pedagogy of the depressed

The Problem with Students Is They Work Too Hard

Something I’ve been thinking about lately: How many of the problems we have with students come from the fact that they have to take too many classes?

The standard requirement for a BA is 120 credit hours. That means that to graduate in four years, you need to take 5 classes a semester. And that’s assuming you pass everything; that you don’t need any remedial or other non-credit classes; that all your transfer credits are accepted (an especially big issue for students who transfer to 4-year schools from community colleges); that you don’t have any problems with distribution requirements; and so on. Realistically, for many students even 5 classes a semester is not going to be enough.

And in many cases those five classes are on top of jobs, even full-time jobs, and on top of caring for children or other family members. Especially for nontraditional students, expecting a schedule of five classes every semester seems unrealistic. And if you want to finish in four years, five classes a semester is the best case.

A lot of students should be taking lighter loads. But the thing is, financial aid is often contingent on maintaining full-time status. So even if someone knows they are not in a position to take five classes and put an acceptable level of effort into each one, the financial penalties for a more realistic schedule may be prohibitive.

These aren’t such big problems at selective liberal arts colleges, where most students are traditional college-age without family responsibilities, don’t have to support themselves, aren’t taking remedial classes, get good advising and come in with AP credits. And students who don’t depend on financial aid have more flexibility about adjusting their courseload. But at most public universities, the system seems designed to ensure there will be a significant number of students taking more classes than they have time for.

Just speaking for myself, I never took five courses in a semester as undergraduate. With lots of credit from AP exams and so on, I didn’t have to. I never worked during the semesters, except for things like writing for campus newspapers. And when I felt like I needed to cut back to part-time for personal reasons, I wasn’t financially penalized for it.

It’s a crazy setup, when you think about it. The combination of financial aid contingent on fulltime status; AP credit; non-credit remediation courses; and problems with transferring credit from community colleges, means that we end up demanding the least from the students with the most advantages, and the most from the students with the least advantages. AP credit and the like seems especially perverse — it literally means that, the better the high school you went to, the less work you are required to do to earn a BA.

We all know about how excessive workloads undermine the quality of teaching, but I think we sometimes forget that the same goes for students. Just like with adjuncts as opposed to full time faculty, students from weak high schools, or who start their college education at community colleges, are asked to do more work for the same reward. And then we get angry at them for not living up to the standards of the better prepared students who are asked to do less. Just something to think about the next time someone doesn’t read the syllabus, or turn in their work, or show up for office hours.

Heterodoxy and the Fly-Bottle

(I have a review in the new Review of Keynesian Economics of a collection of essays on pluralist, or non-mainstream, economics teaching. You can the full review here. Since I doubt most readers of this blog are interested in the book, I’ve posted a shorter version of the review below – just the parts on the broader issues rather than my assessment of these particular essays.)

Wittgenstein famously described his aim in philosophy as “showing the fly the way out of the fly bottle.” The goal, he said, was not to resolve the questions posed by philosophers, but to escape them. As long as the fly is inside the bottle, understanding its contours is essential to getting it wherever it wants to go; but once the fly is outside, the shape of the bottle doesn’t matter at all.

Non-mainstream economists have a similar relationship to dominant theory. Because we’ve been inculcated for years that the best way to think about the economy is in terms of the exchange of goods by rational agents, criticisms of that framework are a necessary step on the way to thinking in other terms. But the logical and empirical shortcomings of thinking about economic life in terms of a perfectly rational representative agent optimizing utility over infinite future time don’t, in themselves, tell us how we should think instead.

The essentially negative character of economic heterodoxy is a special challenge for undergraduate teaching. You can’t teach criticisms of economic orthodoxy without first teaching the ideas to be criticized. Finding our way out of orthodoxy was, for many of us, central to our intellectual development. Naturally we want to reproduce that experience for our students. This leads to a style of teaching that amounts to putting the flies into the bottle so we can show them the way out. But how useful is it to our students to understand the defects of a logical system it would never have occurred to them to adopt in the first place? Having spent so much time looking for a way out, it sometimes seems we don’t know what do in the open air.

This dilemma is on full display in The Handbook of Pluralist Economics Education. In order to present a realistic model of the economy, Steve Keen writes in one of his two chapters, “an essential first is to demonstrate to students that the ostensibly well-developed and coherent traditional model is in fact an empty shell”. Many of the volume’s other contributors make similar claims. This is the spirit of Joan Robinson’s famous quip that the only reason to study economics is to avoid being fooled by economists. But if that is all we can offer, better to send our students to the departments of history, anthropology, engineering, or some other field that offers positive knowledge about social reality.

