The Economic Megathreats That the World Has No Answers To | Economics Explained with Dr. Roubini

Economics Explained
12 Mar 202321:40

Summary

TLDRThe video explores the multifaceted role of economists as advisors in global contexts, emphasizing their importance in forecasting and advising on economic scenarios despite the inherent unpredictability of economies. It delves into the challenges posed by globalization's reversal, escalating debt crises, and the threats of artificial intelligence and climate change to economic prosperity. Highlighting the significance of international cooperation and adaptive strategies, the video seeks to shed light on the potential mega threats identified by economists and the urgent need for viable solutions to safeguard the future economic landscape. The global economy's resilience and growth potential, despite these challenges, are also underscored, offering a balanced perspective on the complex dynamics at play.

Takeaways

  • ๐Ÿ‘จโ€๐Ÿ’ป Economists primarily serve as advisors to decision-makers in global companies, organizations, and governments, using their understanding of social sciences to project outcomes of significant decisions at various levels.
  • ๐Ÿ”ฎ Good economists, like good lawyers, don't predict the future but outline likely scenarios and how to navigate them, focusing especially on potential risks and mitigation strategies.
  • ๐Ÿ›  A major role of economists involves discussing worst-case scenarios, which often leads to their reputation as eternal pessimists; however, this cautionary approach is crucial for preparing for potential economic challenges.
  • ๐ŸŒ Key global economic threats identified include the end of globalization, the return to national self-sufficiency, stagflationary crises, the mounting global debt crisis, challenges posed by AI, and climate change.
  • ๐Ÿ›ซ Globalization has been a significant wealth creator by facilitating the exchange of goods, services, technology, and labor among countries, but recent trends show a shift towards de-globalization, risking economic prosperity.
  • ๐Ÿ’ธ The 'mother of all debt crises' looms as global public and private sector debt levels soar, challenging economies, especially emerging markets, as interest rates rise.
  • ๐ŸŒŽ Climate change poses a complex economic threat, requiring significant investment in alternative energy or carbon capture technologies, with poorer countries facing the most severe consequences.
  • ๐Ÿงฎ The rise of technologies like AI could potentially render human labor redundant in various industries, posing an existential risk to the labor market.
  • ๐Ÿ“ Economists advocate for proactive measures against these mega threats despite the costs, emphasizing long-term benefits over short-term sacrifices.
  • ๐Ÿ—บ The global economy's resilience and growth underscore the importance of addressing these challenges to maintain and enhance economic prosperity worldwide.

Q & A

  • What roles do economists play in global decision-making?

    -Economists spend most of their time as advisors to decision makers in global companies, organizations, and governments, using their understanding of social science to make projections about how big decisions could play out at various levels.

  • Why is it important for decision makers to consider worst-case scenarios according to economists?

    -Economists focus on worst-case scenarios to prepare decision makers for potential negative outcomes of their plans, earning them a reputation for being pessimistic. However, this approach is crucial for identifying risks and developing strategies to mitigate them.

  • How has globalization contributed to global economic growth?

    -Globalization, through the sharing of goods, services, labor, technology, and information among countries, has made all participating countries wealthier by leveraging comparative advantages and fostering the transfer of innovations and efficient production techniques.

  • What are the predicted consequences of a reversal in globalization trends?

    -A shift away from globalization could lead to higher costs for consumers, reduced collaboration between countries, less sharing of resources and technology, and potentially lower economic growth rates as countries move towards more self-sufficient, national economies.

  • What are some of the major economic threats identified by economists for the next century?

    -The major economic threats include the end of globalization, a stagflationary crisis due to the end of easy money, a significant debt crisis, challenges posed by artificial intelligence to worker and consumer-based economies, and climate change.

  • Why is global debt considered a potentially critical issue?

    -Global public and private sector debt has significantly increased over the decades, posing a risk especially as interest rates rise. While high debt levels can be sustainable with low interest rates, rising rates can lead to servicing challenges and potential crises.

  • What impact could climate change have on global economies, particularly poorer countries?

    -Climate change poses a significant threat by potentially increasing natural disasters and requiring large investments into alternative energy sources, carbon capture technologies, or emission reductions, which could disproportionately impact poorer countries.

  • What are 'zombie companies' and how do they relate to the current economic climate?

    -Zombie companies are firms that produce no real economic value and are only kept alive because of artificially favorable market conditions, such as low interest rates. These companies may face significant challenges as borrowing costs rise.

  • How does the concept of comparative advantage relate to globalization?

    -Comparative advantage refers to the principle that countries benefit from specializing in and trading goods and services that they can produce more efficiently than others. This concept underpins the economic benefits of globalization.

  • What solutions are proposed by economists to address the major threats to economic prosperity?

