For teachers and students of economics
Noah Smith has a depressing look at the reaction of some graduate students to the macro they are taught. He links this to the ‘war’ between freshwater and saltwater visions of macro, and any disconnect between what is taught and the real world is bound to be more acute with the former. Particularly today, courses that attach New Keynesian theory to the end of the programme - and in some cases (through accident or design) end up not teaching it at all - are just asking for trouble. Even in more normal times, isn’t it a good idea to give students some idea of what central banks think they are doing? - they might just want a job in one!
However, even if you put this ideological problem to one side, I think there is a difficulty for anyone teaching graduate macro, which is rather different from anything encountered teaching at the undergraduate level. At the masters level it is just logical to delay teaching New Keynesian economics until some way into the course. As is frequently said, New Keynesian theory is an elaboration of the RBC construct, so all that needs to be done first. To take the example of Oxford’s MPhil, we do the Ramsey model, RBC, OLG, growth theory, and the flex price open economy all before New Keynesian economics, and it makes sense to do it this way.
Now this would not be a problem if this other stuff was as obviously interesting and relevant as Keynesian economics is today. However I fear that it is often not presented as such. Take growth theory for example. Now in principle this is all about why some countries are rich and some poor, which should be attention grabbing. But if in practice it amounts to discussing whether the speed of catch up is consistent with the Solow model, it can appear rather irrelevant. With the Ramsey model, I suspect the question of whether the allocation is optimal was not quite what students really wanted to know when they started the course. And if you do not teach the RBC model as the way to explain the business cycle, there is not that much to get excited about.
The problem of lack of motivation is compounded by something that I think those teaching micro often fail to appreciate. Today graduate macro is intrinsically harder than micro. In terms of the techniques involved it is probably no more or less difficult, but what in my experience students find really hard is that everything we teach fits together. Yet until you have done everything it is difficult to understand why we choose to focus on some model features to discuss some issues, but on other aspects of the macroeconomy when talking about different issues. Motivation is useful when the subject is challenging.
Luckily I think recent events, and specifically the debates over how quickly to reduce government debt, have come to the rescue. I mentioned in a footnote to a recent post how this year I was experimenting with starting the macro course with the two-period OLG model, instead of first developing the Ramsey model. This has a straightforward advantage, which is that students are familiar with the two-period consumption model from their undergraduate training, so we do not have to hit them with Hamiltonians quite so soon. However I think the main plus is that it allows us to focus on government debt and intergenerational equity right at the beginning of the course. There is an obvious interest among students in debt and intergenerational equity, but the crowding out effects of government debt on capital and therefore output in the simple two-period OLG model (with no wage income in the second period) are also dramatic. Almost certainly overstated as well, but better to start here than with a model where government debt does not matter at all! I can even bring in recent blog debates.
We will see at the end of the year whether this turned out to be a good idea. Even if it is, I am still searching for the equivalent motivation when presenting the basic ideas behind flex price new open economy macro. What determines international competitiveness, its relationship to PPP, non-traded goods and home bias are all things students should know about, but I’m not sure it really grabs their attention. Any ideas will be gratefully received.