Gary Grimes – Page 4 – Crash Course Criticism

Episode #17 – Income and Wealth Inequality, Part 3

We’re back for the FINAL CHAPTER of this very important 3-part blog post. Here is the video if you’ve missed it. In parts 1 and 2, we talked about the causes and effect of income inequality, and today we will talk about solutions.

It should be stressed that we are now leaving the world of economics. Economics explains how X causes Y, but it does not say what X or Y should be. We are diving into the world of policy prescriptions to reduce income inequality, but since Crash Course did it, so shall we.

What Should Be Done About Income Inequality?

So, how do we address this inequality? There’s not a lot of agreement on this. Some argue that education is the key to reducing the gap. Basically, workers with more and better education tend to have the skills that earn higher income. Some economists push for an increased minimum wage, which we’re going to talk about in another episode. There’s even an argument that access to affordable, high quality childcare would go a long way. And some think governments should do more to provide a social safety net, focus on getting more people to work and adjust the tax code to redistribute income.

Education

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I talked about this in part 2, but education (which, in the context of this episode, means schooling) often does not lead to increased skills learning. In fact, it doesn’t necessarily lead to improvements in any knowledge, skills-based or not.

In recent years, the push for more education really means greater access to government student loans. Many students are now graduating college with a increasingly meaningless degree, few skills, and a lot of debt.

However, this should not be a knock on real skill-based education. Trade schools and free online programs like Free Code Camp can actually give people the skills to create real value for an employer without all the debt associated with regular college.

High Quality Childcare

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Although Crash Course doesn’t flesh out this argument, I’m going to assume that it goes like this: a lot of households have skills and would be working, but they cannot afford childcare, so the government should supply child care for them so the parents can get out and work.

This, in theory, would work to reduce income inequality, if that is the only goal. However, you would run the risk of creating another enormous government institution that would rival the public school system. And if public schools are any indicator, they will be far from “high quality”.

Free market economists might suggest tax breaks for childcare facilities, which would allow them to reduce their costs and thus their price, making their services more affordable for people without compromising quality.

Bigger Social Safety Net

The United States currently spends more on the social safety net (as a percentage of GDP) than every other country except France, but Crash Course points out that some argue that increasing the safety net further would reduce income inequality.

Crash Course did not flesh out this argument either, but it goes like this: the safety net helps people who are unemployed get back on their feet and into the job market. If the net weren’t there, people would stay in unemployed and in poverty, and it would be harder to get back out into the job market.

However, wealth inequality has increased the greatest since the largest social welfare programs were put in place in the 1960’s. Free market economists argue that this is because the social safety net allows people to get by (in poverty) without working. Although jobs may be available, some people choose not to work, since the amount of time spent working would not be worth the marginal improvement in income (since this person would lose his/her safety net upon employment). Many economists argue that the social safety is doing more to further income inequality than solve it.

Political Scientists and Sociologists tend to dislike this economic theory about welfare spending, but it is certainly prevalent among economists. I am surprised that Crash Course would advocate for something that runs contrary to most of mainstream economic thought.

Should Something Be Done about Income Inequality?

The question economists love is “compared to what?” Crash Course speaks in depth about what income inequality is, how it’s caused, and what should be done about it, but there is absolutely no consideration given to the negative economic effects of wealth redistribution, especially since this supposed to be an economics program.

Capital

We have mentioned this in a number of other posts, but the idea of capital is really important here. Capital goods is what brings about widespread material wealth. The current abundance in automobiles, air conditioners, and even smartphones is because people invested money in capital goods, such as research and development for new technologies and machinery to make those goods more cheaply.

Redistributing income from the rich to the poor also shifts spending from capital goods to consumer goods (food, TVs, couches, etc.). As a result, less money is invested into capital goods, meaning fewer technologies are developed and made cheaply for future consumption.

Material Wealth vs. Bank Accounts

Income inequality is certainly greater than it’s ever been, but material wealth inequality is the smallest it’s ever been, which also deserves some recognition. Today the average person living in poverty might have a beat up car, while the rich person drives a Mercedes. This may seem like a significant difference today, but can you imagine what the difference was a century ago? A person living in poverty would have no car while the rich man would have a car. That’s enormous.

