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Mr. Clifford: Hi, I'm Jacob Clifford and I'm
the host of Crash Course economics. Stan!
00:00:04
Adriene: Hi, I'm Adriene Hill and I'm the
host of Crash Course economics. Stan!
00:00:04
Stan: You're a team! You're co-hosts.
00:00:04
Adriene: All right, awesome.
Mr. Clifford: Yeah, whooo!
00:00:04
Adriene: Well anyways, we're making our Crash
Course Economics series at the YouTube space
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in lovely Los Angeles California because Mr.
Clifford and I are both from Southern California.
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Mr. Clifford: Yeah.
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Statler: Who are these no-names!?
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Waldorf: Where are the Green brothers? If
there aren't any Greens, I'm unsubscribing.
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Statler: Wh-- how can you unsubscribe? What
is this, some kind of a moving newspaper?
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Mr. Clifford: Did we just get heckled by the
muppets?
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Adriene: It sounds like it.
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Kermit: Hey guys, hey guys listen, don't feel
bad about not being green, OK?
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Adriene: It's Kermit!
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Mr. Clifford: That's crazy!
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Kermit: Hi guys, uh listen, being green is
great and everything but being Adriene and
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Mr. Clifford well, that's great, too! In fact,
you know guys, it's not easy being green.
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I think I could sing a song about that.
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Adriene: Can I sing with you?
Kermit: Oh course, yeah.
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Adriene: This is a dream. This is a dream.
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Mr. Clifford: No, no, no, we
can't afford the licensing
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agreement for that song guys, economics. Sorry.
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Kermit: Oh. Oh. Well, in that case, why don't
you guys just introduce yourselves?
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Mr. Clifford: OK. I'm Mr. Clifford, and I'm
a high school economics teacher and YouTuber,
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and I'm going to focus on
teaching you the theories
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and graphs of economics. You
know, the textbook stuff.
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Adriene: And I'm Adriene Hill; I'm a senior
reporter for the public radio show Marketplace,
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and I'm gonna focus on showing you the real
world applications of economics. You know,
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the good stuff. The really fun stuff.
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Mr. Clifford: Hey! We're
both fun! We're definitely
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not gonna teach economics like this:
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Prof. Bunsen Honeydew: Welcome to CrashCourse
Economics (Beaker yawns) I am thrilled to
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be teaching you this fascinating subject.
(Beaker moans)
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Mr. Clifford: I'm sorry
Professor Honeydew, but that's
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why people hate economics
in high school and college.
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Adriene: Anyway, Statler and Waldorf have
a point, the most important question in economics
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is "Where's John Green?" I mean everyone knows
he won a bronze medal in economics at the
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Alabama State Academic Decathlon. Well, John Green
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isn't hosting because
economics. We'll explain later.
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[Theme Music]
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Mr. Clifford: So let's start with the basics.
What is economics? Well it might be easier
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to term it what economics isn't. Economics
is not the study of money or getting rich,
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although understanding economics can help
with that. Economics is not the study of the
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stock market. It's just not. And economics
is not primarily about men in bow-ties forecasting
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what will happen in a given market or the
overall economy. Actually, a few economists
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do that, but that's not the main focus of
economics.
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Economics is the study of people and choices.
The famous economist Alfred Marsh defined
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economics as "A study of man (Adriene: And
woman!) in the ordinary business of life.
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It inquires how he gets his income and how
he uses it. Thus, it is on the one side the
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study of wealth and on the other and more
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important side a study of
man (Adriene: And woman)."
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Adriene: So let's talk a minute about what
else econ is. Economics is an 18 year old
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deciding whether to work or go to college and
how that affects her future income. Economics is
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a company deciding whether to produce smartphones
or tablets and how that's influenced by what
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we consumers want to buy. Economics is the
government deciding whether to increase its
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spending when it's a recession and if it's
worth going into debt.
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So despite what you might think, economics
is not boring and dull. OK, some of it is,
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but it's not all like that I promise! It's
awesome. Understanding econ can forever change
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the way you think and problem-solve. Our job
over the next 40 weeks is to teach you concepts
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that will help you understand the world, and
hopefully make it a better place.
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No matter who you are, you
will be using economics.
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In fact, pewww! You are using econ right now,
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you made a choice to watch this video, that
means you must feel that the benefit outweighs
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the cost. You might be thinking "This is YouTube,
there's no cost," but sure there is. You could
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be watching videos of kittens or skaters falling
on their face or charlie biting fingers. Ow!
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The cost of watching this
video is the video you're
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not watching, the value of
the next best alternative.
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Economists call this your opportunity cost.
