Scarcely a day goes by on these here internets without some goddamn 14 year old telling you

that you don't understand economics. Well I'm here to say that these 14 year olds, are wrong.

But this video is about so much more than just arguing with children. The problem is that many

people in positions of power and influence, as well as parts of the economics profession,

share the view that 'economics 101' is the reason we can't improve the world, especially for poor people.

In some cases this seems like a genuine intellectual commitment by people who sincerely

believe economic theory helps us make sense of the world, but that it just leads us to unpalatable

conclusions. In a recent YouTube documentary about
the economist Thomas Sowell which mysteriously

appeared in everyone's recommendations, there
was a famous quote from the man himself

In other cases the same argument can seem like an
ideological commitment underpinned by nothing but

empty sociopathic tendencies. Not too long ago
noted personality vacuum Abby Shapiro tweeted that

Let's leave aside the question of what education Abby has actually had in economics.

Because it's not just for the extremely online
among us that economics makes its influence felt.

You can even see it pretty often in popular
culture: "I spend money to make money, economics

101 dude" "What have we here? Oh, economics! Very
very interesting" "I'm confused" "It's a question of

economics" "I'm sorry boys, you just don't understand
economics" "Simple economics" The reality is that

economics is just a set of theories which may or
may not hold in the real world and over the past

few decades it has been shown time and time again
that the standard econ 101 story is misleading at

best and flatly contradicted by the evidence at
worst. Over the course of this video, I want to

detail both the theory and the evidence in this
debate, with some help from Mexie, who kindly agreed

to offer her views. And before loads of tedious
economists pop up in my mentions claiming that

I'm strawmanning them or that I should learn
economics before I unlearn it I'd like to

say that yes, the content of actual economics
101 classes has changed recently. This video

is largely about how a selectively interpreted
version of this has been used in political debate

on issues spanning from minimum wages to rent
control to taxes and spending. Having said that,

I do think these ideas still exert something of a
grip on the profession of economics, as we'll see.

In the Thomas Sowell documentary they single out the
minimum wage as an example of how economics shows

you the true impact of well-intended policies. "One
of my biggest concerns was about minimum wages. At

first I thought this is good because all these
people are poor and they'll get a little higher

income and so that'll be helpful and then as I
studied economics I began to say well there's a

downside, they may lose their jobs completely so
there's that." This reasoning is based on

standard demand-supply analysis which epitomises
the core of economics 101. When somebody tells

you to go and learn economics chances are this is
what they have in mind, so let's do what they say

and learn about it. Demand and supply is used to
represent a variety of markets, but the one we've

got here is the labour market. It shows how - in
theory - the market for labor will settle at a given

level of wages, on the y-axis, and employment, on the
x-axis. It can also show the effects of the minimum

wage on these quantities, but we don't want to get
ahead of ourselves so let's take demand and supply

one at a time. The demand for labour depicts
the willingness of business to employ workers

in the form of a relationship between wages and
employment. If the wage is high, say at the level W1,

businesses will not find it profitable to employ
many workers. On the graph if you travel right

from W1 until you hit the demand curve and then go
down until you hit the x-axis you will get to E1 -

the corresponding level of employment at this
wage. On the other hand, if the wage is lower at

W2 then businesses will employ more workers and
employment will be at E2. Generally speaking, the

lower the wage the more workers businesses
will want. The demand curve slopes downwards,

an expression you may well have heard before. So
what about the other side of the equation - supply?

Well here we are looking at the amount of
labour workers are willing to supply for a wage.

This is a strange way of putting it that
might not come naturally to most people,

but the important thing to know is that if the
wage is higher more people will want to work.

Which makes some sense, I guess. So if the wage
is high at W1, employment will be high at E3.

If the wage is lower at W2, employment will be low
at E4. The supply curve slopes upwards. I hope

you're ready because we're about to put the two
curves together. Demand curves depict the number of

workers businesses are willing to employ at a given
wage. Supply curves depict the amount workers

are willing to work at a given wage. Where these
cross over, the decisions of the businesses balance

with the decisions of the workers and we get the
outcome of wages W-star and employment E-star: what

economists call an equilibrium. "You have a product,
they have no means of distribution. They have

demand, they- they don't have any product. That's
that's market equilibrium: yin and yang, ebony and ivory.