These improvements in material wealth come from investments in capital goods, and while wealth redistribution may be a good idea from a sociological or policy perspective, it would not be good for the future economy.

Right now, [the highest tax bracket] peaks at around 40%, but some economists call for increases up to 50 or 60%.

When any economist calls for increasing taxes, he/she is not saying that the money would be more efficiently spent by the government, but rather that the negative effects of the tax increase (decrease in capital goods investments, inefficiently spent money) are outweighed by the predicted social gains in the economist’s opinion. In these cases, the economist wears two hats: one of an economist and one of a sociologist. The economist explains how something can cause something else, without interjecting their personal policy perspectives on how society should be organized. The sociologist, on the other hand, weighs potential benefits and detriments of particular policies, and usually comes out advocating for one side or the other.

Crash Course does the same thing throughout this video. While keeping the series primarily focused on economics, Crash Course frames their questions in a way that show their sociological or political bias. The question “Should the top income tax be 40% or 60%?” eliminates any discussion about how society might be more equal (at least in material terms) with a tax rate of less than 40% (or more than 60% for that matter).

I do wish that Crash Course would distinguish their discussion of economics from their discussions of social policy proposals or morality (i.e. what “should be okay”). It would help clarify for the audience what the field of economics is, and what it is not.

Phew! What an episode. Feel free to post your thought on the episode (or my critique) in the comments section. And don’t forget to join our newsletter and our facebook group!

Episode #17 – Income and Wealth Inequality, Part 2

We’re back for part 2, and we’re just going to jump right in. Here’s the episode if you missed it:

Income and Education

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In the last thirty years in the US, the number of college-educated people living in poverty has doubled from 3% to 6%, which is bad! And then consider that during the same period of time, the number of people living in poverty with a high school degree has risen from 6% to a whopping 22%.

Crash Course jumps from discussing the causes of income inequality (see part 1) to the statistical results. I assume this is to imply that technology is widening the income gap so fast that even college graduates are living in poverty.

These numbers are designed to be shocking, and they are. Aren’t schools supposed to give students skills to be successful in real life? And shouldn’t colleges do this to a greater extent, considering students are spending tens of thousands of dollars on it?

If you’ve been to college (or high school for that matter) in the past 10 years, you already know the answer to this: High Schools and Colleges, with some exceptions, are not teaching students the skills they need to survive in the modern economy. Crash Course implicitly blames the number of high school and college graduates in poverty on technology (and other causes they cite which we’ll also get to), while there is no responsibility placed on the failings of these educational institutions.

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Over the last fifty years, the salary of college graduates has continued to grow while, after adjusting for inflation, high school graduates’ incomes have actually dropped. It’s a good reason to stay in school!

Crash Course’s argument here implies that going to college will give you steady salary growth because college classes give you the skills to get a higher paying job.

This (again with some exceptions) is not necessarily true. High-paying employers might discriminate against those who haven’t graduated from college, which would also explain the statistics. Many employers see a college degree one of the few ways to judge a candidates ability, since they often shy away from real skills-testing for job applicant since it might be considered an illegal form of discrimination.

This is not to say that someone couldn’t learn marketable skills in college. There are many areas (engineering and computer science come to mind) which actually give students the skills they need for the job market. It’s no surprise that these majors are also the highest paying for college graduates. But the majority of college students do not choose these skills-based majors.

Other Causes of the Income Gap

There are other reasons the income gap is widening. The reduced influence of unions, tax policies that favor the wealthy, and the fact that somehow it’s okay for CEOs to make salaries many, many times greater than those of their employees.

Let’s look at each of these in turn:

Unions

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Unions, by themselves, are collective bargaining groups for employees that generally demand higher wages from the employer. Originally, they served as a centralized mouthpiece for a large group of workers whose individual voices might not be heard. Their greatest power is the threat of striking if their needs are not met.