If you're still watching this video it means
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that you believe it's the best use of your
time, or you wouldn't be watching it. "But
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what if I'm watching this at school?" you
ask, "What if I'm forced to watch this?" Well,
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you weren't forced to go to school, you could
ditch, you could drop out, you could move
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to a country that doesn't have compulsory
education. But the cost would outweigh the
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benefit. Even if you are at school, you're
not forced to watch the video, you could close
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your eyes or put your head down. No one's
gonna pry your eyes open, that'd be creepy!
00:04:04
Now let's talk about why John Green isn't
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here teaching this course.
John is an entrepreneur,
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he writes books, runs DFTBA, Vlogbrothers,
and Mental_Floss and creates movies, but he can't
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do everything he wants to
do. He looked at the benefits
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and costs of his choices, and in the end decided
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to spend more time writing books, so Mr. Clifford
and I are jumping in to teach you economics.
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Mr. Clifford: And believe it or not, we just
covered the two most important assumptions
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in all of economics. First, the idea of scarcity.
People have unlimited wants but limited resources,
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and second, everything and I mean everything
has a cost. And if these assumptions are true,
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then we need a way to analyze our choices
and get the most from our limited resources.
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And that's economics.
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Adriene: Wait, but let's go back to the idea
of benefits and costs. About 30,000 people
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a year die in car accidents in the US. Is
there a way to ensure there will never be
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another traffic fatality? Yes! We can crush
all the cars, close all the roads, and force
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everyone to walk. That would solve the car
crash problem. Do you want to decrease the
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number of people convicted of murder? You
could decriminalize murder. You want to end
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the unethical treatment of elephants? You could
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kill off all the elephants,
in an ethical way of course.
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But before you decide to tenderly euthanize
herds of beautiful elephants, think about
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it for a second. Each of these solutions is
absurd because the cost clearly outweighs
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the benefit. Traffic fatalities are tragic,
but we don't prevent them at all costs. You
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know that driving has risks, that you might
get in a car accident, but you still drive.
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Why? Well first, who's gonna walk to the gym?
And walking home with groceries in the rain
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is way worse than the teeny-tiny chance of
dying in a car crash. The point is, individuals,
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businesses, and countries can't have everything,
so they're forced to weigh the benefits and
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costs of their decisions and make choices.
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Let's look at another example. Military spending
in the United States is over 600 billion dollars
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per year, that's close to what the next top
ten countries spend combined. There are a
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total of about 20 active aircraft carriers
in the world, and the US has half of them,
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and it's building more. The opportunity cost
of those aircraft carriers could be hospitals,
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schools, and roads. So, is the US spending
too much on the military? Should the US focus
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on making guns or butter? That is, weapons
or consumer goods?
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Mr. Clifford: And notice the key word here
is "or," we can't produce an infinite amount
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of weapons AND consumer goods because we don't
have an infinite amount of workers and farms
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and factories and raw materials. Scarcity
means we must make a choice. The American
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president Dwight D. Eisenhower explained this best
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in 1953 in a speech about
Cold War military buildup.
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"Every gun that is made, every warship launched,
every rocket fired signifies, in the final
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sense, a theft from those who hunger and are
not fed, those who are cold and are not clothed.
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This world in arms is not spending money alone.
It is spending the sweat of its laborers,
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the genius of its scientists, the hopes of
its children."
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And this is a good time to mention the role
of politics in economics; we're not pushing
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some liberal anti-military policy here. We're
just pointing out that military spending has
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an opportunity cost: The resources not being
used for social services like feeding the hungry.
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We're gonna try not to push a political agenda
on you. We're gonna show you both sides and
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let you decide which one's best. So please
don't say "Mr. Clifford loves capitalism,
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so he's just a pro-business conservative,"
or "Adriene's talking about environmental
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regulations, so she's an anti-business liberal."
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Yeah, we are pro-business and you are too.
I mean, where do you think your computer came
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from? That computer was brought to you by
capitalism and the private sector. But that
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being said, the security and laws, roads,
and that traffic ticket you got the other
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day came from the government.
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Conservatives and liberals fight over the
details, but the free market alone can't solve
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all of our problems. And the government can't
solve all of them either. Government officials
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use economic theory to guide public policy;
their effects are widespread and affect millions
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of people. Sometimes a theory is flawed, but
many times a policy is flawed. Economists
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adjust theories supported
by data and understanding
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of incentives. Having the right incentive is key.
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Adriene: But the right incentives can be hard
to figure out. Take for example public colleges
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and universities. Many of them used to get
state money for each student they enrolled.
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That meant universities had financial incentives
to focus on recruiting as many students as
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possible, but not actually helping them succeed
once they were in class.
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So states have started changing the incentives.
