in December of 1799 George Washington the first president of the United States started complaining of a sore throat and difficulty breathing being a former president he had very good access to a team of doctors who started to diagnose and treat his condition by draining his blood in total the doctor's attending to Washington ended up draining 2 and A2 lers of his blood before he eventually passed away less than 2 days after first complaining about a sore throat Medical Specialists have argued about the actual illness that caused Washington's breathing difficulties but all doctors today universally agree
that removing that much blood from someone didn't help the situation and possibly ended up killing him in the process of treating him for an illness that he may very well have just recovered from naturally our understanding of the human body illnesses medical best practices and treatments has come a very long way in the past 200 years and that has helped us enjoy lives that are longer on average massively reduce infant mortality and increase living standards for people suffering from medical conditions economics just like medicine is a consistently evolving field of study which also has real
impacts on the way that we live our lives the traditional Sciences tend to get all of the glory when we talk about the increased living standards we've enjoyed in recent history and it's easy to see why every time you make a call shop at an abundantly stocked Supermarket or you know don't die of a common infection you have advances in physics medicine chemistry and a long list of other scientific Endeavors to thank but a lot of these advancements were accommodated and accelerated by developing understanding of what an economy is and how to effectively manage one
although it may be far less tangible there is a very strong argument that advances in financial systems Trade Practices and economic controls have done just as much to provide us with the wealth and prosperity we enjoy today as all of the other advancements in technology that have come about over the same time span looking forward this could mean that theoretically further breakthroughs in economic knowledge could accommodate a world where we all live like billionaires do today now I know that's a pretty big claim so we'll need to look at a few things to back it
up but this also makes it really important to ask the question how much do we actually know about economics are we those 18th century doctors trying our best to fix economies only to do more harm than good or is our Collective knowledge of Economics close to complete with only minor improvements left to make well to find out we as always need to answer a few key questions so how do advancements in economics translate to improved living conditions to regular people in the real world how can we tell how far along we are in our understanding
of economics and finally could this solve existential issues like achieving Limitless growth in a finite world this episode of Economics explained was brought to you by clean my Mac a powerful tool to help you make sure that your Mac is working to its fullest potential the creative team here at economics explain drives their max hard every day working on the animations that bring these videos to life so it's very important to us to make sure that those machines are free of useless bloatware unused files and even potentially harmful malware the latest update from clean my
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66 GB worth of junk from their system every year clean my Mac is giving a special extension of their Christmas promo so you can get 30% off by using the promo code economics this promotion is only available for the next 5 days so click the link in the description to start cleaning your Mac today to really understand the progression of our economic understanding as a species it's important to understand what economics is in the broadest possible sense economics is a social science that studies the way that people interact with things of value this is the
same as saying physics is a natural science that studies matter its fundamental constituents its motion and behavior through space and time physicists will try and answer questions about the nature of the universe where economists will try and answer the Cal economic problem which is that we as humans have unlimited desires but only limited resources in which to fulfill those desires so certain sacrifices must be made the central economic problem is unfortunately not solvable but it can be broken down into four separate questions what should be produced how much should be produced how should it be
produced and who should it be produced for if you look at anything written by economists it will be an attempt to answer these questions in different ways to produce slightly better comes by either allocating resources in a way that makes people more satisfied or by simply finding a way to produce more with the resources that we have available to us even economic theories as broad as capitalism are just a way to answer these questions in the case of capitalism it's what's most demanded by the market in the amount that is demanded produced in the most
efficient and cost- effective way possible to be given to those that are willing and able to pay for it it's by no means a perfect system but it is very efficient at allocating resources and incentivizing the utilization of more resources to improve the well-being of its participants capitalism as an economic system is however for example terrible at answering questions about what to do with things of negative value if you're wondering what these things are with negative value well it's stuff like trash sewage chemical waste spent nuclear Fuel and probably the biggest one of all greenhouse
gas emissions people actually value the absence of these things but the market system of capitalist economies have no real mechanism to assign the cost of these items to the parties responsible for producing them without govern intervention I know it sounds absolutely awful to say but from a purely cold-hearted rational economics point of view this classification can also be applied to people that may be disabled elderly or otherwise incapable of producing more value than they consume it sounds terrible because there have been some famously not so fantastic ways of dealing with this in the past but
it doesn't need to be and with aging populations in a lot of countries our economic systems need to have solutions to more and more people in economy being unable to work and requiring the assistance of those that still can so capitalism the basic system by which we run every Advanced economy in the world today is good at answering some questions and not so great at answering other questions different economies around the world have tried to plug these gaps with different workarounds like carbon pricing and Force retirement savings but often times these workarounds just create more
problems now to go back to economics just being any other science like say physics there is an interesting comparison we can draw G centrism as in the theory that the world was the center of the universe and everything including the sun rotated around it answered most questions that people had about what went on in the sky it did the trick for navigation tracking the seasons and everything else that people back then needed to monitor the sky for there were of course a few inconsistencies in the movements of celestial bodies but these were just gaps that
