The author is one of several CIGI-sponsored Canadian university students who attended the INET conference, Crisis and Renewal: International Political Economy at the Crossroads, at Bretton Woods, NH, April 8-11, 2011. Each student was asked to write a short reflection on the conference themes.
The INET conference in Bretton Woods was an exceptional opportunity to hear first-hand the opinions of leading scholars from all over the world. The historical significance of the Mount Washington Hotel in Bretton Woods made the experience truly memorable. In fact, the views of John Maynard Keynes were echoed numerous times throughout the conference. The one that perhaps stuck the most in my mind was Keynes’ view that economists ought to be more like dentists: you go to your dentist with a particular problem, and you are told what you need. The transition of economics from its current form to a more technical profession clearly seemed to be a common milestone throughout the conference; however, the means by which the discipline could achieve this state of “economic dentistry” is less clear. While many leading scholars agree on the diagnosis of the current challenges facing economics, the remedy remains a source of much debate.
A session widely discussed by attendees concerned the current challenges faced by macroeconomics following the recent financial crisis. The debate was fuelled by the opposing viewpoints of Richard Koo, chief economist of Nomura Research Institute, and Carmen Reinhart, Dennis Weatherstone senior fellow at the Peterson Institute for International Economics (formerly professor of economics and director of the Center for International Economics at the University of Maryland). While there was agreement that current economic conditions are not the result of any ordinary recession, but rather of something much greater (comparable to the Great Depression in magnitude), the panellists’ opposition lies in their policy prescriptions. Koo highlighted the parallels between the current economic situation in the United States and Japan’s experience in the last 15 to 20 years. Koo argued that when a country-wide debt-financed asset price bubble bursts, the behaviour of economic agents shifts from a goal of profit maximization to one of debt minimization. Even when interest rates were at near-zero levels in Japan, people still did not borrow. Koo emphasized that if the private sector continues to deleverage at near-zero interest rates, it is a sign that an expansionary fiscal policy is in order and cutting budget deficits should not be the main priority at this point. While the United States has started to recognize these parallels, Koo said, Europe has not, and this is the source of many of Europe’s current financial issues. On the contrary, Reinhart argued that while there is no easy way to deleverage, a fiscal stimulus is only a good idea in the near term and cannot be sustained for many years, as in the case of Japan. Doing so may result in the government compromising its status as a safe debtor, making the recession worse.
What, then, is the correct course of action? It is precisely this question that poses challenges for policy makers today. From a research perspective, it opens up new possibilities for exploration and may provide some direction. My current research aims to understand how professional forecasters form expectations of key macroeconomic indicators, particularly inflation. A driving force behind current economic conditions is people’s behaviour and expectations of future conditions. It would be interesting to see how expectations change in response to changes in economic thinking and the debate surrounding policy initiatives. Particularly, in response to Koo’s views, how did people’s expectations in Japan react over their transitional period? Is there evidence that expectations may react in a similar way in response to current US policy initiatives? Investigating these questions would provide useful information for policy makers.
Curriculum Reforms Necessary
Alongside this debate, there was agreement that some reforms are necessary. Specifically, the report of the INET Economics Curriculum Committee Task Force proposes that these reforms should begin at the undergraduate level. The task force’s credo is “to reconnect the teachings of economics with the workings of the actual economy...” By infusing introductory economics with the history of economic thought, philosophy and real world applications, the ultimate goal is to stimulate more interest and create a greater degree of awareness among undergraduate students in economics. As Robert Skidelsky, emeritus professor of political economy at the University of Warwick in the UK pointed out, the setting of the current curriculum is usually an axiomatic model targeted towards the minority of students who will continue on to do graduate studies in economics. These unrealistic assumptions have led to an absence of the application of these models to the real world. The task force suggests substantial changes to this curriculum: the real world as the setting; the majority of students, who may not necessarily pursue graduate work in economics, as the intended audience; and the objective of providing them with the tools and understanding necessary to discuss economics with non-economists.
Having served as both an instructor and a teaching assistant for undergraduate economics courses, I see these proposed reforms as being positive changes. In many instances, students in their first economics course in university start off under the impression that they will come out of the course with a better understanding of the financial real world and the issues faced by developing economies. Some students soon lose interest when they realize the models and theories they learn in class are not always directly applicable to the real world. I am reminded of a joke an undergraduate student once told me: “If an economist was stranded on a deserted island with only a can of food and no can opener, the economist would solve the problem by assuming a can opener.”
Another area that I believe needs further thought before the proposed curriculum reforms can be implemented is the apparent intimidation many undergraduate students feel about math and statistics. In order for economics to appeal to a large majority of students, the importance of mathematical rigour needs to be made more obvious, rather than being taught as a separate theoretical component of the curriculum.
Interconnectedness and Global Cooperation
A key realization that prevailed throughout the conference, and was effectively voiced by former UK Prime Minister Gordon Brown, is that economies today are more interconnected than ever before. This means that the global problems that exist today, whether financial, developmental or environmental in nature, cannot be solved by any one country — global cooperation is a necessity. In addition to global initiatives being needed to address these issues, this awareness emphasizes the importance of adopting a more creative approach to research aimed at understanding the new state of the global economy, and tailoring the educational curriculum to focus on the economics of the real world, thus reaching broader population. With leading scholars present, the INET conference provided an avenue to gain exposure to constructive discussion and debate on these issues, as well as other challenges of governance in a global economy. The excitement was amplified when students discovered that many of these scholars were also interested in knowing their thoughts and opinions on the issues discussed. For a student of economics, the conference was a valuable experience. I sincerely thank INET and CIGI for making this unique opportunity possible.
For more information and videos from the INET conference, visit http://ineteconomics.org/initiatives/conferences/bretton-woods/agenda.
Monica Jain is a Ph.D. student in economics at Queen’s University.