Economist reacts to Tiktoks about the economy

Economist reacts to Tiktoks about the economy

place to learn economics. Or is it? Hey, I’m Yuri. I have a PhD in economics and I make economics science-based analysis here on Money and Macro. But today, we’re doing something a little different. Today, my producer picked the wildest, most insightful, or interesting Tik Toks and YouTube shorts she could find about economics and asked me to react to them. But just to be clear, I haven’t seen any of these before. So, what you’re about to see are my honest first reactions and then potentially a second one if I have to do a little bit of factecking to make sure that I give a proper response. So, let’s see what kind of economic wisdom or chaos the internet has in store for us today. The stock market is projected to crash followed by the economy. And you are not going to freak out. You’re going to be ready. With the tariff wars, with the boycots, if you needed another excuse to stop spending money, here’s another one. I need all the girly pops that stopped spending money at Target to have that money ready to invest once the market crashes. The 2008 stock market crash made so many people rich and we’re going to be one of them. If you have stocks, sell them now. Okay, please don’t listen to this woman. So, in the beginning, she says the stock market is expected to crash. So, this is something that just doesn’t doesn’t work that way. Uh, in the sense that if everybody expects the stock market to crash, then it should have already crashed because then of course people are not going to be holding their stocks. They should have already sold them. So I think for me as an economist that has studied financial markets for a long time or studied research about financial markets, this is one of the key insights. Nobody knows what the stock market will do next. This is really one thing that researchers find all the time. The stock market is fundamentally unpredictable. So what she’s essentially saying is buy the dip. meaning that okay if the stock market goes down now in many cases in history for example the great recession but also during co you could have made a lot of money if you bought the dip but the way I see it there are two big problems with that the first is you never know really what the dip is and the second is that yes stock market always goes back up has been the case for a very long time in the United States in many other places but not everywhere it doesn’t have to be that Okay, for example, the example that I always used in my classes when I taught financial economics is Japan. The bubble popped the early ’90s in Japan, a financial bubble. Stock market, the Nikay index collapsed and it really took more than 20 years for it to recover to the level that it was back then. So for most people then, buying the dip wouldn’t have worked because you didn’t know what the dip would have been. So you may have bought even still pretty high and you could have lost money. Is the only reason that prices go up is due to inflation? Is that the only reason that prices will go up? Yes or no? Inflation is defined as prices going up. But I’m asking you, is that the only reason? I know what the inflation definition is. Is that the only reason? It’s not that it’s due to inflation. It’s that it is inflation. Lord have mercy. I know. I get it. Is that the only reason that prices of gas and groceries will go up? Wait, is because of inflation? Here, hold on. A few moments later. Wait, wait, wait. I want you to define the term inflation. Dude, stop. Stop. No, no, no. 12 seconds later. Well, it’s the general level of prices for goods and services rises, reducing the purchasing power of money over time. Thank you. Thank you. So, you just defined inflation as rising prices. Okay. Bingo. So, I’m going to and I’m going to I don’t think you’re getting this. I’m I asked No, I don’t think you’re getting this. You just said is the only reason for rising prices rising prices. Do you get that? No, you’re not. Hear me out. Hold on. Walt, please. Please just hear me out please. Yeah. So if you go on the internet, most people, you know, define inflation as all prices going up. So the guy here is correct. Prices going up is not cannot be the cause of prices going up. But the money supply expanding, which is the previous definition of inflation, could be could be is not always could be the cause of prices going up. So that’s maybe something to keep in mind if you look at inflation videos, especially from the Bitcoin crowd. They tend to use a different definition of inflation than than most economists and most people use today. Listen, the last 70 years are not normal, Stephen. The last 70 years are not normal. The last 70 years in Europe and the US where ordinary people like my dad could work for the post office on less than average wage and buy a house and support a family. It’s not normal. It’s not normal in the world and it’s not normal in history. Most countries in the world are not like that. Most countries have a a small super rich elite and a very large group of extremely poor people. That’s most of the country and it’s most of history in this country and it’s most of history in the US, you know. Yeah, we talk about Charles Dickens. I read hard times. I read hard times and this is written in the 19th century when Britain was like the industrial superpower of the whole world. And at the time the government was talking about should we tax these industrialists and the industrialists were saying if you tax us we’ll throw our factories into the sea. And it just reminds me you know okay I’m just going to stop it in the middle. Um I think he’s right you know in the sense that he’s saying look the past couple 70 years or something is not a normal period economically speaking and and I think that’s true actually the period from the 1950s to the 1970s specifically is known as the golden age of capitalism in the west at least there was huge economic growth and then inequality actually went down now that is something you