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Macroeconomics Oversimplification Analysis
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0:00
Jonny Harris, one of YouTube's most popular creators, has recently started explaining macroeconomics because there’s so many topics here that are kind of gate kept by by economists who like to make them really complicated. They're not that complicated. Like, we can all understand what this stuff is. and Johnny he can explain it to all of us in simple terms, because I spent four years in university studying economics, preparing for this very moment. So let's go. so Johnny Harris,
0:31
with his degree in international relations and considerable experience in making popular explainer videos ranging from why McDonald's ice cream machines are always broken to flat Earth Theory is now telling us that he can explain macroeconomics better than economics professors. Wow, that is a bold claim. But actually, even though I am an ex university lecturer in economics, I agree with Johnny that macroeconomics as a subject is too hard to get into,
1:01
mainly due to its heavy emphasis on mathematical modeling and statistics. So I would actually love to see Johnny succeed and simplify these concepts to make them more accessible. However, during my years at teaching economics, there has always been one thing that has really pissed me off, and that is oversimplifying economics. People pretending that something is simple when it's actually complicated, giving you a solution that is really easy to understand, but also horribly wrong.
1:32
And in economics, that is especially dangerous because misunderstanding concepts like inflation, recessions and unemployment could lead to decisions that actually cause inflation, recessions and higher unemployment, ruining the livelihoods of millions of people. And therefore, I have started a special series on this channel that is dedicated to calling out big YouTube channels. When they oversimplify economics. And now, after reviewing videos from giants like Economics
2:04
Explained to Ray Dalio it’s Johnny’s turn. Are his four videos about macro economic concepts such as inflation, recessions, unemployment and banking. Actually, solid economics explained in a more approachable way. or is he spreading misinformation and oversimplifications packaged with flashy graphics, animations and sound effects?
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In other words, can you trust John Harris on economics? Well, to answer that question, I am going to be grading all the Johnny Harris economics videos. And because I think Johnny's goal of making macroeconomics more accessible is very noble. I’ll then go over each video in some more detail and make suggestions about how they can be fixed. If necessary, Okay to stay as objective as possible. I'll do the grading in the same way as I did student essays back in my lecturing days.
3:07
And that is using a grading rubric. A grading rubric is basically a set of criteria combined with a performance metric that helps teachers to stay objective and help students to better understand why they got a certain grade. In this case, I have formulated five criteria because Johnny claims to be explaining high level economics in simple terms. My primary criterion is whether or not the main message of the video is roughly in line with economic science. With that,
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I mean, how it compares to what you will find in an economics textbook or possibly even the latest research, And because there are quite a few of his viewers that compare his videos to university courses or even some teachers that said they were going to use these videos in the classes that they taught. I am going to give this criterion a heavy weight of 50%. Second, because so many people care about economics, primarily to understand
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the world around them, Johnny often uses real life examples such as the SVB banking crisis and COVID stimulus measures to make his lectures come to life. But does he cover and apply economic theory to current events correctly? That is my second criterion. And given that, it's probably why many of you watch these videos. I've given this criterion a pretty high weight of 20%. While I gave the upcoming three other criteria are a weight of 10% each.
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The third criterion is whether or not Johnny's story is consistent both within the video and in relation to his other videos. So, for example, if Johnny is telling you in one video that the US Federal Reserve is an all powerful puppet master and then the next, that it basically cannot control the economy because it's based on people's feelings, then that is inconsistent storytelling. The fourth criterion is the use of credible sources.
5:01
Now I'm super happy that Johnny started including a list of sources on his video after he got criticized by Jochem from the past for not doing so. But just using some list of sources is not enough to get a good grade here. To get a good grade, Johnny would need to back up his most important statements with trustworthy sources like economics, textbooks or research. And more importantly, he needs to correctly represent the sources. Okay.
