Economic Systems and Macroeconomics: Crash Course Economics #3

Economic Systems and Macroeconomics: Crash Course Economics #3

Adriene: Hi I’m Adriene Hill. Mr. Clifford: And I’m Mr. Clifford and welcome
to Crash Course Economics. Adriene: Today we’re going to focus on macroeconomics
and talk about economic systems and the nations that really like them. Wink, wink. Mr. Clifford: “Economic systems and the nations that
really like them. Wink, wink.” What does that even mean? Adriene: I’m trying to come up with a spicy
title for today’s show. OK, try this one on. how about “economic systems and the nations
that are ‘attracted’ to them?” Mr. Clifford: No. No. Adriene: Or when economic systems and nations
“hook up.” Mr. Clifford: I don’t even know what to say.
Stan, roll the intro. [Theme Music] Adriene: So to pick up where we left off,
we all have wants. Food, cell phones, a good education, a $10,000 gold Apple watch, but
like the Rolling Stones tell us, you can’t always get what you want. We don’t have an
infinite amount of resources like raw materials, workers, and time, so we have to make choices.
Speaking of, eugh, who likes this? I’m gonna go change shirts. I’m gonna make another choice. So this shirt, it’s way better, right? Anyway,
we as a social order have to figure out three things. Number one: what to produce, number
two: how to produce it, and number three: who gets it. Answer these three questions
and you’ve got an economic system! There’s a ton of backstory here about the
history and evolution of economic thought; we’ll get to that in a future video. In today’s
video, we’re gonna chat about the world today. Let’s take a look at two different economic
systems: market economies and planned economies. Mr. Clifford: It all comes down to who owns
and controls the factors of production. These are the major inputs required to produce stuff
and Karl Marx classified them as land, labor, and capital. He even wrote a book about it,
Das Kapital. In a planned economy, the government controls
the factors of production, and it’s easy to assume that’s the same thing as communism
or socialism but that’s not quite right. According to Karl Marx, “The theory of communism may
be summed up in the single sentence: abolition of private property.” So true Communism is
a classless society. When I say classless, I’m talking about a
social order where everyone owns the factors of production, and output is distributed equally.
Kind of like China, and Cuba and the former Soviet Union, except not at all. In practice,
no country has ever been truly communist. There’s a lot of countries that are socialist. Often, socialism has both private property
and some public ownership and control of industry. The goal is to meet specific collective objectives
and to provide free and easy access to things like education and healthcare. In both communism and socialism, there is
economic planning, and the government, usually in the form of some bureaucratic agency, helps decide
what to produce, how to produce it, and who gets it. Now if an economy is completely controlled
by the government, down to the number of shoes that should be produced, that’s called a command
economy. Adriene: On the other side of the spectrum,
we have free market economies. In free market or capitalist economies, individuals own the factors
of production, and the government keeps its nose out of the stuff and adopts a laissez faire or hands-off
approach to production, commerce, and trade. In free market economies, businesses make
things like cars, not to do good for mankind but because they want to make a profit. Since
consumers, that’s me and you, get to choose which car we want, car producers need to make
a car with the right features at the right price. Economists call this the invisible
hand. Oooooohhhh. If consumers prefer one company’s car, that
business will make more profit and have an incentive to produce more cars. Car companies
that don’t offer the cars people want will disappear. Maybe you’ve heard of the DeLorean?
It was a cool looking car, but not a car that many people wanted to buy. Apparently it was
expensive, underpowered, and poorly-made. And it didn’t actually travel through time. Anyway, this concept applies to all other
markets, like cell phones or shoes. Scarce resources will go to the most desired use,
and they’ll be used efficiently, more or less. After all, if a business is wasteful and inefficient
or makes something that no one wants to buy, then some other business will make a similar
product that’s either better or cheaper or both. If there’s no consumer demand for a
product, resources won’t be wasted producing it. We often take markets for granted, but look
at the alternative. Assume instead that a government agency was in charge of deciding
exactly which types of cars and cell phones and shoes to make. Do you think they could
quickly respond to changes in tastes and preferences? If there was only one government monopoly producing
cars, do you think they’d be produced efficiently? Mr. Clifford: So the invisible hand of the
free market is the idea that individuals and businesses meet society’s needs when they
seek their own self-interest. Competitive markets with profit-seeking businesses will
have an incentive to produce high-quality products as efficiently as possible. In the
words of Adam Smith, “It’s not from the benevolence of the butcher, the brewer, or the baker that
we expect our dinner, but from their regard to their own interest.” Now, it looks like
the free market’s perfect and we don’t even need a government, but that’s not quite right.
There’s a bunch of things the government must do, because free markets won’t. First, is maintain the rule of law. We need
laws and police and contracts and courts to keep everything orderly. Second, we need public
goods and services, like roads and bridges and education and defense, because goods can’t
get to consumers if bridges are falling down, and consumers can’t make good choices if they’re
not educated, and no one really cares about buying the new iPhone if there’s a bomb dropping
on your head. Third, the government sometimes needs to step in when markets get things wrong,
but what does that even mean? Adriene: Well, let’s go back to producing
cars. The free market produces what we consumers want to buy, and when we buy, we’re thinking
about what a car looks like. If it’s the color we want, maybe if it’s safe, what it costs.
Most of us aren’t worried about air pollution. We don’t think much about who made our car,
what they were paid, what the conditions at the factory were like; that’s when government
steps in to regulate production. In a free market economy like the United States, you