What then are we to do? Pluralism as such is not a useful guide; carried to an extreme it would, as Sheila Dow says here, amount to “anything goes,” which is not a viable basis for teaching a class (or for any other intellectual endeavor). This is a problem with pluralism as a positive value (and not only in economics teaching): Pluralism implies a number of distinct perspectives, but to be distinct they must be internally coherent, that is, unitary. Carried to an extreme, pluralism is self-undermining. To challenge the mainstream, at some point you must argue not just for the value of diversity in the abstract, but in favor of a particular alternative.

In practice, even economists who completely reject mainstream approaches in their own work often give them a large share of time in the classroom, in part because they feel obligated to prepare students for future academic work and in part, as Keen says, simply because of “the pressure to teach something”. Teaching is hard enough work even when you aren’t reconstructing the curriculum from the ground up. It’s much easier to teach a standard course and then add some critical material.

But pluralism in economics teaching doesn’t have to mean simply presenting orthodoxy and adding some criticisms of it. It could also mean approaching the material from a different angle that avoids — rather than attacks — the dominant formalisms in economics and gives students a useful set of tools for engaging with economic reality. For me, this means a focus on the definition and measurement of macroeconomic aggregates, and on the causal relationships between those aggregates. Concretely, it means reliance on flowcharts where the nodes are some observable variable, as opposed to the normal emphasis on diagrams representing functional relationships — ISLM, AS-AD, etc. — that can’t be directly observed.

A more specific problem in heterodox teaching — and heterodox economics in general — is the weight put on the financial crisis as an argument for alternatives to the mainstream. Many of the authors in this collection present the crisis of 2008 and its aftermath as a decisive refutation of economic orthodoxy. Edward Fullbrook declares that ‘no discipline has ever experienced systemic failure on the scale that economics has today.” David Wheat, less hyperbolically, argues that “the failure to foresee the financial epidemic in 2008” demonstrates a need to shift the focus of economics teaching away from long-run equilibrium. One might push back against this line of argument. It is true that several large financial institutions went bankrupt in 2008, and some financial assets fell steeply in value, to the dismay of their owners; but with the perspective of close to a decade, it’s less clear how much of a base these events offer for critique of either the economics profession or economic institutions. Singleminded focus on “the crisis” risks implying that the problem with our economic system is the rare occasions on which it fails to work well for owners of financial assets, while ignoring the ongoing problems of inequality, hierarchy and privilege; tedious and demeaning work; environmental degradation; and the fundamental disconnect between ever-increasing money wealth and unmet human needs – none of which has much to do with the failure of Lehman Brothers. As people used to say: capitalism is the crisis.

It is true, of course, that the economics profession failed to foresee or explain the 2008 crisis, but that’s nothing special. To make a list of phenomena unexplained by orthodox economics, just open the business pages of a newspaper. In any case, while it might have been reasonable at the time to expect some degree of self-criticism in the economics profession, and some increase in openness to alternatives, seven years later it is clear that there has not been. With a handful of exceptions – Naryana Kocherlakota is probably the most prominent in the US – mainstream economists have not revised their views in the light of the crisis; even those who were initially inclined to soul-searching have mostly decided that they were right all along. The case for heterodoxy must be made on other grounds.

The Call Is Coming from Inside the House

Paul Krugman wonders why no one listens to academic economists. Almost all the economists in the IGM Survey agree that the 2009 stimulus bill successfully reduced unemployment and that its benefits outweighed its costs. So why are these questions still controversial?

One answer is that economists don’t listen to themselves. More precisely, liberal economists like Krugman who want the state to take a more active role in managing the economy, continue to teach an economic theory that has no place for activist policy.

Let me give a concrete example.

One of Krugman’s bugaboos is the persistence of claims that expansionary monetary policy must lead to higher inflation. Even after 5-plus years of ultra-loose policy with no rising inflation in sight, we keep hearing that since so “much money has been created…, there should already be considerable inflation.” (That’s from exhibit A in DeLong’s roundup of inflationphobia.) As an empirical matter, of course, Krugman is right. But where could someone have gotten this idea that an increase in the money supply must always lead to higher inflation? Perhaps from an undergraduate economics class? Very possibly — if that class used Krugman’s textbook.

Here’s what Krugman’s International Economics says about money and inflation:

A permanent increase in the money supply causes a proportional increase in the price level’s long-run value. … we should expect the data to show a clear-cut positive association between money supplies and price levels. If real-world data did not provide strong evidence that money supplies and price levels move together in the long run, the usefulness of the theory of money demand we have developed would be in severe doubt.