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Finally, the fifth criterion will be easy for a YouTube legend like Johnny, because that is engagement. And given that the YouTube algorithm has spread these videos far and wide, people are raving about them in the comments. And that the like to dislike ratio on these videos is incredibly positive. I think I can safely award all videos on this criterion, a ten out of ten score. So even if Johnny would be spreading misinformation, at least people had a good, time consuming it anyway.
5:59
With our criteria introduced, we can just get to answering the main question of this video right away. Can you trust Johnny Harris on economics? Well, it's complicated, but let me just put it like this. The quality of research here isn't what I had hoped to see His inflation video is the worst, scoring a 4.8 out of ten. Mainly because of what he teaches about inflation purely being a consequence of too much money is a big oversimplification
6:30
compared to the various reasons that modern textbooks cover. Similarly, his recession video only scored a 5.4 out of ten because Johnny takes a big shortcut on the main message, which is that recessions are caused by loads and loads of people making a bunch of micro decisions on whether or not to spend their money. and this is, if you think about it, both really vague and actually quite dangerous. After all, this gives the false impression that recessions are caused by people
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getting randomly scared and that you can't really do much about it, which is not at all what you would learn in an economics class. Then luckily, it gets a bit better with the unemployment video scoring a 7.2. While this video is not perfect. It does represent, I think, Johnny's promise for this series, and that is solid economics, told in Johnny Harris's amazing storytelling style. Finally, the banking video. While, it annoyed me personally because it uses an outdated banking theory
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that I have debunked here on YouTube and dipped its toes into conspiracy theories by saying that our bank accounts are kind of a using the rubric meant that I still ended up giving this video a 6.5 out of ten. The reason was that despite many mistakes, the main message of this system is fragile and yet essential for the modern economy. It's actually pretty much in line with what you would read in a textbook. So, yeah, here they are on screen. These are all the grades for these videos.
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As you can see, they leave much to be desired. So does that mean that after watching these videos, you got the wrong idea about inflation, recessions, unemployment and banks? Well, yes, to a certain extent you did. But no worries. Next up, I'll go into exactly where each of these videos deviates from economic science so that you can get the right takeaway. After all. But before getting into that, I'd like to talk about the sponsor
8:33
of this video, Milanote, which I recently started trying out to see if it can help me organize my projects all in one place. Milanote is a powerful and easy to use tool that helps you to stay organized and creative. It uses so-called boards to organize your thoughts. For example, here I constructed my main board for planning out my YouTube content, and as you can see, I can now see an overview of my projects, upcoming projects and to dos all in one place.
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Then for this Tony Harris video, I created a separate board which I use to organize key information about the video, such as the working title and the thumbnail, as well as content such as Next Steps, checklists, script, and again, a separate board that contains my research notes. So far, organizing my project with Milanote has been super smooth and I highly recommend it to anyone who wants to stay organized and creative, especially since it's available for free with no time limit.
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So why not give it a go by clicking on the link in a description below? That is, of course, after hearing about where Johnny’s inflation video. Got it so wrong and how it can be improved. This video scored just a 4.8 out of ten as a consequence of a four out of ten score for the main message of the video, which is very much an oversimplification of what you would hear in an economics class. You see while Johnny starts with a very old school definition of inflation that Inflation is
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when there is more money in the economy than stuff to spend it on. or in more words. When there's extra money floating around and people want to spend it faster than businesses can make stuff, then all of the businesses in all of the industries raise their prices and that is inflation. However, economic textbooks as well as basically all economists use the modern, simpler definition, which states that inflation is a sustained increase in the general price level,
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often measured by an index of consumer prices. when talking about what causes prices to go up. Johnny argues that there could be more money floating around because either the government stimulus, the economy, or the Federal Reserve lowers interest rates to increase bank lending. Now, both of these are legitimate potential causes of inflation and maybe even the only two that are really old school economists like Milton Friedman would tell you about. So Johnny isn't completely wrong.
