Happy holidays everyone!. Please visit www.givedirectly.org/macro/ to support groundbreaking research like this and help send life changing cash to 164 families in a Kenya directly, no strings attached.
@@dh510this gets at exactly why this video was bad. It misunderstood and conflated basic concepts and your question is the obvious takeaway at that point. I'm embarrassed for this channel tbh, but happy if this helps the people in Kenya anyway
I donated simply because I am relieved that studies are finally disproving Friedman's absurd claims. The vast majority of his claims are based on easily falsifiable assumptions that have never been tested because he is a Free Market sacred cow and sacrosanct. He and Thomas Sowell have caused so much damage worldwide that it's insane. I am so glad we are finally addressing these problems. Thank you!
They are proving Friedman right actually. There is a lot of slack on the poorest of the poor economy. Also, What happens after the money stops flowing, in the Keynesian model, they don't tell you that, because it crashed, like always.
This study is transformational. It's always been frustrating to know that whole donations don't reach those in need because of admin, fees, and other variables. I hope this method can be replicated by different organizations. Thanks for taking the time to share this!
there are so many small an local initiatives where you don't pay to local or national governments. You just have to look, and it isn't that hard with internet now. Buying a sowing machine, or paying for education a few hundred buck really makes a difference and change a life. Now, I'm not a charity guy, honestly. I don;t have that much to spare. But I get the point.
It's still a poor substitute for basic state welfare programs that do this, can't rely on charity etc, payment from tax take has been politically maligned without economic rationale.
Give money to the poor and you'll benefit the economy because they have unmet needs that they'll immediately seek to meet and economic activity will increase. Give money to the rich and you'll hurt the economy because the money gets sequestered as they do not have unmet needs, meaning the greater value of those resources has been removed from the economy. This is why tax cuts for the rich make zero sense. Or as Will Rogers said, "Give it to the poor and the rich will have it by nightfall, but at least it wen through some poor folk's hands".
You’re completely wrong th-cam.com/video/rc-bELgAowU/w-d-xo.htmlsi=G0BEqFQgD1IkVNU8 giving money to the rich is better because capitalists implement innovations and move economy forward like Elon Musk’s Teslabots or Jeff Bezos’ robots at his factories and it has always been like this. every single technology was implemented by the rich from Assembly line of productions by Henry Ford to Bill Gates’ computers, Steve Jobs’ iPhones and Elon Musk’s starlink
Tax cuts are not giving money to the rich but allowing them to keep their earnings....same for pretty much everybody else. Taxes should not exist, at least in their mainstream form. Allow people to keep what they earn and you won't need giveaways nor handouts that mostly just corrupt the system
Yep. Give your own extra money. Put up grassroots charities. Don't let a government set up one because governments are inefficient. Or make a law that incentivizes corporate social responsibility since they are more efficient at it than the government.
@@MrAlepedroza Yes, because money doesn't have weight or affect power structures, and economies of scale don't exist- - oh wait. Tax cuts mean the rich have more money after than they would have before. This is exactly giving money to the rich. If taxes did not exist, inequality would get even worse. Do you know what happens when inequality gets bad enough? Look up France in 1789. Look up Somalia. The only periods in history when class mobility has been significant has been those periods with higher taxes. Look up GDP stats, before COVID stimulus the top 20 years of GDP growth in the US were *all* years where the top marginal tax rate was over 50%. The top 10 were all above 60% The top 3? Above 80% We do better when the rich are taxed higher. Not because they're being taxed, but because it provides the public sphere with the resources to be able to aid those who are at the bottom of the scale , and then you get the multiplier effects noted here.
hm. Latvia(?) has seen one of the higest GDP growth in Europe for over decades. Now, I know it has a small population but i'd think 10 milion wouldn't make much of a difference on average. Why would you think the results would be different? If I give you more do, you spend more. Everybody gets happy. That is the idea.
It isn't actually. If inflation was really being tested, everyone should have been given money. Another is that culture should be a factor. E.g. give money to a poverty-stricken community but in a more modern environment that has TVs, restaurants and fashion and I think the money would quickly get spent in less productive ways, with companies owning the businesses getting the money and not really magnifying the effect of the money across the community.
Many comments here are just talking about the rich vs. poor dynamic. However, the video clearly emphasizes that "slack" is essential for this to work. There are numerous conditions that need to be in place before this method can be deemed a success-conditions that many other places lacked. This is why introducing more money in those instances led to inflation. In my own country, Malaysia, the famous example is the Banana money. That method of introducing money was clearly the primary cause of inflation.
Moreover, these millions of USD that have been donated to these people directly still need to be converted into the local currency first, right? Or does their government simply add it to their foreign currency reserves? Or did someone just get a few million USD richer through the currency exchange? 🤔
This doesn't invalidate Friedman. In order for inflation to appear you'd need a sustained increase in the quantity of money that distorts the economy. Point in time or brief interventions that do not distort the economy do not cause inflation.
These are also capital inflows, which are very different from the government just increasing the money supply (in addition to numerous other issues that you don't even need to be an economist to notice)
@@snuglife3697don't capital inflows affect the de facto supply of money? I often wonder why we speak of the supply of money, when some of thst money virtually doesn't exist until taken out of savings, really, isn't it only the money being spent causing inflation? If you give billionaires a few hundred billion each, that will not signifigantly affect inflation, because it'd all be mostly saved and never really introduced to the economy.
Then why are economists pointing to Covid stimulus as proof that Modern Monetary Theory caused inflation? During Covid, there was literally a global supply shortage at the exact same time. This newest study shows that increasing money availability appears to cause no inflation as long as supply has enough liquidity to meet the increase in demand. I can't even imagine why anyone would disagree with this in the first place, as it appears to be common sense, but here we are. This study appears to show what everyone assumed was true when they used common sense but still required evidence of.
There are several problems with the premises of the study, mainly that we are not talking about a closed system. The larger Kenyan economy could very well supply this area's potentially higher demand as a result of the cash injection. As such no significant inflation would be detectable. Actually, people on the border of the area probably are more likely to trade with the neighboring area than with people on the other side of the same province. How did the study handle this? How was inflation even measured. In addition to economic slack being a problem, there are other factors affecting the result, strangely not really taken into account by the video: As others in the comment section pointed out there could also be leakage as people save the money. For the people arguing that then the bank sector should detect a surge in savings this is not the case if the people do not use banks, and the poorest people in Africa are probably less likely to use banks. Then the amount is not very high and not sustained over time. How much inflation could even realistically be caused, the study should have modeled a maximum inflation scenario so that it could be compared to the observations. I would guess that even the maximum would be very low inflation, so of course observed would be even lower due to the other factors mentioned, so the authors probably knew that no real conclusions could be generated by this study. Lastly the demography of Kenya is booming, with how many percent would this area be expected to grow economically just due to population growth, I know it is small on a yearly basis but still probably affecting the economy. There might be internal migration within Kenya, this could be another hugely important factor. As previously pointed out it is not a closed system. How does the study related to this, was measurements on a per person basis, how accurate demographic data was available? Are the measured effect smaller than the potential effect of uncertain statistics?
Mate, that's a great question. Economics is not engineering, though. It's not an exact science. I'm an engineer who managed to spend time at the School of Economics. Now, I feel a bit enlightened. As my micro lecturer said, hopefully, we would understand the newspapers a bit better. I am grateful to my lecturers. Now I understand Jim Chalmers, and I admire his guts to refute neoliberalism. Vi vi la Jim Chalmers, our next PM of Australia. Neoliberalism is killing this country. I entered Melbourne under Mal Frazer, not Keating. I did not vote for Hawk & Keating. I lost money due to his quick opening up of our economy. He was not economics literate. In my 43 years in Melbourne, this is what I found over and over again: SQUARE PEGS IN A ROUND HOLE or close. Shame on you, Australians. I'm not an Australian. I'm a battler.
Could the Kenyan government achieve the same effect by increasing the country's money supply and distributing it using the methods from the study or is the dollar needed as a foreign reserve?
No; it's the misunderstanding of MMT again. Yes, the Jeyan government could print more money, but it would lose value immediately, because there aren't enough tax receipts to back such money printing being effective in raising living standards. Like every other poor country, they would have to either get development aid, or borrow from the World Bank or the IMF, and that would not help, as they could not generate enough tax receipts to service the debt. Development aid is seed money, that is given to get recipents' economies to grow to the tipping point where they no longer need development aid. For countries like Kenya, that may take a generation of significant economic expansion and inward investmenr, and even more cogrntly the development 8f the appropriate institutions to manage the economy. How likely is that to happen in our dysfunctional global economy? Not very as it currently stands. But it's not impossible either. It would need reform of development aid, and creating a Middle class throughout Africa to nurture it's sustainability. Time, money, and effort as usual, but over years. No quick solutions are tenable.