    -Economists propose understanding the costs and sacrifices of solutions, investing in infrastructure and technologies, international cooperation to enforce emission reductions, and preparing for the impacts of artificial intelligence on labor markets.

Outlines

00:00

๐Ÿง The Role of Economists and the Unpredictable Future

Economists primarily serve as advisors to key decision-makers across global entities, leveraging their insights into social sciences to project outcomes of significant decisions at various levels. While precise future predictions are beyond their scope, economists are crucial for outlining possible scenarios and preparing strategies to navigate them. The segment highlights the inherent uncertainty in economic forecasting but underscores the value in examining worst-case scenarios and potential mega threats to global economic prosperity. These include the decline of globalization, stagflationary crises, escalating debt levels, the challenges posed by artificial intelligence, and climate change. The narrative emphasizes the importance of understanding potential economic downturns and the strategic responses required to mitigate these risks.

05:00

๐ŸŒ Impact of Diminishing Globalization and the Global Pandemic

This section discusses the negative impacts of declining globalization, exemplified by Brexit and its resultant economic downturn in the UK, contrasting with the relatively stable economies of Continental Europe. It touches on the global pandemic and geopolitical tensions exacerbating cautiousness in trade relations and supply chain management, leading to a shift from 'just-in-time' to 'just-in-case' strategies. This shift, while increasing geopolitical security, incurs higher production costs and reduces the efficiency of global trade, potentially impoverishing economies on average. The dialogue with Dr. Nouriel Roubini underscores these challenges, highlighting the broader economic repercussions of a move towards nationalism and away from global economic integration.

10:02

๐Ÿ“‰ The Looming Debt Crisis and Economic Vulnerabilities

Focusing on the burgeoning global debt crisis, this paragraph outlines the unsustainable increase in debt levels among governments, businesses, and households. It discusses the unique challenges faced by countries that borrow in foreign currencies and the impending difficulties as interest rates rise. This situation is particularly perilous for emerging markets, which are at risk of experiencing severe economic downturns. The narrative also explores the concept of 'zombie' companies and countries, sustained through artificially favorable market conditions, and the potential fallout as those conditions change. The discussion includes insights from Dr. Roubini on the sustainability of debt levels and the transition from a period of low interest rates to a reality where debt servicing becomes increasingly burdensome.

15:02

๐Ÿ”ฅ Climate Change and Economic Inequality

This segment addresses the significant threat of climate change, especially its disproportionate impact on poorer countries. It explores the dilemmas facing emerging economies, which must balance the need for economic growth with the imperative to reduce emissions. The text delves into the challenges of implementing global solutions to climate change, including the 'free rider' problem, where countries might eschew cooperation to gain economic advantages. Dr. Roubini's book offers insights into potential solutions, emphasizing that addressing climate change requires short-term sacrifices for long-term benefits, though political and economic realities often hinder these necessary actions.

20:03

๐ŸŒ Global Economy Overview and Future Outlook

The final paragraph provides a summarized assessment of the global economy's status, leveraging a playful approach with an 'Economics Explained National Leaderboard'. It gives high marks for the global economy's size, diversity, and growth, reflecting on the unprecedented economic expansion over recent decades. Despite the playful tone, the summary underscores the significance of current economic challenges, highlighting the need for serious consideration and action to address them. It concludes by reminding the audience of the enduring value of economic growth and the potential of collaborative efforts to sustain and enhance global prosperity.

Mindmap

Keywords

๐Ÿ’กEconomist

Economists are experts in economics, a social science that analyzes the production, distribution, and consumption of goods and services. In the video, economists are depicted as advisors to decision-makers in companies, organizations, and governments, using their understanding of economics to project outcomes of major decisions on various scales. The narrative emphasizes that, while economists cannot predict the future with certainty, their analysis of potential scenarios and advice on mitigating risks are invaluable for informed decision-making.

๐Ÿ’กGlobalization

Globalization refers to the process of interaction and integration among people, companies, and governments worldwide, primarily driven by trade and investment, aided by information technology. The video discusses how globalization has led to economic growth by allowing countries to share resources, technology, and expertise, thus benefiting from comparative advantages. However, it also notes a recent trend of de-globalization, with countries moving towards self-sufficiency and secure trade, potentially making the average individual poorer by reducing the efficiency and benefits derived from global trade.

๐Ÿ’กDebt Crisis

A debt crisis occurs when a country or entity is unable to pay back its debt. The video highlights the growing concern of a 'mother of all debt crises,' driven by increasing global debt levels across public and private sectors. It explains how decades of low interest rates encouraged borrowing, but recent rises in interest rates have made these debts more expensive to service, potentially leading to economic instability or collapse, especially in emerging markets that are highly reliant on foreign currency loans.

