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

Revamping the Revamping the Economics Economics curriculumcurriculum

By By Peter HarknessPeter Harkness

Swinburne UniversitySwinburne UniversityATE Conference, Brisbane, July ATE Conference, Brisbane, July

20092009

Orthodox economicsOrthodox economics

I have been teaching Economics for over I have been teaching Economics for over twenty five yearstwenty five years

I have become concerned about how I have become concerned about how narrow, unrealistic, and abstract it often isnarrow, unrealistic, and abstract it often is

It usually ignores the major economic It usually ignores the major economic problems facing mankind (e.g. hunger).problems facing mankind (e.g. hunger).

In that it is about markets, it might seem In that it is about markets, it might seem to be very relevant to our lives in modern to be very relevant to our lives in modern capitalist societycapitalist society

The problem is (1) it ignores key features The problem is (1) it ignores key features of capitalism (like who owns what) and (2) of capitalism (like who owns what) and (2) markets rarely work as it describesmarkets rarely work as it describes

C.E.S. C.E.S.

A pedagogical advantage has been A pedagogical advantage has been lost with the near demise (with the lost with the near demise (with the Berlin Wall) of courses in Comparative Berlin Wall) of courses in Comparative Economic Systems.Economic Systems.

These courses helped students These courses helped students understand the pervasive power of the understand the pervasive power of the market by describing economies market by describing economies without marketswithout markets

CES courses also considered CES courses also considered ownership ownership of the factors of production.of the factors of production.

MicroeconomicsMicroeconomics

The usual microeconomics courses are The usual microeconomics courses are presented as being value free and presented as being value free and apolitical.apolitical.

They are not. They assume, at the least, They are not. They assume, at the least, that there are markets (as the main co-that there are markets (as the main co-ordinating mechanism) not planning. They ordinating mechanism) not planning. They also assume that there is predominately also assume that there is predominately private ownership, which in turn assumes private ownership, which in turn assumes the State has enacted appropriate laws of the State has enacted appropriate laws of contract, etc.contract, etc.

Micro says mkts give Micro says mkts give efficiencyefficiency

Micro is based on the theory of Micro is based on the theory of perfect competition, and shows perfect competition, and shows students that markets will allocate students that markets will allocate our scarce resources efficientlyour scarce resources efficiently

BUT, the theory is based on the BUT, the theory is based on the following assumptions: -following assumptions: -

Very many small firmsVery many small firmsA standardised productA standardised productNo non-price competitionNo non-price competition

Assumptions, (cont.)Assumptions, (cont.)

Firms are all price takersFirms are all price takersThere are no barriers to entry or exitThere are no barriers to entry or exitEveryone has perfect informationEveryone has perfect information In addition, choice is generally seen as a In addition, choice is generally seen as a

good thing, so is consumption, while good thing, so is consumption, while work is generally seen as bad (i.e. yields work is generally seen as bad (i.e. yields disutility : hence we must be paid). disutility : hence we must be paid).

But all of these assumptions are dubious.But all of these assumptions are dubious.

RealityReality

Economic theory should attempt to Economic theory should attempt to describe reality.describe reality.

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

A legion of renown criticsA legion of renown critics

Many well known economists have Many well known economists have pointed out the flaws in orthodox pointed out the flaws in orthodox economic theoryeconomic theory

For example, Joan Robinson, J.K. For example, Joan Robinson, J.K. Galbraith, Herman Daly, Joseph Galbraith, Herman Daly, Joseph Stiglitz, Gunnah Myrdal, and Stiglitz, Gunnah Myrdal, and Australians Ted Wheelwright , Frank Australians Ted Wheelwright , Frank Stillwell, and Geoffrey Harcourt.Stillwell, and Geoffrey Harcourt.

The Cambridge Capital The Cambridge Capital ControversyControversy

Joan Robinson argued, inter alia, that the Joan Robinson argued, inter alia, that the theory has no logical explanation of income theory has no logical explanation of income distribution. She suggested, the explanation in distribution. She suggested, the explanation in reality was the bargaining power of the owners reality was the bargaining power of the owners of the factors of production.of the factors of production.