It might help, but will have limits. Increasing money supply will reduce the value of this money, so distributing the new money to the poorest will have the overall effect of transfering wealth from people who already own a lot of kenyan money from people who owned less. Whereas giving dollars will just increase the wealth of the poorest, without affecting the rest of kenyan citizens.
Uh oh, that would *actually* test Friedman's idea (which the study in the video doesn't) and could carry some risks of downsides (upsides can still exist of course)
I don't think that a county is of sufficient size to test macro economic theories. This wasn't an expansion of the money supply. It was an injection of money into a particularly poor area, where there are plentiful opportunities for productive use of capital. Even buying a bicycle has been shown to generate a good rate of return in such African situations. It's a wonderful large scale, but still micro-economic experiment. The question I have is if it easy to improve the economy with an infusion of cash, what are the barriers to lenders operating in such a situation?
Problem is (not sure why this needs explaining) Friedman's theory is used to malign state welfare. A loan to the impoverished is not welfare that is called usury.
This comment section is wild. People cant seem to accept that the absolutes posed by milton friedman might not be 100% correct. Friedman was a non-quantitative theoretical economist. That isnt to say his work added no value, but it is to say that he wasnt right about everything, or nearly everything. Just like every other economist since adam smith.
I think the problem here is the degree to which you can extend the findings of this study with larger conclusions, and this comment section reminds me of the OpenAI funded UBI research where it was clear that there was an agenda being pushed. The study doesn't really change my views on either what should be done to deal with poverty or the mental blindspots of people involved in this space, and the disproportionate response suggests I'm not wrong to feel that way.
First time encountering Miton fans? Yea they can be quite the embarrassing lot, as is expected by a bunch of teenage boys who think they understand economics after reading Atlas Shrugged 🤣
Milton Friedman also appeared to serve the wealthiest people, not the rest of us. Some of his assertions on inflation make no sense of all if you consider specifics or history.
When you said there was so much slack in the economy, hence why increasing the money supply didn't cause inflation, it begs the question, why was there so much slack in the economy to begin with? I'm still not convinced that handing out money to people will benefit the country in the long term.
Thats a great observation. The explanation is actually something that economists don't want to talk about. For example - would we see the same amount of increase in economic activity if this were a developed country with a top 10% GDP per capita? An advanced economy is more efficient, and hence will not have the "slack" that is experienced by countries like Kenya. An economy is advanced when it has a more developed employment sector, and people use their time efficiently. I suspect Kenya doesn't have a high skilled population, so most of their population is self-employed and is driven by demand, not supply (which is theoretically much higher since their low-level services are not required that often). An actual real study would compare the multiplier effect between Kenya and say, Canada. This is just another study posed by "researchers" to support foreign aid initiatives.
@@TheBoujiman inefficiency is covariant with size, there are 'magic' numbers for organisation size (200) etc. The assumption that larger more developed economies are more fficient does not fit data. Should be intuitive that people under-employed have more time for vocations or other work anyway.
@@foobarf8766 Larger economy doesn't mean more people - size of economy is total people multiplied by average productivity. Assuming the country has a smaller population, you get higher productivity for the same GDP - leading to the conclusion that most people are well and truly participating and not "slacking off".
This is basically what's been done in Brazil for 20 years. This program was the main engine of our economical virtuous cycle between 2004-2014 and perhaps another one starting in 2023. It caused no inflationary surge.
@@SrCoxas BF also increased, and there was the revision/correction of the IR. Plus, public expending... anyway, there's more money flowing in the economy.
@@deathdoor what exactly are you trying to argue? Freeing more money to flow nationwide through a lot of mechanisms is not the same as giving a few bucks directly to poor people
Knowledge plays a role here too, the villagers don't need to interact with the outside world to know that the money they are recieving has value outside their specific region. Just the potential of goods coming into the region from other parts of Kenya could keep prices low.
But here where is the 10M from? It's a forex where USD is converted to Kenyan shillings that's already in circulation right? So wouldn't that mean the money supply stayed the same it's just that more kenyan shillings went to this small town?
My guess is that : A) the net amount of Kenyan money won't change. B) The value of Kenyan money will increase, making it easier for Kenyans to buy goods from overseas. C) the people who's ability to buy goods from overseas that benefit the most are of course the recipients of the cash. I suspect this policy wouldn't work nearly as well in countries that are money printing with abandon, like Zimbabwe back in the day. It's also not a replacement for large scale infrastructure development. On the other hand, if you increase people's buying power, they will spend it on capital goods, which will enable them to eventually perhaps just build the infrastructure themselves.
Great Video. I have one question. Does the donation of USD actually increase the money supply of the domestic currency? After all, no new money was created, but presumably USD was exchanged for local currency. That would strengthen the domestic currency and work against inflation. I don't think that's what Friedmann meant. It's about the creation of domestic currency.
Yes. In the local (relatively isolated) economy this represents a massive increase in the money supply. In the entire country of Kenya... Not necessarily.
About to make this comment, no new money was created, the assumption that the economy of the study area is isolated is nieve, where do the nets and blocks and ... come from, the money will diffuse out eventually after a couple of local cycles (2.5 or whatever the gdp multiplier was), it's still a good argument that redistribution can stimulate economic growth (because poor people, who get high marginal utility for the additional money, are more likely to spend it than rich people.)
This is a representation of Milton Friedman's theory. There is a difference between an increase in the local money supply, which causes inflation (as in Zimbabwe during the rule of Robert Mugabe, where the government printed too much of the local Zimbabwean dollar, which led to hyperinflation), and what happened in this experiment, where 10 million U.S. dollars (the dollar is a hard currency in Kenya that represents wealth).
Did you mean a 'misrepresentation' of Milton's theory? There is other data that shows a weak or even tenuous relationship between money supply and inflation. This channel has done a good coverage on it.
Not sure if Friedman said anything about the subject, but surely if excess money in an area raised the prices, people/traders would just go elsewhere and import goods top that area, exploiting the arbitrage, and making the inflation spread to unmeasurable levels across Kenya, but if a currency is inflated by more being produced that is something completely different.
As someone who works at an NGO this isn't surprising. Traditional aid has been proven to not be beneficial, and sometimes harmful. I would like to see you cover more topics in this genre, basically how to improve economies and livelihoods.
"Traditional" aid??? That seems subjective because "traditional" aid is to me old fashioned state welfare exactly as this experiment replicates, but that's politically unpopular due to social darwinist thought.
So they consume more if they have more money. realy makes you wonder why this field of Study had to make up their own noble price... how much capital was invested in machines? how much did the yield of the farm land increase? did they invest in infrastructure? how much will their income have increased after the direct money flow ends?
Yes they fixed their own roads and improved their farms. Friedman got this one wrong, which should be no surprise because it's a scalar theory when economics is all about complex denominators.
Fascinating. When poor, receiving money will be spent on growth rather than decadence. No inflation because of the big production capacity still untapped. Less management overhead and waste from non profit organizations. Seems a great temporary measure till they can build autonomy. Ps. In statistics Hypothesis, the Null Hypothesis, cannot be confirmed, only rejected or not rejected.
When there is a p fit under 0.01 you have yourself a working model. All models are wrong but some models are useful. Friedman never tried fitting data to theories that competed with his.
Abhijit Banerjee, from my city, Calcutta, India, received the Nobel in RCT. Still, your video was good for a Macro-buff like me; I was a student at the School of Economics, Melb. I'm an engineer, not an economist.
I can't say I'm surprised, but it's nice to have some hard evidence! This less paternalistic approach is similar to what Kiva and Grameen Bank have been doing for a while.
13:10 the problem with savings causing 'leakage' should be solved by banks and lending. That will enable additional investments, creating more jobs etc.
GDP is also invariant with human development indexes, that correlation is so weak it can be put in the political rhetoric bin. So it's not that simple.
This is certainly a quite interesting result, one that one hopes continues to see positive results in future. Certainly would be nice to see aid become more effective.
You need to also study the duration of the effect. Is it transient? Free cash don't come regularly. Once the free cash is gone, if everything falls backs to the origin point, the aid is pretty useless.
according to keynesian theory, that money does leaks to other places until it's gone, but it promotes development the time it circulates in the economy, and that development can bring money in through new supply of products or services. I guess that's not the focus of the video but if, for example, those kenyans spent money on local farmers and then those farmers could buy machines to increse productivity, the effect is longlasting. If someone could create an artisan shop to produce something and sell it beyond those villages, this new activity would bring money in. It's worth a new study for sure
I disagree. The "free money" helped make children healthier and thus more capable of participating in the economy later on. If they did not get free money, these children will be more prone to less productivity, being a money hole due to sickness or even death. Though I hear in my area that the people did get lazier, which surprised me because the money they got per month can only support at most 8 days for food. Also, the children did not necessarily get more educated since they did not take education seriously but still get a passing grade due to bad government goal of low drop out rate and the teachers being scared of the family losing the free money because their children failed.