๐Ÿ’กComparative Advantage

Comparative advantage is an economic principle stating that countries or entities gain and benefit from trading if they produce goods and services at relatively lower opportunity costs than others. The video uses Australia's export of natural resources as an example, illustrating how engaging in trade based on comparative advantages has made the world wealthier, by allowing countries to specialize and trade for mutual benefit.

๐Ÿ’กClimate Change

Climate change is identified in the video as a 'mega threat' to economic prosperity, with the potential to drastically reduce the quality of life globally. It emphasizes the need for significant investments in alternative energy, carbon capture technologies, or other innovative solutions to mitigate its effects. The narrative points out the unfair burden on emerging economies, which may lack the resources for such investments or are at a developmental stage where economic growth still heavily relies on fossil fuels.

๐Ÿ’กArtificial Intelligence

The video mentions the threat to labor and consumer-based economies posed by artificial intelligence (AI), speculating on technologies that could render human labor redundant. It highlights a shift in the understanding of labor's role in production, suggesting that AI could lead to significant changes in how economies function, potentially displacing jobs but also creating efficiency gains.

๐Ÿ’กSupply Chain

A supply chain is a network between a company and its suppliers to produce and distribute a specific product to the final buyer. The video explains the shift from 'just-in-time' to 'just-in-case' supply chain strategies due to recent global disruptions like pandemics and trade tensions. This shift, while increasing geopolitical security, comes at a cost of efficiency and higher prices for consumers, reflecting a trend away from globalization.

๐Ÿ’กStagflation

Stagflation is a situation in which the inflation rate is high, the economic growth rate slows, and unemployment remains steadily high. The video refers to stagflation in the context of discussing the end of easy money and the challenges posed by rising interest rates after a period of historically low rates. It suggests that the transition away from policies of quantitative easing and low interest rates could lead to stagflationary pressures.

๐Ÿ’กZombie Companies

Zombie companies are firms that are unable to cover their debt servicing costs from current profits over an extended period. The video discusses how an abundance of cheap debt enabled the proliferation of such companies, which now face difficulties due to rising interest rates and potentially reduced consumer demand. It highlights the broader economic risks associated with these companies, including inefficiency and the potential for increased financial instability.

๐Ÿ’กEconomic Prosperity

Economic prosperity refers to the state of flourishing, thriving, good fortune, and successful social status in terms of wealth, health, and happiness. In the video, economic prosperity is used to discuss the benefits of globalization, the threats posed by various global challenges, and the importance of addressing these threats to maintain or improve the quality of life globally. It underscores the role of economic growth in achieving prosperity and the potential setbacks from de-globalization, climate change, and other 'mega threats.'

Highlights

The role of economists in advising decision-makers in global companies, organizations, and governments.

Economists cannot predict the future but can offer valuable advice on handling likely scenarios.

The importance of understanding potential risks and worst-case scenarios in economic planning.

The impact of globalization on economic growth and the sharing of technology and resources.

Concerns over the reversal of globalization and its potential to make everyone poorer.

The shift from just-in-time to just-in-case supply chain strategies due to recent global challenges.

The role of debt in the global economy and how it has evolved over time.

The potential crisis emerging from high levels of public and private sector debt.

The differing impacts of economic policies and debt levels on various countries.

The threat of climate change to global economic stability and growth.

The challenge of balancing economic growth with environmental sustainability.

The economic implications of artificial intelligence and automation.

The importance of preparing for and mitigating so-called Mega threats to maintain economic prosperity.

The global economy's size, growth, stability, and industrial diversity.

A call for global cooperation to address the challenges posed by globalization, debt crises, climate change, and technological advancement.

Transcripts

play00:00

the role of an economist is something

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that most people even career economists

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themselves don't always fully understand

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people that actually become career

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economists spend most of their time as

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advisors to decision makers in global

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companies organizations and governments

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economists are relied on to use their

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understanding of the social science to

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make projections about how big decisions

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could play out in an individual National

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or occasionally even a global level now

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you probably already know what I'm about

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to say nobody can predict the future

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least of all economies but that doesn't

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mean that their advice on these

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decisions is not worth listening to and

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we'll see a perfect example of that

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later in this very video good economists

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are kind of like good lawyers they can't

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tell you exactly what's going to happen

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in the future and any that claim that

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they do know exactly what is going to

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happen are either really dumb or really

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dodgy now while they can't predict the

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future what they can do is present some

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likely scenarios and then offer advice

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on how to deal with those scenarios if

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and when they happen but the thing that

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most of these big decision makers want

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to know more than anything from their

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lawyers and economists about their

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potential plans is what could possibly

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go wrong and how do I fix it if it does

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it's for this reason that economists

