Reinventing the School in Economic School of Thought

1. INTRODUCTION

The global COVID-19 pandemic has upended our daily lives in unprecedented ways. Several extraordinary economic events have occurred and have brough many intriguing and important questions to everyone’s mind, particularly students’, which may assist in the creation of a more immersive teaching and learning environment. In the U.S, people have witnessed a series of extraordinary economic events that have rarely occurred before. There were toilet paper shortages because of hoarding and profiteering. Schools, restaurants, and other businesses have been closed for an extended period of time. The U.S. government signed a massive $2 trillion stimulus package, the biggest economic stimulus in American history. The U.S. unemployment rate reached 14.70% in April 2020, an all-time high since the Great Depression. And most astoundingly, the benchmark price for crude oil in the United States settled at negative $37.63 on April 20, 2020. This fact proved that how much demand has collapsed due to pandemic situation also being the first time in the US’s crude price history to dropped more 100% future contract price.

Economic events that occurred during the pandemic provide great teaching and learning opportunities for several reasons. First, these events are “tangible” and relevant. Second, these events are immersive in the sense that everyone hears and talks about them during the global COVID-19 pandemic. Learning through immersion can enhance education by allowing multiple perspectives, situated learning, and transfer (Dede, 2009). Third, these events are rare and extreme. Therefore, teaching economics out of these rare and extreme events will have a long-lasting effect on learning.

2. CASE STUDIES

The state of the economy we are experiencing right now is unprecedented in the modern era. Economic theories developed by generations of economists have repeatedly failed to foresee what’s at stake and have jeopardized the livelihoods of many in the process since often times economic pedagogy was often heavily reliant on models which teachers didn’t actually try to connect to real-world situations. However, these phenomena have not been a one-off thing for quite some time now. The COVID-19 pandemic resulted in events that would fit well with the economic pedagogy and increase students’ interest in the subject

Figure 1. Charts of Occurrence of Financial Crises Around the World and Percent of Countries Facing Financial Shocks. Source: Professor Iwan Jaya Azis Macroeconomics I Lecture (2021)

The urgency to reinvent our approach to economics has never been higher, but our focus should go above and beyond the development of another economic school of thought. Our learning environment has merely equipped us with the ability to observe static occurrences in history, whilst the world economy runs dynamically as the result what we learn is often caught in a state of inertia. It is with this reason that we should focus our reformation efforts into the upstream portion of our education sector.

As the COVID-19 pandemic has changed our learning circumstances, there has been no better time to change what we teach to better suit the current situation. Classrooms have always provided a safe environment for our young and brightest to better comprehend and sympathize with the world around them. In a world full of uncertainties, we can help them to strategically and dynamically take in what the world has offered them.

Macroeconomics helps us comprehend the story of equilibrium and the subsequent disequilibrium that reflects the same state of affairs. In embedding the stories of toilet paper shortages, negative crude oil prices, the US stimulus packages, unemployment rate hikes and also the reopening of economies, we can help students understand the events that have unfolded around them and the complicity of their predecessors in these failures.We will outline, one-by-one, how these events may be embedded within the economics pedagogy.

In the case study of toilet paper shortage at the beginning of the pandemic, we will take two approaches to analyze the event. First, following the standard neoclassical approach, shortages are said to be caused by government intervention in the market through price controls. Second, using a more holistic approach, we can also examine herd behavior and particular supply chain conditions that led to the shortage. It should be noted that these are not necessarily mutually exclusive explanations. We simply desire to provide two ways to connect these events to unique areas of economic theory.

The next things case is negative interest rates. Sounds strange, but it has been experienced in the European Union and Japan. Negative prices have now also occurred. The recent drop in US oil prices to a negative $37.63 shocked many. This shock is certainly warranted, being that this is an unprecedented occurrence. However, there indeed are logical and clear explanations for why this may occur under certain circumstances. We will begin by doing what economists do best, examine a model. Second, we will discuss some of the basic technicalities of oil production and why negative prices may make sense.

The third case study is about the U.S. stimulus package. On March 27, 2020, President Donald Trump signed the historic $2 trillion stimulus bill (CARES Act) to combat the economic impact of the coronavirus outbreak. Where did the money for the largest stimulus package in US history come from? In an interview on the show 60 Minutes, former Federal Reserve chairman Ben Bernanke responded to the question “is that [stimulus] taxpayer money?” by stating “[t]o lend to a bank, we simply use the computer to mark up the size of the account they have with the Fed.” That is, the stimulus money came from keystrokes in a federal computer system. This may seem overly simplistic, but this is how modern fiat money works. This notion of money creation through thin air is not without its critics. We will examine the basics of fiat money and address concerns over potential inflation.

The last case study is the record low unemployment rate. The unemployment rate was near a record low at just 3.5 % in February 2020. These low unemployment rates had not been seen in the United States since the late 1960s. In the last two weeks of March, this exceptional employment picture was flipped on its head. In the week before Saturday, March 21, 3.3 million individuals filed initial unemployment claims. Almost 7 million individuals filed initial claims in the following week. Weekly initial claims remained above 3 million per week through the end of April. The unemployment rate rose from historic lows in February to historic highs in April resting at 14.7 %. While this is the highest official unemployment rate on record, unofficial measures of unemployment were far worse during the Great Depression. This explanation is proved that economically that component in macroeconomics such this unemployment rate is sensitively affected by the abruptly situation and still unpredicted.

The question as to why the government would want to reopen the economy as cases of COVID-19 still remain at high levels is far from straightforward and will require different responses as the current situation evolves. We will respond here building on the primary economic principles that may be taught in an introductory economics course. However, we should remember that the pandemic-induced recession we are experiencing is a unique situation that will likely test the limits of a standard set of simple economic principles.

3. DISCUSSION

The world is different now than it was before the COVID-19 pandemic. Since the outbreak of the pandemic, several extraordinary events have occurred. Since the price of oil, toilet paper, the unemployment rate, stimulus checks, and economic reopening relate to everyone, and there are important economic principles and theories behind each of these hot topics, they serve as great teaching and learning tools in economics.

Whether we are impacted by the sudden lack of toilet paper due to the herd behavior and the sudden uptick in demand or are enjoying the exceptionally low prices of gas due to oil prices plummeting, these one-of-a-kind economic events are, which, in turn, can be in the classroom.

Mankiw (2019) urges economics instructors to keep reminding students that economic theories and models are abstractions of the real world. The COVID-19 pandemic is the real world now. Economics instructors need to be prepared to connect economic theories and models to the extraordinary events observed during the COVID-19 era.

4. CONCLUSION

The benefits of using current economic events to teach economics are threefold. First, these events are relevant and closely related to each of us. Relevance and relatedness are essential in the learning process as they can boost student engagement and motivation. Second, these events impact everyone directly or indirectly, providing an immersive learning experience for students. In a sense, we are all participants in an economic environment created by the COVID-19 pandemic. This natural immersive learning environment can stimulate students’ interests and inspire them to think about the economics behind each event. Lastly, these events are rare and extreme. Rare and extreme events are perceived to be more significant and can draw more attention, making learning more effective and long-lasting.