The answer is in the video, exemplified by the woman restarting her fishing business that was lost to a fire, the man paying his children's school fees, and the woman planning to build a house. These goals are not transient, but life changing in effect. Most Kenyan businesses are in rural areas at least Sole proprietor businesses. So, it is easier for them to benefit from increased cash flows immediately, because of the ease of adaptation, and the slack in the local economy.
Anecdotal comments aren't really evidence. I mean, if the amount of money given could cover 8 days of food, saying people got lazier, is not credible. And the study was over 2 and a half years, and there were still positive effects during that period. In fact, they are running a new study in the area to track those ongoing positive effects. I believe the laziness claim is dubious, because, let's be honest those that were unlucky and didn't get chosen to receive that money who not be be immune to disappointment or envy, which is really shortsighted, because if the evidence stands up, it might increase the chances of development aid being given in the form of direct transfers to everyone who qualifies. Doing it that way means less corruption, and more useful help being given to those in need.
This is a dangerous idea, I'm latin american and that kind of policies of giving out free cash to the pp, nevertheless initial benefits alleviating poverty had always been used by populist regimes to concentrate power and ended up destroying the economy! The reality of power and politics makes impossible to implement that kind of policy without creating political clients
What a strange framing. Basically - "Was friedman wrong? ummm, kinda." . I would have taken the givedirectly succes to be a DIRECT confirmation of what Friedman always advocated for - direct money instead of stupid bureucratic programs. And, this is NOT unrestricted money creation, no crazy new money is being printed here. That's what Friedman would have opposed. This is money TRANSFER. Good channel, but this has to be his stupidest, funniest interpretation of things by far.
Yes, this experiment definitely doesn't test Friedman's theory. It didn't change the overall supply of the currency in question (US Dollar), so of course the people in this village likely just imported more. If you wanted to test Friedman's theory you could just convince some african dictator of printing a boat load of money and seeing what would happen... oh wait, that happened in Zimbabwe and inflation got to the trillions
Europe and the US did this experiment all over the decolonized world. Such spending worked in places like S. Korea, Taiwan and Singapore. Some places like Ghana could never pay up the loan for the Akosombo dam and defaulted. These fiscal spending, I really find it a repeated tune with an expected result.
Traditional economic theory is based on morality, not economics. It was all about how people deserve whatever they get so if a poor person is poor it MUST be because they’re a bad person and it would be immoral to help bad people. Sure, giving someone food stamps is good for the economy and the recipient’s family, but we’re told it’s wrong because it will make the recipient lazy and that’s all that matters; not economic or nutritional benefit. It’s not about whether giving money to the poor will help the community or national economics, it’s SOLELY about the impact on the individual. Because traditional economics is solely focused on individuals and not society as a whole.
I think a big problem with traditional economics is also the fact that it's focused on studying affluent western countries. It makes sense to think that giving ppl more money would lead to inflation when everyone already has enough money for basic needs but it doesn't make sense when it comes to giving money to a poor country. Also culture may play into it. Like Americans always trying to get more and literally hoping that they can raise prices as soon as possible. I think what's the most baffling thing about economics is that it seems the theory's are based on this idea that humans will just waste money unless they are forced to spend it on certain things and that they must be forced to do certain things thru incentives. No one wants to admit that the problem is just the distribution of wealth and that just giving poor ppl money actually works. It won't effect how much ppl work, it'll just make ppl (and the society) better.
@@gh0s1wav You people don't see anything immoral about taking money or purchasing power from people who produced things and earned that money to those who didn't? If it were some charitable organization funding those handouts from donations, nobody would have a problem with it.
@ You’re actually wrong about free money not meaning people will work less. Some people work just to work but most people will only work enough to pay the bills. That’s what I do. I do very little work and would do even less if I didn’t need the money. And we saw that during Covid lockdown when the government gave everyone free money and people could get paid to quit their jobs. That made wages go up to attract more workers. And many people in America don’t make enough for the basics because basic living in America is still fairly expensive compared to other countries. And that’s why rightwingers oppose letting workers have too much money because they want us poor and desperate so we work harder. Rich people don’t keep wages low because they care about the money. They want the power they get from keeping us desperate, even if that means they make less money. For selfish people it’s better to be a millionaire when everyone else is poor than to be a billionaire and everyone else is a millionaire. And that actually proves their point except it’s against the ultra-wealthy. They say it deters work if people have too much money and prove that true because they never do any work. That’s why we need to tax them to make them earn the money back.
@rutessian top 1 pct pays 1 pct effective tax and bottom 50 pct pays 30 pct effective tax. This is actual theft. Giving free money boosts the economy. It should not be printed, it should be taken out of the heavy bags of the robber barons by letting them pay their fair share, retroactively if necessary. Let the money be spent on goods and services instead of just another bogus financial construction.
The only thing is research proved is that FDI, or Foreign Direct Investment can help a region grow economically, not a surprise. That's it. Also its probably the best way to help with donations.
Addictive catnip for anyone interested in economic theory, i was intrigued by what you said about how regions staffed by solopreneurs have greater slack, did I get that right, where can we hear more about that?
@@MoneyMacrocheers, that was really thorough- i noticed he breezily mention part of the growth came from importing "durable" capital... wouldnt that be exporting inflation though?
Would be interesting a third layer of randomess to see to see if the outcome change depending on the income money given. Giving some areas more money than others and to see if the effects varied and later calculate if there is an optimal amoumt of income for the best output or the most money given the better.
Doesn't still Milton Freidmen was right that cash transfers are better than most types of paternalistic government welfare programs. Also doesn't also show how useless the aid industrial complex is since its literally worse than throwing money at the problem.
They are the same. Both increase the consumption of the state without increasing the production. Usually they are debt based so it actually does decrease consumption longer term.
@@ahmednadim5859 interesting take! I talked about a similar take with Egger at length in the interview on M&M Talks. I linked it to Hayek rather than Friedman.
@@Dominic416_ They're not the same. On one hand, you have the inefficiencies of the government where money is lost through the bureaucracy and not necessarily reaches people who need it, while using something like education vouchers or such, it would go directly into people's hands and it would have the only restriction that it should be used on education, but it could be either private or public education.
It's funny how you think you're talking about economics when you're talking about ideology. In Brazil we had direct government transfers for over 15 year now. Do you know what free market defenders call it here? A paternalistic government aid and a bureaucratic aid industry. So to answer your question - no, direct aid will not make aid efficient or get rid of the aid industrial complex - because those are not a result of economic design, those are ideological concepts aimed at framing any aid as inefficient and bad.
Sam Altman conducted a Universal Income experiment with the objective of seeing if it increased the wealth of its recipients by allowing those people to spend more time developing their own skills or seeking a better job. This failed with the control group ending up wealthier than the recipients of universal income; however the recipients of universal income did report they had greater flexibility to pursue preferred pursuits, such as entertainment and hobbies. Providing cash directly to people in very poor regions would have a significant benefit. The micro-finance industry in India provided small loans to the poor which did allow them to improve their lives. The other benefit is it reduces wastage, as this video covers very well. More of the foreign aid goes to where its needed.
Every UBI experiment I know of has failed. Please show me a successful one (if there is). But that shouldn't surprise because on paper they fail, adding a constant to supply doesn't alter the slope of a graph function (poverty). Friedman really did get this one wrong with regards to poverty.
Very very excellent info and presentation! What might be interesting in (extreme) future studies is at what point of poverty / relative wealth the free money DOES create inflation (for the future of UBI application)
@@qjsharing2408 It doesn't matter if it's borrowed or donated, what matters is that it represents an insignificant portion of the total gdp so you'll never see such an experiment produce price inflation. What you will see is an accumulation of these studies as an argument for UBI which will produce massive inflation if implemented.
Yep important point about the UBI, it is adding a constant unlike means-tested state or commercially targetted welfare does. Friedman was right and wrong, but mostly wrong.
This experiment is very fascinating. I don't think it's very ethical to be so random with aid funding, even for advancing scientific understanding, but I have also bought lottery tickets before so I won't go on-and-on like a hypocrite.
Watch the video, it's not random but targetting at the most impoverished, similar to old fashioned state welfare programs which are politically unpopular.
If you’re introducing more money to the supply of money - make sure there’s enough supply of goods to meet the demand, As well as, making sure price gougers, don’t price gouge!
There was a rapid increase of money supply even before that. From 2010 to 2020 money supply rose by roughly 160 % without central banks meeting their inflation targets (or barely). Household net worth in the US trippled and gold was up just 10 %.
