Teaching economics becoming a challenge ….

Few recent posts on state of economics and the challenges it is posing to teachers of economics:

  • Starting from Mike Konczal who says we should begin econ studies with macro first. This is how Samuelson did it with his textbooks. (John Taylor actually teaches like that in Stanford). I really think macro should be taught first or taught parallely. We are living in abnormal times and teaching micro disconnects people from the world they are exposed to. Macro and especially its connect to today’s world is really important.
  • Krugman comments on the post by Konczal saying that it is really difficult to implement the idea of teaching macro first. Can people being with Keynesian macro? That will require a huge change in thinking..
  •  There is another post by Krugman on how new thinking in economics is about reading old econ books. Stresses on importance of economic history.
  • Brad Delong writes that he does not really know how to teach economics these days. Usually one says markets gone awry will recover  in some time with sometime being 1-2 years. However, we have awry economic situation for 5 years now and no end in sight.

    Delong also points to this nice difference between market interest rates and natural interest rates:

The default framework for thinking about these questions is a very old one: the market-and-natural-interest-rate framework of Knut Wicksell’s Geldzins und Guterpreis (“Interest and Prices”). In every economy, the argument goes, there is a market interest rate determined by the financial system, and there is a natural interest rate – the value at which desired savings at full employment equal desired investment at full employment, and at which the economy as a whole desires neither to leverage nor to deleverage.

If the economy as a whole desires to leverage up, the result is an inflationary boom. If the economy as a whole desires to deleverage, a depression ensues. It is then the central bank’s job to intervene in the banking system in order to push the market interest rate to the natural interest rate, thereby balancing the economy at full employment without excess inflation.

The problem now is that the natural interest rate – that is, the liquid safe nominal interest rate on short-term US Treasury securities – is less than zero. Thus, the central bank cannot push the market interest rate there. Until something happens to raise the natural interest rate, we are stuck with a depressed economy.

Challenging times for economics teachers. My old Mint column on this here..

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: