WEBVTT 00:00:00.000 --> 00:00:02.408 align:middle line:90% [SQUEAKING] 00:00:02.408 --> 00:00:04.316 align:middle line:90% [RUSTLING] 00:00:04.316 --> 00:00:07.178 align:middle line:90% [CLICKING] 00:00:07.178 --> 00:00:10.175 align:middle line:90% 00:00:10.175 --> 00:00:10.800 align:middle line:90% JON GRUBER: OK. 00:00:10.800 --> 00:00:14.340 align:middle line:84% The other thing to know is about my lecture style, 00:00:14.340 --> 00:00:15.140 align:middle line:90% a couple of points. 00:00:15.140 --> 00:00:17.440 align:middle line:84% First of all, I go too fast, and my handwriting 00:00:17.440 --> 00:00:19.080 align:middle line:90% is incredibly messy. 00:00:19.080 --> 00:00:26.020 align:middle line:84% So please do not hesitate to ask what the hell I just said. 00:00:26.020 --> 00:00:28.020 align:middle line:84% You will learn this semester about public goods. 00:00:28.020 --> 00:00:29.180 align:middle line:84% You all know what public goods are, 00:00:29.180 --> 00:00:31.320 align:middle line:84% which is when you provide something that helps others. 00:00:31.320 --> 00:00:32.700 align:middle line:84% If you don't understand something, 00:00:32.700 --> 00:00:34.825 align:middle line:84% chances are most of the class didn't understand it. 00:00:34.825 --> 00:00:37.400 align:middle line:84% So please don't hesitate to ask, ask to repeat 00:00:37.400 --> 00:00:38.960 align:middle line:90% or just ask a question. 00:00:38.960 --> 00:00:41.220 align:middle line:84% This class, if I don't get interrupted, 00:00:41.220 --> 00:00:42.960 align:middle line:90% I go faster and faster. 00:00:42.960 --> 00:00:44.983 align:middle line:84% And eventually, my head just pops off. 00:00:44.983 --> 00:00:47.400 align:middle line:84% So you guys need to interrupt me with questions, thoughts. 00:00:47.400 --> 00:00:50.103 align:middle line:84% I understand you guys don't like to talk. 00:00:50.103 --> 00:00:52.520 align:middle line:84% You know the joke about Harvard students and MIT students? 00:00:52.520 --> 00:00:54.270 align:middle line:84% If you tell a joke at Harvard, they laugh. 00:00:54.270 --> 00:00:56.880 align:middle line:84% If you tell a joke at MIT, they write it down. 00:00:56.880 --> 00:01:00.380 align:middle line:84% So basically, please laugh at my jokes. 00:01:00.380 --> 00:01:03.417 align:middle line:84% But more than that, please ask questions, not just 00:01:03.417 --> 00:01:05.000 align:middle line:84% to understand, but anything, if you're 00:01:05.000 --> 00:01:07.308 align:middle line:84% just curious about anything, I'd like this class 00:01:07.308 --> 00:01:08.100 align:middle line:90% to be a discussion. 00:01:08.100 --> 00:01:10.700 align:middle line:84% Remember, you're not just serving your own interests. 00:01:10.700 --> 00:01:12.520 align:middle line:84% Any question you ask is going to be helpful to everyone 00:01:12.520 --> 00:01:13.062 align:middle line:90% in the class. 00:01:13.062 --> 00:01:15.920 align:middle line:84% So please provide that public good and ask questions. 00:01:15.920 --> 00:01:16.460 align:middle line:90% OK. 00:01:16.460 --> 00:01:17.255 align:middle line:90% That's point 1. 00:01:17.255 --> 00:01:19.840 align:middle line:84% Point 2 is, I have a terrible tendency 00:01:19.840 --> 00:01:23.480 align:middle line:84% to use the term guys as in a gender-neutral sense. 00:01:23.480 --> 00:01:26.280 align:middle line:84% So when I say guys, I mean economic agents, men and women, 00:01:26.280 --> 00:01:26.880 align:middle line:90% people. 00:01:26.880 --> 00:01:28.000 align:middle line:90% I don't mean men. 00:01:28.000 --> 00:01:28.940 align:middle line:90% So I'm sorry. 00:01:28.940 --> 00:01:30.480 align:middle line:84% It's just a sexist term that I just 00:01:30.480 --> 00:01:32.628 align:middle line:84% use in the generic sense of, guys are people. 00:01:32.628 --> 00:01:34.920 align:middle line:84% So I say guys, I mean economic agents, not particularly 00:01:34.920 --> 00:01:36.480 align:middle line:90% men or women. 00:01:36.480 --> 00:01:38.920 align:middle line:84% That's the second one of my teaching style. 00:01:38.920 --> 00:01:41.720 align:middle line:84% So that is pretty much the setup of the class. 00:01:41.720 --> 00:01:42.460 align:middle line:90% Come to class. 00:01:42.460 --> 00:01:45.200 align:middle line:84% Let's discuss, do the problem sets, do the exams. 00:01:45.200 --> 00:01:49.960 align:middle line:84% Oh, problem sets, no problem at all with group work. 00:01:49.960 --> 00:01:52.520 align:middle line:84% I don't think ChatGPT is yet smart enough 00:01:52.520 --> 00:01:53.820 align:middle line:90% to solve my problems. 00:01:53.820 --> 00:01:54.740 align:middle line:90% I hope it isn't. 00:01:54.740 --> 00:01:57.370 align:middle line:90% But here's the thing. 00:01:57.370 --> 00:01:59.120 align:middle line:84% The problem sets, I should have mentioned, 00:01:59.120 --> 00:02:01.280 align:middle line:84% jointly are worth 25% of the grade. 00:02:01.280 --> 00:02:02.740 align:middle line:90% The midterm's only 25%. 00:02:02.740 --> 00:02:04.042 align:middle line:90% And the final is 50%. 00:02:04.042 --> 00:02:05.500 align:middle line:84% So if you cheat on the problem set, 00:02:05.500 --> 00:02:07.400 align:middle line:84% you're only hurting yourself, because the problem sets are 00:02:07.400 --> 00:02:09.858 align:middle line:84% the very best practice for the exams, which is really where 00:02:09.858 --> 00:02:11.160 align:middle line:90% the bulk of the grades are. 00:02:11.160 --> 00:02:12.900 align:middle line:90% So please work in a team. 00:02:12.900 --> 00:02:13.840 align:middle line:90% That's great. 00:02:13.840 --> 00:02:16.760 align:middle line:84% But make sure you understand what you're doing. 00:02:16.760 --> 00:02:18.440 align:middle line:84% Because at the end of the day, if you 00:02:18.440 --> 00:02:19.620 align:middle line:84% don't understand the problem sets, 00:02:19.620 --> 00:02:21.360 align:middle line:84% you're not going to understand the exams. 00:02:21.360 --> 00:02:23.400 align:middle line:84% That's the closest approximate prediction 00:02:23.400 --> 00:02:24.840 align:middle line:90% of what will be in the exams. 00:02:24.840 --> 00:02:26.220 align:middle line:84% So make sure that if you work in groups, 00:02:26.220 --> 00:02:28.470 align:middle line:84% you understand what your group is doing so that you're 00:02:28.470 --> 00:02:30.900 align:middle line:90% prepared when exams come along. 00:02:30.900 --> 00:02:31.400 align:middle line:90% OK. 00:02:31.400 --> 00:02:36.080 align:middle line:90% Any questions about the class? 00:02:36.080 --> 00:02:37.120 align:middle line:90% OK. 00:02:37.120 --> 00:02:40.188 align:middle line:90% So the way it's going to work-- 00:02:40.188 --> 00:02:42.480 align:middle line:84% if you have the syllabus, the way this is going to work 00:02:42.480 --> 00:02:46.040 align:middle line:84% is, essentially, I'm going to do roughly a chapter a lecture, 00:02:46.040 --> 00:02:46.940 align:middle line:90% with some exceptions. 00:02:46.940 --> 00:02:48.140 align:middle line:90% So today, I'll do chapter 1. 00:02:48.140 --> 00:02:49.560 align:middle line:90% This is on the syllabus. 00:02:49.560 --> 00:02:51.620 align:middle line:84% Chapters 2, 3, and 4 are background. 00:02:51.620 --> 00:02:54.328 align:middle line:84% Oh that's the other thing I need to mention, in terms of prereqs. 00:02:54.328 --> 00:02:56.015 align:middle line:84% Prereq is a good understanding of 14.01. 00:02:56.015 --> 00:02:58.390 align:middle line:84% And how do you tell you have good understanding of 14.01? 00:02:58.390 --> 00:02:59.540 align:middle line:90% You look at chapter 2. 00:02:59.540 --> 00:03:01.790 align:middle line:84% If chapter 2 is like, yeah, I remember all that stuff, 00:03:01.790 --> 00:03:03.310 align:middle line:84% I need a little brushing up, that's great. 00:03:03.310 --> 00:03:05.010 align:middle line:84% If chapter 2 is like, I don't know the hell I'm looking at, 00:03:05.010 --> 00:03:06.770 align:middle line:84% you should not be taking this class. 00:03:06.770 --> 00:03:09.290 align:middle line:90% I will assume chapter 2. 00:03:09.290 --> 00:03:11.130 align:middle line:84% I will assume you can handle anything 00:03:11.130 --> 00:03:12.510 align:middle line:90% that's covered in chapter 2. 00:03:12.510 --> 00:03:15.010 align:middle line:84% I won't assume anything beyond that, in terms of math skills 00:03:15.010 --> 00:03:15.950 align:middle line:90% or knowing models. 00:03:15.950 --> 00:03:18.650 align:middle line:84% But I will assume that chapter 2 can 00:03:18.650 --> 00:03:20.918 align:middle line:90% be relied on as base knowledge. 00:03:20.918 --> 00:03:22.710 align:middle line:84% I'm not even going to review it in section. 00:03:22.710 --> 00:03:25.690 align:middle line:84% So please, on your own, skim through chapter 2. 00:03:25.690 --> 00:03:28.490 align:middle line:84% Make sure that's stuff you vaguely, at least, remember. 00:03:28.490 --> 00:03:32.050 align:middle line:84% If it looks foreign to you, you should not be in this class. 00:03:32.050 --> 00:03:33.370 align:middle line:90% So that's chapter 2. 00:03:33.370 --> 00:03:35.510 align:middle line:84% Chapters 3 and 4 are also background chapters. 00:03:35.510 --> 00:03:36.950 align:middle line:90% We'll cover those in section. 00:03:36.950 --> 00:03:38.570 align:middle line:84% Chapter 3, we'll cover this Friday, 00:03:38.570 --> 00:03:40.428 align:middle line:90% chapter 4 in a few weeks. 00:03:40.428 --> 00:03:41.970 align:middle line:84% So I'm going to go, today, chapter 1. 00:03:41.970 --> 00:03:46.610 align:middle line:84% I'm then going to go from chapter 5 to 25 pretty linearly, 00:03:46.610 --> 00:03:50.810 align:middle line:84% pretty much a chapter a lecture, except some of the chapters 00:03:50.810 --> 00:03:52.650 align:middle line:90% will take more than one lecture. 00:03:52.650 --> 00:03:55.370 align:middle line:84% We'll end up with 25 lectures for the semester. 00:03:55.370 --> 00:03:56.110 align:middle line:90% All right? 00:03:56.110 --> 00:03:57.850 align:middle line:84% So today, we'll start with chapter 1, 00:03:57.850 --> 00:03:59.017 align:middle line:90% which is just introduction. 00:03:59.017 --> 00:04:00.850 align:middle line:84% I'm just going to teach you out of the book. 00:04:00.850 --> 00:04:04.490 align:middle line:84% That's what I want to teach, so it makes it easy. 00:04:04.490 --> 00:04:08.010 align:middle line:84% So basically, we're going to start with chapter 1, 00:04:08.010 --> 00:04:12.530 align:middle line:84% which is an introduction to what is public finance and how 00:04:12.530 --> 00:04:13.690 align:middle line:90% should you think about it. 00:04:13.690 --> 00:04:16.250 align:middle line:84% So when people ask what I teach, I 00:04:16.250 --> 00:04:20.410 align:middle line:84% say I teach a course about the role of the government 00:04:20.410 --> 00:04:21.105 align:middle line:90% in the economy. 00:04:21.105 --> 00:04:22.730 align:middle line:84% And roughly speaking, that's what we'll 00:04:22.730 --> 00:04:24.450 align:middle line:90% be talking about this semester. 00:04:24.450 --> 00:04:26.570 align:middle line:84% More specifically, we focus on what 00:04:26.570 --> 00:04:33.410 align:middle line:84% we call the four questions of public finance, the four 00:04:33.410 --> 00:04:35.010 align:middle line:90% questions of public finance. 00:04:35.010 --> 00:04:37.530 align:middle line:84% And these are the questions that organize everything 00:04:37.530 --> 00:04:40.090 align:middle line:90% we do this semester. 00:04:40.090 --> 00:04:46.170 align:middle line:84% The first question is, when should the government 00:04:46.170 --> 00:04:48.650 align:middle line:90% intervene in the economy? 00:04:48.650 --> 00:04:53.570 align:middle line:84% When should the government intervene in the economy? 00:04:53.570 --> 00:04:59.728 align:middle line:84% The second question is, how might the government intervene? 00:04:59.728 --> 00:05:01.270 align:middle line:84% When should the government intervene? 00:05:01.270 --> 00:05:03.890 align:middle line:90% How might it intervene? 00:05:03.890 --> 00:05:08.770 align:middle line:84% The third question is, what is the effect 00:05:08.770 --> 00:05:09.888 align:middle line:90% of these interventions? 00:05:09.888 --> 00:05:11.430 align:middle line:84% When should the government intervene? 00:05:11.430 --> 00:05:12.670 align:middle line:90% How might it intervene? 00:05:12.670 --> 00:05:15.730 align:middle line:84% What is the effect of these interventions? 00:05:15.730 --> 00:05:19.290 align:middle line:84% And the fourth is, why do governments 00:05:19.290 --> 00:05:20.850 align:middle line:90% choose to do what they do? 00:05:20.850 --> 00:05:23.530 align:middle line:84% Why do governments intervene in the way 00:05:23.530 --> 00:05:25.770 align:middle line:90% we actually see them doing? 00:05:25.770 --> 00:05:28.530 align:middle line:84% So what I'm going to do is run through these questions 00:05:28.530 --> 00:05:31.330 align:middle line:84% in the context of a specific example, which 00:05:31.330 --> 00:05:32.163 align:middle line:90% is health insurance. 00:05:32.163 --> 00:05:34.455 align:middle line:84% We'll talk a lot about health care and health insurance 00:05:34.455 --> 00:05:35.250 align:middle line:90% this semester. 00:05:35.250 --> 00:05:37.650 align:middle line:84% It's the largest single expenditure of the US government 00:05:37.650 --> 00:05:39.470 align:middle line:84% and many governments around the world. 00:05:39.470 --> 00:05:41.970 align:middle line:84% So it makes sense it's a focus of this class. 00:05:41.970 --> 00:05:44.090 align:middle line:84% We'll talk about the example of health insurance 00:05:44.090 --> 00:05:46.650 align:middle line:90% to guide our thinking. 00:05:46.650 --> 00:05:53.970 align:middle line:84% And here is the key single guiding principle, 00:05:53.970 --> 00:05:57.250 align:middle line:84% is to remember that economics, as I say, in 14.01-- 00:05:57.250 --> 00:05:59.630 align:middle line:84% how many here took 14.01 with me? 00:05:59.630 --> 00:06:00.130 align:middle line:90% OK. 00:06:00.130 --> 00:06:01.510 align:middle line:84% I apologize that at the end of the semester, 00:06:01.510 --> 00:06:02.410 align:middle line:90% I'll tell the same joke. 00:06:02.410 --> 00:06:02.910 align:middle line:90% OK. 00:06:02.910 --> 00:06:06.330 align:middle line:84% The key, as I emphasized in 14.01, 00:06:06.330 --> 00:06:08.810 align:middle line:84% economics is fundamentally a right-wing science. 00:06:08.810 --> 00:06:14.170 align:middle line:84% We assume the market is correct, unless proven otherwise. 