Revamping the Economics curriculum

1. Revamping the Economics curriculum By Peter Harkness Swinburne University ATE Conference, Brisbane, July 2009

2. Orthodox economics • I have been teaching Economics for over twenty five years • I have become concerned about how narrow, unrealistic, and abstract it often is • It usually ignores the major economic problems facing mankind (e.g. hunger). • In that it is about markets, it might seem to be very relevant to our lives in modern capitalist society • The problem is (1) it ignores key features of capitalism (like who owns what) and (2) markets rarely work as it describes

3. C.E.S. • A pedagogical advantage has been lost with the near demise (with the Berlin Wall) of courses in Comparative Economic Systems. • These courses helped students understand the pervasive power of the market by describing economies without markets • CES courses also considered ownership of the factors of production.

4. Microeconomics • The usual microeconomics courses are presented as being value free and apolitical. • They are not. They assume, at the least, that there are markets (as the main co-ordinating mechanism) not planning. They also assume that there is predominately private ownership, which in turn assumes the State has enacted appropriate laws of contract, etc.

5. Micro says mkts give efficiency • Micro is based on the theory of perfect competition, and shows students that markets will allocate our scarce resources efficiently • BUT, the theory is based on the following assumptions: - • Very many small firms • A standardised product • No non-price competition

6. Assumptions, (cont.) • Firms are all price takers • There are no barriers to entry or exit • Everyone has perfect information • In addition, choice is generally seen as a good thing, so is consumption, while work is generally seen as bad (i.e. yields disutility : hence we must be paid). But all of these assumptions are dubious.

7. Reality • Economic theory should attempt to describe reality. • Karl Popper would say that if economic theory can not be tested as true or false (“falsified”), it is not scientific. And if it can be tested and is found to be wrong it should be discarded. Conventional micro theory struggles on both criteria.

8. A legion of renown critics • Many well known economists have pointed out the flaws in orthodox economic theory • For example, Joan Robinson, J.K. Galbraith, Herman Daly, Joseph Stiglitz, Gunnah Myrdal, and Australians Ted Wheelwright , Frank Stillwell, and Geoffrey Harcourt.

9. The Cambridge Capital Controversy • Joan Robinson argued, inter alia, that the theory has no logical explanation of income distribution. She suggested, the explanation in reality was the bargaining power of the owners of the factors of production. • Paul Samuelson, after an unsuccessful but spirited defence of neoclassical economics conceded Joan Robinson was right; but said he would choose to continue believing in orthodox economics, even if only as “A matter of faith” ! • Most orthodox economists have done the same .

10. A concession : imperfect comp. • Standard Micro courses do at least make a concession to reality by including a few lectures on monopolistic competition, oligopoly and monopoly. This is good. But it is rarely developed to a point of being able to make any conclusions about how pervasive (and problematic?) imperfect competiton is. • Students are told they make “above normal profits”. But by how much? And who gets it? • Assiduously it seems we ignore distribution (even conspiratorially??!!)_

11. Obsessed with efficiency? • It is very likely that a slightly more equitable income distribution would produce a much greater increase in social welfare, than finessing the allocation of resources through freer markets (via competition policy or FTAs, privatisation or deregulation). Why therefore don’t we focus a little on income distribution. • In my view the argument that you can’t compare people’s utility, is not a sufficient justification for hiding this MAJOR issue from our students

12. Politics is too dirty • The reason we omit any formal discussion of distribution may well be that it is simply seen as too political; and /or value laden; subjective, etcetera. • But surely, this is the point. Economics is all these things. That is why it used to be called “Political Economy” (and still should be?) Orthodox economists are guilty of misrepresenting it .

13. Market failure • Most courses include a topic on market failure. This is good. But it is rarely given its full import. • Market failure is essentially why governments do most of what they do (e.g. defence, education, health, roads, parks, etc) Given that the public sector is typically at least a quarter of the GDP and the economy, perhaps a quarter of Micro should be about governments and Politics?

14. Equilibrium Vs harmony • Another concern is that, in Micro and even Macro we talk so much about “equilibrium” and it being the right outcome, that Economics students might emerge thinking social problems (like poverty, and hunger ) are less serious than they are. “Equilibrium” can easily be interpreted as similar to harmony.

15. One billion people • The world’s food markets can be in equilibrium but one billion people can still be hungry. This is equilibrium, but not harmony. • In market economies, the people on the lower half of the demand curve (beneath the equilibrium price) miss out. Too bad when it is a staple product like food. We don’t discuss these issues in most courses.

16. Macroeconomics • In a sense, Macro is more pragmatic. But it is narrow and disappointing in some ways. • Again, it ignores major social and economic problems like poverty, hunger, environmental degradation, the conflict between encouraging exponential growth of GDP and our planet’s resources being finite.

17. Is Fiscal Policy too political ? • Macro has become preoccupied, at the expense of all else, with stabilisation policy. Worse still, until this year, teaching about stabilisation policy, usually meant teaching about monetary policy (interest rate changes) and precious little about Fiscal Policy. Was Fiscal Policy seen as too political? Too likely to lure our students into the real world of complexity, subjectivity, and “Normative Economics”.

18. A contradiction? • In Micro we emphasis that free markets will allocate our scarce resources efficiently and move us constantly toward the production possibility frontier, and a Pareto optimum. Then in Macro we spend a lot of the course describing deflationary gaps, unemployment, and recessions. • Is there an implied contradiction here, which might confuse our students. If Micro shows how efficient capitalism can be, why isn’t it when looked at in Macro?

19. Do we turn out right wingers? • By focusing so much on stabilisation policy as being the answer to unemployment, we fail to educate our classes in the many other important aspects of unemployment; such as how unemployment varies with class, and the social status of suburbs, and with race, etc. • If we ignore such aspects, there is a danger many Economics students will remain a prisoner of popular conservative prejudices (e.g. that the poor have only themselves to blame, or that the unemployed are just lazy, etc .) As teachers we must disillusion them by pointing out for instance that the main cause of unemployment is a lack of jobs. Typically the unemployed exceed vacancies by 4 or 5 times.

20. Macro courses and text books • It concerns me that most Macro courses seem to discuss only two social problems: inflation and unemployment. • What about the environment, poverty, hunger, health and education. These all affect and are affected by the macro economy. They are all key economic and social problems that are central to peoples lives and the economy. • But when I surveyed ten popular Economics text books (see the Appendix to my paper), I found that most of them ignored all these aspects of the economy; a few considered one or at most two. • Again, this narrowness, is likely to prevent our students from gaining a political balance.

21. Conclusion One • In conclusion, it is my view that the orthodox Micro and Macro Economics courses typically taught at many universities are diddling our students. • They are too narrow : economically, politically, historically, socially, and environmentally. • If we continue to exclude all this, we are left with nothing useful or realistic.

22. Conclusion Two • Another point that is important to make in concluding is that some economics courses have become very mathematical or econometric. What ever the merits and demerits of this approach, in my view it certainly does little if anything to solve the problem of narrowness. In deed, it may well worsen it, by making the students overly anxious about the maths rather than reality.

23. Outline of a new broader curriculum • In the Attachment at the back of the paper, you will find a description of an alternative syllabus for 1st Year Economics. • It is only a rough outline, and has been put together rather quickly. It could well be altered and improved. But its greater breadth will be apparent and ought to be retained in any revamping. • Hopefully, there will be time to discuss this. THE END Thank you.