Tell me what the [ __ ] problem is." So how does
our minimum wage affect this happy depiction of

the labor market? The minimum wage is represented
by this god-awful ugly line MW that's interfering

with our precious market. It might seem odd that
with the name 'minimum' wage the line is high up on

the diagram. (Maybe it's just me that finds that
odd). But remember that the point of a minimum

wage is to increase wages above the level they're
currently at, so it has to be higher than where the

curves cross over to have any effect. Now how do we
work out the effects of this minimum on employment?

Well, no matter what the market wage is stuck
at MW so we need to ask where this crosses the

demand curve - how much labour businesses will hire
at MW - and also where it crosses the supply curve -

how much workers will want to work at MW. At the
minimum wage, businesses will only want to employ

the number of workers E-MW. More will want to work
because MW crosses the supply curve much further

to the right, at a higher level of employment E-star-S. But businesses are not willing to employ so

many workers at such a high wage, therefore the
employment level E-MW will be the one that is

realised. Notice that this is also lower than
the previous equilibrium E-star. The minimum

wage has reduced employment! [ __ ] what are we
going to do? It is important to remember that

this is a prediction of the model, not some kind of
logical necessity. And I actually don't think most

non-economists are aware of quite how convincing
the empirical evidence against standard theory

has been on this issue. For example, in a video on
the minimum wage the YouTuber Vaush makes some

good points about why the minimum wage could be
a positive thing and raises some valid questions

about a well-known Congressional Budget Office
study predicting that it would lead to job losses.

"How many of these are like real [ __ ] 40-hour
week proper jobs. I'd be willing to bet very few of

them. Most of these are cuck jobs and the loss of
these jobs could actually be a good thing because

it would mean the people who were otherwise
taking them can now afford to live off of only

one job instead of having to take two or three." But we can add a bit to what Vaush says- um, sorry,

scratch that. In a recent video on the minimum
wage 'manlet' Vaush shows how little he knows

about anything by failing to bring up well-known
studies on the minimum wage and accepting the

central finding of the CBO  study like a cuck, even
though it's definitely false. To see why Vaush is

so hopelessly destroyed by facts and logic, we're
going to take a deep dive into the literature on

the minimum wage. Doing so will teach us not just
about why minimum wages are good, but also about

the kind of empirical studies that have shown this,
as well as the limitations of economics 101 itself.

Newly elected U.S. President Joe Biden promised
to introduce a 15 Federal minimum wage once

elected, which sparked a renewed debate over the
pros and cons of the policy. As I write this the

proposal has been voted down in the Senate, which
is extremely disappointing but shows that econ101-ism

is alive and kicking, I suppose. Since the
dawn of time the U.S.A.'s federal minimum wage has

stagnated or even fallen. As you can see here, in
the early 80s it was around three dollars an hour

and despite steady rises in the headline value
it has only kept pace with inflation since then -

barely changing in real terms. The U.S.A. lags behind
other rich countries and even many poorer ones in

its low minimum wage. As this table shows, the ratio
of minimum to median wages is only 33 percent for

the U.S. compared to 54 for my own country of the
U.K. or 69 for Chile and Costa Rica. The debate is

relevant to a broad range of countries: in the
U.K. we have had the living wage campaign, which

used social pressure to force companies to
increase their wages and eventually made its

way into policy for those aged 25 and over. There
is also the global living wage initiative which....

campaigns for a global living wage. So what does
the evidence say on minimum wage increases and

employment? Before we go into this I want
to define a crucial term: the elasticity.

"Yo, you know what we got here? We got an elastic
product! You know what that means? That means

when people can go elsewhere and get they printin' and copyin' done they're going to do it! You

acting like we got an inelastic product and we
don't!" In economics, this means the percentage

change in one thing because of a percentage
change in another thing. Stringer was talking about

the change in demand owing to the change in the
price of their product, but here we will mostly be

talking about the change in employment owing to a
change in the minimum wage. So an elasticity of -1

means that if the minimum wage increases by
one percent employment will fall by one percent.

An elasticity of minus 0.1 means that if
the minimum wage increases by one percent,

employment will fall by 0.1 percent. You can
see that the former would be hugely problematic

while the latter could easily be considered a
price worth paying for higher wages. For a long

time, economists accepted that the minimum wage
would be bad for employment based on the supply

and demand theory we've seen, as well as using what
are now seen as relatively crude tests that today

are not considered credible even by opponents
of the minimum wage. Except for the people in

the Thomas Sowell documentary, evidently. Beginning
with a famous paper by David Card and Alan Krueger

in 1994, a wave of studies sometimes dubbed the
'New Minimum Wage Research' have used careful

empirical techniques to investigate the elasticity
of employment with respect to minimum wage changes.