Nice, so demand was constrained! If theres enough supply of goods and services there wont be notable inflation. That also means, if government spending increases supply of goods and services down the road, that will counteract the inflationary pressure that comes from deficit spending. An example I think of is the CHIPS Act in the US. It deficit spent in the short term to improve domestic chip manufacturing capabilities and bring down chip prices in the long term.
This could have real world implications here in the US. Instead of distributing aid via FEMA, just give it to the people who need it, like in Western North Carolina after Helene. You eliminate all the middle man costs
the problem would be supply constraints in that case. You can't spend any money if 1) you have no outside communication (i.e cell networks are down and roads are washed away) 2) All the things needed are quickly sold out. So FEMA tries to address the supply-side constraints with unique capabilities that would be very uneconomic in non-disaster zones e.g doing logistics by helicopter.
FEMA is already that, giving directly to people without conditions or imposition of a loan. Levy bill's are politically unpopular in NZ we had a major earthquake but the right wing shot down every attempt to pay for reconstruction using taxpayer funds.
I'm not sure this accurately tests Milton Friedman's hypothesis, since this economy is absolutely tiny (in relation to the global supply of dollars) and imports are ridiculously high. If you give them dollars, they will actually have more purchasing power and you won't actually have "more dollars chasing the same amount of goods", so they will just import more without impacting the price level of the goods they are importing. Milton Friedman's idea was about increasing the money supply in a way it would alter the value of a currency. Of course if you just give someone (or a few thousand people) some 10 million dollars, nothing will happen to the value of the dollar. However if you gave 100 million people 10 trillion dollars, then his predictions will come true
Interesting study, and interesting analogy with the system having slack and absorbing the extra demand. I guess in a sense this experiment has probably resulting in an equalising effect on wealth in the area, for instance with the hair dresser example. If previously some people had money and some didn't then that would mean people wouldn't bother offering their services or labour to people without money. But if people have even a little money, that slack in the system should be able to accomodate them, as doing a service for some small change is better than sitting around doing nothing at all. I wonder if the benefit is not so much related to the increase in the money supply itself but in the increased levels of wealth equality as a result of giving everyone money. This also does lend itself to the universal basic income idea.
While I understand the need for the experiment, I also find it a bit crazy. "Yeah bro, so when I was young some American dudes came and gave us money, but not to my cousin living next village." Imagine the experience... I would question a bit the morals of doing the experiment.
I think maybe the "culture" or lifestyles of the people getting the money matters as well. If they are poor because they dont have the opportunities and have always had to be self responsible to survive (e.g. poor Kenyans) VS if they already have a tendency to be more disfunctional, have been trained to be welfare dependant, or have drug or alcohol problems; or a great sense of entitlement towards the rest of the community "our land, we own this not you, we deserve everything etc" e.g some sections of Australian Aboriginals appear to me to unfortunately be raised like this to their great detriment. Solutions need to fit the situation. Ive heard of handouts being quite wastefull when given to dysfunctional people, who have no incentive to be less dysfunctional. I dont know details on hand. This is an issue in my own life as well.
Silly comment. Hearsay is not an economic model. Social darwinist thought like that was an important feature of the NSDAP's political rhetoric though...
Maybe this theory is not relevant to this kind of rural economy. They should maybe consult Kenian economists and live in that society and work in it alongside people. Then, they will learn the experiment does not make sense.
Hey Money Macro, i dont know if youve already done a video like this before, but would you consider doing a "How Britain can fix its economy and start growing again" sort of video please? :)
traditional development aid is just grift for NGO's and foreign governments. so pour cash into a region with no infrastructure to sell booze and find people don't buy booze wow that's amazing, come back in a few years
Unfortunately these results have to be taken with skepticism, those conducting the study had a strong incentive to make it a success. If the study showed the opposite, people’s careers and reputation would have been greatly harmed. This ‘science experiment’ was really the equivalent of a product demonstration on infotainment TV; not impartial.
Friedman was also invested in being a political polemicist, same argument applies to his theories. Keynes on the other hand took a scientific approach, would even counter his own theories.
3:35 except there was an experiment with UBI half a year ago and participants have ended up with fewer savings and lower income. This seems like another overly optimistic hype "study". Also medicine isn't science, it's art.
Free money isn’t useful unless there’s a reserve bank managing labor. Tired of this argument that free money by itself benefits long-term economic development. It’s nothing but a tool of economic colonialism.
Has he done a video on microloans? I'm going to check. Those always look like a good way to benefit people directly but also feels like it could be scams. I already heard a podcast about this and how in some places people bought a motorcycle to do taxi work, or finally had a zinc roof so they didn't have to spend on maintenance yearly or every 6 months.
Is there anything we could infer, based on these studies (or any other study), as to strategies for improving homelessness in large cities in developed countries? For example I am thinking of the type of situation you find in San Francisco or Vancouver. One would think there'd be first-order similarities between these issues-- But it's unclear how far you can take the comparison because the structural causes of these issues is a bit different.
Rory Stewart did a whole talk on this matter a few months ago. It seemed like a lot of "commentators" laughed him off as being some sort of geopolitical puppet. I mean that might be true, but it seems so was his ted talk...
I have not watched the whole video yet. I am still here 2:01 I am skeptical about free money programs. But it does not mean it wont work. It's just that we need to water the seeds that are in well-tilled soil.
If food supply is very localized, then we should expect that the food prices will increase after the oversupply is dealt with. If the food supply is globalized, the inflationary effect will be negligible, depending on the demand added and money printed.
Global market prices are also a curse. When supplying richer economies locals are priced out of buying exported goods in their own currency. This is evident where I live in New Zealand because lower PPP means it's paradoxically cheaper to buy NZ butter on other side of the world.
I have a question: can you see the time during the video that people click thumbs up or thumbs down? Surely Google can but I'm curious if you can. BTW, I clicked just after you said Friedman wasn't right. I actually do understand and agree with his argument except that if deserves a lot of caveats whereas he put none.
Friedman is talking about an increase in the money SUPPLY by institutions like the fed, not charities giving away money because charities don’t print money.
Well, some conclusion is that indeed exists slack in impoverished communities. So, some human capital is not being outputted properly due to constraints in their life quality.
This seems so incredibly simplified. Obviously there's no inflation, the community is part of a wider economy and the increase wasn't in Kenyan Shillings but USDs, so money wasn't printed out of thin air like Friedman was implying, but it was a transfer of wealth by US citizens to Kenyans. Really tricky video, to justify a correct and already known ending...
@@Bolognabeef no. They chose the area because of its economic isolation. Money was distributed not in USD but in local currency. So, it was essentially printed out of this air. This is why the researchers actually expected some inflation going in
@@Dominic416_ Why does that matter for the context of a local relatively isolated economy? Do you think an exchange rate movement somehow would have countered this?
@@MoneyMacrobecause no economy is ‘isolated’. When they spent their extra currency for imports the money supply will return to equilibrium but they will have more goods. Basically short term inflation until the trade balance works itself out.
@@Dominic416_many economies are relatively isolated. But, indeed not completely. That's for example why the multiplier was not higher than 2.5. and yes indeed the extra money will leak out. But, the interesting finding was precisely that they did not observe statistically significant short term inflation at all
The biggest free money experiment in history happens to be when losses are socialized and profits are privatized. One very good example is on the collapse of FTX. This required a backstop of the banking sector, in order to avoid a bank run. What happened was a dramatic inversion of the yield curve in the U.S., and a peak in inflation. Ppl found that their money simply wasn’t enough to take care of their needs in the bond market sell-off(meaning their interest rate costs became too large). The poorest were seriously struggling without any borrowing capacity. You can get away with this kind of experiment in an economy with no apparent bond market, where interest rates go unaffected.
It shouldn't be controversial to suggest 'free' markets are the primary covariant of inflation (yield over dividend specifically) but economic models and fitting data isn't what Friedman's support base exists for, it's social darwinist thought all the way down. Not even a left/right thing, either camp can be infected with that attitude.
@ Such a rationalization! The problem comes in when bank nationalizations or bailouts occur. The purchasing power parity of the currency drops through the floor. Where I live, they CUT benefits to the poor, when in fact, they aught to have increased benefits(according to the hype of showering the poorest with money.) Those working in corporations now protected by deposit insurance are benefitting, widening the GINI coefficient. The conclusion of this idealistic experiment aught to be a widening of the GINI coefficient.
