Is There a Better Economic System than Capitalism?

Summary

This script explores the evolution of economic thought and its impact on living standards, drawing parallels with medical advancements. It discusses the central economic problem of unlimited desires and limited resources, and how economic systems like capitalism attempt to address it. The script also touches on the limitations of economics, such as its inability to predict the future or create wealth, and the difficulty in testing economic theories. It concludes by suggesting that despite our current knowledge, there's much to learn and that challenges present opportunities for economic growth and understanding.

Takeaways

• 🏥 In 1799, George Washington's doctors treated his sore throat and breathing difficulties by bloodletting, which likely worsened his condition and contributed to his death.
• 🧬 Our understanding of medicine has evolved significantly over the past 200 years, leading to improved health, longer lives, and reduced infant mortality.
• 💼 Economics, like medicine, is an evolving field that has a profound impact on our lives, often overlooked in favor of traditional sciences.
• 🌐 Advances in financial systems, trade practices, and economic controls have significantly contributed to our current wealth and prosperity.
• 🚀 Theoretical breakthroughs in economic knowledge could potentially lead to a world where everyone enjoys a billionaire's lifestyle.
• 🤔 It's crucial to question the extent of our economic knowledge and whether our current practices might be doing more harm than good.
• 💡 Economics is a social science that studies how people interact with things of value, aiming to address the central economic problem of unlimited desires and limited resources.
• 🔄 Capitalism, as an economic system, is efficient at allocating resources but struggles with assigning costs to negative externalities like pollution.
• 🌟 The Industrial Revolution and the shift from mercantilism to free trade demonstrate how economic theories can revolutionize wealth creation.
• 🚧 Economics has limitations: it cannot create wealth out of nothing, predict the future, or be easily tested due to the complexity and scale of economic systems.
• 🌱 Despite its limitations, economics continues to evolve, and current global challenges present opportunities for learning and improving economic theories for future prosperity.

Q & A

What medical treatment did George Washington receive for his sore throat and difficulty breathing?

George Washington was treated by a team of doctors who practiced bloodletting, a common medical practice at the time. They ended up draining two and a half liters of his blood before he passed away.

How did the medical treatment George Washington received contribute to his death?

Medical specialists argue that the bloodletting Washington received, which removed a significant amount of blood, likely exacerbated his condition and may have contributed to his death rather than helping him recover from his illness.

What advancements have been made in the field of medicine since George Washington's time?

In the past 200 years, there have been significant advancements in understanding the human body, illnesses, and medical best practices. This has led to longer average lifespans, reduced infant mortality, and improved living standards for those suffering from medical conditions.

How has the understanding of economics evolved and impacted our lives?

Economics, like medicine, is a field that has evolved significantly. Advances in financial systems, trade practices, and economic controls have greatly contributed to the wealth and prosperity we enjoy today, similar to the advancements in technology.

What is the central economic problem that economists try to address?

The central economic problem is the conflict between unlimited human desires and limited resources. Economists attempt to answer questions about what should be produced, how much, how it should be produced, and for whom.

How does capitalism as an economic system attempt to answer the central economic problem?

Capitalism answers the central economic problem by producing what is most demanded by the market, in the amount demanded, and in the most efficient and cost-effective way, to be given to those willing and able to pay for it.

What are some limitations of capitalism in addressing certain economic questions?

Capitalism struggles with questions about items of negative value, such as waste and pollution, and does not have a built-in mechanism to assign costs to the parties responsible for producing them without government intervention.

What is the comparison made between geocentrism and capitalism in the context of economic systems?

The comparison suggests that just as geocentrism was an outdated model of the universe that was replaced by a more accurate understanding, capitalism might be an economic model that could be replaced by a more advanced system in the future.

How did mercantilism, the economic system before economics was an academic discipline, view economic growth?

Mercantilism believed that an economy should export as much as possible and import as little as possible to accumulate gold, which was seen as a store of value and a sign of wealth.

What are some of the practical applications of economic theory in the creation of a complex product like a smartphone?