Paul Samuelson, after an unsuccessful but Paul Samuelson, after an unsuccessful but spirited defence of neoclassical economics spirited defence of neoclassical economics conceded Joan Robinson was right; but said he conceded Joan Robinson was right; but said he would choose to continue believing in orthodox would choose to continue believing in orthodox economics, even if only as “A matter of faith” !economics, even if only as “A matter of faith” !

Most orthodox economists have done the same Most orthodox economists have done the same ..

A concession : imperfect A concession : imperfect comp.comp.

Standard Micro courses do at least make a Standard Micro courses do at least make a concession to reality by including a few concession to reality by including a few lectures on monopolistic competition, lectures on monopolistic competition, oligopoly and monopoly. This is good. But it oligopoly and monopoly. This is good. But it is rarely developed to a point of being able is rarely developed to a point of being able to make any conclusions about how to make any conclusions about how pervasive (and problematic?) imperfect pervasive (and problematic?) imperfect competiton is.competiton is.

Students are told they make “above normal Students are told they make “above normal profits”. But by how much? And who gets it?profits”. But by how much? And who gets it?

Assiduously it seems we ignore distribution Assiduously it seems we ignore distribution (even conspiratorially??!!)_(even conspiratorially??!!)_

Obsessed with efficiency?Obsessed with efficiency?

It is very likely that a slightly more It is very likely that a slightly more equitable income distribution would equitable income distribution would produce a much greater increase in social produce a much greater increase in social welfare, than finessing the allocation of welfare, than finessing the allocation of resources through freer markets (via resources through freer markets (via competition policy or FTAs, privatisation or competition policy or FTAs, privatisation or deregulation). Why therefore don’t we focus deregulation). Why therefore don’t we focus a little on income distribution. a little on income distribution.

In my view the argument that you can’t In my view the argument that you can’t compare people’s utility, is not a sufficient compare people’s utility, is not a sufficient justification for hiding this MAJOR issue from justification for hiding this MAJOR issue from our studentsour students

Politics is too dirtyPolitics is too dirty

The reason we omit any formal The reason we omit any formal discussion of distribution may well be discussion of distribution may well be that it is simply seen as too political; that it is simply seen as too political; and /or value laden; subjective, and /or value laden; subjective, etcetera.etcetera.

But surely, this is the point. Economics But surely, this is the point. Economics is all these things. That is why it used is all these things. That is why it used to be called “Political Economy” (and to be called “Political Economy” (and still should be?) Orthodox economists still should be?) Orthodox economists are guilty of misrepresenting it .are guilty of misrepresenting it .

Market failureMarket failure

Most courses include a topic on market Most courses include a topic on market failure. This is good. But it is rarely given failure. This is good. But it is rarely given its full import.its full import.

Market failure is essentially why Market failure is essentially why governments do most of what they do governments do most of what they do (e.g. defence, education, health, roads, (e.g. defence, education, health, roads, parks, etc) Given that the public sector is parks, etc) Given that the public sector is typically at least a quarter of the GDP and typically at least a quarter of the GDP and the economy, perhaps a quarter of Micro the economy, perhaps a quarter of Micro should be about governments and Politics?should be about governments and Politics?

Equilibrium Vs harmonyEquilibrium Vs harmony

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

One billion peopleOne billion people

The world’s food markets can be in The world’s food markets can be in equilibrium but one billion people can equilibrium but one billion people can still be hungry. This is equilibrium, still be hungry. This is equilibrium, but not harmony.but not harmony.

In market economies, the people on In market economies, the people on the lower half of the demand curve the lower half of the demand curve (beneath the equilibrium price) miss (beneath the equilibrium price) miss out. Too bad when it is a staple out. Too bad when it is a staple product like food. We don’t discuss product like food. We don’t discuss these issues in most courses.these issues in most courses.

MacroeconomicsMacroeconomics

In a sense, Macro is more pragmatic. In a sense, Macro is more pragmatic. But it is narrow and disappointing in But it is narrow and disappointing in some ways.some ways.

Again, it ignores major social and Again, it ignores major social and economic problems like poverty, economic problems like poverty, hunger, environmental degradation, hunger, environmental degradation, the conflict between encouraging the conflict between encouraging exponential growth of GDP and our exponential growth of GDP and our planet’s resources being finite. planet’s resources being finite.

