Crash Course Criticism – Page 9 – Your Best Crash Course in Economics

Is Macroeconomics Like Physics?

If you recall from the second episode, Mr. Clifford fires a shot at other academic subjects, saying Economics is the greatest of all time. Adriene chimes in with “Take that, Physics!”

As I was perusing the comment section, I expected to see some rebuttal from a physics student, and I was not let down:

Mr. Ehle here takes some swings back at the field of economics here, and there’s a lot of truth to what he’s saying. However, I think his major frustration comes from when he hears people treat economics as a natural science, instead of a social science.

A natural science (like Physics) uses empirical evidence and the scientific method to prove things. The repeatability of empirical tests is necessary for a conclusion to be deemed valid (for example, water will always freeze at 0ºC, no matter how many times you repeat it).

Unfortunately, the economy deals with so many actors making billions of independent decisions every day, so it would be impossible to create even two identical economic situations to confirm a theory. Economics does not have the advantages of physics where you can create a sterile laboratory environment to prove a hypothesis. Trust me, all economists wish this were the case.

Instead, economics is a social science, the study of humans interacting. Like sociology or political science, there is not a provable “right answer” that scientists can find from researching in a lab; there are only arguments based on theories that will predict what will happen.

However, some social scientists use positivist methods (using data and attempting the scientific method) to try to prove the correct theory. When you hear people say “The Great Depression proved…” or “The 2008 Financial Crisis proved…”, they are using real examples to suggest that scientifically, a particular economic theory is true.

The problem is that almost every economic school of thought can look at a global event and use it to suggest that their theory is true. Let’s take the 2008 financial crisis for example:

Keynesians: The financial crisis proves that the Federal Reserve was setting interest rates too high, since this caused the crash.

Austrians: The financial crisis proves that the Federal Reserve setting rates at all hurts the economy, since this caused the crash.

Marxists: The financial crisis proves that private ownership of the means of production hurts the economy, since this caused the crash.

Everyone can declare themselves the winner, but in the end it doesn’t prove anything.

Mr. Ehle is a hard scientist. He wants data and falsifiable hypotheses and the scientific method to back up claims. He wants to learn the facts about Macroeconomics. Unfortunately, Economics does not work like Physics because it is an entirely different field.

Besides, there is not an actual “greatest subject of all time.” That’s like asking for “the greatest ice cream flavor of all time.”

Karl Marx Bust on the Crash Course Desk

Things have been slow here at CCC since last week’s video was pushed back until this coming Wednesday, so I thought I’d take a second to point out something that someone in the YouTube comments noticed about the on-camera desk space at Crash Course:

Behind Adriene you can see a slot machine (I suppose signifying the seemingly random and potentially profitable possibilities in predicting the economy), an abacus (can’t really explain that; that’s more mathematics than anything), a safe or something with a red button (that can’t possibly be referring to Rothbard’s button), and a bust of Karl Marx.

Will we have a full episode dedicated to Communism and Karl Marx? Will there be other episodes dedicated to other economics schools of thought? CCC certainly hopes so.

*Also notice the standard black faux-wooden desk, which I’m pretty sure is from IKEA.

VidCon Delays Episode 3

Episode 3 was supposed to be released Wednesday evening, but as of today (Friday), we’ve still got nothing.

I tweeted at the co-hosts and show to see what the deal was:

@adrienehill @acdcleadership @TheCrashCourse any reason why CC economics #3 wasn’t released on Wednesday?

— CC Criticism (@CCCriticism) July 23, 2015

I received this response from Mr. Clifford:

VidCon is a convention for online video content creators and fans. YouTube’s top stars will be there, including Crash Course’s main producer and editor, Stan Muller.

The convention is from Thursday to Saturday, and I imagine Stan was preparing for it all week, so he didn’t get a chance to post the video, even though we are all desperately waiting.

Stan, did you know that you can set your YouTube channel to release videos at a specified time, so you don’t have to do it manually?

Don’t make me drop so low that I have to critique popular videos on behavioral economics, like this one. Behavioral Economics has about as much to do with real economics as does Home Economics (that joke is Bob Wenzel’s).

Crash Course Criticism has a wife and kids to feed here Stan. Don’t make them starve.

We’re counting on you.

Love,

CCC

UPDATE: Stan has tweeted that the next video will be up on Wednesday:

@cccriticism Next Wednesday. Tech trouble and VidCon conspired to create a delay.

— Stan Muller (@crashcoursestan) July 24, 2015

Robert Wenzel’s Critique of Episode 2

Surprisingly, Crash Course has not released their video for episode 3 yet. I’m pretty sure they record all of the episodes in advance, so I can’t explain why they didn’t release episode 3 Wednesday evening as per usual. Perhaps the topic of episode 3, which was mentioned in the last video to be “how economic systems contribute to differences between countries,” contained some errors, and they are fixing it last minute. I’ll try to get to the bottom of this by tweeting at the co-hosts and official Crash Course Twitter handle.

I’d like to take this time to talk about Robert Wenzel’s observations of the second video.

First, Bob also recognized the mediocre example of a pizzeria, where it isn’t so obvious that people have different skill sets, to describe specialization in trade. He recommends a clearer example:

[People] might become doctors, they might become lawyers, they might become creative movie producers. If they spend five years studying it and then ten years in the field, they’ve got a lot of knowledge. That’s a lot of intellectual capital invested in that sector, so it doesn’t really make sense for them to go to another field. In general, once someone starts down a road of specialization like that, it makes a lot of sense to generally stay in that direction.

