00:00:00
classical economics picture an economy
00:00:03
as a massive machine that runs best when
00:00:05
left alone this is the core idea behind
00:00:08
classical economics born in the 18th
00:00:11
century when Adam Smith published The
00:00:13
Wealth of Nations in
00:00:15
1776 Smith introduced us to the
00:00:18
Invisible Hand the idea that millions of
00:00:21
people each pursuing their own
00:00:23
self-interest unknowingly create order
00:00:25
in the economy when a baker bakes bread
00:00:28
they're not thinking about feeding
00:00:30
Society they're trying to make money yet
00:00:33
their pursuit of profit ensures people
00:00:35
get their daily bread classical
00:00:37
economists believe that prices wages and
00:00:39
markets naturally adjust themselves if
00:00:42
bread becomes too expensive bakers will
00:00:44
see an opportunity to make money more
00:00:47
Bakers enter the market increasing
00:00:49
Supply and bringing prices down if wages
00:00:52
in one industry are high workers flock
00:00:55
there until wages balance out this
00:00:58
school gave us David Ricardo theory of
00:01:00
comparative advantage the idea that
00:01:03
countries should produce what they're
00:01:04
best at relative to others England might
00:01:07
be better than Portugal at making both
00:01:09
wine and cloth but if england is much
00:01:11
better at cloth and only slightly better
00:01:13
at wine both countries benefit when
00:01:15
England focuses on cloth and Portugal on
00:01:17
wine the classical economists had one
00:01:19
major warning government interference
00:01:22
disrupts this natural order tariffs
00:01:25
price controls and heavy regulations are
00:01:27
like throwing a wrench into our economic
00:01:29
machine
00:01:30
their motto l a fair Let It Be marxian
00:01:34
economics if classical economics saw the
00:01:37
free market as a harmonious dance Karl
00:01:39
Mars saw it as a battlefield writing in
00:01:42
the midst of the Industrial Revolution
00:01:43
Marx wasn't just proposing an economic
00:01:45
theory he was diagnosing what he saw as
00:01:47
a fatal disease in capitalism at the
00:01:50
heart of marxian Economics is the labor
00:01:52
theory of value the idea that a
00:01:54
product's True Value comes from the
00:01:55
human labor put into making it picture a
00:01:58
worker in a factory making chairs in 8
00:02:01
hours they might make 10 chairs that
00:02:02
sell for $50 each their wage $80 for the
00:02:07
day marks would ask if the worker
00:02:09
created $500 worth of value why do they
00:02:12
only receive
00:02:14
$80 the remaining $420 is what he called
00:02:17
Surplus value essentially profit
00:02:20
extracted from the workers's labor this
00:02:22
leads to Marx's concept of
00:02:24
exploitation capitalists the factory
00:02:27
owners grow wealthy not through their
00:02:29
own work
00:02:30
but by pocketing this Surplus value Mark
00:02:33
saw this as an inherent feature of
00:02:34
capitalism not a bug like a pressure
00:02:37
cooker building steam he believed this
00:02:40
exploitation would eventually lead to
00:02:42
Revolution Marx introduced the idea of
00:02:45
historical materialism the notion that
00:02:47
economic systems naturally evolve
00:02:49
through stages just as feudalism gave
00:02:52
way to capitalism he predicted
00:02:54
capitalism would inevitably collapse
00:02:56
under its own contradictions leading to
00:02:58
socialism and eventually communism Game
00:03:01
Theory imagine economics as a giant
00:03:03
chess game where every move you make
00:03:05
depends on what you think others will do
00:03:07
that's game theory developed by John Von
00:03:10
Newman and later revolutionized by John
00:03:12
Nash yes the Beautiful Mind guy while
00:03:15
other economic theories try to predict
00:03:17
markets Game Theory asks a different
00:03:19
question how do people behave when their
00:03:22
success depends on others
00:03:23
choices let's start with the most famous
00:03:26
example the prisoners dilemma two
00:03:29
criminals are rested and separated each
00:03:31
has two choices stay silent or betray
00:03:34
their partner if both stay silent they
00:03:37
each get one year in prison if both
00:03:40
betray they each get three years but if
00:03:43
one betrays while the other stays silent
00:03:45
the betrayer goes free while their
00:03:47
partner gets 5 years the rational choice
00:03:49
is to betray but here's the twist if
00:03:52
both make this rational choice they end
00:03:55
up worse off than if they'd cooperated
00:03:57
this simple game explains everything
00:03:59
from arms races to price Wars to climate
00:04:02
change companies might all benefit from