Is Fiscal Policy too political ?Is Fiscal Policy too political ?

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

A contradiction?A contradiction?

In Micro we emphasis that free markets In Micro we emphasis that free markets will allocate our scarce resources will allocate our scarce resources efficiently and move us constantly toward efficiently and move us constantly toward the production possibility frontier, and a the production possibility frontier, and a Pareto optimum. Then in Macro we spend Pareto optimum. Then in Macro we spend a lot of the course describing deflationary a lot of the course describing deflationary gaps, unemployment, and recessions. gaps, unemployment, and recessions.

Is there an implied contradiction here, Is there an implied contradiction here, which might confuse our students. If Micro which might confuse our students. If Micro shows how efficient capitalism can be, why shows how efficient capitalism can be, why isn’t it when looked at in Macro?isn’t it when looked at in Macro?

Do we turn out right wingers?Do we turn out right wingers?

By focusing so much on stabilisation policy as being By focusing so much on stabilisation policy as being the answer to unemployment, we fail to educate our the answer to unemployment, we fail to educate our classes in the many other important aspects of classes in the many other important aspects of unemployment; such as how unemployment varies unemployment; such as how unemployment varies with class, and the social status of suburbs, and with with class, and the social status of suburbs, and with race, etc. race, etc.

If we ignore such aspects, there is a danger many If we ignore such aspects, there is a danger many Economics students will remain a prisoner of popular Economics students will remain a prisoner of popular conservative prejudices (e.g. that the poor have only conservative prejudices (e.g. that the poor have only themselves to blame, or that the unemployed are themselves to blame, or that the unemployed are just lazy, etc .) As teachers we must disillusion them just lazy, etc .) As teachers we must disillusion them by pointing out for instance that the main cause of by pointing out for instance that the main cause of unemployment is a lack of jobs. Typically the unemployment is a lack of jobs. Typically the unemployed exceed vacancies by 4 or 5 times.unemployed exceed vacancies by 4 or 5 times.

Macro courses and text booksMacro courses and text books It concerns me that most Macro courses seem to discuss It concerns me that most Macro courses seem to discuss

only two social problems: inflation and unemployment.only two social problems: inflation and unemployment. What about the environment, poverty, hunger, health and What about the environment, poverty, hunger, health and

education. These all affect and are affected by the macro education. These all affect and are affected by the macro economy. They are all key economic and social problems economy. They are all key economic and social problems that are central to peoples lives and the economy.that are central to peoples lives and the economy.

But when I surveyed ten popular Economics text books (see But when I surveyed ten popular Economics text books (see the Appendix to my paper), I found that most of them the Appendix to my paper), I found that most of them ignored all these aspects of the economy; a few considered ignored all these aspects of the economy; a few considered one or at most two.one or at most two.

Again, this narrowness, is likely to prevent our students Again, this narrowness, is likely to prevent our students from gaining a political balance. from gaining a political balance.

Conclusion OneConclusion One

In conclusion, it is my view that the In conclusion, it is my view that the orthodox Micro and Macro Economics orthodox Micro and Macro Economics courses typically taught at many courses typically taught at many universities are diddling our students.universities are diddling our students.

They are too narrow : economically, They are too narrow : economically, politically, historically, socially, and politically, historically, socially, and environmentally.environmentally.

If we continue to exclude all this, we If we continue to exclude all this, we are left with nothing useful or realistic.are left with nothing useful or realistic.

Conclusion TwoConclusion Two

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

Outline of a new broader Outline of a new broader curriculumcurriculum

In the Attachment at the back of the In the Attachment at the back of the paper, you will find a description of an paper, you will find a description of an alternative syllabus for 1alternative syllabus for 1stst Year Economics. Year Economics.

It is only a rough outline, and has been put It is only a rough outline, and has been put together rather quickly. It could well be together rather quickly. It could well be altered and improved. But its greater altered and improved. But its greater breadth will be apparent and ought to be breadth will be apparent and ought to be retained in any revamping.retained in any revamping.

Hopefully, there will be time to discuss Hopefully, there will be time to discuss this.this.

THE END Thank you.THE END Thank you.