1) Economics is the study of scarcity and choices. We have limited resources, so we need a way to analyze the best way to use them.
2) Significant sustained increase in people's lives happened after Industrial Revolution.
3) Adam Smith concluded that division of labor made countries wealthy. a. Analogy: one pizza takes few people to be created. One prepares ingredients, another puts it in the oven, another one puts it in the box. This division makes each worker more productive, since each one is focused on a thing they do best and they don't need to spend time switching between the tasks. b. Without specializations, if you want something - you have to make it yourself. c. So if you are good at producing something - specialize at it and then trade with others.
4) Production Possibilities Frontier (PPF) shows different combinations of two goods being produced using all resources efficiently. a. Every possible combination inside the curve is inefficient. On the curve - efficient. Outside - impossible. b. The country that can produce more goods of one kind (per time) than another country is having an absolute advantage over another country in production of those goods. c. Opportunity cost is a cost of production of good, measured in losses in production of another good. d. Country that can produce good with cheaper opportunity cost, has comparative advantage over another country. e. Individuals and countries should specialize in producing things in which they have a comparative advantage and then trade with other countries that specialize in something else. This trade is mutually beneficial.
5) If there is one point where economists agree it's that specialization and trade makes the world better off.
1) As a social order, we have to figure out three things: - What will we produce? - How to produce it? - Who will get it?
2) Two different economic systems: market economies and planned economies. a. In planned economy, government controls labor, land and capital. b. Communism is primarily defined by the lack of private property. Class-lessness is a symptom of having no private property. There are no communist countries in the world. c. Often socialism has some private property and some public ownership. d. Command economy is totally controlled by government. f. In market economies, individuals control production to get profit. Invisible hand - the unintended social benefits resulting from individual actions. "It's not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from the regard to their own interest." The mechanism of the invisible hand is that if you produce unwanted or shoddy products, a competitor will produce better more desirable products and put you out of business. This results in businesses that produce the things that people want/demand most, at lower prices.
3) Modern economies are neither completely free market nor planned. There's a spectrum of government involvement.
4) Circular flow model. a. Modern economy is made above households (individuals like him and you) and businesses. b. Businesses sell goods and services to households in product market. c. Households earn the money by selling labor to businesses. d. Businesses pay for the resources on resource market. f. Government also buys products and resources, i.e. to buy cars from businesses and hire policemen to drive them. e. Government gets the money from taxes, households and businesses (and borrowing).
1) Market - any place where buyers and sellers meet to exchange goods and services. a. An owner of a supermarket values the labor of the cashier more than money she pays him.
2) Price signals - the information that markets generate to guide the distribution of the resources. a. Businesses, and in particular large corporations , are often villainized as greedy, heartless institutions, that take advantage of consumers, but if markets are transparent and buyers are free to choose, then businesses will have a hard time making advantage of people.
3) Supply and demand. a. When the price goes up - people buy less, when the price goes down - people buy more. b.When the price goes up - the farmer wants to produce more, when the price goes down - the farmer wants to produce less. c. When quantity supplied = quantity demanded, we get equilibrium price of product.
4) Four market behaviors a. Supply can decrease. b. Supply can increase. c. Demand can increase. d. Demand can decrease.
1) Macroeconomics - the study of the entire economy as a whole rather than individual markets.
2) In general policy makers try to achieve three goals: a. Keep the economy growing over time (gross domestic product - GDP) b. Limit unemployment (unemployment rate) c. Keep prices stable (inflation rate)
3) GDP is the value of all final goods and services produced within a country's border in a specific period of time, usually a year. a. Transactions where nothing new was produced - don't count as GDP. b. Also not including illegal activities. c. Measured in dollars. d. Nominal GDP is GDP not adjusted for inflation. e. Real GDP is GDP adjusted for inflation.
4) Recession - when two successful quarters, or six months, show a decrease in real GDP. a. Depression - a severe recession.
5) Unemployment rate is calculated by taking the number of people that are unemployed and dividing by the number of people in the labor force, times 100. a. Discouraged workers - unemployed people that were looking for work, but have given up. b. There are three types of unemployment: - frictional unemployment - the time period between jobs, when a worker is searching for, or transitioning from one job to another. - structural unemployment - unemployment caused by lack of demand for a worker's specific type of labor. - cyclical unemployment - unemployment due to recession. c. Natural rate of unemployment - the lowest rate of unemployment that economy can sustain over a long period.
