0: Mr. Clifford: Hi, I'm Jacob Clifford and I'm the host of Crash Course economics. Stan!

4: Adriene: Hi, I'm Adriene Hill and I'm the host of Crash Course economics. Stan!

4: Stan: You're a team! You're co-hosts.

4: Adriene: All right, awesome. Mr. Clifford: Yeah, whooo!

4: Adriene: Well anyways, we're making our Crash Course Economics series at the YouTube space

11: in lovely Los Angeles California because Mr. Clifford and I are both from Southern California.

16: Mr. Clifford: Yeah.

16: Statler: Who are these no-names!?

17: Waldorf: Where are the Green brothers? If there aren't any Greens, I'm unsubscribing.

21: Statler: Wh-- how can you unsubscribe? What is this, some kind of a moving newspaper?

26: Mr. Clifford: Did we just get heckled by the muppets?

29: Adriene: It sounds like it.

29: Kermit: Hey guys, hey guys listen, don't feel bad about not being green, OK?

33: Adriene: It's Kermit!

36: Mr. Clifford: That's crazy!

36: Kermit: Hi guys, uh listen, being green is great and everything but being Adriene and

40: Mr. Clifford well, that's great, too! In fact, you know guys, it's not easy being green.

45: I think I could sing a song about that.

47: Adriene: Can I sing with you? Kermit: Oh course, yeah.

47: Adriene: This is a dream. This is a dream.

47: Mr. Clifford: No, no, no, we can't afford the licensing

51: agreement for that song guys, economics. Sorry.

54: Kermit: Oh. Oh. Well, in that case, why don't you guys just introduce yourselves?

58: Mr. Clifford: OK. I'm Mr. Clifford, and I'm a high school economics teacher and YouTuber,

61: and I'm going to focus on teaching you the theories

63: and graphs of economics. You know, the textbook stuff.

65: Adriene: And I'm Adriene Hill; I'm a senior reporter for the public radio show Marketplace,

68: and I'm gonna focus on showing you the real world applications of economics. You know,

72: the good stuff. The really fun stuff.

74: Mr. Clifford: Hey! We're both fun! We're definitely

76: not gonna teach economics like this:

77: Prof. Bunsen Honeydew: Welcome to CrashCourse Economics (Beaker yawns) I am thrilled to

80: be teaching you this fascinating subject. (Beaker moans)

82: Mr. Clifford: I'm sorry Professor Honeydew, but that's

87: why people hate economics in high school and college.

89: Adriene: Anyway, Statler and Waldorf have a point, the most important question in economics

94: is "Where's John Green?" I mean everyone knows he won a bronze medal in economics at the

97: Alabama State Academic Decathlon. Well, John Green

100: isn't hosting because economics. We'll explain later.

104: [Theme Music]

110: Mr. Clifford: So let's start with the basics. What is economics? Well it might be easier

116: to term it what economics isn't. Economics is not the study of money or getting rich,

119: although understanding economics can help with that. Economics is not the study of the

122: stock market. It's just not. And economics is not primarily about men in bow-ties forecasting

127: what will happen in a given market or the overall economy. Actually, a few economists

130: do that, but that's not the main focus of economics.

132: Economics is the study of people and choices. The famous economist Alfred Marsh defined

137: economics as "A study of man (Adriene: And woman!) in the ordinary business of life.

141: It inquires how he gets his income and how he uses it. Thus, it is on the one side the

145: study of wealth and on the other and more

147: important side a study of man (Adriene: And woman)."

150: Adriene: So let's talk a minute about what else econ is. Economics is an 18 year old

154: deciding whether to work or go to college and how that affects her future income. Economics is

158: a company deciding whether to produce smartphones or tablets and how that's influenced by what

163: we consumers want to buy. Economics is the government deciding whether to increase its

167: spending when it's a recession and if it's worth going into debt.

170: So despite what you might think, economics is not boring and dull. OK, some of it is,

178: but it's not all like that I promise! It's awesome. Understanding econ can forever change

184: the way you think and problem-solve. Our job over the next 40 weeks is to teach you concepts

189: that will help you understand the world, and hopefully make it a better place.

192: No matter who you are, you will be using economics.

196: In fact, pewww! You are using econ right now,

199: you made a choice to watch this video, that means you must feel that the benefit outweighs

204: the cost. You might be thinking "This is YouTube, there's no cost," but sure there is. You could

209: be watching videos of kittens or skaters falling on their face or charlie biting fingers. Ow!

213: The cost of watching this video is the video you're

216: not watching, the value of the next best alternative.