In economic theory, unions would help the employer and employees identify the market rate (what the employer is willing to pay and the employees are willing to work for), but it wouldn’t necessarily reduce income inequality. Let me give you two simplified examples:

In scenario 1 there is a company with 10 employees and 1 employer. Employees demand a $1/hour raise or they will strike, and the employer obliges, taking the money from either his own salary (which is rare) or from investor equity. The workers are paid more and there is less income inequality between the employees and employer.

In scenario 2, the workers demand $5/hour more. The company cannot afford this price and remain profitable, so they invest in machinery that will reduce the number of employees needed to 3. The remaining employees might get that $5/hour raise, or the employer might look outside of the union for employees, since it’s now easier to fill the fewer positions available. In scenario two, 7 or more employees are now being paid $0/hour, which widens the income gap.

Unions today, due to abundant legislation related to them, are not the unions of economic theory, and they if they were, they do not necessarily narrow income inequality. Although people might show you a graph of union membership next to a graph of income inequality, one can only speculate that this correlation equals causation.

Tax Policies That Favor the Wealthy

As Mr. Clifford points out later in the video, the United States has a progressive tax system, meaning that the rich pay a greater share of their income above a certain level to taxes. Occasionally, the rich may receive a tax cut. For example, the Bush Tax Cuts lowered the taxes on income over 400k from 39.6% to 35%. In this case, Mr. Clifford is 100% correct, since higher taxes on the rich (absent everything else) does reduce income inequality as a whole.

“Somehow It’s Okay for CEOs to Make a Lot More Money Than Employees”

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How about the framing of this sentence? It may not seem “okay” for someone to make more money than someone else, but as economists, the Crash Course hosts should know that wages are not decided by comparing them to other people in the company. We’ve talked about this before on this blog, but wages are decided by the amount of value you produce to the company (as a wage ceiling), as well as how much the employer (in this case the board of directors) and the prospective CEO negotiate for.

I am incredibly surprised that Crash Course implicitly argues that it’s not okay for two people to negotiate a salary irrespective of two other people negotiating a salary for a completely different position in the same company. How did this script make it passed the editors on Crash Course? Isn’t someone there an economist?

I think Mr. Clifford gets it, since later in the video he says:

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When different jobs have different incomes, people have incentive to become a doctor or an entrepreneur or a YouTube star – you know, the jobs society really values.

This doesn’t really talk about how wages are determined, but I’ll take it.

Wow guys. There is still a lot more to say, so we’re going to have to make this a three-parter. Thanks for reading and look forward to part three soon (Sunday hopefully)!

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Episode #17 – Income and Wealth Inequality, Part 1

What a fantastic topic this week: Income and Wealth Inequality. I don’t think I ever go a week without seeing an infographic online that shows data on wealth or income inequality, some sort of scale or graph to illustrate the differences, and a quote from Bill Gates or Warren Buffet on why taxes should be raised on the rich. #FeeltheBern.

Since Crash Course did a pretty great job talking about productivity, capital, and technology in Episode #6, I was hoping that they would revisit these topics in explaining what wealth is and how people (rich and poor alike) become wealthier without doing much work. They more or less covered this topic before: greater capital accumulation allows businesses to take risks by investing in research for technological upgrades. These upgrades make goods cheaper and more accessible to consumers.

In this episode, however, Crash Course took a completely different angle. This episode was more like a Bernie Sanders infographic than a real discussion of the pros and cons of income inequality. Arguments advocating for government intervention were given consideration, while arguments against were either strawmen or described in a way to discredit the idea. While this episode does not explicitly advocate for one side, it certainly does it implicitly. All of this will be explained in this two-part blog post on this week’s episode, but let’s get started at the beginning:

Difference Between Wealth and Income

Crash Course started off great by distinguishing between wealth and income: wealth is current assets, and income is the new wealth that is flowing in. They accurately show the difference in wealth between continents (and major countries like China), and then followed with a video graphic showing the differences in income quintiles throughout the world.

Crash Course never really makes a major point with this. It seemed a bit rushed (they have to keep every episode around 10 minutes, after all), but I wish they had discussed how income taxes only affect new money coming in and not old money already earned. In other words, when Warren Buffet or Bill Gates argues to increase the income tax, they are not advocating for taxes that would affect their wealth, but rather the income of others.

