The Economic Crisis: a challenge for Economics Education Steve Hurd, UK, EU, World Doris Valente, Italy, EU, World Birgit Weber, Germany, EU, World

Stages in the Economic Crisis 1.THE GOLDEN AGE? Pre-2007 World Economy expanding rapidly Freer trade and globalisation Growth of financial markets & instruments Debt financed expansion Rising real incomes Convergence of living standards across Europe and the World Infrastructure investment – boom in domestic housing and commercial building. Universal Happiness !!??

Stages… SHOCK OF FINANCIAL CRISIS – Lehman Brothers – sub-prime mortgage collapse – Major Clearing Banks left with bad debts – Bank bailouts  Rise in government debt – Collapse of housing markets – Banks and governments at mercy of rating agencies

Stages… 3.RESPONSE TO THE SHOCK – Banks: collapse, recapitalise or nationalised – Governments: cut spending & raise taxes – EUROZONE problems – loss of national control of: Exchange rate Interest rates Fiscal policy Insufficient free movement of labour and capital, fiscal harmonisation and regional transfers.

Stages… 3.EFFECTS OF CRISIS – Consumer and business confidence collapses – Fall in investment and economic growth – Export markets collapse – Unemployment rises – Borrowing and Debt “Increases” – Credit ratings fall – Regional and international inequality grows – Political divisions within Europe – mutual blame – Universal Sadness!!??

How do we begin to teach this? Effective teaching starts by: Discovering what students know and believe already Engaging with and building upon this Current economic crisis is a perfect opportunity to ask students to apply and explore the limitations of the economics they are being taught. But syllabuses and assessment must allow this.

Survey of European Students What do students know about the crisis? What questions are they asking? What causes are they stating? What evidence is there of misunderstanding of facts and processes? How do we need to modify our teaching and learning approaches?

EU student perceptions of the crisis Key words (n=404) Questions (n=1013) KEY WORDSEU Banks96 Debt91 Unemployment78 Euro59 Greece or Greece?53 Recession44 Inflation38 Taxation/tax evasion19 Poverty16 Spreads/speculation16 Interest rates12 Budget deficit12 Bankrupty11 QUESTIONSEU What are the causes?73 Why so much debt? What can be done?61 What is the solution?48 How can the Greek problem be solved?47 How to solve high taxes and evasion?43 Can we reform our politicians?31 Why didn't we control the banks?20 Why not print more money?18 What is the future of the Euro?16 Where did the money go?12

Two Groups of Students From ITALY (n=168) Unemployment58 Banks38 Debt36 Inflation32 Taxation/tax evasion16 Spreads/speculation16 Poverty13 Bankruptcy11 Suicide7 Interest rates6 Recession5 Balance of payments deficit5 Subprime mortgages4 Devaluation3 Berlusconi3 From GERMANY (n=93) Euro45 Greece44 Debt32 Banks28 Spain7 Unemployment5 Fiscal pact5 Italy3 Key words exercise GROUP AGROUP B

Students’ questions ITALIAN Group (n=505)GERMAN Group (n=245) What can be done about high taxes and tax evasion?43 Can we reform our politicians?31 What is the solution?25 Why so much debt? What can be done?23 What are the causes?23 Why didn't we control the banks?9 How can we avoid unemployment?6 What can be done about subprime loans?3 How can the Greek problem be solved?45 Why so much debt? What can be done?38 What are the causes?19 What is the future of the Euro?8

To what extent do you agree that the following have contributed to causing the current economic crisis?

In order to solve the crisis in YOUR COUNTRY it is necessary to...

In order to solve the Crisis in the EU it is necessary to

We all have a mission! ECONOMIC CRISIS EU Politicians The Confused Masses Hope LIGHT Economics Teachers

Contribution of Economics Education Knowledge of economic institutions, concepts and theories Skills and competencies (application/research) Distinguishing “cause” and “effect” Understanding trade-offs between desirable objectives – opportunity cost Being clear about “attitudes” and “values”

Useful concepts and theories… Theory of Clubs/ Moral Hazard Theory of Optimal Currency Areas How Economies Adjust to Shocks Free Markets & Market Failure Market Regulation/ Deregulation Asymmetric Information Keynesian & New Classical Theories

Club Theory In this club we take care of all our members But we do expect all our members to keep to the dress rules But I prefer to wear denim Basic trade-off is between desire of a club to grow and retain members while preserving the club rules..

Optimal Currency Area Conditions (After Mundell) 1.Sufficient similarity among countries to prevent asymmetric shocks. 2.A high degree of labor mobility and/or wage flexibility. 3.A centralized fiscal policy that transfers resources from countries that are doing well to those that are doing poorly.

The Values Dimension The welfare of all human beings is equally important! Social equity/fairness. Need to empathise with the predicament of each country e.g. Greece, Germany. Recognition that the health of the European Economies matters to the nations of Europe, and also to the rest of the world. With the need for global cooperation on environment and climate matters we need to avoid “beggar my neighbour” policies/ protectionism.

End Time for questions & discussion

Supplementary slides

The Survey: Countries 680 Participants, 97 % from EU by July 2012 Italy30 %189 Austria23 %148 Germany20 %129 Ireland12 %76 France6 %35 United Kingdom6 %35 Bulgaria2 %11 Netherlands1 % 7 and others …

The Survey: Sex Male43 %238 Female57 %321 Answered questions 559, skipped 104

The Survey: Age Born 1994 (18/19)31 % (17/18)24 % (16/17)21 % (15/16)13 % (14/15)11 %58 Answered question 523, skipped 140

The Survey: Subjects IGEA/ Mercurio25 % 111 Social (Science) Studies20 %88 Economics19 %72 Business15 %66 Politics & Civics9 %37 Science économiques et sociales5 %23 (419 answered questions, 244 skipped)

Your view to the counter-factual statement “The answer to the current crisis is to allow your country’s currency (e.g. the euro) to fall in value, to lower interest rates, to increase government spending and lower taxes in order to create more jobs.”