Card and Krueger looked at the effect of a minimum
wage change using two adjacent U.S. states: New

Jersey and Pennsylvania. In 1992 New Jersey
increased its minimum wage, while Pennsylvania

did not. This is a kind of 'natural experiment' -
when the policy applied to one area is not

applied to a similar area, and comparisons between
the two approximate the ideal of a lab experiment.

The argument goes that if two areas differ only
in the policy - in this case, the minimum wage -

any difference in outcomes between them - in this
case, employment - can be attributed to that policy.

Since the U.S. has many state-level policies it is
fertile ground for these natural experiments.

Card and Krueger phoned fast food restaurants,
which employ a lot of minimum wage workers,

both before and after the change. "Can I help
you sir? My god you're greasy". What they

found was that far from reducing employment
in New Jersey, the minimum wage may actually

have increased it. That's right: for some of
their results, the elasticity was positive.

The study made quite an impact. Reid Garfield,
Senior Economist of the Joint Economic Committee,

commented in 1996:

Since this, thousands of papers have been written in the USA and elsewhere on the employment effects of the minimum wage. One of the most pertinent critiques

of Card and Krueger was how narrow their study
was: a single change in fast food restaurants

in two relatively small U.S. states should not
be generalized to minimum wages everywhere. More

recently, the frontier of minimum wage research
has been led by people like Arin Dube and his

co-authors. They have mostly followed in Card and Krueger's footsteps by taking advantage of natural

experiments, but have substantially broadened the
number of states they include as well as the time

frame of the studies and the depth they go into
estimating the effects. For example, in a 2010

paper Dube, Lester and Reich found no employment
effects of the minimum wage using adjacent pairs

of states. That's Card and Krueger times by hundreds! "My god. That's - I don't even know what that is!"

"Nobody does." A 2019 paper by Cengiz, Dube, Lindner and Zipperer estimated the effect of minimum wages

on the entire distribution of jobs using 138
different minimum wage changes in the U.S.A.

The x-axis here shows the part of the wage
distribution we're in relative to the minimum. 'Two'

means it's two dollars higher than the new minimum
wage. The y-axis shows the effect on employment at

a given part of the wage distribution. Just below
the minimum wage - zero on the x-axis - a substantial

number of jobs disappear, as shown by the negative
blue bar. Which makes sense as it's now illegal

to employ people at that wage. But this is offset
entirely by the appearance of jobs at or above the

new minimum wage, as shown by the positive blue
bar to its right. There are no effects anywhere

else in the distribution, so this gain in wages for
low income workers is not offset by other workers

losing out. The same paper looks at these effects
over the long term and it shows that the new jobs

which appear do not disappear after a few years. I favour this type of natural experiment approach.

It's transparent, and the core of close comparison
between pairs of real regions keeps the method

grounded in empirical reality - instead of
blinding us with complex statistical methods.

But I should say that it's not the case that
every study has found no effect like this. There

are dissenters within this literature, specifically
economists like David Neumark and his co-authors.

The details of this debate are too heavy for
this video, so maybe I'll leave a comment with

my thoughts if you'd like, along with their papers
in the references. Overall, though, most systematic

meta-analyses find a small but statistically
significant negative elasticity of employment

with respect to minimum wage changes. Having said
that, these studies also show evidence that there

is a bias towards publishing negative estimates. Why that's the case I'll leave you to figure out.

So how does one make sense of such a vast and
tricky literature? Well....not the way the CBO does it.

To give you some background, the Congressional
Budget Office is an official but non-partisan

entity in the USA which produces research on
important policy topics. Their recent report

claimed that raising the minimum wage to 15 would
lead to 1.4 million job losses, a pretty concerning

figure. Where did they get their estimates from? Vaush said that he'd have to get a textbook out

to understand this debate. I'd hate to be the
reason that anyone had to read an econometrics

textbook, so let's save him from having to do so...
Uh oh, too late brah! The first thing to say is that

this report was kind of opaque, even for someone
who is used to reading this type of thing. It's

full of phrases like "CBO concluded" and "In CBO's
estimation" often with little to no explanation.