The creation of a smartphone involves a global supply chain that includes the mining of resources, manufacturing of components, and assembly, all coordinated through economic collaboration, free trade, and division of labor, which are concepts developed through economic theory.

What are the limitations of economics as a field of study?

Economics has limitations such as not being able to create wealth out of nothing, not being able to predict the future accurately, and the difficulty in studying and verifying economic theories due to the complexity and scale of real-world economies.

Outlines

00:00

🏥 Medical Misadventure of George Washington

The paragraph recounts the final days of George Washington, the first president of the United States, who suffered from a sore throat and breathing difficulties in December 1799. Despite having access to a team of doctors, he was subjected to bloodletting as a treatment, which ultimately led to his death after two and a half liters of blood were drained. Modern medical consensus suggests that such a practice would have been detrimental rather than helpful, and it highlights the significant advancements in medical understanding and practice over the past two centuries. This historical account is used as an analogy to introduce the evolving field of economics, which, like medicine, has a profound impact on our lives and living standards.

05:00

📈 The Evolution and Impact of Economic Understanding

This section discusses the evolution of economic thought and its impact on society. It emphasizes that while science often receives credit for improvements in living standards, advancements in economic systems, financial practices, and trade have played a crucial role in wealth creation and prosperity. The paragraph draws a parallel between the tangible benefits of scientific progress and the less visible but equally significant contributions of economic insights. It raises questions about the current state of economic knowledge, suggesting that further breakthroughs could lead to a world of abundant wealth, and it sets the stage for exploring the relationship between economic advancements and improved living conditions.

10:01

🌐 The Global Economy and the Making of a Smartphone

The final paragraph uses the example of smartphone production to illustrate the complexity and global interconnectedness of modern economic systems. It describes the numerous steps and international collaboration involved in creating a single device, from the extraction of raw materials to the assembly and distribution of the final product. This narrative underscores the importance of economic theories and practices in facilitating such intricate supply chains and the wealth generation they enable. The paragraph also touches on the limitations of economics as a discipline, noting that it cannot predict the future or create wealth out of nothing, and it acknowledges the challenges in studying economic theories due to the lack of controlled experimental conditions. It concludes by suggesting that our current understanding of economics is likely incomplete and that the ongoing changes in the world present opportunities to learn and improve economic systems for future generations.

Keywords

💡Economics

Economics is a social science that studies how people interact with things of value, and how societies choose to allocate scarce resources to satisfy unlimited desires. In the video, economics is discussed as an evolving field that has significantly influenced living standards and wealth, much like advancements in traditional sciences. The script uses economics as a lens to explore historical practices like bloodletting and mercantilism, comparing them to current economic theories and practices.

💡Capitalism

Capitalism is an economic system where the means of production are privately or corporately owned and are operated for profit. The video discusses capitalism as a method for answering the central economic problem by allocating resources based on market demand and efficiency. However, it also points out its limitations, such as the inability to assign costs to negative externalities like pollution.

💡Mercantilism

Mercantilism was an economic theory and practice that promoted government regulation of a nation's economy to increase state power at the expense of other states. The script refers to mercantilism as the precursor to modern economic systems, emphasizing the accumulation of gold through exportation and minimal importation, which was later replaced by a more cooperative and free trade approach.

💡Geocentrism

Geocentrism is the ancient belief that the Earth is at the center of the universe, with all other celestial bodies revolving around it. In the video, geocentrism is used as an analogy to illustrate how capitalism, while effective, might be an incomplete model for understanding economics, much like geocentrism was eventually replaced by heliocentrism.

💡Industrial Revolution

The Industrial Revolution refers to the transition to new manufacturing processes in the period from about 1760 to sometime between 1820 and 1840. The video mentions the Industrial Revolution as a pivotal moment driven by technological advancements and economic theories that set the stage for modern economic growth.

💡Free Trade

Free trade is the economic principle of buying and selling goods and services across national borders with minimal government interference. The script highlights free trade as a key component of modern economic systems, which has led to increased wealth and prosperity by allowing countries to specialize in producing what they do best.