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spend a lot of their time talking about

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worst case scenarios and they get a

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reputation for being Eternal pessimists

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but that's what they're meant to do you

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wouldn't get a divorce lawyer to write

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your wedding vows just like you wouldn't

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get an economist to tell you about how

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great the future could be so in the

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spirit of being good economists it's

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worth exploring some of the so-called

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Mega threats that could genuinely reduce

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quality of life for almost everyone even

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if they don't end up coming true it's

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better to know what is worrying some of

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the greatest economists of our time and

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what they are proposing as solutions to

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the problems that we could be facing in

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a not too distant future so instead of

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answering a series of questions in this

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video we're going to look at what most

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economists have highlighted as the

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biggest threats to our economic

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prosperity in The Next Century and those

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are the end of globalization and the

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shift towards more self-sufficient

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National economies the end of easy money

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causing a stagflationary crisis the

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mother of all debt crises that's been

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slowly growing in the background of the

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global economy the threat to worker and

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consumer-based economies posed by

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artificial intelligence and of course

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climate change in our economic response

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to fixing ads and I guess we also need

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to ask one question which is of course

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what are the solutions to these problems

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after we've done all of that and just

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for a bit of fun we can put the global

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economy on the economics explained

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National leaderboard

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globalization is the process of

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countries opening up to one another

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building relationships based on the

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transfer of goods and services labor

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technology Investments and information

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by sharing these precious resources

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around all of the countries involved in

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globalization can become wealthier

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overall if for example a country invents

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some new technology that allows twice as

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much food to be grown on the same piece

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of land but they could share that

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technology with all the other countries

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in the world and suddenly the global

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supply of food would double this is

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obviously great for all of the other

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countries that benefited from receiving

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that technology that they wouldn't have

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otherwise in a totally closed off global

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economy but it can also benefit the

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country that invented the technology as

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well if that country sells that

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technology they could make much more

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money than they would have by just

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farming and selling their excess food

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supply separately they can use this

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money to import other stuff so that

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everybody ends up with more resources

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overall one of the biggest reasons why

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countries like Japan China Taiwan and

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South Korea were able to grow so rapidly

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over the past five decades as compared

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to countries like the UK and the USA

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which took centuries to fully

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industrialize is because they did not

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need to create everything from scratch

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China didn't need to invent modern

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electrical grids and production lines

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you could just import the technology

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from countries that already had the

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expertise in making these tools so they

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get straight to business making cheap

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consumer goods to kick-start their

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economy even outside of sharing

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technology certain countries just do

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certain things better than others my

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home of Australia has some of the

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largest deposits of natural resources in

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the world but we have a tiny population

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that demand very high salaries so

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refining those resources and turning

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them into end products is possible but

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they would be very expensive and not

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very plentiful it's much more

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economically advantageous for us to

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harvest those resources and sell them

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directly to countries that can cheaply

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and efficiently turn them into stuff

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that then can be sold all over the world

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including back to Australia Australia

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will make more money and end up with

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more resources than if they tried to do

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everything themselves this is the basic

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concept of comparative advantage it's a

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big reason why the world has become so

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much wealthier as we've started trading

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more but this process is starting to

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reverse while making this video we were

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lucky enough to speak to Dr nuriel Rubin

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who was a senior Economist in the

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Council of economic advisors for the

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Clinton Administration a senior advisor

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to treasury secretary Timothy Geithner a

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professor at Yale and a consultant to

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the World Bank Federal Reserve and the

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international monetary fund during his

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time working for these organizations he

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was one of the few voices that warned of

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the economic threats posed by the

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financial processes that led to the 2008

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Global financial crisis he has also

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published a series of books and academic

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papers including Mega threats the 10

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trends that imperil our future and how

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to survive them which was a big

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inspiration for this video he's not

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paying us to say this but it is

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genuinely a great read if you enjoy

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having a nerdy economics existential

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crisis before heading to bed anyway if

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anybody in the world had a front row

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seat to global economic Trends it would

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be this man and he signed warning about

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this reversal of globalization it thrown

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their way from globalization actually I

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think it's going to make an average

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everybody poorer and their more specific

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example I can give is the following one

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you know in Europe the UK decides to go

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for brexit and do they

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inflation in the UK is already double

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digits and even the bank of England

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expects that the UK is going to have six

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quarters of negative economic growth so

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there'll be in circulation recession and

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inflation so while Continental Europe

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and Eurozone are also challenged their

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inflation is lower and so far they've

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avoided an outside recession while in

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the UK there is recession and inflation

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if you want to get access to our full

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unedited interview with Dr rubini you

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can listen to it on Spotify by searching

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for economics explained and we'll leave

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a link to it in the video description as

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well the global pandemic an active war

