23. The Survey: Sex • Male 43 % 238 • Female 57 % 321 Answered questions 559, skipped 104

24. The Survey: Age Born • 1994 (18/19) 31 % 164 • 1993 (17/18) 24 % 124 • 1995 (16/17) 21 % 110 • 1992 (15/16) 13 % 67 • 1996 (14/15) 11 % 58 Answered question 523, skipped 140

25. The Survey: Subjects IGEA/ Mercurio 25 % 111 Social (Science) Studies 20 % 88 Economics 19 % 72 Business 15 % 66 Politics & Civics 9 % 37 Science économiques et sociales 5 % 23 (419 answered questions, 244 skipped)

26. Your view to the counter-factual statement “The answer to the current crisis is to allow your country’s currency (e.g. the euro) to fall in value, to lower interest rates, to increase government spending and lower taxes in order to create more jobs.”