They select 11 studies from the literature, but
why these 11 were chosen is not explained. The

CBO then computes the effect of minimum wages on
employment from an average of the 11 studies but

they increase the magnitude of the actual average
because of a really weird thing they do where they

randomly drop some of the studies they use and
recalculate the average with those studies missing.

I don't know why this method is chosen or how it
really works because again it isn't explained. "It's

garbage." Dube himself has commented to similar
effect, though in more measured academic terms.

He says the CBO overemphasises the negative
estimates in what we already know is a literature

biased towards finding negative estimates. He points
out that more recent, better quality research has

found employment elasticities of the minimum wage
closer to zero. As an alternative he suggested his

own 2009 review for the U.K. Treasury. This only
includes studies which estimated the effect on

employment for the same workers whose wages are
increased by the minimum wage, which gives a clear

picture of the trade-offs faced by the workers
actually affected by the policy. This is known as

the 'Own Wage Elasticity'. Along the y-axis is the
study. The dots represent the estimated effect

size for that study, with the bars either side of
the dots representing the uncertainty surrounding

that estimate. Dube concludes that based on this
review ,the average elasticity is minus 0.04,

meaning that a 25% increase in average wages for a
group affected by the minimum wage should reduce

employment by one percent for that group. There's
a lot of debate over whether $15 an hour is enough

and Dube also comments on how high the minimum
wage could be:

Now, to return to demand  and supply. Strictly speaking this evidence alone doesn't contradict the supply and demand model; it

could just imply that the curves have a specific
shape - albeit an unlikely one that contradicts

other evidence, I'll provide a reference for that
below - but here's my bottom line. When effect sizes

are this small and uncertain, it's suggestive of
something that's just not that interesting, whether

theoretically or politically. As the economist
Thomas Leonard pointed out, this whole debate does

prompt the question "what evidence would convince
you that your theory is refuted?" Let me illustrate

this with one more recent study. This shows a bunch
of different elasticities for 16 to 19 year olds,

the group most likely to be affected by the policy. As you can see, in most cases the blue horizontal

lines cross zero, which is given by the red
vertical line, indicating that the effects

estimated are not statistically distinguishable
from none at all. As a contrast consider a more

straightforward question: what is the effect of the
minimum wage on wages themselves? this might seem

tautological, but if the minimum wage is low or is
not properly enforced we may not observe an effect.

unlike our previous figure the estimates here are
universally positive and statistically distinct

from zero. This is the pattern one would expect to
observe when the relationship one is estimating

is strong and reliable. The minimum wage effects do
not look like this. Higher labour costs as a result

of the minimum wage are obviously a thing. But
employers often have more bargaining power than

workers, so they can afford it. Increased pay can
motivate workers, leading to higher productivity.

It can make them more likely to stay, reducing
turnover costs from hiring and firing.

And at the economy-wide level, the minimum wage
increases the spending power of workers, which

will increase demand for businesses. I'm happy to
debate the importance of these different effects

but the standard economic approach only helps us
with a tiny part of them, if at all, and arguably

the effect on employment is so uninteresting
that it's distracted us from other questions

such as the effect of the minimum wage on mental
health or poverty. So now we know that the minimum

wage just doesn't have the kind of reliable
negative effect on employment we'd expect if the

theory were useful. But now i want to talk about
another, similar, prominent example: rent control.

It's no secret that both house prices and rents
in many countries have skyrocketed over the past

couple of decades, especially in Anglo countries. Housing is probably the main cost for most people

so this has prompted questions about whether
governments should do more to help people

cope with these costs. The most direct
policy to do this would be rent control.

Rent control isn't a hugely popular policy
although it exists in a few countries and

localities, for example New York City as
discussed by the friends in the popular sitcom

'Friends'. "But more important because of
rent control it was a friggin' steal".

In their debate on housing, philosopher Ben
Burgess and streamer Destiny also discussed

the policy: "Rent control is like one of these few
issues that economists broadly agree is a garbage

policy. It doesn't help who we want it to help, it
usually hurts who we want to help and it just

doesn't usually get what you want done." Destiny was
correct: opposition to rent control is possibly the

area where economists agree the most. A 1990
poll had 93.5 percent agree that "a ceiling on

rents reduces the quantity and quality of housing
available". A 2012 poll asked for economists' views

on the statement "local ordinances that limit
rent increases for some rental housing units

such as in New York City and San Francisco have
had a positive effect over the past three decades

on the amount and quality of broadly affordable
rental housing in cities that have used them."