The entire premise of the video is BS. They take an example of a country like Kenya - with a very low HDI score (Kenya ranks 146 out of 193 countries in human development) and seem to indicate that any effects on their economy are indicative of ALL economies in the world. Let me illustrate: 1. Would we see the same amount of increase in economic activity if this were a developed country like Japan or US, with a top 10% GDP per capita? An advanced economy is more efficient, and hence will not have the "slack" that is experienced by countries like Kenya. An economy is advanced when it has a more developed employment sector, and people use their time efficiently and the employment rate is high. I suspect Kenya doesn't have a high skilled population, so most of their population is self-employed and is driven by demand, not supply (which is theoretically much higher than demand, since their low-level services are not required that often). An actual real study would compare the multiplier effect between Kenya and say, Canada. This is just another study posed by "researchers" to support foreign aid initiatives. 2. Secondly, they didn't run a parallel study to compare the effects of giving cash to mostly consumers vs giving cash to only business owners who are looking to invest. Consumption does boost the economy in the short-term, but in the long term, it leads to job losses, low productivity and could even increase national debt, as the government borrows more money to meet immediate needs, such as those for oil, gas and food. Dont need to look further than the current downwards trajectory of the Western nations with their particular focus on consumer-driven economy over quickly developing economies with a much higher focus on investment like Vietnam and China. This study has only one conclusion - and that is cash transfer to poor people in undeveloped countries leads to some short-term benefits, but there is no way to asses if the same benefit can be seen over the longer-term, or even in higher developed countries with little to no need of stimulating demand in the economy.
Other way around, smaller economies are more efficient it follows a basic log curve, like Benfords law. Simple scalar problem. Friedman was a fraud who never tried fitting data to models that countered his pre-conceived conclusions based on social darwinist thought. Keynes (love or hate the guy) at least took a scientific approach.
@@foobarf8766 TL; DR: Africa and other nations will not develop with cash transfers because money is temporary but skills are forever. We need more skills, not more money. Long version: I think you're missing the key point raised by the video, and which is a staple of Keynesian economic models - which is demand-stimulation. The whole argument rests on the idea that people don't spend due to some "reasons" and thus the economy won't grow and we won't get more output. This is a wholly incorrect understanding of human economics. Spending is not what drives the economy - I could spend $500 tomorrow on a small tin of caviar instead of spending $500 on groceries - you can guess which kind of spending creates an overall positive or "driving" effect on the economy (spoiler alert: its the groceries). The problem with relying on using demand as the factor in these studies is that demand is intimately linked to scarcity as well as the intrinsic value of the product. Supply may or may not catch up to meet the demand and lower the price. E.g. drinking water is cheap because its mostly free and abundant due to govt monopoly. But in drought-stricken areas of the world, its sold or rationed, and carries a much higher price. It does effect the demand of water, but its not that elastic and a certain volume is always consumed if possible. But the same logic cannot be applied to gemstones - if suddenly there was a scarcity of gemstones - a lot of people might simply give up on owning them, due to them costing more and not being intrinsically valuable, even though they were being bought due to being relatively less scarce before. There is no limit to how few gemstones would be sold - it could be close to zero also (e.g. there is not market for 1000 caret diamonds - which is an impossible to find product). On the other hand, the supply is constrained not only by the demand or "need" of the product - but it also depends on whether society is already setup to create those goods and services in time to meet the demand. A demand for water can be easily met by opening the taps or packaging a few water bottles next to it. But there is no easy way to mine gemstones, process them and then transport them and sell using local shops within a couple of days based on fluctuating demand. Hence, these studies always miss the flipside of what actually is a good strategy to build an economy - which is to have a reasonable supply of useful goods and services that will benefit and actually will be demanded by the consumers so as to not lead to oversupply. A free market generally does a much better job of growing supply without overproduction. But there's also a caveat here - supply may also need stimulation for certain goods and industries, unlike demand. For example, countries choose to invest in high-tech machines for agriculture and manufacturing, setup universities and setup quotas to train their population. That is one thing that I believe a free market doesn't do on its own - and that is human development. Left alone, humans will always take the shortest route to success, which leads them to not try and excel at what they should do. So in this case, instead of doing "cash transfers", ideally, a benefactor should be looking to do "talent transfer". So my argument here is that yes, Kenya would feel positive affects of cash transfer for a time, but the effects will not be self-sustaining and they will also not be able to use that extra cash on an individual basis to build a productive workforce that can contribute much more to the society than by simply trading goods as unskilled shop-owners. If economists really wanted to help poor countries in the global south, they would instead lobby Oxford, Cambridge, Harvard and MIT to setup satellite instituations all across Africa, and ask companies to setup industries to use that workforce to kickstart the new economy of these countries. But they won't ever do that - simply because A) It takes much longer and its result cannot be neatly published in a 10 page Econ paper and B) Which country would want to build a competing nation in the South and risk them gaining technology that could have a 0.1% chance of being detrimental to the former?
@@stephengray1344 thats what he said - when he started out by saying it disproves one theory and proves the other. Thats called reading between the lines.
@@foobarf8766fair. It wasn't really an investment but I used the term "foreign direct investment" just to illustrate the injection of capital. The government didn't devalue the currency proportionately to the capital injected into the economy by the researchers. That's why there wasn't inflation and governments printing/redistributing money can't replicate the results of the experiment.
@@TheSnugglery The United States imports 70% of its goods. Wouldn't that mean creating dollars doesn't cause inflation if it's spent on only goods and not services?
@@ThatonedudeCR12956 depends on how much excess production capacity the foreign producers have. But it'll be tough to find a place to put all those cheap foreign goods when a house costs a billion dollars
1. Poor people have needs that cannot be met. 2. Small business owners have an oversupply of goods and services. 3. Give the poor people money to meet their needs which in turn will meet the capacity of the small business owners. Something is telling me it’s not as simple as this.
Happy holidays everyone!. Please visit www.givedirectly.org/macro/ to support groundbreaking research like this and help send life changing cash to 164 families in a Kenya directly, no strings attached.
Why donate?
Why doesn't Kenya just "print" the money needed if infusing these communities with cash doesn't cause any significant inflation?
@@dh510 this would likely devalue the exchange rate
@@dh510this gets at exactly why this video was bad. It misunderstood and conflated basic concepts and your question is the obvious takeaway at that point.
I'm embarrassed for this channel tbh, but happy if this helps the people in Kenya anyway
I donated simply because I am relieved that studies are finally disproving Friedman's absurd claims. The vast majority of his claims are based on easily falsifiable assumptions that have never been tested because he is a Free Market sacred cow and sacrosanct. He and Thomas Sowell have caused so much damage worldwide that it's insane. I am so glad we are finally addressing these problems. Thank you!
They are proving Friedman right actually. There is a lot of slack on the poorest of the poor economy. Also, What happens after the money stops flowing, in the Keynesian model, they don't tell you that, because it crashed, like always.
This study is transformational. It's always been frustrating to know that whole donations don't reach those in need because of admin, fees, and other variables. I hope this method can be replicated by different organizations. Thanks for taking the time to share this!
Give Directly is nowhere near the point of saturation, there really isn't a need for a similar org at the moment.
there are so many small an local initiatives where you don't pay to local or national governments. You just have to look, and it isn't that hard with internet now.
Buying a sowing machine, or paying for education a few hundred buck really makes a difference and change a life.
Now, I'm not a charity guy, honestly. I don;t have that much to spare. But I get the point.
@@thesaw9988 Plus, this shows us that giving direct cash transfers during a recession is the best option, not QE for the rich
It's still a poor substitute for basic state welfare programs that do this, can't rely on charity etc, payment from tax take has been politically maligned without economic rationale.
Give money to the poor and you'll benefit the economy because they have unmet needs that they'll immediately seek to meet and economic activity will increase.
Give money to the rich and you'll hurt the economy because the money gets sequestered as they do not have unmet needs, meaning the greater value of those resources has been removed from the economy.
This is why tax cuts for the rich make zero sense.
Or as Will Rogers said, "Give it to the poor and the rich will have it by nightfall, but at least it wen through some poor folk's hands".
You’re completely wrong th-cam.com/video/rc-bELgAowU/w-d-xo.htmlsi=G0BEqFQgD1IkVNU8 giving money to the rich is better because capitalists implement innovations and move economy forward like Elon Musk’s Teslabots or Jeff Bezos’ robots at his factories and it has always been like this. every single technology was implemented by the rich from Assembly line of productions by Henry Ford to Bill Gates’ computers, Steve Jobs’ iPhones and Elon Musk’s starlink
Or even their bellies.
Tax cuts are not giving money to the rich but allowing them to keep their earnings....same for pretty much everybody else. Taxes should not exist, at least in their mainstream form. Allow people to keep what they earn and you won't need giveaways nor handouts that mostly just corrupt the system
Yep. Give your own extra money. Put up grassroots charities. Don't let a government set up one because governments are inefficient. Or make a law that incentivizes corporate social responsibility since they are more efficient at it than the government.