00:04:04
keeping prices high but each has an
00:04:06
incentive to undercut the others
00:04:09
countries might benefit from reducing
00:04:10
carbon emissions but each has an
00:04:12
incentive to keep polluting While others
00:04:14
cut back it's the tragedy of rational
00:04:17
self-interest Nash's biggest
00:04:19
contribution was proving that in any
00:04:21
game there's at least one point where no
00:04:24
player can benefit by changing their
00:04:26
strategy alone the famous Nash
00:04:30
equilibrium think about traffic we all
00:04:33
drive on the right side in America not
00:04:36
because it's inherently better but
00:04:38
because everyone else does changing your
00:04:41
strategy alone would be disastrous Game
00:04:44
Theory isn't just academic it's
00:04:46
revolutionized business strategy
00:04:48
international relations and even biology
00:04:51
it's used to design auctions negotiate
00:04:53
treaties and understand everything from
00:04:55
dating markets to animal behavior it
00:04:58
shows us that sometimes the pursuit of
00:04:59
self-interest leads to everyone losing
00:05:02
neoclassical
00:05:03
economics in the late 19th century
00:05:06
economists had a revelation what if we
00:05:08
stopped looking at the economy through
00:05:10
the lens of social classes and instead
00:05:12
focused on how individuals make choices
00:05:15
enter neoclassical economics which
00:05:18
revolutionized how we think about value
00:05:20
and price unlike classical or marxian
00:05:24
economists who thought value came from
00:05:26
labor neoclassicals introduced
00:05:28
marginalism
00:05:30
the idea that value comes from the
00:05:32
additional satisfaction you get from one
00:05:35
more unit of something think about
00:05:37
eating pizza the First Slice amazing the
00:05:41
fourth slice less exciting the eighth
00:05:45
slice you might even pay someone to take
00:05:47
it away this diminishing marginal
00:05:49
utility explains why water essential for
00:05:52
life is cheap while diamonds which we
00:05:55
can live without are expensive
00:05:57
neoclassicals view the economy as a comp
00:05:59
complex web of supply and demand curves
00:06:02
always seeking equilibrium they assume
00:06:04
people are rational actors who make
00:06:06
decisions to maximize their satisfaction
00:06:08
given their limited resources businesses
00:06:11
aim to maximize profits consumers aim to
00:06:14
maximize utility and prices act as
00:06:17
signals coordinating this elaborate
00:06:20
dance their model of perfect competition
00:06:23
envisions many small firms competing
00:06:25
with identical products complete
00:06:27
information and no barriers to country
00:06:30
while this rarely exists in reality it
00:06:32
serves as a benchmark for measuring
00:06:34
market efficiency and understanding how
00:06:36
prices are determined kenian economics
00:06:39
the Great Depression shattered the idea
00:06:41
that markets always fix themselves in
00:06:44
1936 John Maynard KES stepped in with a
00:06:47
radical new vision sometimes the
00:06:49
Invisible Hand needs a push K's flipped
00:06:52
economic thinking on its head by
00:06:54
focusing on aggregate demand the total
00:06:57
spending in an economy his key Insight
00:07:00
during a recession people and businesses
00:07:02
get scared people save more businesses
00:07:05
invest less but here's the Paradox
00:07:09
what's smart for individuals becomes
00:07:11
disastrous for the economy when everyone
00:07:14
saves at once spending drops businesses
00:07:17
lay off workers those workers spend less
00:07:20
and the economy spirals downward this is
00:07:23
where canes said government must step in
00:07:27
if businesses won't invest and consumers
00:07:29
won't spend the government should fill
00:07:32
the Gap build Bridges hire workers cut
00:07:35
taxes do whatever it takes to get money
00:07:38
flowing again this spending creates a
00:07:41
multiplier effect when the government
00:07:43
hires a construction worker that worker
00:07:45
buys groceries the grocery store owner
00:07:47
buys new equipment and so on with each
00:07:50
dollar of government spending generating
00:07:51
more than a dollar of economic activity
00:07:54
K's most revolutionary idea in a
00:07:57
depression Thrift isn't a virtue it's
00:08:00
the problem to him trying to save your
00:08:03
way out of a recession was like trying
00:08:05
to lose weight by starving yourself it
00:08:07
might make sense individually but
00:08:09
collectively it's a recipe for disaster
00:08:11
supply side economics remember the 1980s
00:08:15
when Reagan promised that tax cuts would
00:08:17
pay for themselves that's supply side
