Today is the first day of the fall quarter at Stanford, and I begin teaching Economics 1, the introductory economics course, and the course after which this blog is named. The first day is always exciting, especially with many first-year students in class as is the case with Economics 1.
With Tiger Woods just winning the Tour Championship, I have a wonderful example today of opportunity costs. Tiger took my course in 1996. He was the best economics student: As I have often said, he learned opportunity costs so well that he left Stanford and joined the pro tour.
On the first day, I of course focus on the central idea that economics is about choices people make when faced with scarcity and the interaction between people when they make these choices. That interaction is emphasized as markets bring ideas and people together. We modify slightly the Stanford motto, “The Winds of Freedom Blow” (Die Luft der Freiheit Weht) to get the Economics 1 motto: “The Winds of Economic Freedom Blow. This year we have a lot of good lecturers joining with me: Mark Tendall on how to run firms & interact with people in markets, Caroline Hoxby on economics of education & income inequality, Pascaline Dupas on how to bank the unbanked in Africa, and Chad Jones on how to raise economic growth & reduce global poverty.
We continue teaching the whole principles course in one term combining micro and macro. I think this approach makes economics more interesting for students, and is especially needed when discussing key topics like the financial crisis of ten years ago. The crisis along with the slow recovery and other associated changes can only be understood with a mix of micro and macro. As I wrote earlier, “One must know about supply and demand for housing (micro), interest rates that may have been too low for too long (macro), moral hazard (micro), a stimulus package (macro) aimed at such things as health care (micro), a new type of monetary policy (macro) that focuses on specific sectors (micro), debates about the size of the multiplier (macro), excessive risk taking (micro), a great recession (macro), and so on.” It you look at any explanation of the crisis and the slow recovery, you’ll see a mix of micro and macro.
I think a combined micro-macro approach works no matter what your view is of the crisis and the policy response. In my view the problem was that economic policy deviated from basic economic principles which had worked well. The result was a financial panic, a great recession, and a slow recovery. The deviations included a monetary policy which set interest rates too low for too long. The good news for the economy is that economic growth and stability are being restored as new policies are being implemented.
Of course there are different views, but the heated disagreement among economists about economic crises, their causes, and their effects, presents a great opportunity to make economics more interesting.