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in Europe and escalating tensions

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between the world's two largest

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economies and making governments and

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corporations much more careful about who

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they trade with and where they set up

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their supply chains companies have had a

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lot of problems in these past three

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years getting supplies to complete

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products are put on shelves the most

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efficient way to supply goods and

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services to any Market is the

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just-in-time approach this is where

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goods and services are produced and

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delivered at the very moment they are

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demanded a concept that sounds simple

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enough in theory is actually incredibly

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difficult because a lot of the products

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that we take for granted have components

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from dozens of countries made from

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resources extracted from dozens of other

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countries these raw materials and

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component parts also have to be

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delivered just in time so there's a lot

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of things that can go wrong here if

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supply chain Engineers can get this

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delicate ballet just right though it can

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be truly magical just in time means that

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resources aren't wasted on storage

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things don't expire and when

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improvements are made to components

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around products they can be changed

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instantly instead of having to wait to

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sell out or just discarding outdated

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Goods the global pandemic in a series of

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large economic shocks like the war in

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Ukraine brexit and ongoing trade

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tensions has made coordinating this

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fragile system basically impossible

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governments and companies have had to

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adopt a just in case strategy where they

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order enough goods and services in

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advance to run their operations no

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matter what happens

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going away from a world of fear of free

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trade to a world of fair trade or secure

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trade going away from a world of

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offshoring the world of French shorting

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or resorting going away from just in

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time Global Supply chains to just in

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case in redundance May provide you

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greater geopolitical security but it

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comes at a cost because you're going to

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be producing goods and services not

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where its cities are most efficient less

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costly but where is more expensive just

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in case is much more expensive than just

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in time but when the alternative is

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empty shelves it's a cost most companies

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are willing to pay and by pay I mean

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obviously pass along to their consumers

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now you might just think this sounds

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like an inconvenience for businesses

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that are going to have to rent out more

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warehouse space but those costs are

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going to be passed along to Consumers as

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higher prices and this shift in strategy

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is also going to mean less collaboration

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between countries which means less

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sharing of resources technology and

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everything else that is made by World a

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richer place in recent decades there are

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some people that are celebrating the

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idea of less globalization because it

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means less jobs being sent overseas and

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more stuff being done in their own

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country in our upcoming video on

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Zimbabwe we will explore how the country

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is trying to make sure all the

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lithium-bit mines is refined in the

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country before it's exported overseas so

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that more evaluating takes place in its

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economy and hopefully more jobs are

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created the example from earlier with

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Australia exporting its raw materials is

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also a hotly debated issue and many

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people don't like the idea that we're

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selling iron ore to Japan just so it can

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turn it into cars and sell it back to us

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at a one thousand percent markup this

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animosity towards globalization is

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understandable but it is still something

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that has on average made us all a lot

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wealthier a shift away from the

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globalization is going to have a

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meaningful impact on potential growth is

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one of those as declarationary shocks

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that can reduce potential growth and

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increase the cost of production

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it's true that the globalization has had

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you know winners and losers the economic

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ties become bigger but some workers some

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firms have been better off some of them

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have been worse off but a trend away

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from globalization actually I think it's

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going to make on average everybody

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poorer this breakdown of global Commerce

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is also coming to us when we can least

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afford it all while we're staring down

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the barrel of the mother of all debt

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crises

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Global public and private sector debt

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has grown from around 100 of global GDP

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in 1970 to 200 in 2000 to 250 today now

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growing debt levels are something that

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are often thrown around by people trying

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to claim that our entire economic system

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is on the verge of collapse and normally

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these concerns are overblown countries

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like the USA can get away with

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maintaining relatively high levels of

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government debt because they control

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their own currency it's also the world's

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Reserve currency which means that having

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a healthy level of debt allows large

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institutions and other governments to

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hold their reserves as government bonds