might think that the government doesn’t tell car producers what types of cars to produce
and how to produce them, except that it does. Cars need to meet strict emissions and safety
standards, and there are laws dictating how much manufacturers can pollute and how workers
should be treated, and here’s the big takeaway: modern economies are neither completely free
market nor planned. There’s a spectrum of government involvement. For example, on one
end we have North Korea. They have a command economy where production is entirely controlled
by the government. On the other end, we have countries like New Zealand; they have private
property, few taxes, and few regulations. In the middle, we have the rest of the world.
So most modern economies are actually mixed economies with both free markets and government
intervention. Mr. Clifford: And a great way to explain a
mixed economy is by looking at something called “the circular flow model.” Let’s go to the
Thought Bubble. A modern economy is made up of households, which are individuals like
you and me, and businesses. Businesses sell goods and services to households in the product
market — that’s anywhere goods and services are bought and sold. The households need to
pay for those goods and services, but where do they get the money? The households earn
the money by selling the resources, like labor, to businesses. Now, this is done in the resource
market. The businesses use the money they earn from selling products in the product
market to pay for resources in the resource market, and households use the money they earn in the
resource market to buy products in the product market. But there’s another key player in the economy:
the government. The government also buys products and resources. For example, they’ll buy cars
from businesses and hire government employees like policemen to drive them. The government
pays for public goods like roads and bridges and public services like firefighters and
teachers. They also provide transfer payments to individuals in poverty and subsidies to
businesses to produce things like fuel efficient cars. But where does the government get the
money? Well, they get some of it from taxing households
and businesses and they get some of it from borrowing, but we’ll talk about that later.
So basically, that’s it. That’s the circular flow of products, resources, and money, and
the interactions between businesses, individuals, and the government. Now, it gets more complex
when you add in international trade and the financial sector, but for now, the simplified circular
flow shows how the modern economy works. Adriene: Thanks, Thought Bubble. We’ve established
that economies differ based on the amount of government involvement, but it’s important
to keep in mind that economies can change. Over time, Denmark and Canada have adopted
more elements of a planned economy, like universal healthcare. China, on the other hand, has
added more free market elements to its economy and now has less government ownership and
control of production, so communist China actually has a socialist market economy. But
which type of economy is better and how much should the government get involved? It’s hard to find support for command economies
outside North Korea, and may some nostalgic Cubans and Russians. Those who support socialism
would point out Denmark’s high standards of living and low income inequality, but free
market enthusiasts might point out China’s massive economic growth and growing middle
class after backing away from central planning. Ultimately, the optimal amount of government
involvement depends on your personal values. For example, what, if anything, do you think
the government should do to help people in poverty? Do you think it’s up to each individual
to provide for themselves, come what may, or do you think the government should step
in as a safety net and help pay for food and healthcare? What if the person made choices
that got them in financial trouble, like gambling or made them sick, like smoking? Should society
help then? Well, economists aren’t really good at answering these types of questions.
Sorry. It’s not that they’re heartless. It’s just
they don’t operate in the realm of feelings. In the words of economist Thomas Sowell, “There
are no solutions, only trade-offs.” Sure, it would be great if we could end poverty
or provide healthcare for everyone, but we’re gonna have to give something up in order to
do it. Forcing car producers to meet emissions and safety regulations will increase production
costs and likely increase the price of cars, but it also reduces pollution and fossil fuel
consumption, which will hopefully improve public health and save money in the long run.
There is always an opportunity cost, and deciding if it’s worth it–well, that’s up to you and
your elected officials and a bunch of lobbyists. Deng Xiaoping transformed China from a country
with debilitating poverty and famine to the economic powerhouse it is today. Regarding
this debate, he said, “It doesn’t matter whether a cat is black or white, if it catches mice,
it’s a good cat.” Which makes me think about that green shirt, that was a good shirt. I’ll
be right back. Mr. Clifford: So let’s wrap this thing up.
In practice, almost all countries are somewhere between the extremes of a command economy
and a completely free market economy. That’s because mixed economies seem best at handling
the circular flow of goods, money, and resources. But the debate over free markets and government
control will never end. Adriene: Well, actually, it will end, when
humanity ends, because microscopic organisms don’t divide themselves into factions based
on economic theory, but anyway, that’s why it’s vital for you to be informed about the
merits and the limits of economic systems and be willing to support solutions that get
the job done, as opposed to getting stuck in one ideology. Economic theories and models
can seem really great in the abstract, but when they’re kicked out into the real world
and actually have to govern the affairs of billions of people, it turns out that some
flexibility is a very important thing. Mr. Clifford: Thanks for watching; we’ll see
you next week. Adriene: Crash Course is made with the help
of all these nice people who definitely appreciate a spicy title, wink, wink. And if you wanna
help keep Crash Course free for everyone forever, please consider subscribing over at Patreon.
Patreon is a voluntary subscription service that allows you to pay whatever you want monthly
and make Crash Course exist. Thanks for watching and don’t forget to be irrationally exuberant.