(side note: Crash Course messed up their graphic. They mentioned how Europe and North America account for less than 20% of the world’s population, but in the graphic they put a greater than sign)

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Globalization Helps Everyone

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Most economists agree that globalization has helped the world’s poorest people, but it’s also helped the rich a lot more. Harvard economist Richard Freeman noted, “The triumph of globalization and market capitalism has improved living standards for billions while concentrating billions among the few.

Last week Crash Course talked about how Globalization significantly helps the poor and is the greatest contributor to ending extreme poverty. This week however, helping hundreds of millions of people out of extreme poverty pales in comparison to how much richer the rich are becoming.

It was very surprising to see two very different emphases on globalization in consecutive weeks on Crash Course. It is no doubt accurate to point out that globalization creates greater income inequality (just as the Industrial Revolution did, as they note), but it’s not necessary to put this fact in such a dark light. Crash Course here is supposed to be talking about the causes of income inequality, not editorializing it as good or bad. This comes later in the episode (and in this blog post).

Skills and Income

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Economists point to something called “skill-biased technological change.” The jobs created in modernized economies are more technology-based, generally requiring new skills. Workers that have the education and skills to do those jobs thrive, while others are left behind. So, in a way, technology’s become a complement for skilled workers but a replacement for many unskilled workers.

Crash Course does a great job at explaining how technology affects the job market. Technology raises the salaries of skilled workers, as one person can create more revenue (or work product) for his/her business. Meanwhile, the technology puts unskilled workers out of their current job. This widens the difference in income between skilled and unskilled workers.

But this is not the same as saying that unskilled workers have no jobs now because of technology has made them obsolete. On the contrary, technology has made thousands of unskilled jobs available (Taskrabbit) in addition to millions of low-skill jobs (Uber, Airbnb hosting). As we’ve mentioned before on this blog, technological developments create shifts in the economy, moving people from certain areas of the economy to others.

In economic theory however, it is possible that one day, technology will reach a point where all desired tasks under a certain value will be performed by technology. But in an economy where you can still get paid to stand in line, there are an unlimited amount of unskilled or low-skilled jobs.

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The end result is an ever widening gap between not just the poor and the rich, but also the poor and the working class. As economies develop and as manufacturing jobs move overseas, low skill low pay and high skill high pay work are the only jobs left. People with few skills fall behind in terms of income.

People with certain skills are put out of work by technology. This phenomenon has been happening for centuries, but especially after the industrial revolution. Technology has always been putting people out of work, just ask the horse and carriage industry. Is today any different from other times in history?

As stated above, one way it is different is that technology is also creating millions of low-skilled jobs.

There’s still a lot to say about this episode, and a lot of questions still to answer. For example, what should be done (if anything) about income inequality? Stay tuned later this week (possibly Friday) for the second part of this post.

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Episode #16 – Globalization and Trade and Poverty

Crash Course’s episode this week is very timely with Donald Trump’s campaign’s consistent talking point about China taking US jobs, Bernie Sanders’ championing of the poor, and the general buzz about how low wages can rise. This post might get lengthy, but stay with me. Let’s dive in:

The Big Difference-Maker in Reducing Poverty

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The greatest contributor [to reducing extreme poverty] is globalization and trade. The world’s economies and cultures have become more interconnected and free trade has driven the growth of many developing economies.

Crash Course attributes global trade as the leading contributor to reducing poverty. This is consistent with general economic principles, namely that trade necessarily makes both parties better off.

However, Crash Course also states:

Better access to education, humanitarian aid, and the policies of international organizations like the UN have made a difference.

This is up for debate, depending on which examples you cite. Foreign aid may help, but it also may do a lot of damage by disrupting the local economy and creating a prize for political factions to fight over. Additionally, The UN makes hundreds of policies that impact international trade; some help and some do not. The UN is not solely a global trade organization, and sometimes their other goals conflict with their goal to increase free trade.