00:08:19
economics in action while Keynesian
00:08:21
focus on boosting demand Supply Siders
00:08:24
say we've got it backwards focus on
00:08:26
production and the rest will follow the
00:08:28
theory Rose to prominence during a time
00:08:30
of stagflation when the economy was both
00:08:33
stagnating and experiencing High
00:08:34
inflation something Keynesian economics
00:08:37
struggle to explain their big idea is
00:08:39
that high taxes and regulations
00:08:41
discourage people from producing cut
00:08:44
taxes especially on businesses and high
00:08:46
earners and you'll unleash a wave of
00:08:48
investment and work effort the economy
00:08:51
grows so much that government actually
00:08:53
collects more revenue from lower tax
00:08:55
rates this concept was famously
00:08:57
illustrated by Economist Arthur laugher
00:08:59
on a napkin creating what we now call
00:09:01
the laugher curve Supply Siders believe
00:09:04
in trickle down effects when the wealthy
00:09:06
get tax breaks they invest in new
00:09:08
businesses create jobs and boost wages
00:09:12
like water flowing downhill the benefits
00:09:14
eventually reach everyone they argue
00:09:16
that high marginal tax rates discourage
00:09:18
work and investment after all why work
00:09:21
harder if the government takes most of
00:09:23
your additional earnings but here's
00:09:25
where it gets controversial while supply
00:09:27
side policies led to economic boom
00:09:30
they also coincided with growing
00:09:31
deficits and inequality the 1981 tax
00:09:34
cuts didn't pay for themselves as
00:09:36
promised by 1982 Reagan had to raise
00:09:40
some taxes to combat growing deficits
00:09:42
critics say this proves the theory
00:09:44
doesn't work supporters argue taxes were
00:09:47
still too high and regulations too
00:09:50
burdensome supply side economics
00:09:52
fundamentally changed how we think about
00:09:54
taxes and growth today most economists
00:09:56
agree that tax rates matter for economic
00:09:58
behavior but debate the size of the
00:10:01
effect the theory remains influential in
00:10:04
political debates about tax policy
00:10:06
though often more as a political tool
00:10:08
than an economic Doctrine monetarism in
00:10:11
the 1970s as inflation spiraled out of
00:10:14
control Milton Freedman and the monitor
00:10:16
interests emerged with a direct
00:10:18
challenge to Keynesian dominance their
00:10:20
message was simple the real problem
00:10:22
isn't managing demand it's managing
00:10:25
money to monitor interests inflation
00:10:27
isn't some mysterious Force it's pure
00:10:30
mathematics print too much money and
00:10:32
each dollar becomes worth less they
00:10:34
summed it up in one famous phrase
00:10:36
inflation is always and everywhere a
00:10:38
monetary phenomenon think of it like
00:10:40
adding water to soup the more you add
00:10:43
the less flavorful each spoonful becomes
00:10:46
fredman argued that government attempts
00:10:47
to fine-tune the economy often do more
00:10:49
harm than good there's a lag between
00:10:52
economic problems and policy responses
00:10:54
like trying to drive a car by looking in
00:10:55
the rearview mirror instead he advocated
00:10:58
for a simple rule increase the money
00:11:01
supply by a small steady amount each
00:11:03
year no fancy policies no government
00:11:05
spending sprees just stable predictable
00:11:08
monetary growth monitor interests also
00:11:10
introduced the concept of the natural
00:11:12
rate of unemployment a baseline level of
00:11:14
joblessness that's actually healthy for
00:11:16
the economy trying to push unemployment
00:11:18
below this natural rate through
00:11:20
government policy would only lead to
00:11:22
inflation not lasting Prosperity their
00:11:25
solution let markets work keep money
00:11:28
stable and get government out of the way
00:11:31
development
00:11:32
economics why do some Nations Prosper
00:11:35
While others stay poor this isn't just
00:11:37
an academic question it's about billions
00:11:39
of people's lives development economics
00:11:42
tackles this by looking Beyond Simple
00:11:44
models of growth revealing that
00:11:46
Prosperity isn't just about capital and
00:11:47
labor it's about the complex web of
00:11:50
Institutions culture and history that
00:11:53
shape economic progress development
00:11:56
economists identified something
00:11:57
Insidious called poverty y traps Vicious
00:12:00
Cycles where poverty itself prevents
00:12:02
growth imagine a farmer too poor to buy
00:12:05
fertilizer without fertilizer yields
00:12:08
stay low with low yields they can't save
00:12:11
enough to buy fertilizer next year now