just don’t see that much and I think give a lot of hope to many people and now that’s just not there anymore. more. We’ve seen economic growth, but especially in the United States and the United Kingdom and where Gary’s from, it’s been very unequal increasingly also in Europe. And yeah, it’s true that this is going back to sort of a historical norm in the industrial revolution in the United Kingdom was super unequal. The United States development in the early 20th century, late 19th century was super unequal. You had these oligarch classes. This, of course, is also the case in China today. is the case in India today in almost all emerging market economies. It’s the case the only time we’ve ever really been able to provide decent living conditions for ordinary working people was the period after the war where we massively redistributed wealth and and now we’re losing that that holding of wealth in of the middle class. Can you acknowledge though that that was a completely different time as it relates to being able to It was a different time but you know I could you know because of technology Nigeria today, Brazil today, the UK 300 years ago, France 200 years ago there is only one specific time that we have ever successfully provided broad living standards for ordinary people and it was a period of time we protected a broadly equal wealth distribution and tax the rich at very high rates. Okay. Technologically speaking, it’s much easier today to move money across the world than it was in the golden age of capitalism. And that is true. Yes, you had super high taxes in the United States, United Kingdom for top earners in that time period. But that’s not the only thing that defined or made the golden age of capitalism very different than all than most other times. Because in this time you had huge or super stringent capital controls, meaning you could not move money across borders that easily. And today you can and also in the time period that Gary mentions with the rubber bands in the United States, with these oligarchs in the United Kingdom, money could move across borders super easily. This was a time of hyper globalization back then and it is today again as well. And this is really the problem with the high taxes with super high taxes. We are seeing it now in the United Kingdom that a lot of millionaires or very rich people are leaving the United Kingdom. We have seen it I think in Norway as well that a lot of they were increasing taxes there and then just a lot of the people that were supposed to pay those taxes left to Switzerland in the case of Norway. Uh and the problem is that you can easily do business across borders. So you can just keep your business in Norway and live in Switzerland and pay most of your taxes in Switzerland which are much lower than in Norway. So I think what Gary says is mostly correct. But the host is also making a good point. There is a reason why we don’t have those higher taxes at the moment today. And you can say look that’s morally unacceptable. Absolutely that’s a political point. But there is a reason it’s more difficult to do that today. And that is the mobility of capital today is just so much higher that people can easily move somewhere or even or just have their money move somewhere else such that they pay lower taxes and that’s a problem. So, my producers told me that in the UK there’s this initiative that Gary Sports tax the super rich and it does take into account that people should continue to pay taxes even if they live elsewhere but they earn their money in the United Kingdom and and that could be possible. Another based on the US dollar in the sense that everything outside of their economy settles in USD. Nobody wants to take the Chinese want and hold that long term. They have no idea what the policy makers are going to do with it. So if you want to do business out of Hong Kong or out of China, you ask to settle in US dollars. And that’s really what the Chinese are frustrated about. So he says, look, the Chinese economy is based on the US dollar. Yeah, I think he’s correct in the sense that the Chinese rely on the US global dollar system and so for their exports they’re they’re very often paid in dollars and the Chinese renmi is just not a world currency like the US dollar is and this is a significant source of power for for the US. Now if they’re actually frustrated about this that’s that’s not so clear. They have made moves to internationalize their currency and this would help them so much in their global power struggle against the US but at the same time the lily says but you don’t know what Chinese policy makers will do. I think that that’s partially true although in many areas they’re more stable than the US policy makers which you know like is Trump very predictable when it comes to dollar policy not so much perhaps although you do have an independent central bank in the US which which will help but the main thing holding the Chinese currency back is that they have capital controls meaning that you cannot as a foreigner easily get money out of China and this by you know of course makes it a very unattractive currency for many foreigners to hold but not everywhere like for example Russia has really switched to using the renmi a lot internationally compared to the dollar because they are of course sanctioned so this is changing a little bit but I think the main point is saying here is is correct do you agree with everything Kevin Over says absolutely not you blame the US’s pressure for Japan’s economic decline they were richer than any European country than Germany than France uh than Italy they’ve moved to the bottom of the rung now we effectively forced them to move faster to open up and deregulate than culturally and politically they were ready to. There’s this thing called the Plaza Accord in September 1985 where we push them to make their exchange rate more. And I used to say, well, you did that in 1985. We date the crisis in 1992. It’s 7 years later. And I think I continued to think that. And but I would say over