play09:56

instead of Straight Cash Japan for

play09:58

example has trillions in US dollar

play09:59

foreign currency reserves but they don't

play10:01

keep those reserves as cash in a vault

play10:03

or even digits in a bank account they

play10:05

keep those reserves as government bonds

play10:07

the bonds are much easier to keep at

play10:09

that sort of scale and they even pay

play10:11

some interest which is nice it would be

play10:13

much harder for a country like Japan to

play10:14

keep US dollars as straight cash if the

play10:17

US government didn't have debt then

play10:18

there wouldn't be government bonds which

play10:19

would make it harder to use those US

play10:21

dollars as a medium of economic exchange

play10:23

and I could potentially lead to

play10:24

International institutions looking for

play10:25

Alternatives that did have active debt

play10:27

markets so that was a quick little side

play10:30

lesson as to why debt can be good but it

play10:32

can also be very bad for starters and I

play10:35

know this might shock my American

play10:36

viewers but there are other countries in

play10:38

the world apart from the USA and apart

play10:40

from maybe a dozen other advanced

play10:41

economies most of them can't borrow

play10:43

money using their own currency countries

play10:45

like Pakistan and Sri Lanka have found

play10:47

themselves in serious economic trouble

play10:49

because they have taken on massive loans

play10:50

in American dollars and Chinese RMB and

play10:53

then temporarily lost their ability to

play10:54

receive those currencies from abroad

play10:56

while the USA in places like Japan can

play10:58

get away with borrowing more than their

play10:59

GDP a country like Pakistan has run into

play11:01

problems with government borrowing that

play11:02

is only 88 of their GDP now we've

play11:05

already covered this topic extensively

play11:07

in our two videos on Pakistan and Sri

play11:09

Lanka so I don't want to repeat too much

play11:10

here but these two examples are just the

play11:12

tip of the iceberg and borrowing in

play11:14

Emerging Markets has grown significantly

play11:16

in the last two decades taking on lots

play11:19

of debt to make vital investments into

play11:20

infrastructure and economic Services was

play11:22

a strategy adopted by a lot of emerging

play11:23

economies wanting to emulate the success

play11:25

of other high growth countries two

play11:27

decades of low interest rates meant that

play11:29

there wasn't much risk with these loans

play11:30

but now these fragile economies have

play11:32

record debt burdens and interest rates

play11:33

are on the rise the story of Pakistan

play11:35

and Sri Lanka are just the first

play11:37

chapters in what Dr rubini called the

play11:38

mother of all debt crises

play11:40

what the level of debt is sustainable

play11:42

not depends on many factors but the

play11:45

point I make in the book was that while

play11:47

that ratios in principle were

play11:49

unsustainable until two years ago that

play11:52

servicing ratio of the interest you paid

play11:54

on your debt was very low because you

play11:57

had zero policy rates negative policy

play11:59

rates quantitative easing and credit

play12:01

easing keeping even long-term profit and

play12:04

public rates low if not negative you

play12:06

know two years ago it was 18 trillion

play12:09

dollar equivalent of public debts within

play12:11

Europe and Japan that they yield it was

play12:14

negative in nominal terms and maturity

play12:17

up to 10 years in Scandinavia like

play12:20

Denmark mortgages long-term mortgages

play12:22

had a negative yield because you know

play12:25

you have negative policy rates and the

play12:27

spread of mortgages over that implied

play12:29

negative interest rates on your

play12:30

mortgages so of course that ratio were

play12:33

unsustainable but that surfacing ratio

play12:35

were so low that it looked like that

play12:37

were sustainable

play12:38

and we actually reacted to the GFC and

play12:41

the covet crisis with more monetary

play12:44

Fiscal Credit using zero eighth negative

play12:46

even more aggressive quantitative and

play12:48

credit easing but now the party is over

play12:50

and it's over because all this easing

play12:52

LED not only to asset inflation but now

play12:55

finally

play12:56

because of negative Supply shock and

play12:58

excessive aggregate demand has led to

play13:00

goods and service inflation and central

play13:02

banks now have to increase interest

play13:04

rates to fight inflation governments are

play13:07

not the only ones that have been taking

play13:08

on lots of debt businesses and

play13:09

households are also holding on to record

play13:11

amounts business debt has often been

play13:13

considered by economists as a good type

play13:15

of debt because businesses normally only

play13:17

take out loans if they think that they

play13:18

can use the money to make returns that

play13:19

are higher than the principal plus

play13:21

interest rate payments the problem with

play13:23

this conventional assumption is that a

play13:24

lot of businesses also got used to cheap

play13:26

debt so it became more and more

play13:28

commercially advantageous to take on big

play13:30

loans to fund expansion or sometimes

play13:32

even just to buy their own shares back

play13:33

from the market which made their

play13:34

investors very happy not many of these

play13:37

companies expected the cost of borrowing

play13:38

to Triple in two years and now they're

play13:40

in a position where consumer demand may

play13:42

be waning at the same time that they

play13:43

need to make much larger repayments on

play13:45

their loans rubini spoke about the rise

play13:47