@@MrAlepedroza Yes, because money doesn't have weight or affect power structures, and economies of scale don't exist- - oh wait.
Tax cuts mean the rich have more money after than they would have before. This is exactly giving money to the rich.
If taxes did not exist, inequality would get even worse. Do you know what happens when inequality gets bad enough? Look up France in 1789. Look up Somalia.
The only periods in history when class mobility has been significant has been those periods with higher taxes. Look up GDP stats, before COVID stimulus the top 20 years of GDP growth in the US were *all* years where the top marginal tax rate was over 50%. The top 10 were all above 60% The top 3? Above 80%
We do better when the rich are taxed higher. Not because they're being taxed, but because it provides the public sphere with the resources to be able to aid those who are at the bottom of the scale , and then you get the multiplier effects noted here.
I wish they dropped 10 millon in highland Latvija. Also I suspect the resuls would be different so if any rich scientists are interested...
Latvia mentioned 🇱🇻
I think I might move to the Latvian Highlands if that happens
@@fnansjy456 There is no highlands in Latvia, bro
Baltics mentioned, like given (I'm 0% Baltic)
hm. Latvia(?) has seen one of the higest GDP growth in Europe for over decades. Now, I know it has a small population but i'd think 10 milion wouldn't make much of a difference on average.
Why would you think the results would be different?
If I give you more do, you spend more. Everybody gets happy. That is the idea.
Personally, I think that donating money directly and importing goods from the countries in need are the most effective ways to help.
that only works if the goods and products can compete.
There's an error in the first 3 seconds. The year is actually 2024.
The study occured in 2014...
Good on you for noticing that it is currently 2024🎉
Maybe where you are.
2020s is just a bad dream, wake up.
@@baltulielkungsgunarsmiezis9714 I think it was a joke
That's a really creative and well-conceived experiment. Good on the researchers and the new topics this will open up
It isn't actually. If inflation was really being tested, everyone should have been given money. Another is that culture should be a factor. E.g. give money to a poverty-stricken community but in a more modern environment that has TVs, restaurants and fashion and I think the money would quickly get spent in less productive ways, with companies owning the businesses getting the money and not really magnifying the effect of the money across the community.
Many comments here are just talking about the rich vs. poor dynamic. However, the video clearly emphasizes that "slack" is essential for this to work.
There are numerous conditions that need to be in place before this method can be deemed a success-conditions that many other places lacked. This is why introducing more money in those instances led to inflation. In my own country, Malaysia, the famous example is the Banana money. That method of introducing money was clearly the primary cause of inflation.
Moreover, these millions of USD that have been donated to these people directly still need to be converted into the local currency first, right? Or does their government simply add it to their foreign currency reserves? Or did someone just get a few million USD richer through the currency exchange? 🤔
That sounds like market led inflation not issuance led. Giving money to merchants instead of the impoverished you could anticipate that even.
This doesn't invalidate Friedman. In order for inflation to appear you'd need a sustained increase in the quantity of money that distorts the economy. Point in time or brief interventions that do not distort the economy do not cause inflation.
These are also capital inflows, which are very different from the government just increasing the money supply (in addition to numerous other issues that you don't even need to be an economist to notice)
It invalidates Friedman, he did not model it correctly (it's a theory that sits in contrast to the Philips/yield curve also).
@@snuglife3697don't capital inflows affect the de facto supply of money? I often wonder why we speak of the supply of money, when some of thst money virtually doesn't exist until taken out of savings, really, isn't it only the money being spent causing inflation? If you give billionaires a few hundred billion each, that will not signifigantly affect inflation, because it'd all be mostly saved and never really introduced to the economy.
@@foobarf8766 its economics - its not a hard science.
Then why are economists pointing to Covid stimulus as proof that Modern Monetary Theory caused inflation?
During Covid, there was literally a global supply shortage at the exact same time. This newest study shows that increasing money availability appears to cause no inflation as long as supply has enough liquidity to meet the increase in demand.
I can't even imagine why anyone would disagree with this in the first place, as it appears to be common sense, but here we are. This study appears to show what everyone assumed was true when they used common sense but still required evidence of.
There are several problems with the premises of the study, mainly that we are not talking about a closed system. The larger Kenyan economy could very well supply this area's potentially higher demand as a result of the cash injection. As such no significant inflation would be detectable. Actually, people on the border of the area probably are more likely to trade with the neighboring area than with people on the other side of the same province. How did the study handle this? How was inflation even measured.
In addition to economic slack being a problem, there are other factors affecting the result, strangely not really taken into account by the video:
As others in the comment section pointed out there could also be leakage as people save the money. For the people arguing that then the bank sector should detect a surge in savings this is not the case if the people do not use banks, and the poorest people in Africa are probably less likely to use banks.
Then the amount is not very high and not sustained over time. How much inflation could even realistically be caused, the study should have modeled a maximum inflation scenario so that it could be compared to the observations. I would guess that even the maximum would be very low inflation, so of course observed would be even lower due to the other factors mentioned, so the authors probably knew that no real conclusions could be generated by this study.
Lastly the demography of Kenya is booming, with how many percent would this area be expected to grow economically just due to population growth, I know it is small on a yearly basis but still probably affecting the economy. There might be internal migration within Kenya, this could be another hugely important factor. As previously pointed out it is not a closed system. How does the study related to this, was measurements on a per person basis, how accurate demographic data was available? Are the measured effect smaller than the potential effect of uncertain statistics?
Mate, that's a great question. Economics is not engineering, though. It's not an exact science. I'm an engineer who managed to spend time at the School of Economics. Now, I feel a bit enlightened. As my micro lecturer said, hopefully, we would understand the newspapers a bit better. I am grateful to my lecturers. Now I understand Jim Chalmers, and I admire his guts to refute neoliberalism. Vi vi la Jim Chalmers, our next PM of Australia. Neoliberalism is killing this country. I entered Melbourne under Mal Frazer, not Keating. I did not vote for Hawk & Keating. I lost money due to his quick opening up of our economy. He was not economics literate. In my 43 years in Melbourne, this is what I found over and over again: SQUARE PEGS IN A ROUND HOLE or close. Shame on you, Australians. I'm not an Australian. I'm a battler.
It was basically a closed system, for intents and purpose of the experiment hard to do better. Watch the video again maybe.
@@foobarf8766 It isn't bro, don't be so easily fooled.
I expect there's some discussion of this in the article itself.
Could the Kenyan government achieve the same effect by increasing the country's money supply and distributing it using the methods from the study or is the dollar needed as a foreign reserve?
No; it's the misunderstanding of MMT again. Yes, the Jeyan government could print more money, but it would lose value immediately, because there aren't enough tax receipts to back such money printing being effective in raising living standards. Like every other poor country, they would have to either get development aid, or borrow from the World Bank or the IMF, and that would not help, as they could not generate enough tax receipts to service the debt. Development aid is seed money, that is given to get recipents' economies to grow to the tipping point where they no longer need development aid. For countries like Kenya, that may take a generation of significant economic expansion and inward investmenr, and even more cogrntly the development 8f the appropriate institutions to manage the economy. How likely is that to happen in our dysfunctional global economy? Not very as it currently stands. But it's not impossible either. It would need reform of development aid, and creating a Middle class throughout Africa to nurture it's sustainability. Time, money, and effort as usual, but over years. No quick solutions are tenable.
It might help, but will have limits. Increasing money supply will reduce the value of this money, so distributing the new money to the poorest will have the overall effect of transfering wealth from people who already own a lot of kenyan money from people who owned less. Whereas giving dollars will just increase the wealth of the poorest, without affecting the rest of kenyan citizens.
Uh oh, that would *actually* test Friedman's idea (which the study in the video doesn't) and could carry some risks of downsides (upsides can still exist of course)
@@snuglife3697the participants were given Kenyan Shillings. Not USD. Check the paper
I don't think that a county is of sufficient size to test macro economic theories. This wasn't an expansion of the money supply. It was an injection of money into a particularly poor area, where there are plentiful opportunities for productive use of capital. Even buying a bicycle has been shown to generate a good rate of return in such African situations. It's a wonderful large scale, but still micro-economic experiment. The question I have is if it easy to improve the economy with an infusion of cash, what are the barriers to lenders operating in such a situation?
Problem is (not sure why this needs explaining) Friedman's theory is used to malign state welfare. A loan to the impoverished is not welfare that is called usury.
This comment section is wild. People cant seem to accept that the absolutes posed by milton friedman might not be 100% correct.
Friedman was a non-quantitative theoretical economist. That isnt to say his work added no value, but it is to say that he wasnt right about everything, or nearly everything. Just like every other economist since adam smith.
I think the problem here is the degree to which you can extend the findings of this study with larger conclusions, and this comment section reminds me of the OpenAI funded UBI research where it was clear that there was an agenda being pushed.
