We’re back for the second part of Crash Course Economic’s episode on Market Failures, Taxes, and Subsidies. In this post we’ll cover the second half of the video, which talks about externalities, pollution, and the education system. Let’s rock and roll:
This week Crash Course takes a step in the pro-government direction, despite concluding at the end of this episode that neither markets nor government is “better,” but rather that the two must work together for everyone’s benefit. This episode is such a doozy that it’ll be broken into two parts. Let’s get started:
The episode begins with a variation of the prisoner’s dilemma situation in game theory. In short, the game offers someone a choice between something that will benefit them a lot vs. something that will benefit them a little, but if that person and other people (who are given the same choice) also choose the more beneficial option, then all parties end up with a very bad result.
Two weeks ago, when we last reviewed an episode, I was hoping that this week would be the third week in a row of solid and accurate economics from the good people at Crash Course. Episode 18 talked about the rather non-controversial topic of principles of microeconomics, and episode 19 chopped down common arguments against what is commonly referred to as “price gouging” and “predatory pricing”. Will they continue their streak in episode 20?
The answer is sort of, but not really. In this episode, Crash Course starts strong by railing against government-imposed price ceilings and floors (including rent control), but gets a little weak when talking about the use of subsidies. Let’s get started:
Hi Friends of CCC,
This video isn’t on the Crash Course channel, but it is worth a watch if you’re are a reader of this blog. Hank and his brother John Greene started the whole Crash Course operation, so you might be interested in hearing one of the creators thoughts on the government, its size, and its efficiency.
The federal government is effective, efficient, and surprisingly small.
Ron Swanson gave his rebuttal:
No episode in review this week (I’m going on vacation for a few days), but come back every Thursday for a new post on a really fantastically polarizing episode of Crash Course Economics.
Back again for another week of Crash Course Economics! Aren’t you loving it? We sure are here at Crash Course Criticism.
This week’s episode was, for the most part, a pretty accurate explanation of the roles of markets, and prices versus a planned economy. Crash Course does make a few generalizations, but on the whole, this episode surprised me in a good way with its refutation of common economic arguments on “price gouging” and “predatory pricing.” Let’s get started:
Markets and Efficiency
The problem with central planning is that it’s inefficient. Now, when economists talk about efficiency, they’re talking about a couple different types of efficiency.
Crash Course doesn’t beat around the bush when talking about government inefficiency. They don’t tell the audience that governments are usually less efficient, or that there are exceptions to the rule. And while there are articles that claim this not to be true (like here, here, and here), this is an economic truth, and Crash Course does a great job at explaining why:
The first is productive efficiency: the idea that products are being made at their lowest possible cost […] Central planners in general, aren’t that focused on cost. But in the free market an individual business owner has an incentive not to be wasteful because they want to maximize profit.
Governments agencies do not have a “bottom line” to meet, so to speak. They are not worried about the threat of corporate bankruptcy or investors making sure that the organization is making the best decisions. If someone makes a wrong decision about how many widgets to order or the estimated cost of a project, there is unlikely to be the same negative reaction from superiors that would be seen at a private company. And when the employees aren’t incentivized to do the best job or produce the greatest value, the entire organization will naturally be more inefficient than its private counterpart.
The second type of efficiency is called allocative efficiency This means that the things we’re producing are the things that consumers actually want. In other words, our scarce resources are being allocated towards the things we value. Central planners are less likely to be allocatively efficient because they have a harder feedback about what people want.
Customer service and feedback are a big part of any large business. Have you ever complained to Uber about a bad ride experience you had? Uber would usually apologize, refund your ride, and may even give you a discount on future rides. Now have you ever complained to the DMV about a bad customer experience?
Businesses focus on meeting consumer needs because they don’t want to lose you to their competitor. They are incentivized to take care of you, since a satisfied customer will likely continue to do business with that company.
Planned Economies do not pay much attention to the consumer in these areas, since there is no incentive to. If the government controls a sector of the economy, and there is no alternative for consumers, why would they need to take care of the customers? Where else are they going to go?
Crash Course explained the role of price signals very well with their example of Skinny Jeans:
After last week’s polarizing (and pretty political) episode on wealth inequality, Crash Course decided to take it easy on us here at CCC by talking about an area of economics that is relatively noncontroversial (at least currently): Microeconomics. This episode was very solid on basic content, but as always, we have some critiques to make. Let’s do it!
Marginal Analysis and Utils
Hello CCC Readers!
Last week’s episode was a 3-part doozy, so it has set me back a bit in my critique of this week’s episode on Marginal Analysis. You can expect it on Friday.
Thanks for your continued support!