00:06:14.170 --> 00:06:15.930 align:middle line:84% So the fundamental guiding principle 00:06:15.930 --> 00:06:19.770 align:middle line:84% of this class on question 1 is, when 00:06:19.770 --> 00:06:22.570 align:middle line:84% should the government intervene is, is there a provable market 00:06:22.570 --> 00:06:23.070 align:middle line:90% failure? 00:06:23.070 --> 00:06:26.770 align:middle line:84% Is there a provable case that the market is not delivering 00:06:26.770 --> 00:06:29.610 align:middle line:90% the welfare-maximizing outcome? 00:06:29.610 --> 00:06:32.070 align:middle line:84% Only then do you go on to the other questions. 00:06:32.070 --> 00:06:33.850 align:middle line:90% This is the threshold question. 00:06:33.850 --> 00:06:37.970 align:middle line:84% If there's no provable case that the market isn't welfare 00:06:37.970 --> 00:06:39.170 align:middle line:90% maximizing, you're done. 00:06:39.170 --> 00:06:41.790 align:middle line:84% You don't have to worry about these other things. 00:06:41.790 --> 00:06:45.010 align:middle line:84% You need a provable case that the market outcome is not 00:06:45.010 --> 00:06:46.330 align:middle line:90% welfare maximizing. 00:06:46.330 --> 00:06:48.960 align:middle line:84% We'll talk about many, many of such provable cases. 00:06:48.960 --> 00:06:50.000 align:middle line:90% But you need one. 00:06:50.000 --> 00:06:50.500 align:middle line:90% OK. 00:06:50.500 --> 00:06:56.620 align:middle line:84% So, for example-- and as we prove in 14.01 00:06:56.620 --> 00:06:59.340 align:middle line:84% and prove again quickly in chapter 2, 00:06:59.340 --> 00:07:01.460 align:middle line:84% the first fundamental welfare theorem of economics 00:07:01.460 --> 00:07:03.460 align:middle line:84% says the market outcomes efficient 00:07:03.460 --> 00:07:04.707 align:middle line:90% under certain conditions. 00:07:04.707 --> 00:07:06.540 align:middle line:84% And we want to ask which of those conditions 00:07:06.540 --> 00:07:08.700 align:middle line:90% might be violated. 00:07:08.700 --> 00:07:13.500 align:middle line:84% So there's essentially two types of reasons 00:07:13.500 --> 00:07:17.060 align:middle line:84% why we say the government might want to intervene, 00:07:17.060 --> 00:07:20.300 align:middle line:84% or two types of answers to the when question. 00:07:20.300 --> 00:07:28.860 align:middle line:84% The first is market failures, market failures. 00:07:28.860 --> 00:07:32.380 align:middle line:84% The market does not meet the conditions 00:07:32.380 --> 00:07:37.700 align:middle line:84% that are required for an efficiently operating economy. 00:07:37.700 --> 00:07:38.420 align:middle line:90% OK. 00:07:38.420 --> 00:07:40.740 align:middle line:84% So let's take the market for health insurance. 00:07:40.740 --> 00:07:43.260 align:middle line:84% At first glance, this should be a pretty well-functioning 00:07:43.260 --> 00:07:43.920 align:middle line:90% market. 00:07:43.920 --> 00:07:48.160 align:middle line:90% 00:07:48.160 --> 00:07:53.220 align:middle line:84% There's something like 300 million Americans or more buying 00:07:53.220 --> 00:07:55.020 align:middle line:90% health insurance. 00:07:55.020 --> 00:07:58.238 align:middle line:84% There is a price of health insurance. 00:07:58.238 --> 00:08:00.280 align:middle line:84% There's a price and quantity of health insurance. 00:08:00.280 --> 00:08:02.620 align:middle line:84% There's many firms delivering health insurance. 00:08:02.620 --> 00:08:05.562 align:middle line:84% At first, this might seem like any other market. 00:08:05.562 --> 00:08:08.020 align:middle line:84% Now, you might say, well, of course, it's not like a market 00:08:08.020 --> 00:08:09.160 align:middle line:90% because people are uninsured. 00:08:09.160 --> 00:08:10.785 align:middle line:84% Indeed, before the Affordable Care Act, 00:08:10.785 --> 00:08:12.740 align:middle line:84% about 50 million Americans were uninsured. 00:08:12.740 --> 00:08:15.140 align:middle line:90% Now almost 30 million are. 00:08:15.140 --> 00:08:16.820 align:middle line:84% You might say, gee, well, clearly, 00:08:16.820 --> 00:08:19.560 align:middle line:84% the market's broken because there's uninsured people. 00:08:19.560 --> 00:08:21.030 align:middle line:90% But that would be wrong. 00:08:21.030 --> 00:08:22.780 align:middle line:84% Just because someone doesn't buy something 00:08:22.780 --> 00:08:24.360 align:middle line:84% doesn't mean the market's broken. 00:08:24.360 --> 00:08:27.340 align:middle line:84% There are people in America without large screen TVs. 00:08:27.340 --> 00:08:29.840 align:middle line:84% That doesn't mean the market for large screen TVs is broken. 00:08:29.840 --> 00:08:32.048 align:middle line:84% It just means some people have chosen not to buy them 00:08:32.048 --> 00:08:33.220 align:middle line:90% at the existing price. 00:08:33.220 --> 00:08:36.059 align:middle line:84% So the fact there's uninsured does not 00:08:36.059 --> 00:08:38.059 align:middle line:90% mean the market is broken. 00:08:38.059 --> 00:08:40.100 align:middle line:84% We need an actual reason why the market is not 00:08:40.100 --> 00:08:42.140 align:middle line:90% functioning efficiently. 00:08:42.140 --> 00:08:48.520 align:middle line:84% That is, we need some kind of market failure. 00:08:48.520 --> 00:08:53.940 align:middle line:84% So classic example would be an externality. 00:08:53.940 --> 00:09:00.420 align:middle line:84% So for example-- and we learned about this in 14.01. 00:09:00.420 --> 00:09:04.740 align:middle line:84% For example, imagine that I get sick 00:09:04.740 --> 00:09:05.940 align:middle line:90% with a communicable disease. 00:09:05.940 --> 00:09:07.690 align:middle line:84% And because I don't have health insurance, 00:09:07.690 --> 00:09:09.500 align:middle line:84% I don't get vaccinated or take the medicine 00:09:09.500 --> 00:09:12.560 align:middle line:84% that I need to fix that communicable disease. 00:09:12.560 --> 00:09:16.020 align:middle line:84% And I come to class, and I get you all sick. 00:09:16.020 --> 00:09:17.880 align:middle line:84% COVID obviously is fresh on our minds here. 00:09:17.880 --> 00:09:20.340 align:middle line:90% We all lived through that. 00:09:20.340 --> 00:09:25.620 align:middle line:84% That is a classic externality, an example when one party's 00:09:25.620 --> 00:09:29.140 align:middle line:90% actions affect another party. 00:09:29.140 --> 00:09:33.420 align:middle line:84% In such situations-- we'll cover in depth in chapter 5 and beyond 00:09:33.420 --> 00:09:34.900 align:middle line:90% in the class-- 00:09:34.900 --> 00:09:40.140 align:middle line:84% this is a reason why the social value of health insurance 00:09:40.140 --> 00:09:43.620 align:middle line:84% exceeds the private value of health insurance. 00:09:43.620 --> 00:09:49.300 align:middle line:84% Market failures arise whenever social benefits and costs do not 00:09:49.300 --> 00:09:52.180 align:middle line:84% align with private benefits and costs. 00:09:52.180 --> 00:09:54.500 align:middle line:84% Once again, we'll go over this in detail next lecture. 00:09:54.500 --> 00:09:56.500 align:middle line:84% But that's where market failure's going to rise. 00:09:56.500 --> 00:10:00.180 align:middle line:84% A classic example would be if I am not accounting for the fact 00:10:00.180 --> 00:10:04.420 align:middle line:84% that I'm making you sick, then my private incentives are not 00:10:04.420 --> 00:10:07.620 align:middle line:84% aligned, my private benefit is not 00:10:07.620 --> 00:10:10.460 align:middle line:84% aligning with the social benefit. 00:10:10.460 --> 00:10:13.860 align:middle line:84% And this is a classic externality. 00:10:13.860 --> 00:10:17.940 align:middle line:84% And in the book, I talk about vaccination 00:10:17.940 --> 00:10:20.740 align:middle line:84% as a classic example of government policies 00:10:20.740 --> 00:10:23.180 align:middle line:84% to fight this kind of externality. 00:10:23.180 --> 00:10:26.120 align:middle line:84% Measles used to be an incredibly deadly disease. 00:10:26.120 --> 00:10:29.140 align:middle line:84% About 3 to 4 million Americans used to get them, 00:10:29.140 --> 00:10:32.220 align:middle line:84% with about 500 people dying every year from measles. 00:10:32.220 --> 00:10:35.300 align:middle line:84% A measles vaccine was invented, and measles largely 00:10:35.300 --> 00:10:37.100 align:middle line:90% went away as a problem. 00:10:37.100 --> 00:10:40.150 align:middle line:84% By the 1980s, there were fewer than 3,000 cases. 00:10:40.150 --> 00:10:44.550 align:middle line:84% But then in the 1990s, there was a burst of measles cases. 00:10:44.550 --> 00:10:47.870 align:middle line:84% And it turned out that basically, 00:10:47.870 --> 00:10:52.030 align:middle line:84% what happened was that basically, a bunch of patients 00:10:52.030 --> 00:10:54.430 align:middle line:90% had stopped getting vaccinated. 00:10:54.430 --> 00:10:56.770 align:middle line:84% And enough patients stopped getting vaccinated 00:10:56.770 --> 00:11:02.830 align:middle line:84% that kids were starting to catch measles again and dying from it. 00:11:02.830 --> 00:11:06.150 align:middle line:84% So immunization rates fell dramatically, 00:11:06.150 --> 00:11:07.790 align:middle line:84% and deaths increased from measles. 00:11:07.790 --> 00:11:09.670 align:middle line:84% In response, the federal government 00:11:09.670 --> 00:11:12.750 align:middle line:84% made vaccination for measles free for everyone. 00:11:12.750 --> 00:11:15.410 align:middle line:84% And that caused immunization rates to go back up. 00:11:15.410 --> 00:11:18.830 align:middle line:84% Immunization rates went back up into the '90s. 00:11:18.830 --> 00:11:24.070 align:middle line:84% But then a new problem happened, which is-- 00:11:24.070 --> 00:11:26.750 align:middle line:84% I'll try not to be too judgmental in this class, 00:11:26.750 --> 00:11:29.510 align:middle line:84% but one of the world's biggest assholes 00:11:29.510 --> 00:11:31.310 align:middle line:90% is a guy named Andrew Wakefield. 00:11:31.310 --> 00:11:33.590 align:middle line:84% Andrew Wakefield wrote an article 00:11:33.590 --> 00:11:35.930 align:middle line:84% in The Lancet, actually a reputable medical journal, 00:11:35.930 --> 00:11:38.110 align:middle line:84% claiming that vaccines gave you autism. 00:11:38.110 --> 00:11:40.190 align:middle line:90% Now, if you look at his study-- 00:11:40.190 --> 00:11:41.457 align:middle line:90% I swear to God, this is true. 00:11:41.457 --> 00:11:43.790 align:middle line:84% His study-- and we don't have to be empirical scientists 00:11:43.790 --> 00:11:44.650 align:middle line:90% to understand this. 00:11:44.650 --> 00:11:47.030 align:middle line:84% His study was, he went to a birthday party 00:11:47.030 --> 00:11:48.810 align:middle line:84% and collected data from, like, eight kids. 00:11:48.810 --> 00:11:50.410 align:middle line:90% And two of them had autism. 00:11:50.410 --> 00:11:52.910 align:middle line:84% And it was correlated whether they'd been vaccinated or not. 00:11:52.910 --> 00:11:55.670 align:middle line:84% And somehow, it got published in reputable medical journal. 00:11:55.670 --> 00:11:57.270 align:middle line:84% And it became the basis for this view 00:11:57.270 --> 00:11:58.930 align:middle line:84% that vaccines are bad for you and cause damage. 00:11:58.930 --> 00:11:59.890 align:middle line:90% Of course, it's false. 00:11:59.890 --> 00:12:01.790 align:middle line:84% There's never been any evidence that's true. 00:12:01.790 --> 00:12:06.990 align:middle line:84% But it was the kicking-off point for a massive anti-vaccination 00:12:06.990 --> 00:12:07.730 align:middle line:90% movement. 00:12:07.730 --> 00:12:09.970 align:middle line:90% We all know about it by now. 00:12:09.970 --> 00:12:12.390 align:middle line:84% We all know about the anti-vax movement. 00:12:12.390 --> 00:12:16.190 align:middle line:84% We know that it led to a massive spread in lack of vaccination 00:12:16.190 --> 00:12:20.470 align:middle line:84% for things like measles and an explosion in measles cases. 00:12:20.470 --> 00:12:23.950 align:middle line:84% These were often concentrated in particular areas, 00:12:23.950 --> 00:12:26.910 align:middle line:84% like-- do we have any Minnesotans here? 00:12:26.910 --> 00:12:27.730 align:middle line:90% No, no Minnesotans. 00:12:27.730 --> 00:12:29.510 align:middle line:84% My wife's from Minnesota, so I focus on Minnesota a lot 00:12:29.510 --> 00:12:30.510 align:middle line:90% in my examples. 00:12:30.510 --> 00:12:32.610 align:middle line:84% They have a large immigrant Somali community. 00:12:32.610 --> 00:12:34.190 align:middle line:84% For some reason, the word got around that community 00:12:34.190 --> 00:12:35.250 align:middle line:90% that vaccines were bad. 00:12:35.250 --> 00:12:40.030 align:middle line:84% Immunizations rates fell to less than 50%. 00:12:40.030 --> 00:12:42.070 align:middle line:84% And they had their largest measles outbreaks 00:12:42.070 --> 00:12:44.070 align:middle line:90% in more than 30 years. 00:12:44.070 --> 00:12:46.530 align:middle line:90% So that led to other reactions. 00:12:46.530 --> 00:12:49.170 align:middle line:84% For example, the state of California started saying, 00:12:49.170 --> 00:12:51.790 align:middle line:84% we will kick kids out of school if they're not immunized, 00:12:51.790 --> 00:12:53.248 align:middle line:84% and we won't accept any exemptions. 00:12:53.248 --> 00:12:55.290 align:middle line:84% Some states said, well, you have to be immunized, 00:12:55.290 --> 00:12:57.250 align:middle line:84% but if you tell us your religion forbids it, 00:12:57.250 --> 00:12:58.542 align:middle line:90% we'll let you not be immunized. 00:12:58.542 --> 00:12:59.630 align:middle line:90% California said no. 00:12:59.630 --> 00:13:01.750 align:middle line:84% You're not immunized, you're not going to school. 00:13:01.750 --> 00:13:03.030 align:middle line:90% Is that a good policy? 00:13:03.030 --> 00:13:03.960 align:middle line:84% That's what we want to talk about. 00:13:03.960 --> 00:13:04.890 align:middle line:84% That's what we want to think about. 00:13:04.890 --> 00:13:05.765 align:middle line:90% Does that make sense? 00:13:05.765 --> 00:13:07.870 align:middle line:84% Is that a sensible way to fight this? 00:13:07.870 --> 00:13:10.410 align:middle line:84% And obviously, COVID brings it to the fore. 00:13:10.410 --> 00:13:12.910 align:middle line:84% We all know about the vaccine skepticism and problems 00:13:12.910 --> 00:13:14.070 align:middle line:90% in COVID. 00:13:14.070 --> 00:13:18.210 align:middle line:84% We may have seen the facts that death rates in red counties, 00:13:18.210 --> 00:13:21.750 align:middle line:84% counties that typically vote Republican, during COVID 00:13:21.750 --> 00:13:25.150 align:middle line:84% were dramatically higher than death rates in blue counties, 00:13:25.150 --> 00:13:27.550 align:middle line:84% correlated with the fact that vaccination rates were 00:13:27.550 --> 00:13:30.290 align:middle line:84% much lower in red counties and blue counties. 