6) Inflation - an increase in a currency supply relative to the number of people using it, resulting in rising prices of goods and services over time. a. Deflation - a decrease in general price level of goods and services.
1. Why some countries have high GDP and others have low GDP (some countries are rich and other poor): a. Lack of natural resources. b. Corrupt governments.
2. GDP per capita(output per person) is used to tell how wealthy a country is.
3. Countries with high GDP/capita have far less infant mortality, poverty and preventable diseases.
4. Productivity and growth: a. The more a worker produces, the more a worker can earn. b. Economists argue that the main reason that some countries are rich is because of productiivty. c. Higher value produce also the growth effect. d. Productivity is key, but there are limits.
5. People in poor countries need food, water, plumbing, hospitals and medicine, and all of those things are needed to get better efficiency.
6. How much stuff is produced per person(can be called GDP)
7. Factors of production effect the efficiency: a. Land b. Workers c. Capital( and also workers education, knowledge aka human capital) d. Technology: The sum total of knowledge and information that society has acquired concerning the use of resources to produce goods and services. (Connectivity= productivity).
Increasing Productivity has resulted in increasing standards of living(globally and historically).
0:00 - introduction 1:57 - is the US like Weimar? 13:07 - when is hyperinflation unstoppable? 18:50 - is the US special? 20:27 - how to protect yourself
1) Purchasing power - the amount of physical goods and services that can be bought by a given amount of money. a. Consumer price index (CPI) - a statistical estimate constructed using the prices of a sample of representative items whose prices are collected periodically. b. "Real" means that prices from the past has been adjusted for inflation. Nominal means a price from the past that hasn't been adjusted for inflation. So the highest "nominal" box office receipts list is quite different. c. Since we have to keep the market basket constant over time, a traditional CPI won't adjust for either new products or increases in product quality.
2) Inflation - an increase in a currency supply relative to the number of people using it, resulting in rising prices of goods and services over time. a. Demand pull inflation - too much money chasing too few goods.
3) Bubbles - a market phenomenon characterized by surges in asset prices to levels significantly above the fundamental value of that asset. a. Speculation - trading a financial instrument involving high risk, in expectation of significant returns.
1) Recessionary gap - a situation wherein the real GDP is lower than potential GDP at the full employment level. 2) Inflationary gap - the amount by which the actual gross domestic product (GDP) exceeds potential full-employment GDP. 3) Macroeconomics - the study of the entire economy as a whole rather than individual markets. 4) Fiscal policy - the way a government adjusts its spending levels and tax rates to monitor and influence a nation's economy. a. Expansionary Fiscal Policy - stimulates the economy during or anticipation of a business-cycle contraction. b. Contractionary Fiscal Policy - enacted by a government to reduce the money supply and ultimately the spending in a country. c. Classical theories assumed that the economy will fix itself in a long run, and that government intervention will, at best, lead to unintended consequences and, at worst, cause massive inflation and debt. 5) Deficit spending - the government spends more money than it collects in tax revenue. a. Crowding out - where increased public sector spending replaces, or drives down, private sector spending. b. Keynesian economists maintain that crowding out is only a problem if economy operates at full capacity, where all workers are employed and we're producing as much as we can. 6) Austerity - raising taxes and cutting government spending to reduce debt. In crisis of 2008 was main policy of EU, which led to worse results than deficit spending policy in US. 7) Multiplier effect - the initial increase in government spending of 100$ might turn out to be 175$ worth of actual spending in the economy. a. When the economy is booming, multiplier is close to 1x. b. When economy is in recession, the multiplier is around 2x. c. Spending on infrastructure, and aid to state & local governments , also seems to have fairly high multiplier, about 1.5. But general cuts to payroll and income taxes seems to have a multiplier of about 1:. If the government cuts 100$ in taxes, the economy is going to grow by about 100$.
1) Budget deficit - the amount by which a government's spending exceeds it's income over a particular period of time. a. Debt - the accumulation of budget deficits. b. In the same way our GDP grows every year, due to population growth and productivity increases. And our ability to sustain debt grows along with our income. 2) "Default"- the investors who loaned the government money lose billions and the government loses all credibility, and it causes massive recession. 3) Debt ceiling - limit on the amount of national debt that can be issued by US Treasury.
The bulk of the Can't Go Broke video uses the United States as an example, but generally you can apply these ideas to any country that issues its own sovereign currency, like the UK, Japan, etc.