81% of economists disagreed or strongly disagreed
with this statement with answers including "Next

question: does the sun revolve around the earth?" "Unless all the textbooks are wrong, this is wrong"

"The planets are lined up here: theory and
evidence point in the same direction". The award

for the strongest statement about rent control,
however, goes to the economist Assar Lindbeck

who claimed "In many cases rent control appears to
be the most efficient technique presently known to

destroy a city, except for bombing." To understand
where all this strong opposition is coming from

let's return to our supply and demand diagram. Instead of the market for labor, we are now looking

at the market for houses. Apparently they work in
exactly the same way. We have rents on the y-axis

instead of wages. We also have quantity of houses
rented on the x-axis, instead of employment. Again

the supply and demand for houses should balance
with rents r-star and quantity at q-star. What does

rent control do in this situation? It's represented
by the horizontal line RC which forces rents down.

At this low rental rate, the quantity of houses
supplied is lower than the previous equilibrium

even though more people want to rent. We have a
shortage, and a fall in rented units compared to

the 'free market'. I want to say outright that there
is more evidence for the predictions of the supply

and demand model for rent control than for the
minimum wage, depending on how you interpret it.

But the blanket opposition to rent control that
derives from this is hugely overstated and econ

101 reasoning is again more of a hindrance
than the help for understanding the debate.

First: what does it mean for the quantity of
housing to be reduced? I would contend that

the supply-demand model can mislead people into
thinking that the reduction is in housing supply

rather than the number of houses specifically used
for renting. The 1990 poll mentioned above failed

to distinguish these two clearly, and in the debate
with Destiny, Ben Burgis just largely accepted this

framing, contending that you could compensate by
building more housing. "Because if we just have rent

control there's going to be far less investment in
private housing, there's gonna be far less private

housing built, but if you're building a lot of
public housing to make up the shortfall then it's

literally- you could you could accept your premise
you can accept what the economists are saying

and still think that it's just irrelevant to that
package of policies." "Why not just build more houses?"

Building more housing is good. But a reduction in
rental housing doesn't mean that houses disappear;

there may just be a corresponding rise in
ownership. Our concern is surely whether people

are getting the houses they need, not whether
they're renting or owning them. We can have a

debate about the relative merits of renting
versus ownership and which demographics are

more likely to use one or the other, but it's not
immediately obvious to me which is more desirable.

Second: rent control captures a wide variety of
different policies. The standard demand-supply

analysis only depicts a straight-up cap on rents,
whereas modern rent control just limits increases

and allows for inflation in landlords' costs to
encourage maintenance. Such provisions are common

and common sense - for example, if you're worried
about rent control discouraging construction

exempt new buildings, like Berlin. Recently a
Bloomberg article that mysteriously appeared

in everyone's trends on Twitter discussed the
impact of rent control in Berlin, which froze

rents on older houses and allowed tenants to force
landlords to lower existing rents. True to form,

the article claims "if populism on the political
right corrupts democracies, populism on the left

ruins economies" It's based on a report which is in
German and fortunately I'm fluent so I was able to

consult the original document. Just kidding, I'm
English. We'll have to go on the article itself.

Some of the outcomes it chooses are kind of
strange. The results clearly show that rents

have plummeted for those affected, a huge benefit
which is downplayed. The article charges that rent

controls have reduced house prices, as if that's
definitely a bad thing or somehow unexpected.

It seems to me that both more affordable housing
and lower rents might be considered a good thing

by some people. The article uses a couple of graphs
which apparently show the policy has had negative

effects. One shows that prices in uncontrolled
units have risen since the policy, but from this

graph it's hard to see whether this is really a
change or just a continuation of a previous trend.

The graph doesn't go back far enough for us
to know - and even if it is true, it may just be

because the uncontrolled units are new. You could
say exactly the same thing for their graph showing

that the number of rental apartments has declined,
especially since they follow this up with a graph

showing that the supply of unregulated units has
outpaced other German cities. Somehow this is also

framed as a bad thing. As you're all now budding
natural experiment enthusiasts I know what you're

going to ask: is there any more credible evidence
than this...crap...on rent control, and the answer is:

some, but not enough, and it's mixed. One of the
most recent and commonly cited papers on this

topic is Diamond et. al, which uses the sudden
introduction of rent control to older houses in

San Francisco in 1994 and compares them with
more recently built units which were exempt.