of zombie companies and even zombie

play13:49

countries which provide no real economic

play13:51

value to the global system but have been

play13:53

kept alive simply because market

play13:55

conditions have been artificially kept

play13:56

so favorable we cannot generalize even

play14:00

within Emerging Markets or Frontier

play14:02

economies there are countries with

play14:04

better macro and structural policies

play14:06

their country that are much more fragile

play14:08

you know the IMF and the World Bank have

play14:10

identified about 80 countries mostly

play14:13

poor developing countries some of them

play14:16

Emerging Markets like the one you

play14:18

mentioned uh that are Lebanon Pakistan

play14:22

Zambia Sri Lanka that are having attack

play14:26

prices

play14:28

um but there are about 80 countries 11

play14:30

debt servicing problems and we'll have

play14:32

to restructure orderly or otherwise

play14:34

there's betterations so there will be

play14:35

attack prices in many countries these 10

play14:38

global companies and emerging economies

play14:40

are exactly the same group that is going

play14:41

to be hardest hit by a move away from

play14:43

globalization as well most countries

play14:45

start their Economic Development by

play14:46

providing low-cost manufacturing or

play14:48

services to larger and more advanced

play14:49

economies if the trend is to bring

play14:51

manufacturing and services back onshore

play14:53

they're going to miss out on that source

play14:54

of income at the same time that their

play14:56

record debts start to become very

play14:57

expensive if that wasn't bad enough then

play15:00

there are still the economic unknowns

play15:02

climate change is a major economic

play15:04

threat that is going to affect us all

play15:06

but once again it's likely to be the

play15:08

poorest countries that bear the brunt of

play15:09

the burden no matter how it plays out to

play15:11

reduce the effects of climate change we

play15:13

need to reduce emissions to reduce

play15:15

emissions we either need to make large

play15:16

investments into alternative energy

play15:17

sources and storage infrastructure

play15:19

reduce output or make even bigger

play15:21

investments into carbon capture

play15:22

Technologies or some really wild ideas

play15:24

like space Shades to block a small

play15:26

portion of sunlight hitting the Earth

play15:27

poor countries can't afford to make

play15:30

large investments into new technologies

play15:31

and for now economic growth still does

play15:33

depend heavily on burning fossil fuels

play15:35

to power industry it's also not fair to

play15:37

tell emerging economies that we're

play15:38

giving up economic growth to control

play15:40

emissions people in advanced economies

play15:42

could live just fine if economic growth

play15:44

stagnated but billions of people in the

play15:46

world right now are on the cusp of

play15:48

getting access to a lot of luxuries that

play15:49

we in the west take for granted

play15:51

consistent electricity clean running

play15:53

water efficient Transportation access to

play15:55

the internet machines to make domestic

play15:56

duties less labor-intensive Advanced

play15:58

Medical Care and good quality housing

play16:00

it's stuff that people in advanced

play16:02

economies don't even think about but we

play16:04

only got to that point by growing our

play16:05

economies mostly by burning fossil fuels

play16:08

even if for some reason these economies

play16:10

did got on board with the idea of

play16:11

slowing economic growth for the greater

play16:12

good there is still a problem of how to

play16:14

enforce it if all other economies slowed

play16:17

down their Industries or make big

play16:18

expensive investments into Renewables

play16:20

that would be great but a few

play16:21

opportunistic countries might just take

play16:23

advantage to grow their Industries with

play16:24

cheap fossil fuels and out-compete their

play16:26

Rivals by providing cheaper goods and

play16:28

services to the global economy and their

play16:30

own domestic markets economists call

play16:32

this the freerider problem and it's one

play16:34

of the biggest reasons that progress on

play16:35

a lot of these issues has been so slow

play16:37

in the book for each one of the 10 mega

play16:40

threads I discussed the Solutions in

play16:42

detail but I make the point that the

play16:45

economy recognized there is never a free

play16:46

lunch the solution of any kind of issue

play16:49

implies costs and sacrifices in the

play16:52

short run for the common good and the

play16:55

benefits of a society aren't we on the

play16:57

wall over the medium long term and many

play17:00

times it's hard to make those sacrifices

play17:02

in the short run because they're

play17:03

individually costly because we discount

play17:05

the future we hope that maybe some

play17:07

miracle of technological resolve the

play17:09

problems and politicians there will need

play17:11

to be related and even in authoritarian

play17:13

country they need that legitimacy uh you

play17:17

know the time to keep the can on the

play17:18

road because the political economy

play17:20

reform is that the costs are in the

play17:21

short run the benefits are medium long

play17:23

term and you might not be empowered if

play17:25

you do pay for reform you know then I'll

play17:27

disgrace the former chancellor of

play17:29

Germany Schroeder when he was in

play17:31

parading the reform including of the

play17:32

labor market that let German to become

play17:35

Uber competitive but guess what the next

play17:38

election is kicked out of power and the

play17:40

last and foremost

play17:42

politician is Don't Rock the Boat don't

play17:44

do pain for reform because they're gonna