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He's just not telling you the whole story. You see, researchers have since shown us that the link between money floating around in the economy and inflation doesn't actually hold up so well. Historically. And therefore, many other explanations for inflation have been researched by economists since. And that's why the core UK textbook they've use for this video lists at least five causes for inflation. Sure, an increase by general prices can be caused by
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excessive demand created by stimulus, but it can also be caused by big supply disruptions such as the ones we saw during COVID. A third explanation could be a big change in the power of firms versus their employees. And fourthly as Britain has seen after Brexit, a big drop in exchange rates can also cause inflation as it makes imports more expensive. And finally, many economists argue that inflation can become endemic in a society thanks to self-fulfilling expectations
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in which the peer expectations that prices will go up by a certain percentage each year can actually motivate firms to raise prices by that percentage at the start of the year. Next, Johnny talks about who controls inflation. And here he says the Federal Reserve as some kind of puppet master, which is totally in control of inflation as it can erase and lower interest rates to manipulate our spending. However, then later, he seems unsure
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whether the Federal Reserve can get inflation under control. What he says about the current inflation that They're gently raising the interest rate to cool down all of this hard core spending and borrowing. So if they can steer the ship back on course and let's hope it let’s hope hope it works. And then he even seems to say that in Venezuela we tend to deal with extremely high inflation. The Fed, the puppet master, couldn't figure out how to get it back in control, And that seems really strange.
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After all, since he has told us that inflation is really simple and that all the Fed would have to do is raise interest rates. The implication is that the Venezuelan central bankers are kind of stupid, and this is precisely why I'm being pretty hard on Jenny for telling these oversimplifications. Because if you oversimplify, you cannot hope to understand what is shaping these crises in the real world, and therefore you cannot hope to do anything about them.
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So if you follow the textbook economic story, we will also find that the Federal Reserve tries to influence inflation by raising and lowering interest rates. However, given that we know that inflation could also be caused by stuff that is not under the control of the Fed, it becomes clear that the Fed is far from a puppet master. And then when we read research about how in Venezuela corruption devastated its industrial sector, while the government kept spending money
13:52
to buy votes, it becomes clear that the central bank there couldn't easily fix this extreme inflation problem on its own. And besides being more accurate, this would make Johnny's inflation story much more consistent. Since multiple inflation causes means that the Fed is no puppet master and therefore that indeed, like Johnny will say, we’ll need to. hope it works.
14:16
Yes, let's hope so. And that they don't cause a recession. Which brings us to Johnny's recession Video, In which he correctly explains that recessions are basically when the GDP line goes down rather than up, and that they are often caused by big events outside of our immediate control, such as wars or interest rate hikes. So then why am I again scoring the main message of this video with a meager four out of ten? Well, that is because after a good introduction,
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the main message of the video starts to deviate in a big way from what you would learn in an economics textbook. you see to explain why a big outside event causes a recession and journey highlights the vicious cycle in which people are worried by the news which leads to less spending, less production, and that leads to people losing their jobs, which again makes people more worried. And so Johnny's takeaway is that this is the result of loads and loads of people
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making a bunch of micro decisions on whether or not to spend their money. The problem, however, is that this is completely different from what you read in the textbook, which tells us that actually regular people tend not to cut back their spending so much in response to big events like a war or something like that, because they tend to have some savings for a rainy day. the textbook that backs up this theory with these graphs that show us that while
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consumer spending is typically more stable than GDP, investment spending by businesses is far more unstable. And so the textbook argues that it is actually investors that are prone to overoptimism. For example, about new technologies which can lead to overinvestment in which firms all invest at the same time. It also states that investors can actually get caught up in irrational manias in which they believe asset prices can only go up. To make matters worse,
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economists who have looked at hundreds of years of crisis data has shown that if such investment booms are fueled by debt, they are especially likely to lead to crisis. And so the textbook also presents us with a vicious cycle. But it looks quite different than the one that showed us. Showing reduced expectations for future demand will prompt firms to cut back investment spending, which reduces hiring, which means that people spend less,
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which makes businesses even more pessimistic about the future. So it's not just people randomly freaking out because of scary new stories. If that was true, we would have been in a recession permanently over the last decades. plane crash on the southern tip of coalition Which kind of freaks you out even more. and 52 people strategic Crimean peninsula. But a vicious cycle amplifies economic downturns. That basic message is the same.