00:13:30.290 --> 00:13:32.150 align:middle line:84% And in general, the estimates are 00:13:32.150 --> 00:13:34.590 align:middle line:84% that the availability of the COVID vaccine 00:13:34.590 --> 00:13:38.030 align:middle line:84% saved about 2 million lives worldwide-- 00:13:38.030 --> 00:13:39.730 align:middle line:84% were saved by the available vaccine. 00:13:39.730 --> 00:13:44.010 align:middle line:84% And yet, vaccination rates, even for the first COVID shot, 00:13:44.010 --> 00:13:46.510 align:middle line:84% never got much above 70% in the US, and for boosters, 00:13:46.510 --> 00:13:49.790 align:middle line:84% are well below 50% and diminishing. 00:13:49.790 --> 00:13:53.110 align:middle line:84% So basically, this notion of, well, there's 00:13:53.110 --> 00:13:55.270 align:middle line:84% an externality, should get a vaccine is clearly not 00:13:55.270 --> 00:13:57.330 align:middle line:84% percolating through, and other things are coming in. 00:13:57.330 --> 00:13:58.705 align:middle line:84% This raises the question of, what 00:13:58.705 --> 00:14:00.390 align:middle line:90% should the government's role be? 00:14:00.390 --> 00:14:05.270 align:middle line:84% So that's the first kind of market failure, the first kind 00:14:05.270 --> 00:14:07.390 align:middle line:90% of answer to the when question. 00:14:07.390 --> 00:14:10.810 align:middle line:84% The second kind of answer to the when question is redistribution. 00:14:10.810 --> 00:14:14.630 align:middle line:90% 00:14:14.630 --> 00:14:19.295 align:middle line:84% We learned in 14.01 that we have a social welfare function. 00:14:19.295 --> 00:14:20.670 align:middle line:84% And the goal of government is not 00:14:20.670 --> 00:14:23.910 align:middle line:84% to maximize the size of the pie but to maximize 00:14:23.910 --> 00:14:26.592 align:middle line:84% social welfare, which accounts for both the size 00:14:26.592 --> 00:14:28.550 align:middle line:84% of the pie and its distribution-- or, at least, 00:14:28.550 --> 00:14:29.530 align:middle line:90% some would say. 00:14:29.530 --> 00:14:30.710 align:middle line:84% Some people might say the goal's solely 00:14:30.710 --> 00:14:32.043 align:middle line:90% to maximize the size of the pie. 00:14:32.043 --> 00:14:34.040 align:middle line:84% That's a particular social welfare function. 00:14:34.040 --> 00:14:36.400 align:middle line:84% But other social welfare functions 00:14:36.400 --> 00:14:38.560 align:middle line:84% would say, no, distribution matters. 00:14:38.560 --> 00:14:42.520 align:middle line:84% In that case, even with a well-functioning market, 00:14:42.520 --> 00:14:45.720 align:middle line:84% you may want to engage in government intervention 00:14:45.720 --> 00:14:47.480 align:middle line:90% for your distribution. 00:14:47.480 --> 00:14:50.720 align:middle line:84% Now, the trick here is that typically, this 00:14:50.720 --> 00:14:54.280 align:middle line:84% is going to lead to what we call an efficiency-equity trade-off. 00:14:54.280 --> 00:14:57.320 align:middle line:84% Typically, when you redistribute and intervene 00:14:57.320 --> 00:15:00.240 align:middle line:84% in economy distribute, you cause inefficiencies. 00:15:00.240 --> 00:15:01.900 align:middle line:90% So distribution is rarely free. 00:15:01.900 --> 00:15:04.440 align:middle line:84% There are a few cases where it is, where actually, you 00:15:04.440 --> 00:15:07.520 align:middle line:84% get a win-win solution of both solving market failures 00:15:07.520 --> 00:15:09.960 align:middle line:90% and redistributing. 00:15:09.960 --> 00:15:12.440 align:middle line:84% But, by and large, there's a trade-off. 00:15:12.440 --> 00:15:15.280 align:middle line:84% And that's the core of a lot of what we'll talk about this year 00:15:15.280 --> 00:15:17.520 align:middle line:84% this semester, is basically, how do 00:15:17.520 --> 00:15:20.720 align:middle line:84% you think about that trade-off between efficiency 00:15:20.720 --> 00:15:22.400 align:middle line:90% and redistribution? 00:15:22.400 --> 00:15:26.222 align:middle line:90% So this is the first threshold. 00:15:26.222 --> 00:15:28.680 align:middle line:84% Is there either a market failure or redistribution argument 00:15:28.680 --> 00:15:29.680 align:middle line:90% for what you want to do? 00:15:29.680 --> 00:15:30.800 align:middle line:90% If not, go home. 00:15:30.800 --> 00:15:33.040 align:middle line:84% We are going to trust the market unless you 00:15:33.040 --> 00:15:36.040 align:middle line:90% have one of those reasons. 00:15:36.040 --> 00:15:42.160 align:middle line:84% If you have those reasons, you can then turn to how question. 00:15:42.160 --> 00:15:44.140 align:middle line:84% If the government sees a market failure, 00:15:44.140 --> 00:15:47.820 align:middle line:84% it wants to redistribute, how can it do so? 00:15:47.820 --> 00:15:50.520 align:middle line:84% Well, the government has a lot of different tools to do so. 00:15:50.520 --> 00:15:53.000 align:middle line:90% I'll just give an overview here. 00:15:53.000 --> 00:16:00.080 align:middle line:84% For example, the government could tax or subsidize 00:16:00.080 --> 00:16:01.063 align:middle line:90% private purchase. 00:16:01.063 --> 00:16:02.480 align:middle line:84% The government could say, look, we 00:16:02.480 --> 00:16:03.940 align:middle line:84% think there should be more vaccination, 00:16:03.940 --> 00:16:05.020 align:middle line:90% so we're going to make it free. 00:16:05.020 --> 00:16:06.120 align:middle line:84% We think there should be more health insurance. 00:16:06.120 --> 00:16:07.328 align:middle line:90% We'll offer you a tax credit. 00:16:07.328 --> 00:16:11.640 align:middle line:84% Indeed, the Affordable Care Act includes massive tax credits 00:16:11.640 --> 00:16:14.060 align:middle line:84% for health insurance exactly under the argument 00:16:14.060 --> 00:16:16.320 align:middle line:84% the health insurance market is not working well. 00:16:16.320 --> 00:16:22.840 align:middle line:84% So as a result, we need to subsidize the provision 00:16:22.840 --> 00:16:25.040 align:middle line:90% of health insurance. 00:16:25.040 --> 00:16:28.240 align:middle line:84% So that's one way the government can intervene. 00:16:28.240 --> 00:16:30.280 align:middle line:84% A second way a government could intervene 00:16:30.280 --> 00:16:36.692 align:middle line:84% is to restrict or mandate purchase. 00:16:36.692 --> 00:16:38.400 align:middle line:84% The government could say, well, we're not 00:16:38.400 --> 00:16:39.760 align:middle line:84% going to change the price, but we're going to either 00:16:39.760 --> 00:16:41.398 align:middle line:90% not allow you to sell it-- 00:16:41.398 --> 00:16:43.940 align:middle line:84% for example, we think cigarettes have negative externalities. 00:16:43.940 --> 00:16:45.960 align:middle line:84% We could ban the sale of cigarettes 00:16:45.960 --> 00:16:48.360 align:middle line:90% or mandate you have to buy it. 00:16:48.360 --> 00:16:51.082 align:middle line:84% If we think that not having health insurance 00:16:51.082 --> 00:16:53.540 align:middle line:84% is negative externalities, we can mandate health insurance, 00:16:53.540 --> 00:16:56.640 align:middle line:84% which is, once again, what the Affordable Care Act did. 00:16:56.640 --> 00:17:00.200 align:middle line:84% Although, it's subsequently been repealed. 00:17:00.200 --> 00:17:02.720 align:middle line:84% That's the second thing you could do. 00:17:02.720 --> 00:17:06.859 align:middle line:84% The third thing you could do is public provision. 00:17:06.859 --> 00:17:10.280 align:middle line:90% 00:17:10.280 --> 00:17:12.790 align:middle line:84% You could say, look, we think this 00:17:12.790 --> 00:17:15.040 align:middle line:84% is a problem that's solved by the government literally 00:17:15.040 --> 00:17:16.060 align:middle line:90% providing the good. 00:17:16.060 --> 00:17:17.435 align:middle line:84% So the government could literally 00:17:17.435 --> 00:17:19.040 align:middle line:84% say, as they do in Canada, we're going 00:17:19.040 --> 00:17:21.060 align:middle line:84% to have government-provided health insurance. 00:17:21.060 --> 00:17:22.980 align:middle line:84% We think people are not buying enough health insurance. 00:17:22.980 --> 00:17:24.660 align:middle line:84% We're not going to mess with the private market stuff. 00:17:24.660 --> 00:17:25.520 align:middle line:84% We're just going to have government 00:17:25.520 --> 00:17:27.079 align:middle line:90% provide health insurance. 00:17:27.079 --> 00:17:31.760 align:middle line:84% That is another way you could approach a problem like that. 00:17:31.760 --> 00:17:35.680 align:middle line:84% And then finally, the last category here 00:17:35.680 --> 00:17:46.163 align:middle line:84% is public financing of private provision, public financing. 00:17:46.163 --> 00:17:48.580 align:middle line:84% You can say, look, I'll let the private sector provide it, 00:17:48.580 --> 00:17:51.040 align:middle line:84% but I'm going to pay them to do so. 00:17:51.040 --> 00:17:56.880 align:middle line:84% So an example here is in 2003, as we'll 00:17:56.880 --> 00:17:58.420 align:middle line:84% talk about in a number of lectures, 00:17:58.420 --> 00:18:00.360 align:middle line:84% the government had a prescription drug benefit 00:18:00.360 --> 00:18:02.717 align:middle line:84% to the Medicare program for our nation's elders. 00:18:02.717 --> 00:18:04.300 align:middle line:84% You don't need to know about this now. 00:18:04.300 --> 00:18:05.340 align:middle line:90% We'll cover it later. 00:18:05.340 --> 00:18:07.840 align:middle line:84% But instead of just giving them a government-provided drug 00:18:07.840 --> 00:18:11.640 align:middle line:84% option, they reimbursed private health insurance companies 00:18:11.640 --> 00:18:12.515 align:middle line:90% to provide the drugs. 00:18:12.515 --> 00:18:14.765 align:middle line:84% So they said, you're going to buy in a private market, 00:18:14.765 --> 00:18:16.560 align:middle line:84% but the government's going to pay for it. 00:18:16.560 --> 00:18:19.120 align:middle line:84% So that's another way they can go. 00:18:19.120 --> 00:18:21.460 align:middle line:90% So there's lots of options. 00:18:21.460 --> 00:18:22.000 align:middle line:90% Yeah? 00:18:22.000 --> 00:18:24.000 align:middle line:84% AUDIENCE: What's the difference between 3 and 4, 00:18:24.000 --> 00:18:25.240 align:middle line:90% just a form of subsidy? 00:18:25.240 --> 00:18:27.820 align:middle line:84% JON GRUBER: 3 and 4, the difference is, 00:18:27.820 --> 00:18:29.393 align:middle line:90% is the private market involved? 00:18:29.393 --> 00:18:31.060 align:middle line:84% In 3, the private market's not involved. 00:18:31.060 --> 00:18:32.852 align:middle line:84% The government just provides the insurance. 00:18:32.852 --> 00:18:35.970 align:middle line:84% So the debate, as we'll cover about Medicare Part D, which-- 00:18:35.970 --> 00:18:37.720 align:middle line:84% the other parts of Medicare are literally, 00:18:37.720 --> 00:18:39.560 align:middle line:84% government just provides the insurance. 00:18:39.560 --> 00:18:40.800 align:middle line:84% This was, no, instead of the government providing 00:18:40.800 --> 00:18:42.440 align:middle line:84% the insurance, we're going to hire private insurance 00:18:42.440 --> 00:18:44.560 align:middle line:84% companies to provide it, and we'll just pay them. 00:18:44.560 --> 00:18:48.560 align:middle line:84% AUDIENCE: But isn't that just a form of a subsidy, which is 1? 00:18:48.560 --> 00:18:50.080 align:middle line:84% JON GRUBER: The difference is that-- 00:18:50.080 --> 00:18:51.300 align:middle line:90% it is a form of a subsidy. 00:18:51.300 --> 00:18:53.080 align:middle line:90% These are all sort of related. 00:18:53.080 --> 00:18:54.163 align:middle line:90% It is a form of a subsidy. 00:18:54.163 --> 00:18:55.705 align:middle line:84% The difference is the government sort 00:18:55.705 --> 00:18:57.467 align:middle line:84% of organizes the market more in 4. 00:18:57.467 --> 00:18:58.300 align:middle line:90% But they're related. 00:18:58.300 --> 00:19:00.920 align:middle line:84% It's a good point, good question. 00:19:00.920 --> 00:19:01.960 align:middle line:90% OK. 00:19:01.960 --> 00:19:04.860 align:middle line:90% So that's the second question. 00:19:04.860 --> 00:19:07.600 align:middle line:90% 00:19:07.600 --> 00:19:10.520 align:middle line:84% The third question is the what question. 00:19:10.520 --> 00:19:11.160 align:middle line:90% OK. 00:19:11.160 --> 00:19:16.080 align:middle line:84% You've decided that the government should intervene. 00:19:16.080 --> 00:19:17.660 align:middle line:84% You said there's a justification. 00:19:17.660 --> 00:19:19.620 align:middle line:84% You're considering ways the government might. 00:19:19.620 --> 00:19:21.560 align:middle line:84% Well, how do you choose between them? 00:19:21.560 --> 00:19:23.102 align:middle line:84% Well, the way you choose between them 00:19:23.102 --> 00:19:25.810 align:middle line:84% is by understanding what effect these different interventions 00:19:25.810 --> 00:19:27.050 align:middle line:90% will have. 00:19:27.050 --> 00:19:29.210 align:middle line:84% To help choose, you need evidence 00:19:29.210 --> 00:19:32.570 align:middle line:84% on how these different interventions might work. 00:19:32.570 --> 00:19:36.490 align:middle line:84% And that is the area of what we call empirical public finance, 00:19:36.490 --> 00:19:39.090 align:middle line:84% which is actually trying to assess 00:19:39.090 --> 00:19:41.770 align:middle line:84% what effect different types of government policies 00:19:41.770 --> 00:19:43.770 align:middle line:90% actually have. 00:19:43.770 --> 00:19:49.110 align:middle line:84% And here, of course, we have direct and indirect effects. 00:19:49.110 --> 00:19:52.690 align:middle line:90% 00:19:52.690 --> 00:19:53.990 align:middle line:90% The direct effects aren't fun. 00:19:53.990 --> 00:19:54.740 align:middle line:90% That's accounting. 00:19:54.740 --> 00:19:55.730 align:middle line:90% Accounting is boring. 00:19:55.730 --> 00:19:57.470 align:middle line:90% The indirects are fun. 00:19:57.470 --> 00:19:58.770 align:middle line:90% That's economics. 00:19:58.770 --> 00:20:02.890 align:middle line:84% That's the effect of the policy that's unintended, 00:20:02.890 --> 00:20:06.410 align:middle line:84% but yet, can have a critical impact on the outcome. 