play17:45

lose power nobody wants to be the world

play17:47

leader that made their people sacrifice

play17:49

their economic prosperity for the good

play17:50

of other countries that are doing

play17:52

nothing to help themselves the other

play17:54

alternative is to do nothing but the

play17:56

scientific consensus is that this will

play17:57

result in an increase in natural

play17:58

disasters which we are already starting

play18:00

to see these again hurt developing

play18:02

economies more than established

play18:04

economies they don't have the tools and

play18:06

resources to defend themselves from

play18:07

these events and pay for the damage once

play18:09

it's been done one of the reasons that

play18:11

the economy of Pakistan is on the verge

play18:12

of total economic collapse is because of

play18:14

a flood that killed 1700 people and did

play18:16

30 billion dollars worth of economic

play18:18

damage in an economy with a total

play18:19

economic output of only 348 billion

play18:22

finally there is the rise of

play18:24

technologies that could replace labor

play18:26

typically economists believe that labor

play18:28

was the only thing that could produce

play18:29

output the other factors of production

play18:31

capital and land only made it possible

play18:33

for labor to produce more output but

play18:35

without labor nothing got done Capital

play18:38

advancements like machinery and even

play18:39

robots didn't replace labor so much as

play18:41

they made possible for the same amount

play18:43

of Labor to produce more stuff but some

play18:45

are now speculating that new

play18:46

technologies can so comprehensively

play18:48

emulate the function of human labor that

play18:50

we could make actual people totally

play18:52

redundant nobody can predict the future

play18:54

least of all economies and all of these

play18:56

predictions are exactly that predictions

play18:58

Dr rabini the person that we consulted

play19:01

with to make this video has his fair

play19:02

share of critics that say he's just

play19:04

overly pessimistic earning him the

play19:05

nickname Dr Doom but that's really the

play19:08

role of a good Economist it's better to

play19:10

do something about a false alarm than to

play19:12

do nothing about a building on fire the

play19:14

solutions will not be fun for anybody

play19:16

but the Alternatives will be worse and

play19:18

hoping for new technology to save the

play19:19

day is a risky bet to make when the

play19:21

stakes are this high

play19:23

okay just for fun after a not so fun

play19:26

video it's time to put the global

play19:27

economy on the economics explained

play19:29

National leaderboard starting with size

play19:32

the global economy has a GDP of 96

play19:34

trillion dollars and it's probably going

play19:36

to reach a hundred trillion dollars this

play19:38

year now my zero to ten scale wasn't

play19:40

really made for this so let's give it a

play19:42

10 out of 10 but only because it can't

play19:44

go any higher GDP per capita is uh well

play19:47

unsurprisingly right in line with the

play19:49

global average of 12 234 this is more

play19:53

than double what it was just two decades

play19:55

ago and goes to show just how valuable

play19:56

economic growth can be to people less

play19:58

fortunate than ourselves a doubling of

play20:01

output means that the average person now

play20:02

has twice as much General economic

play20:04

Prosperity as they did a generation ago

play20:06

but since the global average is exactly

play20:08

in line with a global average it gets a

play20:10

5 out of 10. stability and confidence is

play20:13

high because of the general diversity of

play20:15

including every single economy in the

play20:16

world in the same way that a portfolio

play20:18

of stocks and bonds will be more stable

play20:19

than any one stock picked individually

play20:21

it gets a 9 out of 10 only because it's

play20:24

still susceptible to Global trends that

play20:25

some select economies can ride out

play20:27

growth has been shockingly good the rise

play20:30

of China has boosted the average but the

play20:33

last two decades have been the most

play20:34

intense period of economic growth ever

play20:36

in history and with all the Doom and

play20:39

Gloom in the world it's probably worth

play20:40

reminding ourselves that we are living

play20:41

in a golden age of economic prosperity

play20:43

in the year 2000 global economic output

play20:46

was 34 trillion dollars today it's

play20:48

triple that and almost a hundred times

play20:50

what it was in 1960. in the last 10

play20:53

years despite everything that went on

play20:54

the world the economy still grew by 50

play20:56

percent it gets a 7 out of 10. finally

play21:00

industry this is an interesting one

play21:02

modern industry has been the driving

play21:04

force of that growth but some of our

play21:06

most important resources still rely on

play21:07

low-cost labor from people using basic

play21:09

hand tools even still global Supply

play21:12

chains and modern technology it would

play21:13

have allowed countries to participate in

play21:15

this overwhelming growth Trend obviously

play21:17

some have benefited more than others but

play21:19

the global economy gets a 7 out of 10.

play21:21

altogether that gives the Earth an

play21:23

average score of 7.6 out of 10 which

play21:26

puts it way up here again this scale is

play21:28

definitely not made for ranking the

play21:30

entire global economy but hey nobody's

play21:32

using this list throwing things serious

play21:33

so I hope you all forgive me for having

play21:35

a little bit of fun with it thanks for

play21:37

watching mate bye

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