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However, Johnny then tells us that is, by looking at this line, what we can say is that a recession is natural and normal is a part of our modern economic system. It will likely come and then go. People will lose jobs. Businesses will close. And at some point for a million tiny little reasons, things like policy and just general feelings and a bunch of people's guts, This graph will stop going down and it will start going up again
17:36
that we can be sure and that I think is a really dangerous oversimplification, because while the line might have always gone back up in the United States, there are plenty of countries which have never recovered from a big recession or countries whose economies grew significantly slower after one leading to sky high unemployment and a lot of human suffering. And so to make the video more in line with economic textbooks, Johnny could, after defining GDP and discussing external shocks,
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highlight the role of volatile investments, and then talk about how damaging recessions are and what we can potentially do to prevent them and make them hurt less. Luckily, Johnny's third video about unemployment is actually a lot better and I have therefore awarded it with a 7.2 score out of ten. similar to the recessions, video Journey's after a great start as he starts by simplifying the textbook definitions of unemployment and the economy.
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In fact, this is the first time Johnny lists a textbook as a source. As it turns out that he uses the definition from a textbook written by economics professor David Colander this definition is the study of how human beings coordinate their wants and desires. Given the decision making mechanisms, social customs and political realities of society. Okay, that's a mouthful. And so Johnny turns that into economics being the study of.
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a set of rules, relationships and patterns that help huge groups of people that don't know each other somehow peacefully coordinate with one another. So that's great. I mean, this is what I had hoped from these videos. And it gets even better when Johnny then like the textbook explains how the market for bread works using supply and demand and how the labor market is similar yet different because humans aren't baguettes when humans are an unused resource.
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In an economy that means suffering and misery and anxiety Yeah, I think that's a really important point to make given that economics sometimes focuses too much on the numbers and, and not on the suffering that these numbers represent. next Johnny explains that unemployment is a market failure and that it can be split up into two types of unemployment, what he calls a natural unemployment and what some might call structural unemployment. That is something that's always there and what he calls
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cyclical unemployment, which is caused by recessions. And sure a textbook explanation of unemployment goes deeper. But for these videos, I don't think anyone expects a perfect explanation as long as the main message is roughly in line with economic science. And that for this video is largely the case. The only reason that the main message doesn't score higher is that in the end Johnny says that natural or structural unemployment is an inevitable part of rich capitalist economies.
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When he says It's a sort of Faustian bargain that we've made and for most of us it's worth it. Incredible opportunity for prosperity in exchange for surrendering some control of our situation. And that is an oversimplification. Yes, capitalist economies like the U.S. and Japan have had fairly manageable, natural or structural unemployment rates. But by saying that, hey, that's just capitalism, don't think about it too much. You are just I think, doing a real disservice
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to people in capitalist economies with sky high natural unemployment rates like South Africa and Spain, especially since.
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when humans are an unused resource. In an economy that means suffering and misery and anxiety So to make this video save for class, I do recommend a teacher ends the video with a remark that while the reason for big differences in natural unemployment rates between capitalist economies are complex, that this can maybe be a potentially really interesting research subject for the students. And yes, that is only a minor adjustment. Sadly, bigger adjustments will be needed for Jonny's
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final video, which is about why banks fail. and weirdly enough, while I really disliked this video at first when I use my grading rubric to review it. I didn't score it too poorly. With a 6.5 out of ten score. So then why did I really dislike this video when I first saw it? Well, to start, because when explaining what banks do, Johnny throws in this strange statement that our bank accounts are kind of a lie. because think of a bank is like a place where we take our money and store it
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like we give our money to the bank people and they go put it in a giant vault and it is safe until we need it. but apparently to Johnny's big surprise that banks don't do that. And instead they. invest it. It's often means giving out loans to people and collecting interest. But even if that is surprising to some, I think it's important to emphasize that banks themselves don't lie about this. I mean, on their websites or even in the dictionary,
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you can find the definition of banking literally includes that. in its role as a financial intermediary. A bank accepts deposits and makes loans even worse. In his first video, Tony had already told us that a central bank is nothing like a normal bank that stores our money and then lends it out and collects interest to make profit. That's what a normal private bank does. So that is quite inconsistent. And it gets worse when a little bit further in his own video, Johnny says that banks.