00:20:06.410 --> 00:20:09.490 align:middle line:84% So, for example, let's say, before the ACA, 00:20:09.490 --> 00:20:14.930 align:middle line:84% the government said there's 50 million uninsured people, 50 00:20:14.930 --> 00:20:16.450 align:middle line:90% million uninsured people. 00:20:16.450 --> 00:20:19.410 align:middle line:84% And let's say, we think we can insure each of them for $2,500 00:20:19.410 --> 00:20:22.330 align:middle line:90% each. 00:20:22.330 --> 00:20:25.730 align:middle line:84% So that means that we could ensure all the uninsured 00:20:25.730 --> 00:20:29.850 align:middle line:90% for $125 billion. 00:20:29.850 --> 00:20:31.730 align:middle line:84% Now, when I was a kid, that was a big number. 00:20:31.730 --> 00:20:33.250 align:middle line:84% In the year of COVID, when you guys are hearing lots 00:20:33.250 --> 00:20:34.630 align:middle line:84% of trillions thrown around like they're nothing, 00:20:34.630 --> 00:20:37.450 align:middle line:84% that's not that big a number. $125 billion-- after all, 00:20:37.450 --> 00:20:40.130 align:middle line:84% our spending on health care in the US is 3 and 1/2 trillion. 00:20:40.130 --> 00:20:42.297 align:middle line:84% That's a pretty small number, if you think about it. 00:20:42.297 --> 00:20:43.570 align:middle line:90% We cover all the uninsured. 00:20:43.570 --> 00:20:45.770 align:middle line:90% That's the direct effect. 00:20:45.770 --> 00:20:48.330 align:middle line:90% What does that miss? 00:20:48.330 --> 00:20:49.990 align:middle line:90% Why is that number wrong? 00:20:49.990 --> 00:20:50.490 align:middle line:90% Yeah? 00:20:50.490 --> 00:20:53.130 align:middle line:90% AUDIENCE: [INAUDIBLE] 00:20:53.130 --> 00:20:55.870 align:middle line:84% JON GRUBER: No, I'm just doing the cost for now, just the cost. 00:20:55.870 --> 00:20:56.370 align:middle line:90% Yeah? 00:20:56.370 --> 00:21:00.118 align:middle line:84% AUDIENCE: People who have private health care but switch 00:21:00.118 --> 00:21:00.722 align:middle line:90% [INAUDIBLE]. 00:21:00.722 --> 00:21:01.430 align:middle line:90% JON GRUBER: Yeah. 00:21:01.430 --> 00:21:02.610 align:middle line:84% What that misses-- being uninsured 00:21:02.610 --> 00:21:05.070 align:middle line:84% is not stamped on our forehead at birth and irremovable. 00:21:05.070 --> 00:21:06.810 align:middle line:90% It's a choice. 00:21:06.810 --> 00:21:11.050 align:middle line:84% And if you change relative prices, choices change. 00:21:11.050 --> 00:21:12.850 align:middle line:84% So if you change the relative price 00:21:12.850 --> 00:21:14.850 align:middle line:84% of being uninsured by making going for something 00:21:14.850 --> 00:21:17.235 align:middle line:84% bad to something that's good, because you get free health 00:21:17.235 --> 00:21:18.610 align:middle line:84% insurance, you could create a lot 00:21:18.610 --> 00:21:21.330 align:middle line:84% of people who then announce themselves uninsured to get 00:21:21.330 --> 00:21:22.730 align:middle line:90% this free care. 00:21:22.730 --> 00:21:33.010 align:middle line:84% So, for example, basically, imagine 00:21:33.010 --> 00:21:37.090 align:middle line:84% that half of everyone who has private insurance 00:21:37.090 --> 00:21:39.210 align:middle line:84% dropped it and said, well, gee, why should I 00:21:39.210 --> 00:21:41.550 align:middle line:90% pay for my private insurance? 00:21:41.550 --> 00:21:45.410 align:middle line:84% I'll just get this free insurance to the uninsured. 00:21:45.410 --> 00:21:49.630 align:middle line:84% That would cause the cost to rise from $125 billion to $340 00:21:49.630 --> 00:21:50.870 align:middle line:90% billion a year. 00:21:50.870 --> 00:21:53.410 align:middle line:90% 00:21:53.410 --> 00:21:55.170 align:middle line:90% Now we're talking real money. 00:21:55.170 --> 00:21:59.290 align:middle line:84% On the other hand, if only 10% of those with private insurance 00:21:59.290 --> 00:22:01.690 align:middle line:84% decide to drop it and join the program, 00:22:01.690 --> 00:22:06.850 align:middle line:84% that raised the cost to only $165 billion a year. 00:22:06.850 --> 00:22:09.002 align:middle line:84% So this is if half the privately insured 00:22:09.002 --> 00:22:11.210 align:middle line:84% say I'm going to take advantage of this free program. 00:22:11.210 --> 00:22:12.670 align:middle line:90% This is if 10% do. 00:22:12.670 --> 00:22:14.930 align:middle line:90% That's a huge difference. 00:22:14.930 --> 00:22:16.290 align:middle line:90% What's the right answer? 00:22:16.290 --> 00:22:17.290 align:middle line:90% How many will? 00:22:17.290 --> 00:22:21.470 align:middle line:84% That's the thing we get at with the what of public finances, 00:22:21.470 --> 00:22:24.650 align:middle line:84% try to understand these, measure these indirect effects so we 00:22:24.650 --> 00:22:27.090 align:middle line:84% can understand what effect government interventions will 00:22:27.090 --> 00:22:28.650 align:middle line:90% actually have. 00:22:28.650 --> 00:22:30.270 align:middle line:90% We'll get to the benefits later. 00:22:30.270 --> 00:22:33.590 align:middle line:90% This is just the cost. 00:22:33.590 --> 00:22:35.090 align:middle line:90% So that's the what. 00:22:35.090 --> 00:22:38.130 align:middle line:84% And here, we're going to come to the heroes of our story, 00:22:38.130 --> 00:22:40.130 align:middle line:84% the people, the unsung-- not all heroes wear 00:22:40.130 --> 00:22:43.290 align:middle line:84% capes-- the hero story, which is the Congressional Budget 00:22:43.290 --> 00:22:46.810 align:middle line:90% Office, the CBO. 00:22:46.810 --> 00:22:49.130 align:middle line:84% The Congressional Budget Office, is fundamentally 00:22:49.130 --> 00:22:52.290 align:middle line:84% the last thing between us and total collapses of democracy. 00:22:52.290 --> 00:22:54.410 align:middle line:84% And I'm only slightly exaggerating. 00:22:54.410 --> 00:22:55.710 align:middle line:90% Why do I say that? 00:22:55.710 --> 00:22:57.987 align:middle line:84% Because the Congressional Budget Office is a truly-- 00:22:57.987 --> 00:22:59.570 align:middle line:84% it's hard to imagine these words still 00:22:59.570 --> 00:23:04.090 align:middle line:84% exist in America-- but a truly nonpartisan institution that 00:23:04.090 --> 00:23:08.530 align:middle line:84% is in charge of what's called scoring government policies. 00:23:08.530 --> 00:23:11.030 align:middle line:84% So let's say you've got a bill and you want to do something. 00:23:11.030 --> 00:23:13.290 align:middle line:84% You want to provide free health care to veterans 00:23:13.290 --> 00:23:18.820 align:middle line:84% or whatever CBO takes your bill, takes the bill language, 00:23:18.820 --> 00:23:21.220 align:middle line:84% and estimates what it's going to cost. 00:23:21.220 --> 00:23:24.420 align:middle line:84% They have models of the type we'll discuss this semester. 00:23:24.420 --> 00:23:26.300 align:middle line:84% And they form estimates, including 00:23:26.300 --> 00:23:29.980 align:middle line:84% both direct and indirect effects of what it's going to cost. 00:23:29.980 --> 00:23:34.340 align:middle line:84% And that becomes the official word for Congress. 00:23:34.340 --> 00:23:36.980 align:middle line:84% And basically, what that means is 00:23:36.980 --> 00:23:39.740 align:middle line:84% that if you want to do some policy that's 00:23:39.740 --> 00:23:43.793 align:middle line:84% fiscally responsible, CBO is going to call you out on it. 00:23:43.793 --> 00:23:45.960 align:middle line:84% So let me give a simple example of why this matters. 00:23:45.960 --> 00:23:48.578 align:middle line:84% In 1965, Lyndon Johnson wanted to introduce 00:23:48.578 --> 00:23:50.620 align:middle line:84% the Medicare program, which is universal coverage 00:23:50.620 --> 00:23:52.380 align:middle line:90% for the elderly. 00:23:52.380 --> 00:23:55.140 align:middle line:90% He knew it was going to cost x. 00:23:55.140 --> 00:23:58.220 align:middle line:84% He announced it would cost 1/10 x. 00:23:58.220 --> 00:23:59.400 align:middle line:90% And he passed it. 00:23:59.400 --> 00:24:02.020 align:middle line:84% And no one could really say he was wrong. 00:24:02.020 --> 00:24:03.368 align:middle line:90% Now, I like we have Medicare. 00:24:03.368 --> 00:24:05.160 align:middle line:84% I'm not saying that was the wrong decision. 00:24:05.160 --> 00:24:07.300 align:middle line:84% But it's no way to make a decision. 00:24:07.300 --> 00:24:10.420 align:middle line:84% We want to know-- we want our eyes open when we go in 00:24:10.420 --> 00:24:11.920 align:middle line:84% and think about government policy. 00:24:11.920 --> 00:24:14.420 align:middle line:84% We want our eyes wide open and what we're getting into. 00:24:14.420 --> 00:24:15.820 align:middle line:84% And that's going to mean actually 00:24:15.820 --> 00:24:18.080 align:middle line:84% having objective scoring of what that is. 00:24:18.080 --> 00:24:19.980 align:middle line:90% And that's what the CBO does. 00:24:19.980 --> 00:24:24.220 align:middle line:84% So they really are sort of the truth tellers in Washington 00:24:24.220 --> 00:24:26.220 align:middle line:84% about what government policies are going to cost 00:24:26.220 --> 00:24:27.428 align:middle line:90% and what they're going to do. 00:24:27.428 --> 00:24:29.262 align:middle line:84% And we'll refer to them with great reverence 00:24:29.262 --> 00:24:30.400 align:middle line:90% throughout the semester. 00:24:30.400 --> 00:24:33.960 align:middle line:84% Now, to be clear, if they're projecting a number, 00:24:33.960 --> 00:24:37.140 align:middle line:84% it is, by definition, never right. 00:24:37.140 --> 00:24:39.440 align:middle line:84% It's impossible to project these things correctly. 00:24:39.440 --> 00:24:41.720 align:middle line:84% All you want is that the errors are symmetric. 00:24:41.720 --> 00:24:43.220 align:middle line:84% You just want an organization, which 00:24:43.220 --> 00:24:44.860 align:middle line:84% is not going to get it right-- you can't hold them 00:24:44.860 --> 00:24:46.022 align:middle line:90% by how right they get it. 00:24:46.022 --> 00:24:47.980 align:middle line:84% You just want to make sure their errors are not 00:24:47.980 --> 00:24:49.543 align:middle line:90% too large and symmetric. 00:24:49.543 --> 00:24:51.460 align:middle line:84% One way to see that they achieve that goal is, 00:24:51.460 --> 00:24:53.460 align:middle line:90% both parties hate them equally. 00:24:53.460 --> 00:24:54.980 align:middle line:90% That is a good sign. 00:24:54.980 --> 00:24:57.180 align:middle line:84% If any party ever starts defending CBO a lot 00:24:57.180 --> 00:24:59.500 align:middle line:84% compared to the other, then that's a problem. 00:24:59.500 --> 00:25:03.320 align:middle line:84% So we'll talk about that more in the semester. 00:25:03.320 --> 00:25:07.940 align:middle line:84% And then the final question in public finance is the why. 00:25:07.940 --> 00:25:11.380 align:middle line:84% Why do governments do the crazy shit they do? 00:25:11.380 --> 00:25:13.580 align:middle line:84% Why does Canada have single-payer coverage and we 00:25:13.580 --> 00:25:15.760 align:middle line:84% have this mixed private-public system? 00:25:15.760 --> 00:25:18.480 align:middle line:90% 00:25:18.480 --> 00:25:22.060 align:middle line:84% This, at least, is the field of what's called political economy, 00:25:22.060 --> 00:25:25.940 align:middle line:90% political economy. 00:25:25.940 --> 00:25:28.780 align:middle line:84% Now, this is a really an entire subfield of economics. 00:25:28.780 --> 00:25:30.280 align:middle line:84% You can take entire classes on that. 00:25:30.280 --> 00:25:32.655 align:middle line:84% In fact, we have the world's leading political economists 00:25:32.655 --> 00:25:33.540 align:middle line:90% right here at MIT. 00:25:33.540 --> 00:25:35.713 align:middle line:84% You can take entire classes on that. 00:25:35.713 --> 00:25:37.380 align:middle line:84% We will, unfortunately, devote a lecture 00:25:37.380 --> 00:25:40.860 align:middle line:90% to it, which is really unfair. 00:25:40.860 --> 00:25:45.380 align:middle line:84% It's just it's kind of not fun and depressing. 00:25:45.380 --> 00:25:47.605 align:middle line:84% Basically, we're going to spend the semester talking 00:25:47.605 --> 00:25:49.480 align:middle line:84% about what a benevolent government should do. 00:25:49.480 --> 00:25:50.500 align:middle line:84% And then we'll spend a lecture talking 00:25:50.500 --> 00:25:51.550 align:middle line:84% about why governments aren't benevolent 00:25:51.550 --> 00:25:52.860 align:middle line:90% and they screw everything up. 00:25:52.860 --> 00:25:54.140 align:middle line:84% And then I'll say, oh, well, let's go back 00:25:54.140 --> 00:25:56.120 align:middle line:84% and assume what benevolent governments can do. 00:25:56.120 --> 00:25:58.453 align:middle line:84% That's not quite right, because throughout the semester, 00:25:58.453 --> 00:26:00.820 align:middle line:84% I'll talk about some political realities that intervene 00:26:00.820 --> 00:26:02.218 align:middle line:90% in doing the right thing. 00:26:02.218 --> 00:26:03.760 align:middle line:84% But political economy is fascinating. 00:26:03.760 --> 00:26:04.677 align:middle line:90% It's really important. 00:26:04.677 --> 00:26:05.930 align:middle line:90% It's increasingly important. 00:26:05.930 --> 00:26:07.680 align:middle line:84% And we'll spend some time on this semester 00:26:07.680 --> 00:26:09.980 align:middle line:84% but not nearly as much as it deserves. 00:26:09.980 --> 00:26:11.180 align:middle line:90% OK. 00:26:11.180 --> 00:26:13.720 align:middle line:84% Questions about the four questions? 00:26:13.720 --> 00:26:14.220 align:middle line:90% Yeah? 00:26:14.220 --> 00:26:16.167 align:middle line:90% AUDIENCE: I'm just curious. 00:26:16.167 --> 00:26:18.500 align:middle line:84% Who's the person who does a lot of the work [INAUDIBLE]? 00:26:18.500 --> 00:26:19.800 align:middle line:84% JON GRUBER: Well, no, we have economists. 00:26:19.800 --> 00:26:20.342 align:middle line:90% We have many. 00:26:20.342 --> 00:26:24.220 align:middle line:84% We have Daron Acemoglu, Ben Olken, Abhijit Banerjee. 00:26:24.220 --> 00:26:26.660 align:middle line:84% We just hired a guy named Jacob Moscona. 00:26:26.660 --> 00:26:29.115 align:middle line:90% We have a ton of-- 00:26:29.115 --> 00:26:30.740 align:middle line:84% really, we have, by far, the best group 00:26:30.740 --> 00:26:33.203 align:middle line:90% doing that in the world. 00:26:33.203 --> 00:26:35.620 align:middle line:84% And probably the single book and political economists book 00:26:35.620 --> 00:26:38.060 align:middle line:84% called Why Nations Fail by Daron Acemoglu 00:26:38.060 --> 00:26:39.280 align:middle line:90% sold, like, a million copies. 