The study doesn't really change my views on either what should be done to deal with poverty or the mental blindspots of people involved in this space, and the disproportionate response suggests I'm not wrong to feel that way.
First time encountering Miton fans? Yea they can be quite the embarrassing lot, as is expected by a bunch of teenage boys who think they understand economics after reading Atlas Shrugged 🤣
The point here is the people getting the money 💰💰💰
And that it is a good thing...
Not some economist being right or not.
Cough up a donation
❤❤❤❤
Milton Friedman also appeared to serve the wealthiest people, not the rest of us.
Some of his assertions on inflation make no sense of all if you consider specifics or history.
@@pebblepod30that’s because he was put there exactly for that purpose. It’s not like he seems to, it’s that it’s historically accurate.
When you said there was so much slack in the economy, hence why increasing the money supply didn't cause inflation, it begs the question, why was there so much slack in the economy to begin with? I'm still not convinced that handing out money to people will benefit the country in the long term.
Thats a great observation. The explanation is actually something that economists don't want to talk about.
For example - would we see the same amount of increase in economic activity if this were a developed country with a top 10% GDP per capita? An advanced economy is more efficient, and hence will not have the "slack" that is experienced by countries like Kenya. An economy is advanced when it has a more developed employment sector, and people use their time efficiently. I suspect Kenya doesn't have a high skilled population, so most of their population is self-employed and is driven by demand, not supply (which is theoretically much higher since their low-level services are not required that often).
An actual real study would compare the multiplier effect between Kenya and say, Canada. This is just another study posed by "researchers" to support foreign aid initiatives.
@@TheBoujiman inefficiency is covariant with size, there are 'magic' numbers for organisation size (200) etc. The assumption that larger more developed economies are more fficient does not fit data. Should be intuitive that people under-employed have more time for vocations or other work anyway.
@@foobarf8766 Larger economy doesn't mean more people - size of economy is total people multiplied by average productivity.
Assuming the country has a smaller population, you get higher productivity for the same GDP - leading to the conclusion that most people are well and truly participating and not "slacking off".
This is basically what's been done in Brazil for 20 years. This program was the main engine of our economical virtuous cycle between 2004-2014 and perhaps another one starting in 2023.
It caused no inflationary surge.
And currently, inflation decreased at the same time that salaries increased, right?
No. The main engine was oil prices skyrocketting and the populist left spending unsustainably.
@@deathdoor increasing minimum wage nationwide is not the same as giving a few bucks to poor people
@@SrCoxas BF also increased, and there was the revision/correction of the IR. Plus, public expending... anyway, there's more money flowing in the economy.
@@deathdoor what exactly are you trying to argue? Freeing more money to flow nationwide through a lot of mechanisms is not the same as giving a few bucks directly to poor people
Came for the economics, stayed for the tie
Knowledge plays a role here too, the villagers don't need to interact with the outside world to know that the money they are recieving has value outside their specific region. Just the potential of goods coming into the region from other parts of Kenya could keep prices low.
But here where is the 10M from? It's a forex where USD is converted to Kenyan shillings that's already in circulation right? So wouldn't that mean the money supply stayed the same it's just that more kenyan shillings went to this small town?
My guess is that :
A) the net amount of Kenyan money won't change.
B) The value of Kenyan money will increase, making it easier for Kenyans to buy goods from overseas.
C) the people who's ability to buy goods from overseas that benefit the most are of course the recipients of the cash.
I suspect this policy wouldn't work nearly as well in countries that are money printing with abandon, like Zimbabwe back in the day. It's also not a replacement for large scale infrastructure development. On the other hand, if you increase people's buying power, they will spend it on capital goods, which will enable them to eventually perhaps just build the infrastructure themselves.
Great Video.
I have one question. Does the donation of USD actually increase the money supply of the domestic currency? After all, no new money was created, but presumably USD was exchanged for local currency. That would strengthen the domestic currency and work against inflation. I don't think that's what Friedmann meant. It's about the creation of domestic currency.
Interesting point🤔
Yes. In the local (relatively isolated) economy this represents a massive increase in the money supply. In the entire country of Kenya... Not necessarily.
@@MoneyMacro interesting point [2]
(the more I learn economics the less I understand💀)
exactly what i was thinking about omg
About to make this comment, no new money was created, the assumption that the economy of the study area is isolated is nieve, where do the nets and blocks and ... come from, the money will diffuse out eventually after a couple of local cycles (2.5 or whatever the gdp multiplier was), it's still a good argument that redistribution can stimulate economic growth (because poor people, who get high marginal utility for the additional money, are more likely to spend it than rich people.)
This is a representation of Milton Friedman's theory. There is a difference between an increase in the local money supply, which causes inflation (as in Zimbabwe during the rule of Robert Mugabe, where the government printed too much of the local Zimbabwean dollar, which led to hyperinflation), and what happened in this experiment, where 10 million U.S. dollars (the dollar is a hard currency in Kenya that represents wealth).
Did you mean a 'misrepresentation' of Milton's theory? There is other data that shows a weak or even tenuous relationship between money supply and inflation. This channel has done a good coverage on it.
Simple explanations are usually the correct ones and Friedman simply didn't have a model which fit data. Keynes did.
Not sure if Friedman said anything about the subject, but surely if excess money in an area raised the prices, people/traders would just go elsewhere and import goods top that area, exploiting the arbitrage, and making the inflation spread to unmeasurable levels across Kenya, but if a currency is inflated by more being produced that is something completely different.
You know you've reached the pinnacle of science, when it is finally prooved that money improves peoples lives.
As someone who works at an NGO this isn't surprising. Traditional aid has been proven to not be beneficial, and sometimes harmful. I would like to see you cover more topics in this genre, basically how to improve economies and livelihoods.
"Traditional" aid??? That seems subjective because "traditional" aid is to me old fashioned state welfare exactly as this experiment replicates, but that's politically unpopular due to social darwinist thought.
So they consume more if they have more money. realy makes you wonder why this field of Study had to make up their own noble price...
how much capital was invested in machines? how much did the yield of the farm land increase? did they invest in infrastructure?
how much will their income have increased after the direct money flow ends?
Yes they fixed their own roads and improved their farms. Friedman got this one wrong, which should be no surprise because it's a scalar theory when economics is all about complex denominators.
Fascinating. When poor, receiving money will be spent on growth rather than decadence. No inflation because of the big production capacity still untapped. Less management overhead and waste from non profit organizations. Seems a great temporary measure till they can build autonomy. Ps. In statistics Hypothesis, the Null Hypothesis, cannot be confirmed, only rejected or not rejected.
When there is a p fit under 0.01 you have yourself a working model. All models are wrong but some models are useful. Friedman never tried fitting data to theories that competed with his.
Abhijit Banerjee, from my city, Calcutta, India, received the Nobel in RCT. Still, your video was good for a Macro-buff like me; I was a student at the School of Economics, Melb. I'm an engineer, not an economist.
Engineers make the best economists. They know about curve fitting with more than one curve lol
@@foobarf8766 Thanks. You are very humble. I'm arrogant because I pretend to understand macroeconomics.
I can't say I'm surprised, but it's nice to have some hard evidence! This less paternalistic approach is similar to what Kiva and Grameen Bank have been doing for a while.
I just did a final on intermediate macro, its so fascinating seeing these formulas in action!
13:10 the problem with savings causing 'leakage' should be solved by banks and lending. That will enable additional investments, creating more jobs etc.
Why Kenya government then doesn't issue the money and drop it the same way? Is it a central bank skill issue?
Printing shillings will result in inflation, look at Zimbabwe as an extreme example
@@bookaltd Venezuela inflation would happen.
"Global internet access is most important in this experiment - easy knowledge access.
gdp is money circulating inside an area. You increase the amount of money, you increase the gdp. As simple as that
GDP is also invariant with human development indexes, that correlation is so weak it can be put in the political rhetoric bin. So it's not that simple.
This is such a gem of a video
This is certainly a quite interesting result, one that one hopes continues to see positive results in future. Certainly would be nice to see aid become more effective.
I like when you explain academic economy in layman terms, more so than news recaps. But I'm ok with both
You need to also study the duration of the effect. Is it transient?
Free cash don't come regularly. Once the free cash is gone, if everything falls backs to the origin point, the aid is pretty useless.
according to keynesian theory, that money does leaks to other places until it's gone, but it promotes development the time it circulates in the economy, and that development can bring money in through new supply of products or services. I guess that's not the focus of the video but if, for example, those kenyans spent money on local farmers and then those farmers could buy machines to increse productivity, the effect is longlasting. If someone could create an artisan shop to produce something and sell it beyond those villages, this new activity would bring money in. It's worth a new study for sure
@@summak after 2,5 years there were still big positive effects. They are working on a new study right now to measure longer term effects
I disagree. The "free money" helped make children healthier and thus more capable of participating in the economy later on. If they did not get free money, these children will be more prone to less productivity, being a money hole due to sickness or even death.