218: Economists call this your opportunity cost. If you're still watching this video it means

223: that you believe it's the best use of your time, or you wouldn't be watching it. "But

227: what if I'm watching this at school?" you ask, "What if I'm forced to watch this?" Well,

231: you weren't forced to go to school, you could ditch, you could drop out, you could move

234: to a country that doesn't have compulsory education. But the cost would outweigh the

237: benefit. Even if you are at school, you're not forced to watch the video, you could close

241: your eyes or put your head down. No one's gonna pry your eyes open, that'd be creepy!

244: Now let's talk about why John Green isn't

247: here teaching this course. John is an entrepreneur,

249: he writes books, runs DFTBA, Vlogbrothers, and Mental_Floss and creates movies, but he can't

254: do everything he wants to do. He looked at the benefits

256: and costs of his choices, and in the end decided

259: to spend more time writing books, so Mr. Clifford and I are jumping in to teach you economics.

263: Mr. Clifford: And believe it or not, we just covered the two most important assumptions

266: in all of economics. First, the idea of scarcity. People have unlimited wants but limited resources,

270: and second, everything and I mean everything has a cost. And if these assumptions are true,

274: then we need a way to analyze our choices and get the most from our limited resources.

277: And that's economics.

279: Adriene: Wait, but let's go back to the idea of benefits and costs. About 30,000 people

283: a year die in car accidents in the US. Is there a way to ensure there will never be

287: another traffic fatality? Yes! We can crush all the cars, close all the roads, and force

292: everyone to walk. That would solve the car crash problem. Do you want to decrease the

296: number of people convicted of murder? You could decriminalize murder. You want to end

300: the unethical treatment of elephants? You could

303: kill off all the elephants, in an ethical way of course.

306: But before you decide to tenderly euthanize herds of beautiful elephants, think about

312: it for a second. Each of these solutions is absurd because the cost clearly outweighs

316: the benefit. Traffic fatalities are tragic, but we don't prevent them at all costs. You

322: know that driving has risks, that you might get in a car accident, but you still drive.

325: Why? Well first, who's gonna walk to the gym? And walking home with groceries in the rain

330: is way worse than the teeny-tiny chance of dying in a car crash. The point is, individuals,

335: businesses, and countries can't have everything, so they're forced to weigh the benefits and

340: costs of their decisions and make choices.

342: Let's look at another example. Military spending in the United States is over 600 billion dollars

348: per year, that's close to what the next top ten countries spend combined. There are a

353: total of about 20 active aircraft carriers in the world, and the US has half of them,

357: and it's building more. The opportunity cost of those aircraft carriers could be hospitals,

362: schools, and roads. So, is the US spending too much on the military? Should the US focus

368: on making guns or butter? That is, weapons or consumer goods?

372: Mr. Clifford: And notice the key word here is "or," we can't produce an infinite amount

375: of weapons AND consumer goods because we don't have an infinite amount of workers and farms

379: and factories and raw materials. Scarcity means we must make a choice. The American

383: president Dwight D. Eisenhower explained this best

385: in 1953 in a speech about Cold War military buildup.

388: "Every gun that is made, every warship launched, every rocket fired signifies, in the final

392: sense, a theft from those who hunger and are not fed, those who are cold and are not clothed.

397: This world in arms is not spending money alone. It is spending the sweat of its laborers,

401: the genius of its scientists, the hopes of its children."

403: And this is a good time to mention the role of politics in economics; we're not pushing

407: some liberal anti-military policy here. We're just pointing out that military spending has

411: an opportunity cost: The resources not being used for social services like feeding the hungry.

415: We're gonna try not to push a political agenda on you. We're gonna show you both sides and

418: let you decide which one's best. So please don't say "Mr. Clifford loves capitalism,

422: so he's just a pro-business conservative," or "Adriene's talking about environmental

425: regulations, so she's an anti-business liberal."

428: Yeah, we are pro-business and you are too. I mean, where do you think your computer came

431: from? That computer was brought to you by capitalism and the private sector. But that

435: being said, the security and laws, roads, and that traffic ticket you got the other

438: day came from the government.

439: Conservatives and liberals fight over the details, but the free market alone can't solve

443: all of our problems. And the government can't solve all of them either. Government officials

447: use economic theory to guide public policy; their effects are widespread and affect millions

451: of people. Sometimes a theory is flawed, but many times a policy is flawed. Economists

455: adjust theories supported by data and understanding

458: of incentives. Having the right incentive is key.