Another thing to note is that Japan has an even bigger national debt than the U.S. when you compare their debt-to-GDP ratios. The debt number used at the beginning of the video ($28 trillion) is the gross national debt of the United States. Some economists prefer to focus on a different, slightly smaller number, called the “public debt.” That number takes the overall debt and subtracts from it any intergovernmental debt — in other words, debt owned by different parts of the U.S. government.
With the deadline to file tax returns coming up in the U.S., one of the things we found most interesting is that taxes don’t need to be collected first before a government spends; it flips our whole understanding of why we are taxed and what the limitations to government investment could be.
1) The Federal Reserve is the central bank of US. Europe has the European Central Bank.
a. Most Central Banks have two jobs: - they regulate and oversee the nation's commercial banks by making sure that banks have enough money in reserve to avoid bank runs. - they conduct monetary policy which is increasing or decreasing the money supply to speed up or slow down the overall economy. 2) Interest rate - the price of borrowing money. a. When interest rates are low, borrowers will find it easier to pay back loans so they will borrow more and spend more. When interest rates are high, borrowers borrow less and spend less. b. Expansionary monetary policy - when central bank wants to speed up the economy, it will increase the money supply, which will decrease interest rates and lead to more borrowing and spending. c. Contractionary monetary policy - when central bank wants to slow down the economy, they decrease the money supply. Less money available will increase interest rates and decrease borrowing and spending. 3) Liquid assets - an asset that can be converted into cash quickly and with minimal impact to the price received. 4) Open market operations - this is when the federal reserve buys or sells short term government bonds. 5) Quantitative easing (Q.E.) - when central banks buy longer term assets from banks. 6) Monetary policy - changing money supply to speed up or slow down economy.
1) Money serves three main purposes: - Medium of exchange. It is generally accepted for payment for goods and services. - Store of value. Money can be stored. - Unit of account. Money is standardized metric that helps us measure value of things. 2) Financial system. a. Lenders b. Borrowers c. Governments d. Capital - the machinery, tools and factories owned by a business and used in production. e. Financial system is a network of institutions, markets and contracts that brings lenders and borrowers together. f. Debt - if you get a loan from the bank, you are obligated to pay back the amount you borrowed plus the amount of interest. g. Equity - the difference between the value of the assets/ interest and the cost of liabilities of something owned. h. Financial instrument - a tradeable asset of any kind. i. Financial institution - an establishment that conducts financial transactions such as investments, loans and deposits. j. Financial markets with instruments like stocks and bonds, allow borrowers to crowdsource the money they need to borrow. They raise their capital from lots of investors, and spread the risk around.
The 2008 financial crisis began with home mortgages, and the use of mortgages as an investment instrument. For years, it seemed like the US housing market would go up and up. Like a bubble or something. It turns out it was a bubble. But not the good kind. And the government response was ... interesting.
1) Default - when a debtor is unable to meet the legal obligation of debt repayment.
a. Traditionally it was pretty hard to get a mortgage if you had bad credit or didn't have a steady job. Lenders just didn't want to take the risk that you might "default" on your loan. b. In 2000s investors in the US and abroad, looking for low-risk, high-return investments, started throwing money at the US housing market. 2). Mortgage back securities are created when large financial institution securitize mortgages. a. Securitize - the process of taking an illiquid asset and transforming it into a security. b. They gave a lot of mortgage backed-securities AAA-ratings - the best of the best. And back when mortgages only for borrowers with good credit, mortgage debt was a good investment. 3) Subprime mortgage - a loan granted to individuals with poor credit history. a. The new lax lending requirements and low interest rates drove housing prices higher, which only made mortgage backed securities and CDOs seem like an even better investment. b. As people stopped buying houses and paying mortgages, the big financial institutions stopped buying subprime mortgages and subprime lenders were getting stuck with bad loans. By 2007 some really big lenders had declared bankruptcy. c. Credit default swaps were also turned into other securities - that essentially allowed traders to bet huge amounts of money on whether the value of mortgage securities would go up or down. d. No one knew exactly how bad the balance sheets at some of these financial institutions really were - these complicated, unregulated assets made it hard to tell. 4) Perverse incentive - when a policy ends up having a negative effect, opposite of what is intended. 5) Moral hazard - when one person takes on more risk because someone else bears the burden of that risk. a. Blaming the government: "The sentries were not at their posts, in no small part due to the widely accepted faith in the self-correcting nature of the markets, and the ability of financial institutions to effectively police themselves."