Opponents of Global Trade

While Crash Course does come down in favor of global trade, they don’t do a very good job at rebutting the arguments against global trade.

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But not everyone agrees. Opponents of globalization called outsourcing of jobs “exploitation and oppression”, a form of economic colonialism that put profits before people. A few call for protectionist policies like higher tariffs and limitations on outsourcing.

Crash Course never responds to this objection to global trade or the argument’s proposed solution. If someone is worried about “exploitation and oppression,” (i.e. low wages and poor working conditions), higher tariffs and limitations on outsourcing do not help these workers at all. These policies protect domestic businesses from international competition, but it does not improve the working conditions or the pay of foreign workers. Furthermore, an economist would argue that by reducing the demand for these foreign products (through tariffs or limits on outsourcing), you are reducing the revenues of these businesses and reducing the value that these workers provide. This puts downward pressure on their wages.

Improvement in wages and working conditions come from economic prosperity and competition for labor; growing businesses that need employees will have to compete for workers, and those businesses that provide either improved conditions or wages will attract the most workers from other sectors of the economy.

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But others focus on the foreign workers themselves by demanding they receive higher wages and more protections. The root of many arguments against globalization is that companies don’t have to follow the same rules they do in developed countries. Some developing countries have no minimum wage laws. They don’t have regulations that provide safe working conditions, or protect the environment. And although nearly every country bans child labor, those laws are not always enforced.

The implementation of laws that prohibit certain working conditions or wages does not necessarily benefit workers. As this episode infers toward the end of the video, if we implemented the laws on wages and working conditions of developed countries onto developing countries, it would not benefit these countries as it would eliminate most of the jobs. Employers could not afford to abide by the laws and remain profitable, and the result would be fewer businesses and fewer people employed.

As for the debate on child labor, OxFam research suggests that prohibiting child labor results in many children turning to black market activities such as prostitution in order to sustain themselves. Child labor does seem terrible, but child prostitution seems much worse. Please check out that OxFam report linked above, but be prepared that it’s some grim stuff.

Also, while many developing countries don’t have a minimum wage, neither do many developed countries. Norway, Singapore, and Switzerland aren’t “exploiting” their workers more than Andorra and Saudi Arabia (where there are minimum wage laws), so we can dismiss the implied assertion that minimum wage laws are a requirement of developed countries.

Instead of rebutting these arguments against global trade head on as we just did, Crash Course instead mentions that workers might not be mistreated, even without laws.

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First, public awareness is growing, along with pressure from the international community to take steps to protect workers. For example, the U.S. produces an annual publication called “The List of Goods Produced by Child Labor or Forced Labor”. If a company is buying products from that list, they’re likely to get blasted by officials and the media. So awareness is the first step to improvement.

Okay, that doesn’t sound very comforting. What else you got?

The second step comes from those that support globalization. The pro-globalization set argued that as developing economies grow there are more opportunities for workers, which leads to more competition for labor, and higher wages.

This is Crash Course gold. I wish they had fleshed it out and used it to directly rebut the arguments against global trade, but I guess you can’t ask for everything.

The Environment, Pollution, and Climate Change

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Perhaps the strongest argument against globalization is its lack of sustainability. Many experts don’t think the planet can sustain a growing global economy. Deforestation, pollution, and climate change aren’t gonna fix themselves […] Globalization has helped millions of people get out of extreme poverty, but the challenge of the future is to lift up the poor while at the same time keeping the planet livable.

This argument is presented pretty vaguely, and it’s hard to argue against it. After all, pollution is bad (for multiple reasons), and if our planet becomes unlivable, then the global economic output will become zero. All of this is true.

The problem is that there are no specifics in this argument. Given that Climate Change is caused by man-made CO2 activity (which invites a completely different argument), how much do developing countries contribute to total CO2 omissions? How do governments of developing countries enforce property rights in relation to pollution?

By arguing vaguely, you basically ensure that any global trade advocate will agree with you, and by doing that you can start talking about what the government should do to resolve these problems. However, the conversation of “What should the government do about pollution?” and “How can developing countries get out of poverty?” are two very different topics and require very distinct discussions. This is almost a Red Herring.