100 thoughts on “Economic Systems and Macroeconomics: Crash Course Economics #3

  1. My Economics teacher put this video up for the class to watch and take notes, and I tried to take notes but Jacob talks wayyyyyyyyyy too fast. My hands were cramping when I was done taking notes.

  2. Santa for this Christmas, I wish every youtube commenter in the world would watch this video so that they would be less ignorant about the political systems and the economic systems that are tied to it.

  3. All I usually do is fill 2 sandwich bags with my own piss, and pop them in my handbag. When I get thirsty whilst at the shops or at the airport or in a cave, or in a meeting, I can just prick a whole in one of the corners and drink the tepid piss. My thirst is quenched.

    You can do the same with your own fresh faeces too if you like. It comes out of the bag like cake icing when squeezed. It's often still warm as it slides down the back of your throat 🙂

  4. "…because microscopic organisms don't organize themselves into factions based on economic theory." They do though. That describes us. That is life.

  5. I'm cool with the half market and half government way buuttt in our third world country the government is the most inefficient, inactive and is corrupted by politicians. As one of its countrymen i just wanna strip away some power from the senate and enact the same college voting system as US. You know the part where the random majority doesnt matter but is instead organized in ethnic provinces who are in favor of Mr./Mrs. Red or Mr./Mrs. Blue to be president or just to be part of the legislative body. This way provinces wont get ignored instead of only focusing development in the capital city. Development needs to be spread out. I also want to strip away the rights to vote of the population involved in tax evasion, squatters and anyone who breaks the law.
    Our government is so weak that it cant even take initiative. People could stop paying taxes or, build and reside on abandoned railway stations without paying a single tax in their life. This way we could truly achieved the so called intellectual democracy socrates once described.
    I also want the government to be able the regulate media as it is a major part of our lives…. not completely but just a corporation between the two bodies. I wanna avoid the same biased informarion liberals show on television. It must be law that in election day the media must be forced to rigorously study the backgrounds of each candidates, and if the one of the election candidates see's that some information about them are lacking or is half told, that may damaged the fairness of the election, he may report this error and failure to comply by the media will result in some sort of punishment. In this method the citizens can rationaly think observed the stature of the man and make an intellectual decision in voting. They could pay the media to shut up about their illegal past dealings but they can never pay them to shut up about the good they've done, if ever they did anything good at all though.

    I'm from the Philippines by the way.

    Edit: changed UN to US. Mistakenly putted UN rather than Us. I actually dont know much of UN political system

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  7. Economists don't operate in the realm of feelings. This is a cop out. All humans have feelings, which are closely related to the values we hold. Anyone who claims to be "rational" versus "irrational" is putting a box around what is acceptable to feel or not. "If you get upset about this, you're being irrational" has been commonly said throughout history (as well as "this group of people are irrational"). My point is that rationality is never value-less, it's never neutral.

  8. Economists should NEVER get a free pass on morality since their actions can harm/kill millions. They should consider the cost of their actions as much as an engineer asked to designed a concentration camp.