the years and particularly in recent years, I’m thinking I was wrong. You know, these things unfold slowly. Crises don’t happen overnight. They deregulated and it worked, but they didn’t know what they were doing. And I think this was a huge mistake by Japan to agree. Financial repression’s bad. But financial liberalization needs to be done gradually. And if you do it too quickly, you get a crisis. That’s many crises caused by that. Suppose that crisis hadn’t happened. How much wealthier is Japan today? Oh, I think 50% wealthier per person. I think way wealthier. Okay. So this is very interesting. This was Kenneth Rogoff, very respected economist. I I respect him a lot. I just disagree with him here in the sense that he just basically says, “Look, we as the United States ruined the Japanese economy through the Plaza court.” This is a very common narrative especially in China in the Chinese policy makers looked at this and said we want to avoid this at all cost. What happened is that Japan had a huge trade surplus with the United States. The United States said look the dollar is overvalued. you along with Germany, many European countries, France I think as well should lower your exchange rates artificially or you know at least do that by government actions and that happened. But there’s a couple of points here that I can’t square with his explanation is that Germany and France also participated in this same um agreement and they didn’t have this this crisis then. Now of course he says look the Japanese then also were forced to liberalize their financial system too quickly. This caused a bubble. Yeah, I’ve read about that. I think could have played a role. Absolutely. But at the same time, we’ve seen these kinds of bubbles in many places that didn’t have something similar to this plaza accord as well. Circling back to China, China had their own huge real estate bubble. They also had this surplus. They never went into this plaza court and they went through the same thing as the Japanese. So, I don’t fully buy this that everything that’s good or bad that happens to other countries is because of something that the United States did. Right now, the Bitcoin is around 105,000. Our forecast for 2030 is $1.5 million. So, you think Bitcoin will potentially multiply in value by 15 times in the next 5 years? Mhm. Wow. That’d be pretty crazy. The building blocks for that, the three biggest building blocks are institutional, which has barely started, store of value or digital gold. Young people are much more comfortable with digital gold than gold. So on the institutional side that means institutions, investment institutions start investing in it, young people start investing it in it as a way to save and store their money. Yes. Yes. And then the very important use case that many people do not discuss is how important Bitcoin and stable coins which are backed by US treasuries are going to become to the emerging markets. In emerging markets, many of them are at the whim of policy makers who show no discipline in fiscal or monetary policy. And so they they’re used to going through booms and busts and booms and bailed out by the IMF and they need an insurance policy. So if you’re in Venezuela, you need a currency that’s going to be stable. Exactly. Okay. Kathy Wood, very famous investor. First note is at least in the last few years, she has a terrible track record. So she is very famous I I think mostly for predicting technology stocks would always go up and at first of course she made a lot of money with that but then she also lost investors a lot of money and she underperformed I think the stock market for a very long time. So look the the the thing is her job is to push certain assets and if she is believable then people invest in her fund and so this is just so she has a huge interest in in saying this. That being said, you know, Bitcoin, what she says is look, Bitcoin is increasingly digital gold and it’s becoming important in emerging markets. That’s something we’ve already seen. We have seen absolutely in emerging markets like Turkey for example that people are investing uh where the currency is very unstable. So you can lose the value of your money just declines over time. And what we’ve seen there is many people, not just young people, have been buying a lot of gold, have been buying also Bitcoin. Bitcoin is being used for this purpose. Absolutely. But also other foreign currencies are very popular there like euro dollar in Argentina. We’ve also seen the dollar being very important because it’s relatively stable compared to the local currency. So Bitcoin is one of those assets. Will it go up by that much? Nobody knows in in financial markets that it’s just something that keeps coming back again and again. researchers have found that nobody knows this, but I just have to say that it’s her in her interest to to say that like she makes money if people believe her. So, that was the last clip of this video. My overall takeaway from this is that I think YouTube shorts and Tik Toks are very interesting, but it’s absolutely clear that the barrier to entry to these platform is very low indeed. But yeah, that was me trying out my new reaction format. My producer suggested it because it allowed me to talk about a lot of different subjects such as inequality that I don’t always have time for in my regular analysis on this channel. Let me know in the personally really liked recording this and I actually recorded quite a few more responses that didn’t make the cut for this video. These unedited reactions are available on Patreon and for YouTube members as a thank you for all of your continued support. Another way to

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Timestamps:
00:56 Video 1
03:01 Video 2
04:32 Video 3
09:04 Sponsor
10:39 Video 4
12:16 Video 5
15:06 video 6

Attribution:
Music by Epidemic Sound: http://nebula.tv/epidemic
Thank you to AP Archive for access to their archival footage.
Stock footage and others clips by Getty

Narrated and produced by Dr. Joeri Schasfoort