💡Negative Externalities

Negative externalities are the unintended negative consequences of economic activities on third parties. The video discusses how capitalism struggles with assigning costs to negative externalities such as pollution, which is a significant challenge in achieving sustainable economic growth.

💡Keynesian Economics

Keynesian Economics is an economic theory提倡 by John Maynard Keynes that argues government intervention and fiscal policies are needed to stabilize economies and reduce the severity of economic cycles. The script refers to Keynesian Economics as a significant advancement that has influenced modern economic policy, particularly in managing the business cycle and promoting economic stability.

💡Neo-Keynesian Economics

Neo-Keynesian Economics is an economic school of thought that extends Keynesian Economics by incorporating a more detailed analysis of price and wage stickiness. The video mentions Neo-Keynesian Economics as the current dominant approach among economists, which focuses on managing economic factors like debt, employment, inflation, taxation, and supply-side output.

💡Economic Growth

Economic growth refers to the increase in the inflation-adjusted market value of the goods and services produced by an economy over time. The script discusses economic growth as a central goal of economic systems and policies, with historical advancements in economics playing a crucial role in achieving higher living standards and wealth.

💡Innovation

Innovation refers to the process of translating an idea or invention into a good or service that creates value or for which customers will pay. The video suggests that future advancements in economics might involve systems that encourage innovation, which is essential for driving economic growth and improving living standards.

Highlights

George Washington's death in 1799 may have been caused by bloodletting treatment.

Medical practices have drastically improved in the past 200 years, leading to longer lives and better health standards.

Economics, like medicine, is an evolving field that impacts our daily lives.

Advances in financial systems and economic controls have contributed to modern prosperity.

Economic knowledge could theoretically enable a world where everyone lives like billionaires.

Economics is a social science that studies the interaction of people with things of value.

The central economic problem involves unlimited human desires and limited resources.

Economic theories, including capitalism, aim to answer key questions about production and distribution.

Capitalism is efficient at resource allocation but struggles with negative value items like pollution.

Economic systems need solutions for an aging population and those unable to work.

Capitalism may be to economics what geocentrism was to astronomy, suggesting a need for a new paradigm.

The Industrial Revolution was driven by technological advancements and a shift from mercantilism to free trade.

Economic collaboration and free trade have made complex products like smartphones possible.

Economic theories like Keynesianism have helped manage the business cycle and promote wealth growth.

Economics has limits; it cannot create wealth where there is none or predict the future.

Economists should focus on making recommendations for the present rather than predicting the future.

Economics is difficult to study due to the inability to test theories in a controlled environment.

The current economic system may not be the final answer, and there is much to learn from current global challenges.

Transcripts

- [Narrator] 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 doctors attending to Washington

ended up draining two and a half liters of his blood

before he eventually passed away less than two 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 agreed

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 reduced infant mortality

and increased 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?

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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, it's fundamental constituents,

it's 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 central 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 outcomes

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 wellbeing 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 costs of these items

to the parties responsible for producing them

without government 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 an 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 forced retirement savings.

But oftentimes 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.

Geocentrism, 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 oftentimes 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 economists will come up with a system

that revolutionizes the way that we manage economies

to such an extent that it'll 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.

Mercantilism was the general economic system

that the global economy ran off

before economics was even an academic discipline.

The idea of mercantilism 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'd get as much gold as possible.

Of course, mercantilism is not how we run

our economies today because the study of economics

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 are 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 GPU's.

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 Foxconn, 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 design and market 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 Keynes,

who showed 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 busts that comes with an economy runoff debt.

Today, most economists in positions of power

subscribe to the Neo-Keynesian School of Economics,

which lays out how to run an economy

by effectively managing debt, employment, inflation,

taxation and supply side output to generate wealth

that would not have been imaginable when Keynes 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 mercantilism

or embraced 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 it 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 Keynes himself, after helping to develop

our modern understanding of the business cycle,

attempted to grow his fortune by investing

based on the predictable ups 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 then 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 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 my 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.