00:26:39.280 --> 00:26:44.740 align:middle line:84% It's probably the central book of political economy today. 00:26:44.740 --> 00:26:45.280 align:middle line:90% All right. 00:26:45.280 --> 00:26:48.060 align:middle line:90% Other questions? 00:26:48.060 --> 00:26:48.900 align:middle line:90% OK. 00:26:48.900 --> 00:26:51.380 align:middle line:84% So now let's go on to the next thing I want to cover 00:26:51.380 --> 00:26:54.420 align:middle line:84% this lecture, which is, why should we care? 00:26:54.420 --> 00:26:55.920 align:middle line:90% What's going on? 00:26:55.920 --> 00:26:57.320 align:middle line:90% Why does any of this matter? 00:26:57.320 --> 00:26:58.500 align:middle line:90% And to do that-- 00:26:58.500 --> 00:26:59.080 align:middle line:90% we're at MIT. 00:26:59.080 --> 00:27:00.580 align:middle line:84% I want to motivate that with some facts. 00:27:00.580 --> 00:27:01.640 align:middle line:90% So let's go to the handout. 00:27:01.640 --> 00:27:03.807 align:middle line:84% You should all have grabbed a handout from up front. 00:27:03.807 --> 00:27:07.140 align:middle line:84% By the way, every lecture, there will be a handout to pick up. 00:27:07.140 --> 00:27:08.993 align:middle line:90% Make sure you pick it up. 00:27:08.993 --> 00:27:10.410 align:middle line:84% Also, if you have the book online, 00:27:10.410 --> 00:27:11.618 align:middle line:90% you can look on your laptops. 00:27:11.618 --> 00:27:12.590 align:middle line:90% It's not a problem. 00:27:12.590 --> 00:27:14.430 align:middle line:84% You don't have to look at it on paper. 00:27:14.430 --> 00:27:15.930 align:middle line:84% But if you don't have your laptop, 00:27:15.930 --> 00:27:19.025 align:middle line:84% you don't have access to the chapters-- 00:27:19.025 --> 00:27:21.150 align:middle line:84% the handouts will always just be tables and figures 00:27:21.150 --> 00:27:22.197 align:middle line:90% from every chapter. 00:27:22.197 --> 00:27:24.030 align:middle line:84% If you access to the chapters online, great. 00:27:24.030 --> 00:27:25.230 align:middle line:90% If not, you can grab a handout. 00:27:25.230 --> 00:27:25.730 align:middle line:90% OK. 00:27:25.730 --> 00:27:28.798 align:middle line:84% So this is from section 1.2 of the book, which is 00:27:28.798 --> 00:27:30.090 align:middle line:90% the facts about the government. 00:27:30.090 --> 00:27:31.923 align:middle line:84% Let's go through facts about the government. 00:27:31.923 --> 00:27:35.730 align:middle line:84% Figure 1.2 is the growth in the size of the US government, 00:27:35.730 --> 00:27:38.390 align:middle line:84% the percent of GDP that is spending 00:27:38.390 --> 00:27:40.590 align:middle line:84% by the federal government over time. 00:27:40.590 --> 00:27:42.690 align:middle line:84% What you see is that when we started 00:27:42.690 --> 00:27:44.690 align:middle line:84% collecting this data around the Great Recession, 00:27:44.690 --> 00:27:46.910 align:middle line:84% the federal government was very small. 00:27:46.910 --> 00:27:49.870 align:middle line:84% About 5% of GDP was government expenditures. 00:27:49.870 --> 00:27:52.670 align:middle line:84% It then exploded during World War II, 00:27:52.670 --> 00:27:55.390 align:middle line:84% then settled back to a slowly-rising trend, 00:27:55.390 --> 00:28:00.290 align:middle line:84% really peaking in about the 1980s. 00:28:00.290 --> 00:28:01.890 align:middle line:90% Then it went back up om 2010. 00:28:01.890 --> 00:28:06.790 align:middle line:84% If this graph went into COVID, you'd see a big peak in 2021. 00:28:06.790 --> 00:28:09.310 align:middle line:84% 2021, the government spending went up 00:28:09.310 --> 00:28:12.830 align:middle line:84% to over 30% of the economy, the biggest since World War II. 00:28:12.830 --> 00:28:17.013 align:middle line:84% And now it's back down to about 25% of the economy. 00:28:17.013 --> 00:28:18.930 align:middle line:84% So basically, if you want to extend this line, 00:28:18.930 --> 00:28:21.330 align:middle line:90% it goes up to about 30% in 2021. 00:28:21.330 --> 00:28:25.590 align:middle line:84% And today, it's back down about 24%, I think, of the economy. 00:28:25.590 --> 00:28:27.870 align:middle line:84% So this raises natural questions, 00:28:27.870 --> 00:28:30.270 align:middle line:84% such as well, what is the right percent of the economy 00:28:30.270 --> 00:28:31.510 align:middle line:90% for the government? 00:28:31.510 --> 00:28:33.390 align:middle line:90% And why did it grow? 00:28:33.390 --> 00:28:36.430 align:middle line:84% And is it good that it grew or bad that it grew? 00:28:36.430 --> 00:28:38.222 align:middle line:84% You should be looking at graphs like this. 00:28:38.222 --> 00:28:40.430 align:middle line:84% That's the central question you want to ask yourself, 00:28:40.430 --> 00:28:43.970 align:middle line:84% is, what does this all mean for what the US government's doing, 00:28:43.970 --> 00:28:46.480 align:middle line:84% both what it's done and what it should be doing? 00:28:46.480 --> 00:28:48.230 align:middle line:84% So that's one sort of facts we'll look at. 00:28:48.230 --> 00:28:53.750 align:middle line:84% And comparatively, you can look at figure 1-2. 00:28:53.750 --> 00:28:55.890 align:middle line:84% This shows the growth of government spending. 00:28:55.890 --> 00:28:56.910 align:middle line:90% Now, let me be clear. 00:28:56.910 --> 00:28:58.450 align:middle line:84% Sometimes these figures look contradictory. 00:28:58.450 --> 00:29:00.075 align:middle line:84% If you note, the US line in this figure 00:29:00.075 --> 00:29:01.950 align:middle line:84% is higher than the previous figure, that's 00:29:01.950 --> 00:29:04.430 align:middle line:84% because this includes all of government-- federal 00:29:04.430 --> 00:29:05.570 align:middle line:90% and state and local. 00:29:05.570 --> 00:29:06.950 align:middle line:90% I'll come to that in a minute. 00:29:06.950 --> 00:29:08.770 align:middle line:84% This is total size of government. 00:29:08.770 --> 00:29:11.790 align:middle line:84% And what you see here is, you can see the US growth 00:29:11.790 --> 00:29:15.950 align:middle line:90% in the orangish line. 00:29:15.950 --> 00:29:17.447 align:middle line:84% And you compare that to the average 00:29:17.447 --> 00:29:18.530 align:middle line:90% among developed countries. 00:29:18.530 --> 00:29:19.905 align:middle line:84% Our indicator developed countries 00:29:19.905 --> 00:29:22.090 align:middle line:84% is called the OECD, the Organization of Economic-- 00:29:22.090 --> 00:29:24.273 align:middle line:90% I don't know what it stands for. 00:29:24.273 --> 00:29:25.190 align:middle line:90% O is for Organization. 00:29:25.190 --> 00:29:26.690 align:middle line:90% I know that. 00:29:26.690 --> 00:29:29.850 align:middle line:84% And that's our set of developed country counterparts. 00:29:29.850 --> 00:29:32.710 align:middle line:84% You see, actually, we started about the same place as OECD 00:29:32.710 --> 00:29:34.070 align:middle line:90% in 1960. 00:29:34.070 --> 00:29:36.310 align:middle line:84% OECD countries have grown somewhat more than the US 00:29:36.310 --> 00:29:40.120 align:middle line:84% over time, although they've come back in line. 00:29:40.120 --> 00:29:41.870 align:middle line:84% You see two interesting different patterns 00:29:41.870 --> 00:29:43.650 align:middle line:84% in Sweden and Greece, just two examples. 00:29:43.650 --> 00:29:45.830 align:middle line:84% Sweden, spending by the government exploded 00:29:45.830 --> 00:29:49.150 align:middle line:84% in the 1970s, to the point where, by 1980, 00:29:49.150 --> 00:29:53.647 align:middle line:84% 2/3 of all activity in the Swedish economy was government. 00:29:53.647 --> 00:29:55.730 align:middle line:84% That was a huge number that persisted for a while, 00:29:55.730 --> 00:29:57.617 align:middle line:84% but it started to fall again over time. 00:29:57.617 --> 00:29:59.450 align:middle line:84% Sweden then started reducing that over time, 00:29:59.450 --> 00:30:02.470 align:middle line:84% and it's actually come back down to about 50%. 00:30:02.470 --> 00:30:05.230 align:middle line:84% Compare that to Greece, which, for many, many years, 00:30:05.230 --> 00:30:10.190 align:middle line:84% was well below the OECD average and then exploded in the 1990s, 00:30:10.190 --> 00:30:13.990 align:middle line:84% ultimately leading to what we know as the Greek debt crisis 00:30:13.990 --> 00:30:18.710 align:middle line:84% about a decade ago, and is now spending at a level 00:30:18.710 --> 00:30:23.070 align:middle line:84% that's comparable to Sweden and above the OECD average. 00:30:23.070 --> 00:30:25.310 align:middle line:84% So once again, lots of different patterns-- 00:30:25.310 --> 00:30:28.010 align:middle line:84% why did Sweden explode in the '70s then come back down? 00:30:28.010 --> 00:30:30.093 align:middle line:90% Why did Greece explode later? 00:30:30.093 --> 00:30:32.510 align:middle line:84% These are the kind of things we want to try to understand. 00:30:32.510 --> 00:30:34.650 align:middle line:84% And what were the effects of all those? 00:30:34.650 --> 00:30:37.470 align:middle line:90% 00:30:37.470 --> 00:30:43.390 align:middle line:84% Fact number 3, figure 1.3, the highly-technical figure 1.3 00:30:43.390 --> 00:30:46.310 align:middle line:84% shows the division of what the US government does 00:30:46.310 --> 00:30:51.150 align:middle line:84% between federal and state and local expenditures, 00:30:51.150 --> 00:30:53.390 align:middle line:84% or what we might call the central 00:30:53.390 --> 00:30:57.550 align:middle line:84% and the decentralized part of the US government. 00:30:57.550 --> 00:31:00.030 align:middle line:84% Now, what you see here is, federal expenditures are about 00:31:00.030 --> 00:31:05.160 align:middle line:84% 2/3 of total government expenditure. 00:31:05.160 --> 00:31:11.000 align:middle line:84% Now, that actually is pretty steady over time 00:31:11.000 --> 00:31:14.280 align:middle line:84% but changed dramatically during COVID 00:31:14.280 --> 00:31:17.560 align:middle line:84% when the federal share went much, much higher. 00:31:17.560 --> 00:31:20.260 align:middle line:84% Now it's slowly returning back to that long-run steady state-- 00:31:20.260 --> 00:31:22.100 align:middle line:84% and differs enormously across countries. 00:31:22.100 --> 00:31:25.240 align:middle line:84% We'll see in Chapter 10, where we discuss this, 00:31:25.240 --> 00:31:28.040 align:middle line:84% the US government is relatively unusual in how little is 00:31:28.040 --> 00:31:29.560 align:middle line:90% done by the central government. 00:31:29.560 --> 00:31:32.600 align:middle line:84% Most other countries have a much larger share 00:31:32.600 --> 00:31:34.060 align:middle line:84% of the government expenditures run 00:31:34.060 --> 00:31:36.060 align:middle line:84% through the central government than the US does. 00:31:36.060 --> 00:31:40.800 align:middle line:84% We have a relatively decentralized government. 00:31:40.800 --> 00:31:42.760 align:middle line:84% A relatively large share of our spending 00:31:42.760 --> 00:31:44.240 align:middle line:84% goes through states and localities 00:31:44.240 --> 00:31:46.440 align:middle line:84% as opposed to the federal government. 00:31:46.440 --> 00:31:48.320 align:middle line:84% This raises a set of questions you probably 00:31:48.320 --> 00:31:50.903 align:middle line:84% haven't thought a lot about, but which are really interesting, 00:31:50.903 --> 00:31:53.240 align:middle line:84% that go into the name of fiscal federalism, which 00:31:53.240 --> 00:31:56.240 align:middle line:84% is, what should be done at what level of government? 00:31:56.240 --> 00:31:59.160 align:middle line:84% Why is defense done by the federal government and education 00:31:59.160 --> 00:32:00.920 align:middle line:90% done by towns? 00:32:00.920 --> 00:32:04.360 align:middle line:84% Why are roads and police done by towns 00:32:04.360 --> 00:32:06.800 align:middle line:84% but welfare programs, like Medicaid and the FTC, 00:32:06.800 --> 00:32:08.920 align:middle line:90% are run by states? 00:32:08.920 --> 00:32:09.780 align:middle line:90% Does it make sense? 00:32:09.780 --> 00:32:11.655 align:middle line:84% Is it done for some random historical reason, 00:32:11.655 --> 00:32:14.100 align:middle line:84% or is there actually a strong theoretical basis behind it? 00:32:14.100 --> 00:32:16.920 align:middle line:84% I'll argue there is, actually, and that, actually, there's 00:32:16.920 --> 00:32:19.865 align:middle line:84% a solid explanation for why we distribute things the way we do. 00:32:19.865 --> 00:32:21.240 align:middle line:84% And that's the purview of what we 00:32:21.240 --> 00:32:26.840 align:middle line:84% call fiscal federalism, which is what we'll cover in chapter 10. 00:32:26.840 --> 00:32:31.200 align:middle line:84% So that's the third fact I want you to focus on. 00:32:31.200 --> 00:32:34.200 align:middle line:84% The fourth set of facts are around the government's budget 00:32:34.200 --> 00:32:34.940 align:middle line:90% balance. 00:32:34.940 --> 00:32:38.420 align:middle line:84% Now, this course is distinctly a microeconomics course. 00:32:38.420 --> 00:32:40.298 align:middle line:84% We'll do incredibly little macro. 00:32:40.298 --> 00:32:41.840 align:middle line:84% Basically, the only macro in the book 00:32:41.840 --> 00:32:44.280 align:middle line:84% is contained in chapter 4, which you'll cover 00:32:44.280 --> 00:32:46.200 align:middle line:90% in section in a few weeks. 00:32:46.200 --> 00:32:53.040 align:middle line:84% But this sort of notion that deficits are bad 00:32:53.040 --> 00:32:55.320 align:middle line:84% lies behind a lot of what we'll talk about 00:32:55.320 --> 00:32:56.560 align:middle line:90% throughout this semester. 00:32:56.560 --> 00:32:58.360 align:middle line:90% Now, is that notion correct? 00:32:58.360 --> 00:33:00.760 align:middle line:84% You'll talk about it in section in chapter 4. 00:33:00.760 --> 00:33:03.080 align:middle line:84% But nonetheless, it's a focus of a lot of what we'll 00:33:03.080 --> 00:33:05.780 align:middle line:84% talk about as an underlying-- in other words, 00:33:05.780 --> 00:33:08.000 align:middle line:84% we're going to talk about throughout this notion 00:33:08.000 --> 00:33:10.260 align:middle line:84% that the government doesn't have an unlimited budget. 00:33:10.260 --> 00:33:12.680 align:middle line:84% It's got to eventually pay its bills. 00:33:12.680 --> 00:33:14.560 align:middle line:84% In chapter 4, we talk about why that's 00:33:14.560 --> 00:33:17.640 align:middle line:84% a framework that makes sense and where it comes from. 00:33:17.640 --> 00:33:20.658 align:middle line:84% But for the rest of the book, we'll just take that as given. 