460: Adriene: But the right incentives can be hard to figure out. Take for example public colleges

465: and universities. Many of them used to get state money for each student they enrolled.

469: That meant universities had financial incentives to focus on recruiting as many students as

474: possible, but not actually helping them succeed once they were in class.

477: So states have started changing the incentives. Now, more and more states reward schools for

482: the number of students that complete courses or earn degrees. And in some places this has

487: worked; it's helped schools increase their graduation

490: rates by shifting money from marketing budgets

492: to programs to help students do better, but those

495: incentives can also backfire if they're poorly designed.

498: A university that gets money for graduates could push students through the program without

502: giving them a good education. It might want to only admit students who come in with super

507: high test scores, instead of considering other factors that might make them good candidates.

511: It might push students into less-rigorous majors.

514: But incentives can help solve problems without adding more resources. You just have to get

519: the incentives right. Many non-economists assume that the way to improve things like

523: healthcare is to spend more money.

525: Economists would point out that the US already spends almost twice as much per person as

530: other rich countries, and in many cases they get worse health outcomes. Economists would

534: also say that rather than spending more money, we need to make sure that insurers, doctors,

538: hospitals, and patients have incentives to produce the most effective care possible at

542: the lowest cost possible. The point is, if you

545: mess up the incentives, the policy's not gonna work.

548: When Vietnam was under French colonial rule, the regime issued a bounty on rats to exterminate

553: them, giving money to people for handing in rat tails. I guess because piles off rat bodies

558: were too gross. The plan backfired. To make as much money as possible, the rat-catchers

563: cut the tails off the rats and released them, allowing them to make baby rats. The policy

568: actually increased the rat population. It made things worse. Eek!

571: We'll talk more about this idea of perverse incentives in another video, when we talk

576: about the 2008 financial crisis. Eek again. For now, let's go to the Thought Bubble.

581: Mr. Clifford: Speaking of 2008, people sometimes criticize economists asking "Why didn't they

585: predict the 2008 financial crisis?" or, "why can't they agree on what the government should

589: do or shouldn't do when there's a recession?" These criticisms fail to distinguish between

593: macroeconomics and microeconomics.

594: Specifically, all these complaints are about macroeconomics. Macro studies the economy

599: as a whole; it looks at the whole nation's output, unemployment, interest rates, government

603: spending, and growth. Macro answers questions like "Will unemployment rise if there's an

607: increase in taxes?" "Will and increase in the money supply boost output or just increase

611: inflation?" "Will a slump in European economies cause the US economy to slow down?"

615: Macroeconomists get more airtime because they predict the direction of the overall economy,

618: and work with the media and businesses and congress and the Federal Reserve, but less

622: than half of all economists are macro economists; there's a whole other side of economics that

626: look at different questions. "How many workers should we hire to maximize profit?" "If our

630: main competitor releases their product in May, when is the best time to release our

633: product?" and "which is better for fighting climate change, a gas tax, or increase in

637: fuel efficiency?" These are all microeconomic questions. They're not about predicting GDP,

641: or measuring unemployment, but they are crucial questions that economists must answer. Also,

646: if you don't know what GDP is or what a high or low

648: unemployment rate is don't worry, we'll get there.

650: So macro and micro-economists are two different groups asking different questions under one

653: academic umbrella. If economics was biology,

656: macroeconomics would be ecology while microeconomics

658: would be cell biology. If economics was physics, macro would be cosmology and relativity while

663: microeconomics would be Newtonian mechanics.

664: Thanks Thought Bubble! Stan, I've always wanted to say that. Now I can cross it off my bucket

668: list. Now I have "ring the opening bell at the New York Stock Exchange," "arm wrestle

671: Ben Bernanke," and "swim in a giant pool of money like Uncle Scrooge."

673: Adriene: Obviously we're glossing over the details, but we promise to cover everything

677: in the next 40 weeks from supply and demand to monetary policy, we'll cover it all. Except

682: for maybe the giant pools of money. We can't promise you that learning economics will make

686: you wealthy, but we can promise that learning economics will enlighten your mind and make

690: you a more informed decision maker. And that makes us all better off. Thanks so much for

695: joining us. We'll see you next week.

696: Mr. Clifford: Thanks for watching Crash Course Economics. It was made with the help of all

699: of these nice people. They work on the show because there's financial and implicit benefits

703: that cover their opportunity costs. Now, if you want to help them with those financial

706: benefits, consider going over to Patreon. It's a voluntary subscription platform that

710: allows you to pay whatever you want monthly to help make Crash Course free for everyone,

713: forever. Thanks for watching. DFTBA.