Microcredit

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Crash Course talks a good bit about Microcredit, which they tout as a success, even though a fair amount of research suggests that it is not effective at helping people get out of poverty. In fact, if you google “Microcredit Helps Poverty,” there are more articles talking about why it doesn’t work than why it might.

In economic theory, it makes sense why microcredit would be successful: In developing countries, banks do not have the capital to fund riskier small businesses that do not have much capital. Instead, foreign lenders (who are in fact, just regular Joes in developed countries) lend their money to a small business abroad, watch it flourish, and get paid back. The average Joe feels good (and may collect some interest on the loan) and a small business is expanded in a developing country. Everyone wins.

However, in practice, these loans don’t always go into the small business, and when they do, it does not have a noticeable impact on the business owner’s standard of living. Some journalists have highlighted the rare successes of Microcredit, but they are generally the exceptions. In the end, these Microcredit transactions will likely help those who receive it, but it is not the Cure for Poverty (or anywhere close) that it was theorized to be a decade ago when the idea gained traction.

I am very surprised that Crash Course declares Microlending to be a great success at helping people out of poverty. The evidence suggests otherwise.

Conclusion

Crash Course ends this episode on a bit of a sour note:

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Many of the people who emerged from extreme poverty in the last 25 years have jobs, wages, and working conditions that would be unthinkable in the developed world. Economists say that’s okay, it’s progress, but it’s progress that’s awfully hard to stomach.

It’s difficult to remove our 21st-century-developed-world lenses to see the great decline in extreme poverty throughout the world, since those who are out of extreme poverty still have it bad compared to the developed world. It is hard to stomach if you compare the developing world to the developed world, instead of comparing the developing world to the developing world 25 years ago. It might also be hard to imagine the wages and working conditions of Americans one-hundred years ago, even though they were among the richest in the world at the time.

Although it may be hard to stomach, you should always ask “compared to what?” Would the developing countries be better off or worse off today if they had implemented wage controls and regulations on working conditions 25 years ago? Economic theory suggests they would be much worse off, even though it might make you feel better that these rules are in place.

Crash Course Criticism will be on a schedule from here on out, releasing posts every Wednesday, but possibly more frequently. Thanks for the support!

Like what I wrote? Hate it? Drop some feedback in the comments.

Episode #15 – Imports, Exports, and Exchange Rates

Crash Course came out in Episode 15 to talk about International Trade. Maybe this is a reaction to some political candidates talking about the Chinese trade deficit. Regardless of the motive, this episode was economically sound in content, while the tone may not have been along the same lines.

This Episode’s Major Principle

Imagine that I have a choice of buying an American made TV or a TV made in Malaysia. Because of lower labor costs in Malaysia the imported TV cost $200 less than the American made one. So I buy the imported TV. That may cost jobs at a TV factory in the US but I saved $200 by buying the imported TV.

And what am I gonna do with those $200? I’m gonna spend them on something I couldn’t have afforded if I bought the US TV. Like maybe taking my family out to a baseball game or to a restaurant. That creates jobs in those industries that wouldn’t have existed if I’d bought the more expensive TV.

Remember Episode 2, on comparative advantage? Crash Course has already explained that international trade between two countries helps both countries, even if one is poorer or less productive.

More importantly, international trade doesn’t only help the businesses who are trading, but it helps consumers who are able to save more with each purchase. That money saved can either go to spending on other goods (creating jobs in those areas) or in the bank (which gets lent out to growing businesses).

But in the same breath of mentioning how international trade helps everyone involved (including consumers), Crash Course goes a little off the rails:

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Economic Theory suggests that international trade shuffles jobs from one sector of the economy to another, like from the TV factory to the restaurant. But the quality of these jobs can be markedly different. The guy assembling TVs at the US factory was probably making a lot more at his manufacturing job before he got reshuffled to the burrito assembly line at Chipotle.

As technology improves and consumer demands shift, employees will have to move from certain sectors of the economy to others. But Crash Course does some injustice to the former factory employee. Why would this employee get a job at Chipotle? Because assembling a burrito is like assembling a TV?