00:12:14
multiply this across millions of people
00:12:17
if you're too poor to save or invest in
00:12:19
education you stay poor if your country
00:12:22
can't build infrastructure it can't
00:12:24
attract business if corruption is
00:12:27
widespread honest Behavior becomes
00:12:29
costly each problem reinforces the
00:12:33
others but here's where it gets
00:12:35
interesting development economists found
00:12:38
that small targeted interventions can
00:12:40
break these Cycles micro Finance
00:12:43
programs pioneered by muhamad Unice in
00:12:45
Bangladesh give small loans to
00:12:47
entrepreneurs who' never qualify for
00:12:50
traditional banking conditional cash
00:12:52
transfers like Brazil's Bolsa Familia
00:12:55
pay families to keep kids in school even
00:12:57
Simple Solutions like adding I assault
00:13:00
boosted IQ scores and productivity
00:13:02
across developing nations the field has
00:13:05
also shattered old myths about
00:13:07
development we used to think poor
00:13:08
countries just needed more capital or
00:13:11
better technology but countries like
00:13:13
Argentina started rich and fell behind
00:13:16
While others like Singapore started poor
00:13:18
and prospered the difference
00:13:21
institutions property rights rule of law
00:13:25
education systems and political
00:13:27
stability matter more than Raw resources
00:13:29
or money this leads to development
00:13:32
economics big lesson Economic
00:13:35
Development isn't just about money it's
00:13:37
about transforming societies markets
00:13:40
alone aren't enough you need Education
00:13:43
Health Care good governance and
00:13:45
institutions that encourage Innovation
00:13:47
and Enterprise it's not just about
00:13:49
getting richer it's about building the
00:13:51
foundations for lasting Prosperity
00:13:53
Austrian School while other economists
00:13:56
were busy building mathematical models
00:13:58
the Austrian School said we were missing
00:14:00
the Point founded by Carl manger and
00:14:02
developed by Scholars like Friedrich
00:14:04
Hayek and ludvig Von mises the austrians
00:14:06
insisted that economics isn't about
00:14:08
equations it's about Human Action their
00:14:11
most distinctive idea is their theory of
00:14:14
business Cycles unlike other economists
00:14:16
who blame recessions on insufficient
00:14:18
demand or monetary mishaps austrians
00:14:22
point the finger at central banks when
00:14:24
central banks keep interest rates
00:14:26
artificially low it's like giving the
00:14:28
economy a sugar Rush businesses embark
00:14:31
on ambitious projects thinking there's
00:14:33
more savings available than there really
00:14:35
is but eventually reality hits the Sugar
00:14:39
Rush ends projects fail and the economy
00:14:42
crashes the austrians are also famous
00:14:44
for their critique of central planning
00:14:47
Hayek argued that no Central planner
00:14:49
could ever gather enough information to
00:14:50
efficiently run an economy think about
00:14:53
trying to coordinate what millions of
00:14:54
people want for breakfast tomorrow it's
00:14:57
impossible markets through the price
00:14:59
system solve this problem automatically
00:15:02
every purchase and sale sends signals
00:15:04
about what people want and need creating
00:15:06
what they call spontaneous order this
00:15:09
school takes individual Freedom
00:15:11
seriously to them the economy isn't a
00:15:14
machine to be managed but a complex
00:15:16
network of human choices that should be
00:15:18
left free to evolve naturally behavioral
00:15:20
economics what if humans aren't the
00:15:22
rational calculators that traditional
00:15:24
economics assumes in the 1970s
00:15:27
psychologists Daniel man and Amos fski
00:15:30
started poking holes in our assumptions
00:15:32
about human rationality giving birth to
00:15:35
behavioral economics their research
00:15:37
revealed we're walking bundles of biases
00:15:40
and mental shortcuts we feel the pain of
00:15:42
losing $100 more intensely than the
00:15:46
pleasure of gaining
00:15:47
$100 we'll drive across town to save $5
00:15:50
on a $15 item but won't do the same to
00:15:53
save $5 on a $500 item we buy gym
00:15:56
memberships in January knowing will
00:15:58
barely use them traditional economics
00:16:01
can't explain these behaviors but
00:16:03
behavioral economics can this school
00:16:06
introduced the concept of bounded
00:16:08
rationality we don't always make the
00:16:10
best decisions just ones that are good
00:16:12
enough we're influenced by how choices
00:16:14
are framed by what others are doing and
00:16:17
by our emotions ever notice how stores