Let's take an in-depth look at this paper as
I think it raises some interesting questions.

The paper claims that the policy led to a 15%
reduction in rental units, although if you unpack

this it's actually a combination of eight percent
being converted into owner-occupied buildings

with a further seven percent being converted into
rental units which were exempt from rent control.

Which isn't a 15 reduction in rental units. The
paper does show that residents of both owner

occupied and exempted units are likely to have
higher income, which is a cause for concern because

it favors richer residents. There are conflicting
effects, though. Part of the reason for the higher

income residents is that rent control leads to
higher maintenance and upgrades so landlords can

increase rents. We can see on these graphs
that - top left - rents fell while - top right -

redevelopments rose and - bottom left - conversions
rose and - bottom right - repairs rose. This suggests

rent control does increase quality, in contrast
with economists' poll answers that we saw earlier.

Rent control also means existing tenants are
more likely to stay, which is more pronounced

for minority groups. The strangest spin in the
Diamond paper is to frame this as a bad thing too.

Keeping existing residents in the area while rich residents join is a bad thing! The solution is obviously to have only rich residents so the income inequality in

the area is low! "Look at this place. Somebody
ought to build a town that works"

"Somebody did"

I'm being facetious, but only a little. At other
times the paper argues that existing tenants

are ultimately forced into poorer areas and here
they frame gentrification as a good thing, saying

So it's bad when existing tenants stay but also bad when they
leave? Gentrification is good but also bad? I

found this paper quite confusing, and it seems to
be a go-to reference for opponents of rent control.

With such a variety of competing effects
the authors eventually conclude that the

overall effects of rent control are a wash. But the
important lesson here is that ultimately neither

theory nor empirical analysis are going to make
the issue of competing values and perspectives go

away. When considering the effects of rent control,
do we prefer rented or owned housing? Do we want

higher quality houses which are more expensive? Do
we want to favor existing residents over new ones?

I don't have easy answers to these questions but
econ 101 leads people to believe that they do.

The economist Josh Mason argues that rent control
research is in a similar place now to minimum wage

research in the 1990s: a few well-formulated
studies are displacing conventional wisdom

and this will likely expand as time goes on. He
summarises a few studies similar to the Diamond

one which you can look at if you're interested in
pursuing this topic further. So here we have two of

the most important markets - labour and housing - where
the crude econ 101 approach has failed to make

sense of hotly debated policies. But what about
more generally? Where has the influence of econ 101

come from, and how does it affect our understanding
of other policies like taxes and social spending?

I don't think i can answer this one so I'm
going to have to hand over to someone else.

The influence of basic economics is...everywhere.
Both pervasive and perverse, it really is why

we cannot have nice things. For every earnest
call to make our political economic system

ever slightly more just or livable for working
people or the planet there's a capitalist, an

economist, a politician, a corporate news outlet, or
an average joe saying "that's cute, but that's just

not how the economy works!" James Kwak calls the
reductive invocation of basic economics to explain

all social phenomena in our society 'economism'. Economism relies on the abstract concepts taught

in econ 101 classes to explain why things are
the way they are and why any attempt to redress

the externalities of capitalism is futile. This
is despite the fact that many of the concepts

taught in econ 101 textbooks assume that a
perfectly competitive model of capitalism

is possible, along with various other assumptions
that rarely, if ever, hold true in the real world.

UE covered how economism has worked to depress
wages while housing prices have skyrocketed

but the invocation of econ 101 has affected
nearly every other sphere of our lives too.

Provide universal health care as a basic human
right? Adorable! That will rob people of choice.

Prevent price gouging during natural disasters
so that poor people aren't unfairly served a

death sentence? How naive! That will prevent
the efficiency of the competitive market from

kicking in to save the day. Plus it'll mean
that life-saving materials will be sold to

people who don't value them as much as people
who are willing to pay three times the price.

Raise taxes on the ultra rich to redress the wage
theft inherent in their wealth and fund services

that will benefit everyone? So cute! Econ 101 says
that that will backfire and lead to a decrease in

productivity and available jobs, something that's
never mentioned in econ 101 textbooks when talking

about things like raising taxes on the rich or
the minimum wage etcetera is that the ultra rich are

hoarding money far and above what they actually
need and they're doing so off the backs of workers

who are the ones who actually produce the goods
and services that make money for the capitalists.