If domestic manufacturing shrinks, another sector is likely to grow. And as the factory employee takes a new job somewhere else, his skills and work product will likely determine his pay.

Trade does not just shuffle jobs from one sector to another; it moves jobs from less productive areas of the economy to more productive areas of the economy. If Malaysia is better at producing TVs for a cheaper price (assuming both countries’ TVs are the same in quality), then it’s better to have American employees working in areas that can compete internationally, instead of making TVs that will be no one will buy because it’s too expensive.

What Crash Course did not explain is what happens when protectionist policies prevent international trade (this is sometimes referred to as Mercantilism). For example, let’s say the US government imposes taxes and fees that make the price of Malaysian TVs higher than US TVs. It will keep that factory employee at the manufacturing plant, but everyone else in the economy will be worse off, as they have to pay more of their paycheck for their TV.

NAFTA

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NAFTA is a polarizing political issue, and depending on which camp you’re most affiliated with, you will regard the agreement as either a huge success and a catastrophic failure. For example, Democrat Party loyalists or Bill Clinton supporters will call it success, since it happened under his presidency. Labor Unions hate it, since it removed trade barriers that kept some American producers afloat (like the TV example explained above). Libertarians and free marketeers are a mix about it, for reasons I will explain.

Like the TPP agreement currently in the works, NAFTA was heavily influenced by corporate interests, and parts of the agreement were tailored specifically to benefit these companies. NAFTA was a free market international agreement, but not for all goods across the board, just the ones outlined in the legislation. NAFTA was a move toward freer markets, but it was orchestrated in a way that reeked of cronyism.

Thus, politicians and pundits alike had to choose sides: Do I support the Democratic Party more than I support Labor Unions? Do I support free markets more than I oppose crony legislation?

Crash Course comes down in favor of NAFTA, as they should if they were looking purely at economic benefits:

So despite the fact that some workers and industries were clearly hurt, economists would tell us NAFTA has had a net positive impact on all three countries.

Are Trade Deficits Bad?

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Crash Course doesn’t clearly explain how they stand on trade deficits, but you can infer from the end of video that although they agree they make everyone better off, they sympathize (possibly more so) with those who are negatively affected by international trade:

In purely economic terms trade deficits and surpluses are the result of people and nations seeking their own self-interests. But while everyone is acting in the self-interested way, international trade doesn’t always meet our individual interests. What might be good for the wider global economy, might be really bad for me or my hometown. But in the aggregate, trade does improve the global standard of living. It’s just sometimes hard to see up close.

As I mentioned before, the alternative to international trade makes everyone worse off. While it’s easier to witness the negative effects of international trade (since people are laid off), it would be much worse if domestic businesses were protected from international competition. Resources would be wasted, prices would be higher, and the living standards of everyone (rich and poor alike) would be worse.

As a final note, Crash Course never responds to people who say that trade deficits “ship jobs overseas”. An excerpt from this article does an excellent job at illustrating why this does not happen:

If say Toyota sells a Japanese-manufactured car in the United States, then they have two options as to what they shall do with the money: either buy American goods and services, in case which the trade deficit does not increase, or they can buy American assets which will increase the pool of funding for investments in America, or they can try to exchange the dollars earned into yen, which someone will have to sell to them and then use it for one of Toyota’s two first options.

Trade deficits are offset by capital surpluses, which in this case is Toyota having to spend US dollars somewhere in the American economy. These dollars, in addition to the dollars saved by Americans who buy a cheaper Toyota instead of a more expensive Ford car, contribute to the economy and create growth (and jobs) in other areas.

Message from Gary

Hi CCC fans. I know it’s been a while. I was on vacation, and then settling into a new apartment and work situation, but now I should have time to produce quality posts at regular intervals. This is a new beginning

Welcome to Crash Course Criticism 2.0hyeah. I’m glad you’re here for the ride, because this blog keeps on moving. I’ve got a new post in the works, and it should be published on Tuesday.

THESE COLORFUL BLOG POSTS DONT RUN.

‘MERICA

-Gary