00:33:20.658 --> 00:33:22.700 align:middle line:84% Now, what are the facts on the government budget? 00:33:22.700 --> 00:33:24.320 align:middle line:90% Well, it's rather interesting. 00:33:24.320 --> 00:33:27.760 align:middle line:84% Once again, you see that expenditures 00:33:27.760 --> 00:33:30.440 align:middle line:84% we saw before-- this is now back to the federal level only. 00:33:30.440 --> 00:33:32.460 align:middle line:84% You see, revenues, except for World War II, 00:33:32.460 --> 00:33:34.755 align:middle line:84% were largely in line with expenditures. 00:33:34.755 --> 00:33:36.380 align:middle line:84% And therefore, except for World War II, 00:33:36.380 --> 00:33:41.440 align:middle line:84% until about the early '70s, we had a zero surplus or deficit. 00:33:41.440 --> 00:33:44.120 align:middle line:84% That is, government spending was about the same 00:33:44.120 --> 00:33:47.240 align:middle line:90% as government revenues. 00:33:47.240 --> 00:33:51.080 align:middle line:84% Then, starting in the 1970s, we started building up large 00:33:51.080 --> 00:33:51.740 align:middle line:90% deficits. 00:33:51.740 --> 00:33:55.840 align:middle line:84% That's the second panel, the numbers going below 0. 00:33:55.840 --> 00:33:59.200 align:middle line:84% And you see the gap between the red and blue lines growing. 00:33:59.200 --> 00:33:59.780 align:middle line:90% OK. 00:33:59.780 --> 00:34:02.400 align:middle line:84% We started to build up large deficits. 00:34:02.400 --> 00:34:05.585 align:middle line:84% Then in the 1990s, there was a boom in tax collections that, 00:34:05.585 --> 00:34:07.960 align:middle line:84% actually, we closed the deficit and actually briefly went 00:34:07.960 --> 00:34:10.052 align:middle line:90% into surplus. 00:34:10.052 --> 00:34:11.219 align:middle line:90% I remember was very excited. 00:34:11.219 --> 00:34:12.420 align:middle line:90% I was in the White House. 00:34:12.420 --> 00:34:13.540 align:middle line:84% I was in the Clinton administration. 00:34:13.540 --> 00:34:15.400 align:middle line:84% I got to be in the White House when Clinton 00:34:15.400 --> 00:34:19.072 align:middle line:84% did this big celebration about how we'd move to surplus, 00:34:19.072 --> 00:34:20.780 align:middle line:84% and we're going to end the national debt. 00:34:20.780 --> 00:34:23.780 align:middle line:84% And then what happened was, of course, what always happens, 00:34:23.780 --> 00:34:27.199 align:middle line:84% which is, once President Bush got elected, 00:34:27.199 --> 00:34:30.239 align:middle line:90% we went back into deficit. 00:34:30.239 --> 00:34:34.679 align:middle line:84% That deficit got significant during both Bush and Obama 00:34:34.679 --> 00:34:38.739 align:middle line:84% handling the Great Recession of the late 2008, 2009 period. 00:34:38.739 --> 00:34:41.600 align:middle line:84% And we'll talk some about why the Great Recession led 00:34:41.600 --> 00:34:44.080 align:middle line:90% to such a boom in the deficit. 00:34:44.080 --> 00:34:46.920 align:middle line:84% It then started to close, and then COVID hit. 00:34:46.920 --> 00:34:49.380 align:middle line:84% And once again, this graph stops at an early point. 00:34:49.380 --> 00:34:52.480 align:middle line:84% You'll see there the deficit explodes during COVID 00:34:52.480 --> 00:34:56.489 align:middle line:84% again because the massive federal spending on the economy. 00:34:56.489 --> 00:34:58.770 align:middle line:84% And we'll talk about what that federal spending was. 00:34:58.770 --> 00:35:01.090 align:middle line:84% And now it's starting to close again. 00:35:01.090 --> 00:35:03.270 align:middle line:84% So basically, if you extend this graph, 00:35:03.270 --> 00:35:06.590 align:middle line:84% you'll see the red line going way up. 00:35:06.590 --> 00:35:11.670 align:middle line:84% Like I said, we went up to about 30% of GDP in 2021. 00:35:11.670 --> 00:35:14.115 align:middle line:84% The blue line stays pretty much the same. 00:35:14.115 --> 00:35:15.490 align:middle line:84% And eventually, now, the red line 00:35:15.490 --> 00:35:17.032 align:middle line:84% is coming back towards the blue line. 00:35:17.032 --> 00:35:19.370 align:middle line:84% But we've got very large deficits now. 00:35:19.370 --> 00:35:21.090 align:middle line:90% The result is the national debt. 00:35:21.090 --> 00:35:22.510 align:middle line:90% Deficit's a flow measure. 00:35:22.510 --> 00:35:24.010 align:middle line:90% Debt is a stock measure. 00:35:24.010 --> 00:35:27.030 align:middle line:84% The debt is the accumulation of all past national deficits. 00:35:27.030 --> 00:35:29.490 align:middle line:84% And what you see is, we had a modest national debt 00:35:29.490 --> 00:35:31.250 align:middle line:90% to World War II. 00:35:31.250 --> 00:35:34.130 align:middle line:84% World War II caused the national debt to spike at about 120% 00:35:34.130 --> 00:35:35.450 align:middle line:90% of GDP. 00:35:35.450 --> 00:35:36.630 align:middle line:90% It then fell over time. 00:35:36.630 --> 00:35:37.870 align:middle line:90% Now, here's the clear thing. 00:35:37.870 --> 00:35:40.040 align:middle line:90% Here's the key thing. 00:35:40.040 --> 00:35:42.290 align:middle line:84% When you're talking about aggregate concepts like debt 00:35:42.290 --> 00:35:45.690 align:middle line:84% or deficit, never talk about them in dollars. 00:35:45.690 --> 00:35:47.470 align:middle line:84% Politicians are very good at this. 00:35:47.470 --> 00:35:49.450 align:middle line:84% When they want to make a number sound big, 00:35:49.450 --> 00:35:50.590 align:middle line:84% they'll talk about it in dollars. 00:35:50.590 --> 00:35:52.132 align:middle line:84% To make a number sound small, they'll 00:35:52.132 --> 00:35:54.810 align:middle line:84% talk about it as a percent of something. 00:35:54.810 --> 00:35:56.230 align:middle line:90% We aren't politicians. 00:35:56.230 --> 00:35:57.450 align:middle line:90% We care about things right. 00:35:57.450 --> 00:35:58.890 align:middle line:84% The dollar amount doesn't matter. 00:35:58.890 --> 00:36:00.650 align:middle line:84% Dollars are worth different times a different period 00:36:00.650 --> 00:36:00.990 align:middle line:90% of time. 00:36:00.990 --> 00:36:01.532 align:middle line:90% We know that. 00:36:01.532 --> 00:36:03.730 align:middle line:84% You'll review present discounted value in chapter 4. 00:36:03.730 --> 00:36:06.748 align:middle line:84% What matters is the share of the economy, how big is the debt. 00:36:06.748 --> 00:36:08.790 align:middle line:84% And what you see is, from the end of World War II 00:36:08.790 --> 00:36:12.150 align:middle line:84% all the way to 1980, the debt shrunk enormously a share 00:36:12.150 --> 00:36:13.650 align:middle line:84% of the economy, not because the debt 00:36:13.650 --> 00:36:15.525 align:middle line:84% fell-- because the economy grew, and the debt 00:36:15.525 --> 00:36:16.610 align:middle line:90% didn't grow as fast. 00:36:16.610 --> 00:36:21.088 align:middle line:84% So we basically grew out of our debt in that period. 00:36:21.088 --> 00:36:23.630 align:middle line:84% Then deficits started to rise and the debt accumulated again. 00:36:23.630 --> 00:36:26.810 align:middle line:84% It flattened out a bit in the 2000s because we had gotten 00:36:26.810 --> 00:36:27.910 align:middle line:90% the small deficits. 00:36:27.910 --> 00:36:29.110 align:middle line:90% Now it's exploded. 00:36:29.110 --> 00:36:31.530 align:middle line:84% Now we're currently at approximately 00:36:31.530 --> 00:36:35.090 align:middle line:84% where we were at the end of World War II, about 125% of GDP. 00:36:35.090 --> 00:36:42.090 align:middle line:84% The debt's the largest it's been now in 70 years, 80 years. 00:36:42.090 --> 00:36:44.030 align:middle line:84% So once again, how do we about that? 00:36:44.030 --> 00:36:44.730 align:middle line:90% Yeah. 00:36:44.730 --> 00:36:46.390 align:middle line:84% AUDIENCE: When we say that we grew out of our debt, 00:36:46.390 --> 00:36:48.515 align:middle line:84% is that referring to the economy is growing, or did 00:36:48.515 --> 00:36:50.085 align:middle line:90% we just inflate away the data? 00:36:50.085 --> 00:36:51.710 align:middle line:84% JON GRUBER: Well, that's a great point. 00:36:51.710 --> 00:36:52.970 align:middle line:84% We nominally grew out of our debt. 00:36:52.970 --> 00:36:54.928 align:middle line:84% And once again, you'll cover this in chapter 4. 00:36:54.928 --> 00:36:58.630 align:middle line:84% What that means is, the debt is denominated in nominal dollars. 00:36:58.630 --> 00:37:00.545 align:middle line:84% The nominal economy grew massively. 00:37:00.545 --> 00:37:01.670 align:middle line:90% Some of that was inflation. 00:37:01.670 --> 00:37:03.970 align:middle line:84% A lot of it was underlying growth. 00:37:03.970 --> 00:37:05.993 align:middle line:90% Good question. 00:37:05.993 --> 00:37:07.910 align:middle line:84% So where does that put us in national context? 00:37:07.910 --> 00:37:10.618 align:middle line:84% Well, if you look at figure 1-5, that shows where our debt levels 00:37:10.618 --> 00:37:12.370 align:middle line:90% are relative to other countries. 00:37:12.370 --> 00:37:14.570 align:middle line:90% We were right in the middle. 00:37:14.570 --> 00:37:16.342 align:middle line:90% I'm now revising the textbook. 00:37:16.342 --> 00:37:18.050 align:middle line:84% We currently have the second-biggest debt 00:37:18.050 --> 00:37:19.610 align:middle line:90% in the world. 00:37:19.610 --> 00:37:22.130 align:middle line:84% So we've gone from being right in the middle in this graph 00:37:22.130 --> 00:37:26.470 align:middle line:84% to about second in the world with our debt. 00:37:26.470 --> 00:37:28.983 align:middle line:90% So we're large. 00:37:28.983 --> 00:37:31.150 align:middle line:84% There is, as I said, what you'll cover in chapter 4. 00:37:31.150 --> 00:37:34.130 align:middle line:84% There's a constant debate about whether it's too large, how 00:37:34.130 --> 00:37:35.890 align:middle line:90% worried we should be. 00:37:35.890 --> 00:37:38.390 align:middle line:84% We don't need to get in that debate other than to say, 00:37:38.390 --> 00:37:40.810 align:middle line:84% in general, we're going to operate under the concept 00:37:40.810 --> 00:37:43.130 align:middle line:84% that all else equal, it's better to not spend money 00:37:43.130 --> 00:37:44.710 align:middle line:90% than to spend money. 00:37:44.710 --> 00:37:47.290 align:middle line:84% All else equal, we don't want to burn money, 00:37:47.290 --> 00:37:51.650 align:middle line:84% that that's the underlying principle with which we'll 00:37:51.650 --> 00:37:54.520 align:middle line:90% operate. 00:37:54.520 --> 00:37:58.370 align:middle line:90% Now let's now turn to-- oh. 00:37:58.370 --> 00:38:01.438 align:middle line:84% Then it was interesting-- if you look at figure 1-6-- 00:38:01.438 --> 00:38:02.230 align:middle line:90% that's interesting. 00:38:02.230 --> 00:38:03.530 align:middle line:90% This is state and local. 00:38:03.530 --> 00:38:05.250 align:middle line:84% Note the difference the way state and local governments 00:38:05.250 --> 00:38:05.630 align:middle line:90% operate. 00:38:05.630 --> 00:38:07.797 align:middle line:84% State and local governments are generally in surplus 00:38:07.797 --> 00:38:09.490 align:middle line:90% and never in deficit. 00:38:09.490 --> 00:38:10.590 align:middle line:90% Why is that? 00:38:10.590 --> 00:38:12.342 align:middle line:90% Well, because it's the law. 00:38:12.342 --> 00:38:14.050 align:middle line:84% States have what's called balanced budget 00:38:14.050 --> 00:38:18.767 align:middle line:84% requirements that mandate that they can never be in deficit. 00:38:18.767 --> 00:38:20.350 align:middle line:84% And I think, well, that's a good idea. 00:38:20.350 --> 00:38:22.300 align:middle line:84% Why didn't the federal government have that? 00:38:22.300 --> 00:38:23.550 align:middle line:90% Well, that's a great question. 00:38:23.550 --> 00:38:25.310 align:middle line:84% That will be part of what you discuss in chapter 4, 00:38:25.310 --> 00:38:26.530 align:middle line:90% we'll discuss elsewhere. 00:38:26.530 --> 00:38:29.850 align:middle line:84% But the answer is, because of the macro stuff we don't cover, 00:38:29.850 --> 00:38:34.410 align:middle line:84% that basically, a standard way to fight 00:38:34.410 --> 00:38:36.810 align:middle line:84% macroeconomic cyclical fluctuations through government 00:38:36.810 --> 00:38:38.950 align:middle line:84% spending, that's the standard Keynesian model. 00:38:38.950 --> 00:38:39.890 align:middle line:84% And you wouldn't want the government 00:38:39.890 --> 00:38:41.970 align:middle line:84% not to be able to spend in bad times, which 00:38:41.970 --> 00:38:43.850 align:middle line:84% is why, even if a state-level balanced budget 00:38:43.850 --> 00:38:48.210 align:middle line:84% requirement makes sense, a federal level one does not. 00:38:48.210 --> 00:38:50.490 align:middle line:84% Now, the next thing we're going to talk about 00:38:50.490 --> 00:38:54.250 align:middle line:84% is, what does the government actually do with all this money? 00:38:54.250 --> 00:38:55.810 align:middle line:90% And that's in figure 1-7. 00:38:55.810 --> 00:38:58.570 align:middle line:90% 00:38:58.570 --> 00:39:02.690 align:middle line:84% This shows-- figure 1-7, there's four panels. 00:39:02.690 --> 00:39:07.530 align:middle line:84% The left panels are for 1960, the right panels for 2019. 00:39:07.530 --> 00:39:10.650 align:middle line:84% The upper is federal government, the lower state and local 00:39:10.650 --> 00:39:11.378 align:middle line:90% government. 00:39:11.378 --> 00:39:13.170 align:middle line:84% And this, I think, will have a lot of facts 00:39:13.170 --> 00:39:14.128 align:middle line:90% you may not have known. 00:39:14.128 --> 00:39:17.570 align:middle line:84% For example, in 1960, the federal government 00:39:17.570 --> 00:39:20.907 align:middle line:84% basically spent about half its dollars on defense. 00:39:20.907 --> 00:39:21.990 align:middle line:90% And other stuff was small. 00:39:21.990 --> 00:39:26.890 align:middle line:84% In particular, education, housing, and welfare 00:39:26.890 --> 00:39:28.130 align:middle line:90% was about 3.6%. 00:39:28.130 --> 00:39:31.330 align:middle line:84% And healthcare spending was 2.7%. 00:39:31.330 --> 00:39:33.650 align:middle line:84% Today, healthcare spending is the single largest thing 00:39:33.650 --> 00:39:34.483 align:middle line:90% the government does. 00:39:34.483 --> 00:39:36.210 align:middle line:90% It's gone up tenfold. 