00:16:20
Mark prices as
00:16:23
$999 instead of $10 or how hotels put
00:16:27
80% of guests reuse their towels signs
00:16:30
in
00:16:31
bathrooms that's behavioral economics at
00:16:34
work the implications are huge if people
00:16:37
aren't perfectly rational then markets
00:16:40
aren't perfectly efficient this opens
00:16:42
the door for nudges subtle changes in
00:16:46
how choices are presented that can help
00:16:48
people make better decisions while
00:16:49
preserving their freedom to choose new
00:16:52
institutional
00:16:53
economics if traditional economics sees
00:16:56
markets as a frictionless machine new
00:16:58
instit tional economics niie reminds us
00:17:02
that in the real world nothing runs that
00:17:04
smoothly founded by Ronald Co and
00:17:07
developed by Scholars like Douglas North
00:17:09
ni asks why do we need institutions like
00:17:12
corporations laws and property rights in
00:17:15
the first place their answer revolves
00:17:17
around transaction costs the friction
00:17:19
and economic
00:17:21
exchanges imagine trying to make a movie
00:17:23
without a corporation you'd need
00:17:25
separate contracts with every actor
00:17:27
camera operator and crew member
00:17:29
you'd have to negotiate every decision
00:17:31
the paperwork alone would kill the
00:17:33
project this is why we create
00:17:35
institutions like film companies they
00:17:37
reduce these transaction costs and make
00:17:40
complex projects possible ni also
00:17:42
emphasizes path dependence how history
00:17:45
shapes Economic Development why does
00:17:48
Silicon Valley dominate Tech why do some
00:17:50
countries stay poor While others Prosper
00:17:54
it's not just about resources or
00:17:55
policies it's about the evolution of
00:17:58
Institution over time a country's legal
00:18:01
system property rights and business
00:18:04
culture create patterns that are hard to
00:18:06
change this school sees Economic
00:18:08
Development as more than just
00:18:10
accumulating Capital it's about building
00:18:13
better institutions from reliable courts
00:18:16
to functioning markets bad institutions
00:18:19
can trap countries in poverty while good
00:18:21
ones create the foundation for
00:18:23
Prosperity public Choice Theory what if
00:18:26
we analyzed government the same way we
00:18:27
analyze markets public Choice Theory
00:18:30
does exactly that and the results are
00:18:33
unsettling founded by James Buchanan and
00:18:35
Gordon tulk it applies economic thinking
00:18:38
to politics challenging our romantic
00:18:40
Notions about democracy and public
00:18:41
service their key Insight politicians
00:18:45
and bureaucrats aren't selfless public
00:18:47
servants they're rational actors
00:18:49
pursuing their own interests just like
00:18:51
anyone else just as businesses seek
00:18:54
profits politicians seek votes and
00:18:56
bureaucrats seek larger budgets a
00:18:59
congressman might know a policy is bad
00:19:00
for the country but if it benefits their
00:19:03
District guess how they'll vote this
00:19:05
explains why good policies often fail to
00:19:08
pass while bad ones persist like zombies
00:19:11
that just won't die they identified a
00:19:13
crucial concept called concentrated
00:19:15
benefits and dispersed costs imagine a
00:19:18
sugar tariff that costs consumers $20
00:19:21
each per year but give sugar producers
00:19:23
an extra $20 million the cost is spread
00:19:26
so thin that no individual consumer will
00:19:28
bother fighting it while producers will
00:19:30
Lobby hard to keep it this pattern
00:19:33
repeats everywhere from Farm subsidies
00:19:35
to trade restrictions it's why democracy
00:19:38
often produces policies that harm the
00:19:40
majority to benefit powerful minorities
00:19:43
public Choice theorists also expose the
00:19:46
myth of the public interest when a new
00:19:48
regulation appears we assume it's to
00:19:51
protect consumers but dig deeper and you
00:19:54
often Find incumbent firms using
00:19:56
government power to crush competition
00:19:59
they showed how interest groups capture
00:20:01
their Regulators turning Watchdogs into
00:20:03
guard dogs for the industry but they
00:20:05
don't just criticize they suggest
00:20:08
Solutions constitutional rules can limit
00:20:10
government's ability to play favorites
00:20:13
Sunset Clauses can make regulations
00:20:15
expire unless actively renewed
00:20:18
competition between jurisdictions can
00:20:19
check government power if your state tax
00:20:21
is too much you can move their message
00:20:25
democracy needs rules to make
00:20:27
self-interest serve the common good
00:20:28
right