Now, more and more states reward schools for
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the number of students that complete courses
or earn degrees. And in some places this has
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worked; it's helped schools
increase their graduation
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rates by shifting money from marketing budgets
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to programs to help students do better, but those
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incentives can also backfire
if they're poorly designed.
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A university that gets money for graduates
could push students through the program without
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giving them a good education. It might want
to only admit students who come in with super
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high test scores, instead of considering other
factors that might make them good candidates.
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It might push students into less-rigorous
majors.
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But incentives can help solve problems without
adding more resources. You just have to get
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the incentives right. Many non-economists
assume that the way to improve things like
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healthcare is to spend more money.
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Economists would point out that the US already
spends almost twice as much per person as
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other rich countries, and in many cases they
get worse health outcomes. Economists would
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also say that rather than spending more money,
we need to make sure that insurers, doctors,
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hospitals, and patients have incentives to
produce the most effective care possible at
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the lowest cost possible. The point is, if you
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mess up the incentives, the
policy's not gonna work.
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When Vietnam was under French colonial rule,
the regime issued a bounty on rats to exterminate
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them, giving money to people for handing in
rat tails. I guess because piles off rat bodies
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were too gross. The plan backfired. To make
as much money as possible, the rat-catchers
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cut the tails off the rats and released them,
allowing them to make baby rats. The policy
00:09:28
actually increased the rat population. It
made things worse. Eek!
00:09:31
We'll talk more about this idea of perverse
incentives in another video, when we talk
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about the 2008 financial crisis. Eek again.
For now, let's go to the Thought Bubble.
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Mr. Clifford: Speaking of 2008, people sometimes
criticize economists asking "Why didn't they
00:09:45
predict the 2008 financial crisis?" or, "why
can't they agree on what the government should
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do or shouldn't do when there's a recession?"
These criticisms fail to distinguish between
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macroeconomics and microeconomics.
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Specifically, all these complaints are about
macroeconomics. Macro studies the economy
00:09:59
as a whole; it looks at the whole nation's
output, unemployment, interest rates, government
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spending, and growth. Macro answers questions
like "Will unemployment rise if there's an
00:10:07
increase in taxes?" "Will and increase in
the money supply boost output or just increase
00:10:11
inflation?" "Will a slump in European economies
cause the US economy to slow down?"
00:10:15
Macroeconomists get more airtime because they
predict the direction of the overall economy,
00:10:18
and work with the media and businesses and
congress and the Federal Reserve, but less
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than half of all economists are macro economists;
there's a whole other side of economics that
00:10:26
look at different questions. "How many workers
should we hire to maximize profit?" "If our
00:10:30
main competitor releases their product in
May, when is the best time to release our
00:10:33
product?" and "which is better for fighting
climate change, a gas tax, or increase in
00:10:37
fuel efficiency?" These are all microeconomic
questions. They're not about predicting GDP,
00:10:41
or measuring unemployment, but they are crucial
questions that economists must answer. Also,
00:10:46
if you don't know what GDP
is or what a high or low
00:10:48
unemployment rate is don't worry, we'll get there.
00:10:50
So macro and micro-economists are two different
groups asking different questions under one
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academic umbrella. If economics was biology,
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macroeconomics would be
ecology while microeconomics
00:10:58
would be cell biology. If economics was physics,
macro would be cosmology and relativity while
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microeconomics would be Newtonian mechanics.
00:11:04
Thanks Thought Bubble! Stan, I've always wanted
to say that. Now I can cross it off my bucket
00:11:08
list. Now I have "ring the opening bell at
the New York Stock Exchange," "arm wrestle
00:11:11
Ben Bernanke," and "swim in a giant pool of
money like Uncle Scrooge."
00:11:13
Adriene: Obviously we're glossing over the
details, but we promise to cover everything
00:11:17
in the next 40 weeks from supply and demand
to monetary policy, we'll cover it all. Except
00:11:22
for maybe the giant pools of money. We can't
promise you that learning economics will make
00:11:26
you wealthy, but we can promise that learning
economics will enlighten your mind and make
00:11:30
you a more informed decision maker. And that
makes us all better off. Thanks so much for
00:11:35
joining us. We'll see you next week.
00:11:36
Mr. Clifford: Thanks for watching Crash Course
Economics. It was made with the help of all
00:11:39
of these nice people. They work on the show
because there's financial and implicit benefits
00:11:43
that cover their opportunity costs. Now, if
you want to help them with those financial
00:11:46
benefits, consider going over to Patreon.
It's a voluntary subscription platform that
00:11:50
allows you to pay whatever you want monthly
to help make Crash Course free for everyone,
00:11:53
forever. Thanks for watching. DFTBA.