  9. Main outtake of this lesson for me:
    1) Rolling Stones
    2) Mick Jagger
    3) You Can't Always Get What You Want
    4) I love Stones…

  10. you were starting off so well but then you say, communism hasn't existed and what has existed is socialism which is utterly false. What has existed is State-Capitalism. Lenin himself acknowledged what they had in Russia was State-Capitalism. Stalin pretended that was not the case and dubbed it socialism. socialism and communism were largely interchangeable as I understand it, until Lenin when the revolutionaries wanted to distance themselves from other socialists who would rather obtain power through elections instead of through violent revolution. This, along with Stalin's declaration of State-Capitalism as socialism is why you believe communism is public ownership and socialism is state ownership. if you want to make that declaration then we also have to talk about libertarian socialists (anarcho-socialists) who further distanced themselves by saying their socialism is stateless (which if you're paying attention is redundant unless you consider Stalin to be correct).

  11. wow and this video is biased. Government controls everything down to how many shoes are produced, implying they can control something we find to be a need but then classify laissez-faire capitalism as the government keeping their nose out of individual's business as if to say they are just trying to steal from individuals…which I would say is true but government owned enterprise is not socialism and also, what is "stolen" is often stolen from the bourgeoisie and not the working people. you cannot steal what has already been stolen by the bourgeoisie.

  12. And why is advertisement never mentioned as factor of demand. Much of what is bought was never though to be needed and much more is bought to replace something that doesn't need replacement. Maybe private capitalism is just good at creating consumable goods that are not needed, and state capitalism is good at creating the necessities. You don't say this of course, your question was, can a government t be flexible to demands and can it be efficient in production? The implication is no but the reality is yes. The USSR, China, Cuba, and very efficient in production each country having gone from rags to modernization very quickly and having very efficient systems in many respects. Not only do you straw man socialism, but you can't even make a good argument against it's straw man. This is bad propaganda matched only by the cliche acting here, that if not created by original and intentional thought, is certainly created by received opinion and unchecked bias.

  13. Ya'll know you can click video options and set playback speed to half or three quarters speed if you can't understand what he's saying fast enough.

  14. Trying to make it through this series but that guys voice is so annoying it will be a struggle. It's like finger nails on a chalkboard. He talks way to quickly and slurs his words.

  15. 2:44 MISTAKE ALERT – The invisible hand means that by following their self-interest – consumers and firms can create an efficient allocation of resources for the whole of society. (they accidentally define positive externalities)

  16. Economics is a man made concept. Some concepts are best left on the drawing board. It's a means of control so the power hungry remain in power. When you have something like this in place, you end up destroying the very thing that keeps you alive in the first place…THE PLANET! All in order to keep the precious economy rolling. It's a self destructive system. Get rid of it.

  17. I am not clear on the differences of command economy and planned economy, could anybody please explain?

  18. "China actually has a socialist market economy." Well that's one way to put it. Another way is to say they have the worst of both worlds, such rampant crony capitalism/corporate welfare it's just incredible, and masses of starving homeless people with absolutely zero prospects for work or housing because they simply aren't part of "the plan" in the communists "planned economy."

  19. "In practice no country has ever been communist." That's right Jake. No country can ever be communist, because communism is one form of utopia. Attempts at communism fail consistently right after (or during) revolution and and right before the very first stage of transition into communism, in the ensuing tidal wave of bloodshed during the terror the that's required to establish the dictatorship of the proletariat.

  20. The best economic system is the free market system. The only thing the government needs to handle is protecting property rights protecting citizens from domestic and foreign military threats, and being a mediator between 2 parties. Other than that STAY OUT OF THE ECONOMY. it's not the government's business how much someone gets paid.

  21. Why did she say at 07:11 that china, now after having less control over the market, has a socialist market economy? isn't socialism about control by a government?

  22. Please make subtitle in indonesiaa… this channel so help me to improve my self. Subtitle indonesia just available ini 1st-2nd episode. For the next episode nothing subt in indonesian. Im so sad.

  23. When a company researches new emission technology, the government may force them to implement it across the board before it's cost-effective to the company. This disincentivizes clean technology and stagnates innovation.

  24. By the way crash course is very informative they really bring good stuff really appreciate all your effort thanks a lot creah course….but my video became 20 mins.😅😅😅..i have to pause whenever jacob comes in action…sir please speak slow so that we can listen it and process it in our mind…that would be helpful ..any way it was still best….

  25. Wrong. Communism and Socialism aren't planned economies where the government decides what to produce.
    If you're going by the definitions, yes communism is a classless society, but it does not have a government directing people what to do. Meanwhile Socialism does and it's supposed to be a transitory period between capitalism and communism. I hate the way you brought up the common everyday definitions of the terms, went ahead to explain the real meaning, and ended up not explaining it at all. As you said, Communism is not command economy… Then why did you define it as such?

  26. i really love this course and I'm sorry if this coment isn't very educacional but… i really love Jacob's belt of ACDC >///<

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