…

Sharp swings in inflation rates [are] accompanied by swings in growth rates of money supplies… On average, years with higher money growth also tend to be years with higher inflation. In addition, the data points cluster around the 45-degree line, along which money supplies and price levels increase in proportion. … the data confirm the strong long-run link between national money supplies and national price levels predicted by economic theory.

…

Although the price levels appear to display short-run stickiness in many countries, a change in the money supply creates immediate demand and cost pressures that eventually lead to future increases in the price level.

…

A permanent increase in the level of a country’s money supply ultimately results in a proportional rise in its price level but has no effect on the long-run values of the interest rate or real output.

This last sentence is simply the claim that money is neutral in the long run, which Krugman continues to affirm on his blog. [1] The “long run” is not precisely defined here, but it is clearly not very long, since we are told that “Even year by year, there is a strong positive relation between average Latin American money supply growth and inflation.”

From the neutrality of money, a natural inference about policy is drawn:

Suppose the Fed wishes to stimulate the economy and therefore carries out an increase in the level of the U.S. money supply. … the U.S. price level is the sole variable changing in the long run along with the nominal exchange rate E$/€. … The only long-run effect of the U.S. money supply increase is to raise all dollar prices.

What is “the money supply”? In the US context, Krugman explicitly identifies it as M1, currency and checkable deposits, which (he says) is determined by the central bank. Since 2008, M1 has more than doubled in the US — an annual rate of increase of 11 percent, compared with an average of 2.5 percent over the preceding decade. Krugman’s textbook states, in unambiguous terms, that such an acceleration of money growth will lead to a proportionate acceleration of inflation. He can hardly blame the inflation hawks for believing what he himself has taught a generation of economics students.

You might think these claims about money and inflation are unfortunate oversights, or asides from the main argument. They are not. The assumption that prices must eventually change in proportion to the central bank-determined money supply is central to the book’s four chapters on macroeconomic policy in an open economy. The entire discussion in these chapters is in terms of a version of the Dornbusch “overshooting” model. In this model, we assume that

1. Real exchange rates are fixed in the long run by purchasing power parity (PPP).
2. Interest rate differentials between countries are possible only if they are offset by expected changes in the nominal exchange rate.

Expansionary monetary policy means reducing interest rates here relative to the rest of the world. In a world of freely mobile capital, investors will hold our lower-return bonds only if they expect our nominal exchange rate to appreciate in the future. With the long-run real exchange rate pinned down by PPP, the expected future nominal exchange rate depends on expected inflation. So to determine what exchange rate today will make investors willing to holder our lower-interest bonds, we have to know how policy has changed their expectations of the future price level. Unless investors believe that changes in the money supply will translate reliably into changes in the price level, there is no way for monetary policy to operate in this model.

So these are not throwaway lines. The more thoroughly a student understands the discussion in Krugman’s textbook, the stronger should be their belief that sustained expansionary monetary policy must be inflationary. Because if it is not, Krugman gives you no tools whatsoever to think about policy.

Let me anticipate a couple of objections:

Undergraduate textbooks don’t reflect the current state of economic theory. Sure, this is often true, for better or worse. (IS-LM has existed for decades only in the Hades of undergraduate instruction.) But it’s not much of a defense, is it? If Paul Krugman has been teaching his undergraduates economic theory that produces disastrous results when used as a guide for policy, you would think that would provoke some soul-searching on his part. But as far as I can tell, it hasn’t. But in this case I think the textbook does a good job summarizing the relevant scholarship. The textbook closely follows the model in Dornbusch’s Expectations and Exchange Rate Dynamics, which similarly depends on the assumption that the price level changes proportionately with the money supply. The Dornbusch article is among the most cited in open-economy macroeconomics and international finance, and continues to appear on international finance syllabuses in most top PhD programs.

Everything changes at the zero lower bound. Defending the textbook on the ground that it’s pre-ZLB effectively concedes that what economists were teaching before 2008 has become useless since then. (No wonder people don’t listen.) If orthodox theory as of 2007 has proved to be all wrong in the post-Lehmann world, shouldn’t that at least raise some doubts about whether it was all right pre-Lehmann? But again, that’s irrelevant here, since I am looking at the 9th Edition, published in 2011. And it does talk about the liquidity trap — not, to be sure, in the main chapters on macroeconomic policy, but in a two-page section at the end. The conclusion of that section is that while temporary increases in the money supply will be ineffective at the zero lower bond, a permanent increase will have the same effects as always: “Suppose the central bank can credibly promise to raise the money supply permanently … output will therefore expand, and the currency will depreciate.” (The accompanying diagram shows how the economy returns to full employment.) The only way such a policy might fail is if there is reason to believe that the increase in the money supply will subsequently be reversed. Just to underline the point, the further reading suggested on policy at the zero lower bound is an article by Lars Svennson that calls a permanent expansion in the money supply “the foolproof way” to escape a liquidity trap. There’s no suggestion here that the relationship between monetary policy and inflation is any less reliable at the ZLB; the only difference is that the higher inflation that must inevitably result from monetary expansion is now desirable rather than costly. This might help if Krugman were a market monetarist, and wanted to blame the whole Great Recession and slow recovery on bad policy by the Fed; but (to his credit) he isn’t and doesn’t.