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actually give me a little bit of that interest that they've made to say like, Hey, thanks for letting me use your $9,000. So Johnny being surprised that banks are not vaults is not just strange it's inconsistent with his own video and in relation to his previous videos. is also quite inconsistent with the text books that Johnny himself uses as sources for this video, which are quite clear about that. This is well of banks in that they issued deposits and extend loans and they make money
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because of the interest rate on loans being higher than those of deposits. So perhaps Johnny wasn't actually surprised by the fact that banks lend out their money, but more that they can create money in the process to explain how banks can create money. Johnny then uses the money multiplier theory from an old textbook. However, and this is the second reason why this video annoyed me a little bit at first. This money multiplier theory has already been debunked by central banks
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like the Bank of England, the ECB in this bank and Federal Reserve years ago. And also my first ever video on YouTube is called How Commercial Banks Really Create Money. The money multiplier is a myth. So Johnny clearly didn't watch my video, But yeah, this is precisely why I'm using a grading rubric, because it acts as a reminder to teachers like me not to let bruised egos impact the grading. After all, even though this theory has been debunked many times, it's hard to blame Johnny too much
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since he did actually get it from a fairly recent textbook That being said, most modern textbooks these days, as well as the videos on my channel all explained private bank money creation using simple balance sheets. However, importantly for the main message, the textbook and journey end up with roughly the same conclusions. That is, if everyone wants to withdraw their deposits at the same time, a bank has a big problem. And because banks grade money that is the lifeblood
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of the economy, governments then often come in to save them. However, as Johnny puts it, But in the long run it could just mean banks will feel emboldened to continue with bigger and bigger bets, knowing that the government will bail them out, knowing that there's not real consequences, knowing that they'll get their bonuses. and that has the same conclusion as many economists reach when they warn for this effect, which they call moral hazard.
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And with that, I think we can wrap up this video on a positive note. Despite joining us, starting with some outdated theories, the second part of the video once again delivers on Johnny's noble intention of simplifying economic theory. That being said, my conclusion is sadly, that I don't think that these videos have lived up to his promise of simplifying economics because they too often oversimplify economics. Now, this isn't such a big problem for his unemployment and banking videos,
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but making inflation seem more simple than it really is is potentially dangerous. Similarly, making recessions out to be something that is just caused by feelings and that the line will always go back up purely based on the American experience is a very dangerous oversimplification because it potentially stops people from studying tragic studies like that of Greece. But hey, here's the good news When reviewing these videos, I did really see a lot of potential and I want to encourage Johnny
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to keep making them. Given that he uses a more recent textbook and avoids further oversimplifications, what's more, not being able to explain the biggest questions of macroeconomics doesn't mean that honest, simpler general interest videos are bad. You see, while I was quite critical of these four videos, I really didn't see any evidence that Johnny was purposefully trying to fool anyone. It just seems like that he bit off a bit more than he could chew here. Our
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although that is pure speculation on my part, because while I did reach out for comment to Johnny's team well before publishing this video, I didn't receive a response from them yet. Hopefully he will still do so in the comments of this video. But yeah, what do you think? Have I been unfair to Johnny or have I been too generous? Let me know in the comments down below. And if you think peer review videos like these are essential for the YouTube educational ecosystem,
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consider supporting my channel on Patron or by becoming a member here on YouTube. And if you want to see more of these types of videos, perhaps before supporting the channel, check out this playlist over here with peer review videos from me, as well as from an economic researcher called Peter who helped me make this video. Finally, if you want to get deeper into the topic about how banks really make money. Check out this playlist over here that includes all of my videos on this topic.
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