Workers who, like those who work for Walmart or
McDonald's, are encouraged to apply for food stamps

to survive. When workers are losing their homes or
are unable to access healthcare during a pandemic

the unwillingness of the capitalist class to pay
taxes or living wages is pretty hard to reconcile

- that's a polite way of putting it. But that's just
me, let's look at how taxation and inequality plays

out on the ground, outside of the classroom.
Will increasing taxes on the ultra-rich

hurt us all? In the end it follows that when you
tax a good depending on what the good is people

will buy less of it. But when you try to apply econ
101 supply and demand models to things like income

tax the model shows us how out of touch it is with
average working people. The model tells us that if

income taxes are raised people will 'choose' to work
less and take more leisure time or simply retire.

The incentive for them to work additional hours
is simply not there and so productivity plummets.

For anyone actually working to survive right now
with depressed wages and a skyrocketing housing

market, you can see how this logic breaks down.
People don't choose to work 60 hour work weeks;

they desperately need to. Anyway it is true that the rich are people who

can choose to work less if incentives aren't
there because they are not working to survive and

many of them are making the bulk of their income
through investments anyway which is basically just

sitting around and watching your assets
grow. Taxes on capital gains and dividends

are already much lower than income taxes but
politicians like Paul Ryan, Marco Rubio, and Ben

Carson invoking econ 101 want to reduce or
eliminate taxes on investment income altogether.

The idea is that we need rich people to save their
money so that it can be invested somewhere else

enabling the creation of new businesses and
jobs. Over the past 70 years taxes on investment

income have plummeted, with no real increase in
economic growth and with personal savings actually

declining. The economy expanded most rapidly in
the 60s and 70s, when investment income tax was 70%

or higher. Zooming into more detailed studies,
the evidence is mixed at best. In 1978, economist

Michael Boskin found that a tax cut that
increases investment returns by 10 percent

tends to result in three to four percent more
savings. However, later studies disputed this and

showed that those estimates depended heavily
on contextual details. Eric Toder and Kim Rueben

conducted a review of existing research and
determined that there was little evidence to

support the claim that lowering investment
taxes increased savings. This was confirmed

by tax expert Leonard Burman, and a Congressional
Research Service report stated that

This is fairly intuitive: at a certain level of wealth, people have very little else to do with their money other than invest it, regardless

if their profits might be slightly lower. There are
actually games now where the challenge is to spend

all of Jeff Bezos' or Bill Gates' money, showing
how completely impossible it is to actually buy

enough things with that gross excess. In terms of
productivity, working people need to work to live, period.

But rich people - the 'job creators' - are also
not less likely to work if income taxes are higher.

Robert Moffitt and Mark Wilhelm studied the 1986
tax reform and found no change in hours worked by

high-earning men. This was confirmed by the CBO and
economist Thomas Hungerford, who wrote:

Growing inequality leads to growing unrest, something also not addressed in econ 101 textbooks. Despite the ample empirical

evidence that contradicts these reductive and
bewildering claims, economism survives and thrives

because it is incredibly politically useful to the
most powerful people in our society. Whenever there

is political unrest, whenever there are militant
movements against the violence of the status quo

the 1 percent, the 0.1 percent will come back and say these
well-intentioned protesters just don't understand

basic economics. James Kwak writes that:

So how did this idealistic ideology become so popularly accepted? Well, people

like to point to Daddy Smith, who described the
price mechanism and the

 Wealth of Nations in 1776, but Smith discussed many
reasons why this principle would not hold and did

not think that competitive market forces acting
alone would produce the best of all possible

worlds. Antoine-Augustin Cournot first illustrated
supply and demand curves which were popularized

in Alfred Marshall's 1890 textbook Principles
of Economics. However, Marshall too rejected the

idea that the supposed perfect equilibrium that
was assumed to result from perfectly competitive

markets would necessarily produce the best of all possible worlds because people will differ in wealth. He said:

At the time in the late 19th Century, unchecked markets were
producing immense hardship and social instability,

leading to socialist and communist movements
rather than any kind of embrace of pie-in-the

sky economism. When the Great Depression hit the
idea that unregulated markets would maximise

universal prosperity seemed fully discredited,
leading to a shift in economic thinking and an

embrace of the Keynesian demand-side economics
of the New Deal. The New Deal worked to redress

the political conditions existing at the start of
the 20th century, and the capitalist class started

to resent not being able to extract as much wealth
as possible from working people. Moneyed interests

adopted economism and used their wealth and power
to fund think tanks, buy politicians, buy media

outlets and influence education so that economism
was taken up by the broader conservative movement

and later accepted by many liberals as well. Financing came from corporations such as General