0:00 - introduction 1:57 - is the US like Weimar? 13:07 - when is hyperinflation unstoppable? 18:50 - is the US special? 20:27 - how to protect yourself
1) Hyperinflation - when a country experiences a monthly inflation rate of over 50% or around 13,000% annual inflation. a. Extreme inflation also forces people to spend as quickly as possible rather than save of lend, so there is no money available to fund new businesses. And all that uncertainty limits foreign investment and trade. b. The more money you print, the more inflation you get. c. Economists call the number of times a dollar is spent per year a velocity of money. When people spend their money as quickly as they get it, that increases velocity, which pushes inflation up even faster. 2) Depression. a. After the initial crash in 1929 the federal reserve dropped interest rates to zero, output and prices fell, and regular people started to expect further price declines. Unemployment rose to 25% and the average family income dropped by around 40%. 3) Stagflation - when output slows down or stops, or stagnates at the same time that prices rise. Stagnant economy + inflation = stagflation. a. The FED tried to address this by boosting the money supply and cutting interest rates, but output couldn't rise much because of low productivity and the oil shortage. So all that extra money just triggered inflation.
The term, a portmanteau of stagnation and inflation, is generally attributed to Iain Macleod, a British Conservative Party politician who became Chancellor of the Exchequer in 1970. Macleod used the word in a 1965 speech to Parliament during a period of simultaneously high inflation and unemployment in the United Kingdom. Warning the House of Commons of the gravity of the situation, he said: "We now have the worst of both worlds—not just inflation on the one side or stagnation on the other, but both of them together. We have a sort of 'stagflation' situation. And history, in modern terms, is indeed being made."
Macleod used the term again on 7 July 1970, and the media began also to use it, for example in The Economist on 15 August 1970, and Newsweek on 19 March 1973. John Maynard Keynes did not use the term, but some of his work refers to the conditions that most would recognise as stagflation. In the version of Keynesian macroeconomic theory that was dominant between the end of World War II and the late 1970s, inflation and recession were regarded as mutually exclusive, the relationship between the two being described by the Phillips curve. Stagflation is very costly and difficult to eradicate once it starts, both in social terms and in budget deficits.
On Monday October 18, 2021, Beijing released new economic data, and it does not look good. The third quarter economy under performed and it serves as the harbinger of more pain ahead in the final three months of the year. Some analysts fear stagflation is coming.
For the three months ending September, China's GDP grew by 4.9 per cent from a year ago, missing market expectations of 5 per cent growth and well below the 7.9 per cent gain seen in the second quarter. Bear in mind, the first quarter GDP grew at 18.3 percent. The first half of this year saw an strong growth due to a post-pandemic rebound. But the Delta variant outbreaks, disasters such as floods and Beijing’s political policy intervention, plus self-inflicted power outage, produced lukewarm growth in the 3rd quarter.
Economic theories are constantly being proven, disproven and revised. The problem is, when these theories are wrong, millions of people can be adversely affected. 1) The founder of modern economics was a Scottish philosopher, named Adam Smith. In 1776 his book "An Inquiry into the Nature and Causes of the Wealth of Nations" was published. It was an organized discussion about economic theory. a. When both focus on what they're best at and then trade, everyone benefits. 2) In 1890 was published a book, called "Principles of Economics" by Alfred Marshall
2) The Austrian School of economics was founded by Friedrich Hayek and Ludwig von Mises and rejected nearly all forms of fiscal and monetary policy. They argued that,
a) heavy state involvement had never produced the results it promised, and that,
b) regulation and government tinkering is actually a problem, not a solution. 2B) The Austrian School's argument against government intervention was carried forward in the US by Milton Friedman(Chicago school of economics), who advocated privatization of many functions that have been assumed by government, famously proposing school vouchers and deregulation of the economy. Friedman also concluded that the Great Depression could be blamed on botched monetary policy, rather than some inherent fault of capitalism [like unregulated greed].
4) In 1936 John Maynard Keynes published a book "The General Theory of Employment, Interest and Money" which launched a field of macroeconomics. a. Keynesians claimed that during recessions it is necessary for the government to get involved by using monetary and fiscal policy to increase output and decrease unemployment. 5) Socialism - system where the means of producing and distributing goods is owned collectively or by a centralized government. 6) Monetarism - focused on price stability and argue the money supply should be increased slowly and predictably to allow for steady growth. (Monetarism ..) 7) Supply side economics (trickle down economics) - advocated deregulation and cutting taxes, especially corporate taxes. 8) New neoclassical synthesis - synthesis of classical economic theories and Keynesian economics.
