In a couple of hours the Bank of Canada will do what it does eight times a year. It will set a temporary target for the overnight rate of interest. Will it raise it, lower it, or leave it the same? What will its decision depend on? How will its decision affect the Canadian economy?
If I were teaching intro macroeconomics to a bunch of students who were only interested in the here and now, like journalists who would be covering today's decision by the Bank of Canada, this is what I would teach: I would teach the Phillips Curve; some sort of IS curve; and discuss how the Bank of Canada would interpret the data using the Phillips Curve and IS curve and respond to the data to try to keep inflation at its 2% target.
I would teach something very similar to what Simon Wren-Lewis wants to teach.
But university teaching is not just about the here and now.
Where will those students be 60 years from now? Will monetary policy be done the same way and thought of the same way 60 years from now? And what about 60 years before now, or 600 or 6,000 years before now? And what about monetary policy in all the possible worlds that are different from the actual world but that might be better or worse than the actual world? We don't have to do monetary policy the way the Bank of Canada does it here and now. Some other totally different monetary system might be better.
Are there some general principles of macroeconomics that that might also be useful far away, both in time and space, and useful for considering possible changes to the actual world, and not just useful in the here and now of the world as it currently is?
I think there are.
What determines the price of apples, relative to other goods? Demand and supply. What happens if the price of apples is sticky, and doesn't adjust quickly when demand or supply changes? We get shortages or surpluses of apples. A shortage or surplus of apples may affect demand or supply in some other markets.
What determines the price of money, relative to other goods? Demand and supply. What happens if the price of money is sticky, and doesn't adjust quickly when demand or supply changes? We get shortages or surpluses of money. A shortage or surplus of money will affect demand or supply in other markets. Money is different from apples, because money is the medium of exchange and unit of account. And those differences matter. A shortage or surplus of money will affect all markets in which money is traded, and all goods that are priced in money.
These are general principles of (micro and macro) economics. We need to teach those general principles.
Only when we have taught those general principles should we teach the particular details of the here and now and the current operating methods of the Canadian Apple Producers Association. And informed by those general principles, we can discuss whether there might be better ways of allocating apples.
What would the world look like if we used apples as money? Would it be a better or worse world than today's? A student who understood the general principles of macro could explain that a bad apple harvest would cause deflation and recession. A student who understood only how the Bank of Canada sets the overnight rate today could say nothing useful at all.