Liberal Keynesian economists made a deal with the devil decades ago, when they conceded the theoretical high ground. Paul Krugman the textbook author says authoritatively that money is neutral in the long run and that a permanent increase in the money supply can only lead to inflation. Why shouldn’t people listen to him, and ignore Paul Krugman the blogger?

[1] That Krugman post also contains the following rather revealing explanation of his approach to textbook writing:

Why do AS-AD? First, you do want a quick introduction to the notion that supply shocks and demand shocks are different … and AS-AD gets you to that notion in a quick and dirty, back of the envelope way.

Second — and this plays a surprisingly big role in my own pedagogical thinking — we do want, somewhere along the way, to get across the notion of the self-correcting economy, the notion that in the long run, we may all be dead, but that we also have a tendency to return to full employment via price flexibility. Or to put it differently, you do want somehow to make clear the notion (which even fairly Keynesian guys like me share) that money is neutral in the long run. That’s a relatively easy case to make in AS-AD; it raises all kinds of expositional problems if you replace the AD curve with a Taylor rule, which is, as I said, essentially a model of Bernanke’s mind.

This is striking for several reasons. First, Krugman wants students to believe in the “self-correcting economy,” even if this requires teaching them models that do not reflect the way professional economists think. Second, they should think that this self-correction happens through “price flexibility.” In other words, what he wants his students to look at, say, falling wages in Greece, and think that the problem must be that they have not fallen enough. That’s what “a return to full employment via price flexibility” means. Third, and most relevant for this post, this vision of self-correction-by-prices is directly linked to the idea that money is neutral in the long run — in other words, that a sustained increase in the money supply must eventually result in a proportionate increase in prices. What Krugman is saying here, in other words, is that a “surprising big” part of his thinking on pedagogy is how to inculcate the exact errors that drive him crazy in policy settings. But that’s what happens once you accept that your job as an educator is to produce ideological fables.

Their Way Won’t Do

(Today was the last day of classes here. The final slide for my macro course was an abridged version of this Brecht poem, which captures the discomfort any reasonable person ought to feel when they first study economics. The students could relate.)

Years Ago When I

Years ago when I was studying the ways of the Chicago Wheat Exchange
I suddenly grasped how they managed the whole world’s wheat there
And yet I did not grasp it either and lowered the book
I knew at once: you’ve run
Into bad trouble.

There was no feeling of enmity in me and it was not the injustice
Frightened me, only the thought that
Their way of going about it won’t do
Filled me completely.

These people, I saw, lived by the harm
Which they did, not by the good.
This was a situation, I saw, that could only be maintained
By crime because too bad for most people.
In this way every
Achievement of reason, invention or discovery
Must lead only to still greater wretchedness.

Such and suchlike I thought at the moment
Far from anger or lamenting, as I lowered the book
With its description of the Chicago wheat market and exchange.

Much trouble and tribulation
Awaited me.

“Real” Isn’t Real

Sorry, no, it’s not about Lacan.

For a while, I’ve tried to avoid the common economic usage of calling the change in an observed variable, minus inflation, the “real” change. I prefer a more neutral and descriptive term like “inflation-adjusted.”

What we call nominal quantities really are real, in a sociological sense: they exist, they’re directly observable.Your mortgage or car loan requires a schedule of payments in dollars, in some fixed proportion to the value (also in dollars) of the original loan. Those are actual numbers you can see in your contract. The S&P 500 index is at at 1,286; a year ago it was at 1,282. Those are actual numbers you can look up in any financial website. You paid $2.50 for a tube of toothpaste; the bills and coins actually changed hands. Whereas the “real” values of all these numbers are constructions, estimated after the fact (and then re-estimated), involving more or less arbitrary choices and judgement calls. There’s no fact of the matter there at all.

