Though my interest in the concept of cryptocurrencies has not ebbed since my last post, I have been diverted for a bit by the discourse surrounding the recent introspection within macroeconomics. A part of me believes or wants to believe that the challenge to the accepted paradigm of monetary economics that cryptocurrencies represent is related to this introspection within macroeconomics. Whatever the case, I think it is worth reviewing where the state of this introspective turn currently stands, how this turn has come about, and how it might apply to the learning and teaching of economics in the US today.
The recent introspection from macroeconomics is coming from many places. Most notable is the recent and freely available edition of the Oxford Review of Economic Policy, in which a number of notable macroeconomists contribute their thoughts to where and how the discipline could improve its models, theory, and policy advice. I have only read the contribution by Professor Wren-Lewis so far – a contribution worth trying to understand for even those of us not trained in the discipline, but within and interested in it nonetheless.
Whatever these contributions might say, it is alone notable that so many significant contributors to the contemporary paradigm of macroeconomic discourse devoted serious time to contributing to it. In some sense, the introspection that has inspired this discourse between the more major, institutional contributors has been on the wall for some time now. Individuals such as Dani Rodrik on trade and globalization, and Branko Milanovic on inequality, have been quite active for quite some time. There have also been very interesting, public debates on important economic issues since the Great Recession. The ones that come to mind immediately include the debates between Paul Krugman and Niall Ferguson about deficits and interest rates, Niall Ferguson and Robert Skidelsky on British austerity policies, Thomas Piketty and the Financial Times (summary here) on Piketty’s data and methods, and a recent wonkish debate about macroeconomic modeling between Brad DeLong, Paul Krugman, Greg Mankiw, and Casey Mulligan. I believe the willingness to spend such time by these contributors indicates how seriously these questions about macroeconomics have become and how long such introspection has been percolating. It, therefore, seems obvious to me that we too (we being those of us lesser economic mortals) should also take this discourse seriously.
Other arguments for macroeconomic introspection and reform are coming now from sources that might be described as less institutional and more grassroots. Freedom from institutional concerns or constraints has provided these contributors with perhaps more freedom to propose creative explanations and solutions – always a fruit of serious introspection. For example, a group of economists has collaborated to create the CORE project. Contributing economist Samuel Bowles (admittedly, as institutional as the names above) describes CORE’s approach to macroeconomics as a “pluralism by integration.” The pluralism Bowles refers to is an integration of various perspectives and theoretical outcomes that deviate from the paradigmatic norm on an economic topic from within economics and from related disciplines (e.g., political science, sociology, etc.).
So how fruitful is this creativity? Mr. Bowles demonstrates how students benefit from this creative and abnormal pluralism by integration by reviewing how CORE teaches the relationship between the company and the labor market, and its implication for how markets come to value capital goods. According to Bowles, the standard conclusion to learning about this calculation is that the purchase of labor by a company “is no different from its purchase of kilowatts of electricity.” The price of both electricity and labor are determined by the market, and the company purchases however much of that resource it is worth purchasing at that price given the value that the market puts on what that resource will produce. Similarly, the employee is assumed to receive an appropriate remuneration for the effort and time she will expend in producing the company’s good or service given the opportunity costs associated with her potential alternatives for employment and her natural or learned talents. The result of these convergent interests is that the newly hired employee will consistently expend the energy, skills, and time promised by her in order to produce the good or service the employer expects that energy, skill and time to produce. In return, she will consistently receive her remuneration for providing such time, skill, and energy. In this exchange within this market, both participants are having the same needs met equitably via the simple and elegant market mechanism.
The reality of economic experience, however, is that this exchange is neither equitable nor elegant. It is this type of discrepancy between theory and reality that is the animating fire behind this slowly percolating macroeconomic introspection and its proposed responses. One answer coming from CORE and others in this debate is that were students to learn, and economists consistently factor into their modeling, the other variables contributing to the inequality between these two actors, then they would be able to produce better, alternative conclusions about the relationship between a company and the labor market that the current paradigm does not or cannot allow for.
For example, with respect to the problem outlined above, CORE then leads students to several sources that highlight the discrepancy in interests between the two actors. According to Bowles, students of CORE learn that Karl Marx provided the insight that a labor contract “cannot ensure that an employee works hard or well,” an insight later built on by Friedrich Hayek. CORE then leads them through the theoretical insights of economist Ronald Coase and the mathematical proofs of political scientist Herbert Simon to learn that the “distinguishing mark of the firm is the suppression of the price mechanism,” often by demanding less labor in spite of the surplus value the foregone labor might have produced for the employer. By the end of this tour away from paradigmatic macroeconomics and its assumptions is that our hypothetical employee is hence more likely to not receive a wage that adequately compensates her for the opportunity costs of her time. One potential result of this outcome at the level of the macroeconomy is that in the aggregate, the demand for labor will be lower than supply, which leads to increasing unemployment.
The pedagogical results of this integration demonstrate CORE’s ability to show students that “useful insights [into economic issues] can come from many sources and provides tools allowing them to address pressing economic problems of today.” It also shows the fruit of the introspection macroeconomics is undergoing. There remain other important, grassroots contributors championing such introspection and creative thinking around similar issues in economics, including the Rebuilding Macroeconomics project of the Economic and Social Research Council in the United Kingdom, Rethinking Economics, and Evonomics.
It is unfortunate that much of this discourse and advocacy appears especially strong in the UK, and not in other places. Assuredly the teaching and learning of economics could benefit from a fruitful introspection at all levels. The universality of economic principles in free markets obviously transcends national borders, and if changes in their teaching are good in one market they are also assuredly good in another. As a teacher of Advanced Placement economics in the United States myself, I can’t help but apply such a possibility to my own teaching. Are student outcomes better if they begin a sequence of both micro- and macroeconomics with micro first? Is teaching and assessing the standard models in both courses still beneficial for my students who plan to pursue the study of economics, business, finance in college? Does the way we assess economics students currently make the most sense (AP and IB, for example, assess their students in different ways)? Would the study of economic concepts and principles be better if their curriculums, texts, and assessments were rewritten to include a more diverse study of economic history and competing theorists?
Whatever the case, it is an exciting time to follow these debates about economics. For me, this is most especially true for what they imply about how its study is best pursued by its newest students, and hoe to endow them with the types of critical thinking and expressive skills that are unique to the study of and discourse about economics. Let’s hope it continues.