Bob also mentions a school of economic thought that rejects specialization:

Karl Marx really didn’t understand specialization. He thought that there would be a society where in the mornings, someone would be making pizza, in the afternoon working on a farm, and later in the day, working at a construction site.

The Marxian idea, in fact, would work best in a pizzeria. One employee could very easily go from preparing the vegetables to making the dough to sweeping the floor without much difficulty. It would be much more difficult to switch from farming to telecommunications consulting.

It’s not that you can quickly put people from this place to that place to the next. It is knowledge of specific localities, it’s the knowledge that someone is familiar with doing something, it’s knowledge because someone has greater intellect or skills or whatever it might be.

I’m not a Marxist, but I would have liked for Crash Course to talk about different economic schools of thought on the subject of specialization. Am I right, comrades?

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Episode #2 in Review: Specialization and Trade

Crash Course’s second episode was pretty agreeable. It explained why free trade is mutually beneficial, gave a good explanation of the Production Possibilities Frontier, and it even knocked down common political arguments that are demonstrably false. Let’s start with their explanation of specialization.

Specialization is a Pizzeria?

Crash Course gives a visualization of specialization with the analogy of a pizza-making assembly line. I hope that this example is effective for those unfamiliar with specialization, but what I was thinking when I saw this was “couldn’t each of these guys very easily switch to a different position at the pizzeria without much fuss? Is the guy cutting vegetables really that much better at doing this task than anyone else?” I wasn’t sure if this example was advocating for specialization or just an assembly line business model.

farm

Their best example comes from showing what one person would have to do to make a pizza by himself. This is a modern take on Leonard Read’s I, Pencil, and it gets the point across faster even than it would take you to read Read’s short essay.

National Trade

model

Understanding the Production Possibilities Frontier is challenging. They explained the model quickly, and although I was able to follow along in real time, I needed to pause the video after this segment to visualize and absorb the lesson again in my head.

Their conclusion from the model was direct:

You might hear a politician or someone on the news argue that international trade destroys domestic jobs, and even though it may seem counterintuitive, economists for centuries have argued that trade is mutually beneficial to whoever is trading.

To be fair though, international trade may destroy particular domestic jobs, but not the total number of jobs. In Crash Course’s example, the American shoe industry would suffer as a result of free trade, and the airplane industry would grow. People hate making less money or getting laid off, even if you explain to them that the economy is better off for it. Just ask the cab industry.

Let’s go back to that final line: trade is mutually beneficial to whoever is trading. While true, it’s important to compare this statement to the opposite argument: trade is a zero-sum game where one party wins and the other loses.

There are a fair amount of people who believe that as people get rich, these people are necessarily making others poorer (the money has to come from somewhere right?). With the exception of thieves, who actually do increase their wealth at the expense of someone else’s wealth, people get rich because a lot of other people have wanted to trade with them. Bill Gates is not rich because people are poor, he’s rich because a lot of people value his products more than holding on to cash.

The episode gave two good examples of the national benefits of free trade: Japan and Taiwan. While these examples are good, Japan and Taiwan also have a fair amount of natural resources, and Japan has historically been a developed country. Instead of these examples, I would look at Hong Kong and Singapore. These countries are closer to the size of a city, with very few natural resources, and just 60 years ago would be considered poor underdeveloped countries. But from decades of free trade policies (they are currently #1 and #2 most economically free countries in the world), these tiny countries now have a greater GDP per capita than the European Union’s average.

Not much objection in this week’s episode, and we even have a teaser of next week:

Next time we’ll show you how some of these ideas get turned into economic systems, and how these systems contribute to differences between countries.

Looking forward to hearing about Vene zuela.

Robert Wenzel Comments on Episode 1 (and 2)

While my response to episode 2 is in the works, check out Bob Wenzel’s commentary on the first two episodes.

What is Economics?

Wenzel agrees that Crash Course’s definition of Economics is good, but not ideal, because of its potential to delve into behavioral economics. Let’s look at how Crash Course defined economics through the quote they used by Alfred Marshall:

A study of Man [and Woman] in the ordinary business of life. It enquires [sic] how he gets his income and how he uses it. Thus, it is on one side, the study of wealth and on the other and more important side a part of the study of Man [and Woman].

Wenzel cautions that this definition of economics may be “looking and attempting to understand how people reach their goals for action. [Austrian Economist Ludwig Von] Mises doesn’t do that. He says ‘okay whatever the reason men have goals, and let’s decide what happens in the economy with regard to exchanges once we understand those goals, regardless of how they come up with those goals’”

This is a significant difference in one of the biggest questions in economics: what is economics?

Microeconomics Examples

Wenzel also takes aim Crash Course’s explanation of Microeconomics. From Crash Course:

There is a whole other side of economics that look at different questions: How many workers should we hire to maximize profit? If our main competitor releases their product in May, when is the best time to release our product?

Wenzel points out that economics is not the study of business decisions:

The economist can explain how once a businessman has his goals, how he chooses, but there’s nothing that an economist can do as far as providing insights into something that is really a decision of a businessman or entrepreneur.

Economics is about understanding how the economic system works. It’s not about telling businessmen how to run their business.

So if the example questions from Crash Course aren’t actual examples of Microeconomics, what questions would be? How about:

If the price of a good increases, what happens to the demand if everything else stays the same?

If the supply of a good decreases, what happens to price if everything else stays the same?

Macroeconomic Predictions

I didn’t know about this at the time, but Robert Wenzel mentioned that he was one of the economists who predicted the 2008 financial crisis in real time. To read more about that, you can check out his book, or subscribe to his daily financial advice guide.

Read more of Robert Wenzel at his sites EconomicPolicyJournal.com and Target Liberty.