To begin with, you have to choose your price index. It’s often not obvious whether the consumer price index, the GDP deflator, or some other index is most conceptually appropriate. [1] And it makes a difference! Just among the most important published price indexes, we see the increase in the price level over the past 50 years ranging from five times, to nearly eight times. Anyone who tells you something like, a dollar in 1960 “is equal to” 13 cents in 2010 is confused, or at least grossly simplifying.

And then there are the differences that don’t show up in the published indexes. The CPI is intended to be a price index for all urban consumers, but not every consumer is urban and not all urbs are equal. Robert Gordon estimates that the bulk of the college wage premium goes away if you correct for the higher cost of living in areas where college graduates live. Of course this only makes sense if college grads have to live in pricey urban areas in order to get their college wages. If you instead assumed that the cost of living is higher in urban areas because of various non-market amenities, which college graduates have a particular taste for, then Gordon’s correction would be inappropriate. [2] So again, while nominal values are real, in the sense that they observably exist, “real” values depend on assumptions about various unobservables.

And then there’s the after-the-fact adjustments which price indexes are always subject to. (As are nominal aggregates, to be fair, but to a much less extent, and almost always due to better data rather than conceptual changes.) That was what got me thinking about this today, in fact: rereading Dean Baker’s comments on the Boskin Commission. [3] Dean points out that if you take the Commission’s methodology seriously, you’d have to make even bigger downward adjustments to inflation in earlier periods, implying that when people in the postwar years thought the economy was threatened by inflation, it was “really” experiencing deflation:

If the size of the current annual overstatement [of the increase in the CPI] is 1.1 percentage points, the the annual overstatement may have exceeded 2.0 percentage points in past years, meaning that, at many times when there was public concern about inflation, the economy was actually experiencing deflation. … Extrapolating the commission’s adjustment backwards implies that, throughout the 1950s and into the 1960s, prices were actually falling. This was a period when the president appointed a council to set wage-price guidelines to keep inflation in check.

It’s a problem. Obviously using just nominal values is deceptive in many cases, and there are plenty of cases where deflating by some standard index gives a more meaningful number. But one shouldn’t suppose that it is “real.” And certainly one can’t suppose, as the formalism of economics implicitly or explicitly does, that there are quasi-physical quantities of “utility” out there which the appropriate price deflators can convert dollar values into.

We have to think more critically about how the categories of economics join up with social and individual reality. Where goods exchange for each other in markets, they have a quantitative relationship: so much of this is, in some sense, “the same as” so much of that. (There’s a reason why Capital Volume I begins how it does, tedious as people sometimes find it.) But that relationship comes into existence in the process of exchange, it didn’t exist until then. So as soon as we are talking about goods that don’t exchange for each other, say because they exist at different moments, we can no longer regard them as being quantitatively comparable. In this sense, nominal figures are real, since they really describe the quantitative relationship of some stock or flow with others existing in the same pay community. They are observable and are have direct consequences. Not so “real” figures, which depend on the implicit assumption that the only point of contact between the economy and human reality is the mix of goods that is consumed, and that there is a fixed consumption function that converts that mix into a quantity of utility. Without that assumption, there is no basis on which to say that two baskets of goods that can’t be traded for each other have any definite quantitative relationship.

Labor might seem to be a better universal standard than utility. There’s a reason Keynes made employment his standard measure of economic performance, and wanted to measure output in terms of wage-units. (And it’s certainly not because he thought the problems with capitalism originated in the labor market.) And there’s a reason why Adam Smith subtitled his chapter on “the Real and Nominal Prices of Commodities” (I don’t know how far back the distinction goes, maybe he made it first), “their Price in Labour, and their Price in Money.” Well, I don’t want to get into the labor theory of value here, except to say that I don;t think any other standard of “real” quantities is any more securely founded. My point is just that it may be, for questions we cannot answer with dollar values, there is no better, objective set of values we can use in their place. At that point we have to think about the various complex ways in which the system of monetary values interacts with the social reality in which it is embedded. For instance, the ways in which the costs of unemployment are not reducible to foregone output and income. The reproduction of society, let’s say, has quantitative, law-like moments; those moments are greatly distended under capitalism, but they still aren’t everything.

I’ll keep on adjusting nominal figures for inflation; what else can you do? But let’s not call them real.

[1] It’s worth noting that writers in the Marxist tradition are often more sensitive to the differences between price indexes than are either (Post) Keynesian or mainstream economists. The possibility of a systematic divergence between the price of wage goods and the price of output as a whole was a question Marx gave a lot of thought to.

[2] I.e., the premium on urban areas implies there’s some desirable thing there that’s not being measured, but is it a consumer good or an intermediate good?

[3] Not for fun, for course prep, for my macro course, which I’m hoping to make fodder for blogging this spring. Thus the tag.