Motors, Ford Chrysler, General Electric, and Procter
& Gamble among others...and billionaire businessmen

like the Koch brothers. Ideas were derived from
fanatic economists like Hayek, Mises, and Friedman,

mouthpiece politicians included Reagan, Thatcher,
Bush, Clinton - too many to name, honestly - and high

profile think tanks like the Heritage Foundation
lobby to influence policy. Economism allowed

business people and politicians to say that they
were pro-market instead of anti-government and

conveniently ensured that labour and environmental
concerns would be suppressed so that capitalists

could extract more and more surplus. This is why
David Harvey calls the neoliberal era that was

ushered in by Reagan and Thatcher a project to
restore elite class power. The U.S., the IMF, and the

World Bank have also been pretty brazen in forcing
global countries through violence and/or debt

to deregulate their markets further and implement
a suite of free market policies such as lowering

or scrapping the minimum wage, which UE just
explained makes little economic or moral sense.

This economic imperialism served the project
to restore transnational ruling class power

and provided a spatial fix for capitalism.
This is all getting into more complex

Marxist political economy though which I
personally think is key to understanding

all of this so if you would like to learn
more, might I shamelessly plug my channel?

Why is economics 101 so pervasive as a set of
propositions? It's kind of odd that an introductory

diagram, based on obscenely unrealistic assumptions,
would have so much influence, right? Well it often

favours the rich and powerful which, as Mexie pointed
out, isn't a bad feature for a theory to have

if it wants to be accepted and enacted as policy. But I also think there's a more subtle force at

play here. The reaction by Nobel Laureate James Buchanan to Card and Krueger's original finding -

which, to remind you, was that the elasticity
of employment with respect to minimum wage

changes may be positive - could give
us a clue as to what is going on:









This statement reveals what's at stake: not just
what is actually a fairly minor concession to

government regulation versus the free market,
but the very idea of economics as a science,

with general laws that cannot be violated. Buchanan
is right accepting these findings does amount to

a denial that economics has scientific content
because if markets do not obey supply and demand,

then what hope is there? A lot of people have
asked me to discuss healthcare on this channel

and I'm sure I will at some point. Mexie and I have
hopefully given you plenty of evidence that goes

against simplistic econ101 reasoning, but the
healthcare debate provides yet another example of

how faulty econ101 reasoning pervades the world
and I'm far from the only one to notice this. U.S.

representative Alexandria Occasio-Cortez made
the link between the two not too long ago: "When

we talk about economics, there's something known
as a demand curve within a elas- with elasticity.

And with every other commodity you can say 'how
much is this phone worth to you?' And you can

say a hundred dollars, two hundred dollars, you can
buy a Nokia phone, you can not have a phone at all.

But you cannot ask the question
'how much will you pay to be alive?'

'How much will you pay to live?' Because the answer
is everything." These kinds of examples illustrate

that there are many reasons markets will not be as
well behaved as the standard econ101 story. When I

present them to economists they say a lot of words
about how they don't really apply and that I've

misunderstood the niceties of the theory, usually
by defining the theory so that it simply must be

true. But past a certain point these hypotheticals
become useless for thinking about the real world

and in many cases they just provide a bulwark for
bad ideas. I want to leave you with a lengthy but

typically eloquent quote from John Maynard Keynes
during the Great Depression, a time when - as Mexie

mentioned - prevailing economic orthodoxy seemed
to be on the wane. Commenting on his version of

economism, which he called Classical or Ricardian
economics - after the 19th Century economist David

Ricardo - he reflected on how it had become so
dominant, and its likely downfall in the future:

Thanks for listening everybody and WAIT
just one second, before you turn it off. This has

been a little bit of an experiment. A lot of
people in my previous videos asked me to go

into a bit more detail they said they'd be happy
with a bit more length...so, this is what I've done

in this video - it's a bit longer and it goes
into some depth on the theory and evidence.

I'm not saying that every video I make will
be like this from now on but I just want to

know what you guys think of it: was it too
much? Do you want even more? I hope not but

please just let me know what you think.
And thank you to my Patrons as usual

um there's a whole bunch of stuff that's been
set up there's like a Discord server and a Reddit

now if you want to discuss economics so uh
please just get involved. See you later everybody!

Bye!