were answered using various workarounds that often times created more problems sounds familiar right so could capitalism be to economics what geocentrism was to astronomy well we don't know what we don't know and it's possible that tomorrow some brilliant Economist will come up with a system that revolutionizes the way that we manage economies to such an extent that it will be like entering the Space Age it sounds crazy but it's already happened and the impacts were huge the Advent and widespread adoption of steam power along with a handful of other Technologies are widely recognized as the
drivers of the Industrial Revolution which set us on our current trajectory of massive worldwide economic growth but there was something else in the world happening around this time mechanism was the General economic system that the global economy ran off before economics was even an academic discipline the idea of mechanism was that an economy should try and Export as much as possible while importing as little as possible because that way you could accumulate as much gold as possible now to a world that had not yet studied economics this made perfect sense gold was almost a universally
accepted store of value so if you wanted to be wealthy you get as much gold as possible of course mechanism is not how we run our economies today because the study that iics has shown that economic cooperation and free trade produces much more wealth overall because certain regions have advantages in producing certain items and if we all just do what we're good at the world becomes a richer place it also makes it possible to produce items that simply couldn't be made within the confines of a single nation no matter how big it is you are
currently getting some small economic benefit from watching this video and you might attribute that to the technology which has made it possible but also consider the advanced economic systems that coordinate all of that technology the video you're watching now would not have been possible without silicon Rich quartz and you might think you know where this is going but you'd be wrong that quartz rock from South America is refined into pure silicon and is then shipped to Germany where a company called Zeiss will turn it into a mirror with Micron Precision those levels of precision are
achieved by using machines that turn that silicon into a vapor before depositing it one atom at a time onto a mirror plate these machines were made possible by technical collaboration between dozens of universities and research Institutes across Europe and North America once these mirrors are made they are then shipped to the Netherlands to a company called asml which puts them into machines called Fabs the mirrors work in conjunction with high-powered lasers to etch computer chip patterns into more blocks of pure silicon to make CPUs and gpus these Fabs are then shipped to companies like tsmc
which manufactures chips based on designs supplied by companies like AMD Intel and Nvidia those chips are then shipped to companies like foxcon which will combine them with other Advanced components to make something like a smartphone they will then deliver this smartphone to a company like apple who will have designed and marketed it for customers all over the world that is less than 1% of the steps involved in making an advanced product like a smartphone I haven't mentioned the companies that transport any of these products or the teams making sure the whole process is kept secure
or even the institutions already working on making the technology this whole supply chain is based around completely obsolete it's easy to see this whole process as simply a Marvel of modern science and engineering and it is but all of that economic collaboration free trade and division of labor across dozens of countries and millions of workers would not have been possible without the economic advancements of people like Adam Smith our economies are also wealthier today thanks to the teachings of people like canes who show that the business cycle could be managed by governments so that economies
continue to grow wealthier over time by taking advantage of both the natural booms and bust that comes with an economy runoff debt today most economists in positions of power subscribe to the neoc kanian school of Economics which lays out how to run economy by effectively managing debt employment inflation Taxation and supply side output to generate wealth that would not have been imaginable when canes was alive it's easy to think that economics has been solved and that we will never experience another wealth boom like what we had when we transitioned from mecanism or embrace the business
cycle but of course we don't know what we don't know so it's probably more productive to ask what are the limits of Economics economics is not magic it can't create wealth where there is none all can do is guide people on what the most efficient allocation of resources is in order to achieve a desired outcome that outcome should hopefully be the Equitable prosperity of all participants in that economy but even if it isn't you can still use a good understanding of Economics to get a society to where you want it to be the second limitation
of Economics is that it cannot be used to predict the future John Maynard canes himself after helping to develop our modern understanding of the business cycle attempts to grow his fortune by investing based on the predictable ups and and downs of the economy over time it didn't work economists are often heralded or shamed for making predictions about the future that turn out to come true or not come true it's definitely their fault for attempting to make predictions but really of course nobody can predict the future least of all economists if a doctor said that someone's
Outlook was healthy with nothing to worry about and that person later went on to develop a terrible illness then nobody would think less of that doctor because it's not their job to predict someone's medical future likewise economists can look at the metrics they have available to them and say that there is no cause for alarm only for something to come along which proves them wrong economists shouldn't predict the future they should instead make recommendations about the present to encourage economic growth and to reduce bad outcomes or make them less likely going forward the next limitation
of Economics is that it is a really difficult subject to learn about now I don't mean that like it's hard for an undergrad student to learn about what an indifference curve is I will happily admit that there are lots of subjects out there that are far more difficult than economics what I mean is that it's incredibly difficult to study New Economic theories because you can't create an economy in a lab and National economies aren't going to change how they operate just to test a theory that could make them better off overall because if that theory
doesn't work then they have potentially made the lives of millions of people worse this difficulty in studying and verifying economic theories might sound really disheartening because it means that progress is slow but maybe slow progress means that we will be benefiting from economic advancements for generations to come there is is probably an economic system out there that works to encourage Innovation motivate workers and reward the intelligent allocation of capital while also actively discouraging the negative externalities that are so abundant in current market economies what would that look like I don't know if I could definitively
demonstrate a way to manage our economies differently that would result in Greater levels of wealth generation for the world I'd be collecting a Nobel Prize right about now but the good news is that we probably know very little about economics and if nothing else all of the craziness in the world right now is a unique opportunity to learn so that we are better prepared for next time thanks for watching mate bye