00:39:36.210 --> 00:39:39.930 align:middle line:84% So over the 60 years from 1960 to 2019, 00:39:39.930 --> 00:39:42.490 align:middle line:84% healthcare spending went from 2.6% of the government budget 00:39:42.490 --> 00:39:44.860 align:middle line:84% to 30% of the government's budget. 00:39:44.860 --> 00:39:49.060 align:middle line:90% Defense shrunk from 47% to 14%. 00:39:49.060 --> 00:39:51.260 align:middle line:90% Social Security's gone up some. 00:39:51.260 --> 00:39:53.940 align:middle line:90% Net interest is comparable. 00:39:53.940 --> 00:39:57.200 align:middle line:84% And basically, as the economist, Paul Krugman wrote, 00:39:57.200 --> 00:40:00.740 align:middle line:84% the US government has become a large social pension fund 00:40:00.740 --> 00:40:03.280 align:middle line:90% with a small army attached-- 00:40:03.280 --> 00:40:04.280 align:middle line:90% is kind of where we are. 00:40:04.280 --> 00:40:06.780 align:middle line:84% We've changed massively in how we spend our dollars compared 00:40:06.780 --> 00:40:08.860 align:middle line:90% to 1960. 00:40:08.860 --> 00:40:10.560 align:middle line:84% Now compare that to the state level. 00:40:10.560 --> 00:40:13.740 align:middle line:84% At the state level, things haven't changed as much. 00:40:13.740 --> 00:40:18.060 align:middle line:84% Health spending has also grown at the state level. 00:40:18.060 --> 00:40:20.740 align:middle line:84% Education spending shrunk a little bit. 00:40:20.740 --> 00:40:23.620 align:middle line:84% Other, whatever it is, is about comparable. 00:40:23.620 --> 00:40:25.680 align:middle line:84% What's more interesting is less the growth. 00:40:25.680 --> 00:40:28.520 align:middle line:84% It's more interesting, the comparison from up versus down. 00:40:28.520 --> 00:40:30.563 align:middle line:84% Look at the fundamentally different things 00:40:30.563 --> 00:40:32.980 align:middle line:84% that the federal government and state and local government 00:40:32.980 --> 00:40:33.880 align:middle line:90% spend their money on. 00:40:33.880 --> 00:40:35.672 align:middle line:84% The federal government's spending its money 00:40:35.672 --> 00:40:37.500 align:middle line:84% on health and Social Security and defense. 00:40:37.500 --> 00:40:40.568 align:middle line:84% But education, welfare, and housing together are 8%. 00:40:40.568 --> 00:40:42.860 align:middle line:84% Well, a third of what state and local governments spend 00:40:42.860 --> 00:40:45.540 align:middle line:90% the money on is education. 00:40:45.540 --> 00:40:48.980 align:middle line:84% And they spend nothing on defense and, comparable, 00:40:48.980 --> 00:40:50.580 align:middle line:90% somewhat less on health. 00:40:50.580 --> 00:40:52.780 align:middle line:84% So that raises a question I already asked, which is, 00:40:52.780 --> 00:40:56.543 align:middle line:84% why are these different spending done in such different ways 00:40:56.543 --> 00:40:57.960 align:middle line:84% at different levels of government? 00:40:57.960 --> 00:40:58.960 align:middle line:90% Does it make sense? 00:40:58.960 --> 00:41:00.460 align:middle line:90% What are the effects of that? 00:41:00.460 --> 00:41:02.180 align:middle line:84% That's a really fascinating question 00:41:02.180 --> 00:41:05.540 align:middle line:84% that we cover under fiscal federalism. 00:41:05.540 --> 00:41:07.600 align:middle line:84% Now, that's how the government spends its money. 00:41:07.600 --> 00:41:09.267 align:middle line:84% How does the government raise its money? 00:41:09.267 --> 00:41:11.980 align:middle line:90% 00:41:11.980 --> 00:41:15.340 align:middle line:84% Well, figure 1-8 gives the source of federal receipts. 00:41:15.340 --> 00:41:17.700 align:middle line:84% Now, here, what's interesting is-- 00:41:17.700 --> 00:41:20.740 align:middle line:84% once again, 1960 versus now 2020. 00:41:20.740 --> 00:41:21.520 align:middle line:90% Top is federal. 00:41:21.520 --> 00:41:22.852 align:middle line:90% Bottom is state and local. 00:41:22.852 --> 00:41:24.560 align:middle line:84% What's interesting here is, first of all, 00:41:24.560 --> 00:41:26.620 align:middle line:84% the share of federal revenues from income tax 00:41:26.620 --> 00:41:28.700 align:middle line:90% has basically not changed. 00:41:28.700 --> 00:41:30.980 align:middle line:84% We consistently get slightly less than half 00:41:30.980 --> 00:41:33.340 align:middle line:84% of our federal revenues from income taxes. 00:41:33.340 --> 00:41:35.950 align:middle line:84% Now, we'll talk about what income taxes are later. 00:41:35.950 --> 00:41:37.700 align:middle line:84% We'll talk about different kinds of taxes. 00:41:37.700 --> 00:41:39.325 align:middle line:84% Basically, with different kinds of tax, 00:41:39.325 --> 00:41:41.003 align:middle line:84% we tax income tax on your whole income. 00:41:41.003 --> 00:41:42.420 align:middle line:84% On the other hand, we have what we 00:41:42.420 --> 00:41:46.540 align:middle line:84% call social insurance contributions or also payroll 00:41:46.540 --> 00:41:49.180 align:middle line:84% taxes, which are that FICA line and Medicare line 00:41:49.180 --> 00:41:50.460 align:middle line:90% on your pay stub. 00:41:50.460 --> 00:41:53.500 align:middle line:84% Those are collected just on your pay but not other income. 00:41:53.500 --> 00:41:55.520 align:middle line:90% That's where the real change is. 00:41:55.520 --> 00:41:57.460 align:middle line:84% And then we also have corporate taxes, 00:41:57.460 --> 00:42:00.340 align:middle line:84% which is taxes on the profits made by corporations. 00:42:00.340 --> 00:42:02.100 align:middle line:84% And here's the fundamental change. 00:42:02.100 --> 00:42:05.100 align:middle line:84% We've gone from corporate taxes being 23% 00:42:05.100 --> 00:42:08.340 align:middle line:84% and social insurance being 17% to corporate taxes being 00:42:08.340 --> 00:42:11.140 align:middle line:84% 6% and social insurance being 39%. 00:42:11.140 --> 00:42:12.740 align:middle line:84% We've basically massively shifted 00:42:12.740 --> 00:42:17.237 align:middle line:84% from corporations paying taxes to pay to workers paying taxes. 00:42:17.237 --> 00:42:18.320 align:middle line:90% How do we feel about that? 00:42:18.320 --> 00:42:19.780 align:middle line:90% Well, at first, that sounds bad. 00:42:19.780 --> 00:42:22.100 align:middle line:84% Big corporation should pay tax, not workers. 00:42:22.100 --> 00:42:24.960 align:middle line:84% But then you realize that corporations pay the workers. 00:42:24.960 --> 00:42:26.460 align:middle line:84% And if they pay taxes, maybe they'll 00:42:26.460 --> 00:42:28.040 align:middle line:84% have less money to pay the workers. 00:42:28.040 --> 00:42:31.300 align:middle line:84% And maybe it's not such a big deal at the end of the day 00:42:31.300 --> 00:42:32.800 align:middle line:84% if it's corporate tax or worker tax. 00:42:32.800 --> 00:42:33.520 align:middle line:90% It's all the same pot. 00:42:33.520 --> 00:42:34.680 align:middle line:84% There's a bunch of money firms pay. 00:42:34.680 --> 00:42:37.100 align:middle line:84% They either pay it to workers or keeping profits-- doesn't really 00:42:37.100 --> 00:42:37.600 align:middle line:90% matter. 00:42:37.600 --> 00:42:38.860 align:middle line:90% It gets taxed. 00:42:38.860 --> 00:42:39.740 align:middle line:90% Which view is right? 00:42:39.740 --> 00:42:41.900 align:middle line:84% That's what we'll cover in chapter 19. 00:42:41.900 --> 00:42:44.380 align:middle line:84% We talk about tax incidence or the question of, 00:42:44.380 --> 00:42:46.580 align:middle line:90% who actually bears the taxes? 00:42:46.580 --> 00:42:48.963 align:middle line:84% Think about, what does it mean that our economy has 00:42:48.963 --> 00:42:51.380 align:middle line:84% gone from one which collects a large share of its revenues 00:42:51.380 --> 00:42:53.340 align:middle line:84% from corporations to one which collect 00:42:53.340 --> 00:42:57.420 align:middle line:84% a large share of its revenue from payroll? 00:42:57.420 --> 00:42:59.840 align:middle line:90% Now, that's spending and taxes. 00:42:59.840 --> 00:43:03.260 align:middle line:84% But it turns out, much of what the government does 00:43:03.260 --> 00:43:05.700 align:middle line:90% does not involve much money. 00:43:05.700 --> 00:43:08.340 align:middle line:84% And that's the regulatory role of the government. 00:43:08.340 --> 00:43:12.980 align:middle line:84% So, for example, the FDA, the Food and Drug Administration, 00:43:12.980 --> 00:43:17.160 align:middle line:84% approves all the food you eat, all the beverage you drink, 00:43:17.160 --> 00:43:18.820 align:middle line:90% and all the drugs you take. 00:43:18.820 --> 00:43:21.460 align:middle line:84% Now, the FDA, their budget is only 00:43:21.460 --> 00:43:26.180 align:middle line:84% 0.025% of the federal government budget, 00:43:26.180 --> 00:43:31.780 align:middle line:84% but their regulations affect on the order of $3 trillion 00:43:31.780 --> 00:43:34.060 align:middle line:90% of goods annually. 00:43:34.060 --> 00:43:36.850 align:middle line:84% So they have an outsized effect, not a lot of spending, 00:43:36.850 --> 00:43:39.390 align:middle line:90% but a huge regulatory effect. 00:43:39.390 --> 00:43:42.910 align:middle line:84% Likewise, if you think about work and think about safety 00:43:42.910 --> 00:43:45.750 align:middle line:84% at work, the OSHA, the Occupational Safety Hazard 00:43:45.750 --> 00:43:49.990 align:middle line:84% Administration, regulates the safety of workplaces. 00:43:49.990 --> 00:43:54.310 align:middle line:84% Once again, the agency only has 1,850 employees, 00:43:54.310 --> 00:43:57.790 align:middle line:84% but it is responsible for the safety of over 10 million work 00:43:57.790 --> 00:43:59.790 align:middle line:90% sites in America. 00:43:59.790 --> 00:44:02.270 align:middle line:90% They regulate work safety. 00:44:02.270 --> 00:44:04.030 align:middle line:84% If you listen to radio or watch TV, 00:44:04.030 --> 00:44:09.750 align:middle line:84% that's regulated by the Federal Communication Commission. 00:44:09.750 --> 00:44:12.330 align:middle line:90% And they've got a massive reach. 00:44:12.330 --> 00:44:16.423 align:middle line:84% And then, of course, the water you drink, the air you breathe, 00:44:16.423 --> 00:44:18.590 align:middle line:84% that's all regulated by the Environmental Protection 00:44:18.590 --> 00:44:24.865 align:middle line:84% Agency, which has a large staff, but once 00:44:24.865 --> 00:44:26.990 align:middle line:84% again, small relative to the giant environment it's 00:44:26.990 --> 00:44:28.110 align:middle line:90% regulating. 00:44:28.110 --> 00:44:30.990 align:middle line:84% So the government has both fiscal roles 00:44:30.990 --> 00:44:36.030 align:middle line:84% in spending and taxing and regulatory roles as well. 00:44:36.030 --> 00:44:42.110 align:middle line:84% Now, what we'll do in this book is, 00:44:42.110 --> 00:44:44.090 align:middle line:84% we will cover both of those roles. 00:44:44.090 --> 00:44:48.510 align:middle line:84% Let me give you a quick overview of where the story is going. 00:44:48.510 --> 00:44:54.030 align:middle line:84% So what we'll do is, we'll start in chapters 5 00:44:54.030 --> 00:44:58.750 align:middle line:84% through 11 in talking a lot about what the government's 00:44:58.750 --> 00:45:02.750 align:middle line:84% role is in dealing with externalities and public goods. 00:45:02.750 --> 00:45:05.170 align:middle line:84% And that's largely a regulatory role. 00:45:05.170 --> 00:45:07.270 align:middle line:84% There's some spending and taxing, but that's 00:45:07.270 --> 00:45:10.710 align:middle line:90% largely a regulatory role. 00:45:10.710 --> 00:45:12.630 align:middle line:84% That's the first segment of the course, 00:45:12.630 --> 00:45:14.773 align:middle line:84% is externalities and public goods. 00:45:14.773 --> 00:45:17.190 align:middle line:84% We'll talk about environment, environmental externalities, 00:45:17.190 --> 00:45:19.390 align:middle line:90% health externalities. 00:45:19.390 --> 00:45:22.390 align:middle line:90% We'll talk about education. 00:45:22.390 --> 00:45:24.570 align:middle line:84% We'll talk about state and local public finance. 00:45:24.570 --> 00:45:27.550 align:middle line:84% And we'll talk about how you do cost-benefit analysis. 00:45:27.550 --> 00:45:31.460 align:middle line:84% The second third of the course is the social insurance function 00:45:31.460 --> 00:45:32.210 align:middle line:90% of the government. 00:45:32.210 --> 00:45:34.910 align:middle line:84% That's Social Security, health insurance, 00:45:34.910 --> 00:45:36.990 align:middle line:84% all the stuff the government does to insure us. 00:45:36.990 --> 00:45:39.230 align:middle line:84% That's largely about spending and taxing. 00:45:39.230 --> 00:45:42.315 align:middle line:84% And that's the second third of the book. 00:45:42.315 --> 00:45:44.690 align:middle line:84% The third third of the book is, how do we pay for it all? 00:45:44.690 --> 00:45:46.120 align:middle line:90% And that's taxation. 00:45:46.120 --> 00:45:47.870 align:middle line:84% And then we'll cover all the various forms 00:45:47.870 --> 00:45:49.870 align:middle line:84% of taxation, how taxation affects 00:45:49.870 --> 00:45:52.470 align:middle line:84% our behavior and the function of the government. 00:45:52.470 --> 00:45:54.670 align:middle line:84% So that's where we're going in thirds. 00:45:54.670 --> 00:45:58.132 align:middle line:84% The midterm is going to cover slightly less 00:45:58.132 --> 00:46:00.590 align:middle line:84% than the first half of the course, the first third and some 00:46:00.590 --> 00:46:02.990 align:middle line:90% of the social insurance stuff. 00:46:02.990 --> 00:46:05.710 align:middle line:90% So that's where we're going. 00:46:05.710 --> 00:46:08.610 align:middle line:84% Now, the last thing I want to talk about today. 00:46:08.610 --> 00:46:09.110 align:middle line:90% Let me see. 00:46:09.110 --> 00:46:12.010 align:middle line:84% Are there any questions about this so far? 00:46:12.010 --> 00:46:12.510 align:middle line:90% OK. 00:46:12.510 --> 00:46:14.302 align:middle line:84% The last thing I want to talk about today-- 00:46:14.302 --> 00:46:15.193 align:middle line:90% I'll let you go. 00:46:15.193 --> 00:46:16.610 align:middle line:84% I usually won't let you out early. 00:46:16.610 --> 00:46:19.275 align:middle line:84% But I don't like going to next lectures. 00:46:19.275 --> 00:46:20.650 align:middle line:84% I like to keep it a little clean. 00:46:20.650 --> 00:46:22.688 align:middle line:84% So we'll start chapter 5 next time. 00:46:22.688 --> 00:46:24.230 align:middle line:84% Last thing I want to talk about today 00:46:24.230 --> 00:46:27.830 align:middle line:84% is, why is this a particularly exciting time 00:46:27.830 --> 00:46:29.090 align:middle line:90% to be taking this class? 00:46:29.090 --> 00:46:32.030 align:middle line:84% Now, in all fairness, I say that every year, OK? 00:46:32.030 --> 00:46:35.150 align:middle line:90% But the answer changes. 00:46:35.150 --> 00:46:40.470 align:middle line:84% This is a really exciting time, I would argue, for two reasons. 00:46:40.470 --> 00:46:45.150 align:middle line:84% The first reason is because we have lived through the largest 00:46:45.150 --> 00:46:48.630 align:middle line:84% shock to the US-- probably society-- in a hundred 00:46:48.630 --> 00:46:51.390 align:middle line:84% years, which was COVID, or at least 70 years since World War 00:46:51.390 --> 00:46:52.310 align:middle line:90% II. 00:46:52.310 --> 00:46:57.070 align:middle line:84% And COVID fundamentally shook up the whole relationship 00:46:57.070 --> 00:47:00.910 align:middle line:84% between the government and the public, 00:47:00.910 --> 00:47:02.410 align:middle line:90% shook up the whole relationship. 00:47:02.410 --> 00:47:04.870 align:middle line:84% So think about the when question. 00:47:04.870 --> 00:47:07.550 align:middle line:84% When should the government intervene? 00:47:07.550 --> 00:47:11.070 align:middle line:84% Basically, under COVID, the US government 00:47:11.070 --> 00:47:13.710 align:middle line:84% took charge of the US economy in a fundamental way 00:47:13.710 --> 00:47:15.150 align:middle line:90% it never had before. 00:47:15.150 --> 00:47:18.990 align:middle line:84% We spent-- we never did stuff in trillions before COVID. 00:47:18.990 --> 00:47:19.912 align:middle line:90% It was billions. 00:47:19.912 --> 00:47:21.370 align:middle line:84% Now we're in the land of trillions. 00:47:21.370 --> 00:47:25.750 align:middle line:84% We spent $3 trillion essentially trying 00:47:25.750 --> 00:47:30.320 align:middle line:84% to keep the US economy afloat during this fundamental shock, 00:47:30.320 --> 00:47:33.560 align:middle line:84% between money sent to unemployed people, 00:47:33.560 --> 00:47:36.040 align:middle line:84% between money we gave to firms to try to stay open, 00:47:36.040 --> 00:47:40.040 align:middle line:84% money we gave to schools to make sure that they could still 00:47:40.040 --> 00:47:42.880 align:middle line:84% provide their services, even though students weren't 00:47:42.880 --> 00:47:45.760 align:middle line:84% in house, money we gave to states and localities, 00:47:45.760 --> 00:47:47.520 align:middle line:84% et cetera, money we gave to hospitals 00:47:47.520 --> 00:47:49.103 align:middle line:84% who are dealing with being overwhelmed 00:47:49.103 --> 00:47:50.640 align:middle line:90% by COVID patients, et cetera. 00:47:50.640 --> 00:47:55.220 align:middle line:84% We just gave away money on a magnitude we never had before. 00:47:55.220 --> 00:47:58.040 align:middle line:84% So the question is, was that justified? 00:47:58.040 --> 00:48:00.040 align:middle line:84% That's the fundamental when question. 00:48:00.040 --> 00:48:02.360 align:middle line:84% Should we have done this massive intervention-- 00:48:02.360 --> 00:48:07.240 align:middle line:84% to be fair, bipartisan, under both Trump and Biden? 00:48:07.240 --> 00:48:09.520 align:middle line:84% Then there's the question, the when 00:48:09.520 --> 00:48:12.960 align:middle line:84% question about vaccines and about the regulatory role 00:48:12.960 --> 00:48:14.145 align:middle line:90% of the government. 00:48:14.145 --> 00:48:16.020 align:middle line:84% Should the government have mandated vaccines? 00:48:16.020 --> 00:48:18.220 align:middle line:84% Should it have mandated vaccines stronger or weaker? 00:48:18.220 --> 00:48:21.120 align:middle line:84% Should the government have mandated masks? 00:48:21.120 --> 00:48:24.180 align:middle line:84% Should they mandate it earlier or later? 00:48:24.180 --> 00:48:27.940 align:middle line:84% What should the government have said about social distancing? 00:48:27.940 --> 00:48:33.240 align:middle line:84% COVID is so interesting because it was the biggest government 00:48:33.240 --> 00:48:35.595 align:middle line:84% intervention in our economy we've seen in my lifetime, 00:48:35.595 --> 00:48:37.720 align:middle line:84% in terms of the government coming in and regulating 00:48:37.720 --> 00:48:40.960 align:middle line:84% so many aspects of our life, spending so much money. 00:48:40.960 --> 00:48:44.720 align:middle line:84% And now the dust is starting to settle, realizing we might not 00:48:44.720 --> 00:48:46.140 align:middle line:90% have done some things right. 00:48:46.140 --> 00:48:47.658 align:middle line:90% And what lessons can we learn? 00:48:47.658 --> 00:48:50.200 align:middle line:84% And how can we use those to be prepared for future government 00:48:50.200 --> 00:48:50.920 align:middle line:90% interventions? 00:48:50.920 --> 00:48:51.420 align:middle line:90% OK. 00:48:51.420 --> 00:48:53.540 align:middle line:84% Pandemics are no longer going to be once a century. 00:48:53.540 --> 00:48:55.060 align:middle line:84% They're going to be more frequent than that. 00:48:55.060 --> 00:48:57.268 align:middle line:84% So how are we going to be prepared to deal with them? 00:48:57.268 --> 00:48:59.080 align:middle line:90% So that's the when question. 00:48:59.080 --> 00:49:01.200 align:middle line:90% What about the how question? 00:49:01.200 --> 00:49:06.920 align:middle line:84% Well, let's think about how the government dealt with COVID. 00:49:06.920 --> 00:49:12.700 align:middle line:84% The government dealt with COVID in very different ways. 00:49:12.700 --> 00:49:16.880 align:middle line:84% On the one hand, the government provided a lot of-- 00:49:16.880 --> 00:49:19.480 align:middle line:84% spent money directly to people to support them 00:49:19.480 --> 00:49:20.900 align:middle line:90% and sent checks to people. 00:49:20.900 --> 00:49:22.800 align:middle line:84% It gave out a lot of unemployment insurance. 00:49:22.800 --> 00:49:24.400 align:middle line:90% Democrats like that. 00:49:24.400 --> 00:49:26.160 align:middle line:84% On the other hand, the government 00:49:26.160 --> 00:49:27.880 align:middle line:84% gave a lot of money to businesses 00:49:27.880 --> 00:49:29.440 align:middle line:84% to try to keep them afloat, things 00:49:29.440 --> 00:49:31.020 align:middle line:84% like the Paycheck Protection Program, 00:49:31.020 --> 00:49:33.360 align:middle line:84% which was loans to small businesses to stay afloat. 00:49:33.360 --> 00:49:35.760 align:middle line:84% The Republicans proposed and like that. 00:49:35.760 --> 00:49:38.287 align:middle line:84% So there are different ways the government handed out money. 00:49:38.287 --> 00:49:40.120 align:middle line:84% There are very different ways the government 00:49:40.120 --> 00:49:43.640 align:middle line:84% regulated, with Republican-leaning states 00:49:43.640 --> 00:49:45.720 align:middle line:84% tending to have looser regulations on masks 00:49:45.720 --> 00:49:48.960 align:middle line:84% and social distancing than Democratic-leaning states. 00:49:48.960 --> 00:49:51.200 align:middle line:84% So the how the government should intervene 00:49:51.200 --> 00:49:54.160 align:middle line:90% was also critical during COVID. 00:49:54.160 --> 00:49:56.383 align:middle line:84% So what are the effects of intervention 00:49:56.383 --> 00:49:57.800 align:middle line:84% are fascinating because we've just 00:49:57.800 --> 00:50:01.300 align:middle line:84% run the largest experiment in public finance in decades. 00:50:01.300 --> 00:50:02.300 align:middle line:90% What effect did it have? 00:50:02.300 --> 00:50:04.760 align:middle line:84% Indeed, we'll talk sometimes-- there's 00:50:04.760 --> 00:50:08.480 align:middle line:84% an organization in Harvard Square called the National 00:50:08.480 --> 00:50:10.640 align:middle line:84% Bureau of Economic Research, the NBER. 00:50:10.640 --> 00:50:14.160 align:middle line:84% This is the nation's preeminent nonpartisan economic think tank. 00:50:14.160 --> 00:50:16.040 align:middle line:84% They issue working papers, which are 00:50:16.040 --> 00:50:19.040 align:middle line:90% ongoing research in the field. 00:50:19.040 --> 00:50:27.040 align:middle line:84% And basically, over the first nine months of COVID, 00:50:27.040 --> 00:50:30.760 align:middle line:84% about a quarter of all working papers issued by this group 00:50:30.760 --> 00:50:32.800 align:middle line:90% were related to COVID. 00:50:32.800 --> 00:50:35.360 align:middle line:84% There's been a massive study of the effects 00:50:35.360 --> 00:50:36.880 align:middle line:90% of all these interventions. 00:50:36.880 --> 00:50:38.920 align:middle line:84% We've learned really interesting things 00:50:38.920 --> 00:50:41.740 align:middle line:84% about the effect of more generous employment insurance, 00:50:41.740 --> 00:50:43.960 align:middle line:84% about the effect of mask mandates, 00:50:43.960 --> 00:50:47.200 align:middle line:84% about the effect of money to businesses to stay open. 00:50:47.200 --> 00:50:48.800 align:middle line:84% We've learned things from comparing 00:50:48.800 --> 00:50:50.440 align:middle line:90% the US to other countries. 00:50:50.440 --> 00:50:52.000 align:middle line:90% We've learned lots from this-- 00:50:52.000 --> 00:50:55.280 align:middle line:84% we've run a massive experiment, and we're learning from it. 00:50:55.280 --> 00:51:01.660 align:middle line:84% And then, finally, there's, why does government do what it do? 00:51:01.660 --> 00:51:04.640 align:middle line:84% So here's a fundamentally interesting question. 00:51:04.640 --> 00:51:07.160 align:middle line:84% In the US, when COVID hit, we basically 00:51:07.160 --> 00:51:11.280 align:middle line:84% let companies shut and gave people unemployment insurance. 00:51:11.280 --> 00:51:14.880 align:middle line:84% In Europe, they paid companies to stay open 00:51:14.880 --> 00:51:17.080 align:middle line:84% and didn't give unemployment insurance. 00:51:17.080 --> 00:51:18.340 align:middle line:90% Which was the right approach? 00:51:18.340 --> 00:51:20.400 align:middle line:90% How do we think about that? 00:51:20.400 --> 00:51:23.010 align:middle line:84% Why did they do things so differently? 00:51:23.010 --> 00:51:25.390 align:middle line:84% That's the questions we'll tackle in political economy. 00:51:25.390 --> 00:51:27.890 align:middle line:84% So that's the first reason why this semester is particularly 00:51:27.890 --> 00:51:30.348 align:middle line:84% interesting, because we've just run this massive experiment 00:51:30.348 --> 00:51:32.818 align:middle line:84% that we're starting to learn about and we can learn from. 00:51:32.818 --> 00:51:34.610 align:middle line:84% The second reason is, this course is always 00:51:34.610 --> 00:51:37.495 align:middle line:84% incredibly fun and tense to teach an election year. 00:51:37.495 --> 00:51:39.870 align:middle line:84% And there's no more fun and tense election than this one. 00:51:39.870 --> 00:51:43.050 align:middle line:84% I don't know about fun, but tense. 00:51:43.050 --> 00:51:45.250 align:middle line:84% We are going to be hearing and seeing 00:51:45.250 --> 00:51:47.970 align:middle line:84% a lot of things that will bear on public finance 00:51:47.970 --> 00:51:50.868 align:middle line:90% throughout this semester. 00:51:50.868 --> 00:51:53.410 align:middle line:84% There's going to be a lot of current topics that are related. 00:51:53.410 --> 00:51:56.770 align:middle line:84% I am eager for folks to bring them up and discuss them. 00:51:56.770 --> 00:51:59.330 align:middle line:84% My partisan leanings are well known, 00:51:59.330 --> 00:52:01.087 align:middle line:84% but I'll try to be pretty objective. 00:52:01.087 --> 00:52:02.670 align:middle line:84% I'm actually, in the scheme of things, 00:52:02.670 --> 00:52:05.170 align:middle line:90% a fairly centrist Democrat. 00:52:05.170 --> 00:52:07.615 align:middle line:90% So I'll try to be objective. 00:52:07.615 --> 00:52:08.990 align:middle line:84% I want to hear people's opinions. 00:52:08.990 --> 00:52:12.410 align:middle line:84% I want to hear questions you're thinking about 00:52:12.410 --> 00:52:14.230 align:middle line:84% as you're thinking about this election, 00:52:14.230 --> 00:52:16.188 align:middle line:84% regardless of whether it determine your voting. 00:52:16.188 --> 00:52:18.812 align:middle line:84% Just this election is going to raise-- should we tax tips? 00:52:18.812 --> 00:52:21.270 align:middle line:84% Both candidates now propose getting rid of the tax on tips. 00:52:21.270 --> 00:52:22.812 align:middle line:84% That turns out to be a terrible idea. 00:52:22.812 --> 00:52:24.490 align:middle line:90% I'll tell you why. 00:52:24.490 --> 00:52:27.250 align:middle line:84% So I'm not going to be shy about my opinions, 00:52:27.250 --> 00:52:29.970 align:middle line:84% but that doesn't mean that you shouldn't push back. 00:52:29.970 --> 00:52:32.370 align:middle line:84% If there are things that you don't understand, 00:52:32.370 --> 00:52:35.090 align:middle line:84% if you disagree, if there's just things that have been covered 00:52:35.090 --> 00:52:37.270 align:middle line:84% in the news this election you want to talk about, 00:52:37.270 --> 00:52:38.970 align:middle line:90% let's talk about them. 00:52:38.970 --> 00:52:42.850 align:middle line:84% This is the time when public finances in the news, hopefully 00:52:42.850 --> 00:52:43.350 align:middle line:90% a lot. 00:52:43.350 --> 00:52:47.450 align:middle line:84% Hopefully, it's not all news about personal foibles and vote 00:52:47.450 --> 00:52:50.787 align:middle line:84% stealing, but rather, news about public finance questions. 00:52:50.787 --> 00:52:52.870 align:middle line:84% And so it's a great semester for discussing those. 00:52:52.870 --> 00:52:56.440 align:middle line:84% So, once again, I really urge you to fight your MIT instincts 00:52:56.440 --> 00:52:58.290 align:middle line:84% to just write everything down, and instead, 00:52:58.290 --> 00:53:00.410 align:middle line:90% to go ahead and ask a question. 00:53:00.410 --> 00:53:02.850 align:middle line:84% And recognize that there are no stupid questions, 00:53:02.850 --> 00:53:05.758 align:middle line:84% that any question you ask, many of your classmates also have. 00:53:05.758 --> 00:53:07.550 align:middle line:84% And you're helping them out by asking them. 00:53:07.550 --> 00:53:09.800 align:middle line:84% So I hope we'll take advantage of this election season 00:53:09.800 --> 00:53:12.210 align:middle line:84% to motivate a lot of interesting discussion we can have. 00:53:12.210 --> 00:53:12.930 align:middle line:90% OK? 00:53:12.930 --> 00:53:14.780 align:middle line:90% OK, thanks. 00:53:14.780 --> 00:53:19.000 align:middle line:90%