Though I hear in my area that the people did get lazier, which surprised me because the money they got per month can only support at most 8 days for food. Also, the children did not necessarily get more educated since they did not take education seriously but still get a passing grade due to bad government goal of low drop out rate and the teachers being scared of the family losing the free money because their children failed.
The answer is in the video, exemplified by the woman restarting her fishing business that was lost to a fire, the man paying his children's school fees, and the woman planning to build a house. These goals are not transient, but life changing in effect. Most Kenyan businesses are in rural areas at least Sole proprietor businesses. So, it is easier for them to benefit from increased cash flows immediately, because of the ease of adaptation, and the slack in the local economy.
Anecdotal comments aren't really evidence. I mean, if the amount of money given could cover 8 days of food, saying people got lazier, is not credible. And the study was over 2 and a half years, and there were still positive effects during that period. In fact, they are running a new study in the area to track those ongoing positive effects. I believe the laziness claim is dubious, because, let's be honest those that were unlucky and didn't get chosen to receive that money who not be be immune to disappointment or envy, which is really shortsighted, because if the evidence stands up, it might increase the chances of development aid being given in the form of direct transfers to everyone who qualifies. Doing it that way means less corruption, and more useful help being given to those in need.
In india , many states provide Direct Cash Transfer to every women ,thats hundreds of million women.
Veey interesting and surprising indeed!
This is a dangerous idea, I'm latin american and that kind of policies of giving out free cash to the pp, nevertheless initial benefits alleviating poverty had always been used by populist regimes to concentrate power and ended up destroying the economy!
The reality of power and politics makes impossible to implement that kind of policy without creating political clients
What a strange framing. Basically - "Was friedman wrong? ummm, kinda." . I would have taken the givedirectly succes to be a DIRECT confirmation of what Friedman always advocated for - direct money instead of stupid bureucratic programs. And, this is NOT unrestricted money creation, no crazy new money is being printed here. That's what Friedman would have opposed. This is money TRANSFER. Good channel, but this has to be his stupidest, funniest interpretation of things by far.
Yes, this experiment definitely doesn't test Friedman's theory. It didn't change the overall supply of the currency in question (US Dollar), so of course the people in this village likely just imported more. If you wanted to test Friedman's theory you could just convince some african dictator of printing a boat load of money and seeing what would happen... oh wait, that happened in Zimbabwe and inflation got to the trillions
Why is there a reflink? Do you receive a kick back for the referral of donations?
Europe and the US did this experiment all over the decolonized world. Such spending worked in places like S. Korea, Taiwan and Singapore. Some places like Ghana could never pay up the loan for the Akosombo dam and defaulted. These fiscal spending, I really find it a repeated tune with an expected result.
Traditional economic theory is based on morality, not economics. It was all about how people deserve whatever they get so if a poor person is poor it MUST be because they’re a bad person and it would be immoral to help bad people. Sure, giving someone food stamps is good for the economy and the recipient’s family, but we’re told it’s wrong because it will make the recipient lazy and that’s all that matters; not economic or nutritional benefit.
It’s not about whether giving money to the poor will help the community or national economics, it’s SOLELY about the impact on the individual. Because traditional economics is solely focused on individuals and not society as a whole.
Modern orthodox economics is basically New Age Protestant dogma. No surprises there.
I think a big problem with traditional economics is also the fact that it's focused on studying affluent western countries. It makes sense to think that giving ppl more money would lead to inflation when everyone already has enough money for basic needs but it doesn't make sense when it comes to giving money to a poor country. Also culture may play into it. Like Americans always trying to get more and literally hoping that they can raise prices as soon as possible. I think what's the most baffling thing about economics is that it seems the theory's are based on this idea that humans will just waste money unless they are forced to spend it on certain things and that they must be forced to do certain things thru incentives. No one wants to admit that the problem is just the distribution of wealth and that just giving poor ppl money actually works. It won't effect how much ppl work, it'll just make ppl (and the society) better.
@@gh0s1wav You people don't see anything immoral about taking money or purchasing power from people who produced things and earned that money to those who didn't? If it were some charitable organization funding those handouts from donations, nobody would have a problem with it.
@ You’re actually wrong about free money not meaning people will work less. Some people work just to work but most people will only work enough to pay the bills. That’s what I do. I do very little work and would do even less if I didn’t need the money. And we saw that during Covid lockdown when the government gave everyone free money and people could get paid to quit their jobs. That made wages go up to attract more workers.
And many people in America don’t make enough for the basics because basic living in America is still fairly expensive compared to other countries.
And that’s why rightwingers oppose letting workers have too much money because they want us poor and desperate so we work harder. Rich people don’t keep wages low because they care about the money. They want the power they get from keeping us desperate, even if that means they make less money. For selfish people it’s better to be a millionaire when everyone else is poor than to be a billionaire and everyone else is a millionaire.
And that actually proves their point except it’s against the ultra-wealthy. They say it deters work if people have too much money and prove that true because they never do any work. That’s why we need to tax them to make them earn the money back.
@rutessian top 1 pct pays 1 pct effective tax and bottom 50 pct pays 30 pct effective tax. This is actual theft. Giving free money boosts the economy. It should not be printed, it should be taken out of the heavy bags of the robber barons by letting them pay their fair share, retroactively if necessary. Let the money be spent on goods and services instead of just another bogus financial construction.
The key is to find economies that have excess supply (or demand constrained).
The only thing is research proved is that FDI, or Foreign Direct Investment can help a region grow economically, not a surprise. That's it. Also its probably the best way to help with donations.
Addictive catnip for anyone interested in economic theory, i was intrigued by what you said about how regions staffed by solopreneurs have greater slack, did I get that right, where can we hear more about that?
@@JoeJackaboa in the interview on money & macro talks. See link in description of the video
@@MoneyMacrocheers, that was really thorough- i noticed he breezily mention part of the growth came from importing "durable" capital... wouldnt that be exporting inflation though?
Would be interesting a third layer of randomess to see to see if the outcome change depending on the income money given. Giving some areas more money than others and to see if the effects varied and later calculate if there is an optimal amoumt of income for the best output or the most money given the better.
Doesn't still Milton Freidmen was right that cash transfers are better than most types of paternalistic government welfare programs. Also doesn't also show how useless the aid industrial complex is since its literally worse than throwing money at the problem.
They are the same. Both increase the consumption of the state without increasing the production. Usually they are debt based so it actually does decrease consumption longer term.
@@ahmednadim5859 interesting take! I talked about a similar take with Egger at length in the interview on M&M Talks. I linked it to Hayek rather than Friedman.
@@Dominic416_ They're not the same. On one hand, you have the inefficiencies of the government where money is lost through the bureaucracy and not necessarily reaches people who need it, while using something like education vouchers or such, it would go directly into people's hands and it would have the only restriction that it should be used on education, but it could be either private or public education.
@@jose6183 I agree direct is better but however you do it foreign aid will increase the money temporarily and not increase productivity
It's funny how you think you're talking about economics when you're talking about ideology.
In Brazil we had direct government transfers for over 15 year now. Do you know what free market defenders call it here? A paternalistic government aid and a bureaucratic aid industry.
So to answer your question - no, direct aid will not make aid efficient or get rid of the aid industrial complex - because those are not a result of economic design, those are ideological concepts aimed at framing any aid as inefficient and bad.
Wow. Great video
Finally some good news in 2024
Sam Altman conducted a Universal Income experiment with the objective of seeing if it increased the wealth of its recipients by allowing those people to spend more time developing their own skills or seeking a better job. This failed with the control group ending up wealthier than the recipients of universal income; however the recipients of universal income did report they had greater flexibility to pursue preferred pursuits, such as entertainment and hobbies. Providing cash directly to people in very poor regions would have a significant benefit. The micro-finance industry in India provided small loans to the poor which did allow them to improve their lives. The other benefit is it reduces wastage, as this video covers very well. More of the foreign aid goes to where its needed.
Every UBI experiment I know of has failed. Please show me a successful one (if there is). But that shouldn't surprise because on paper they fail, adding a constant to supply doesn't alter the slope of a graph function (poverty). Friedman really did get this one wrong with regards to poverty.
Very very excellent info and presentation! What might be interesting in (extreme) future studies is at what point of poverty / relative wealth the free money DOES create inflation (for the future of UBI application)
Absolutely..I talked to egger about this in my interview with him (near the end)
These experiments are using an external currency, so the inflation effect will be different
@@qjsharing2408 It doesn't matter if it's borrowed or donated, what matters is that it represents an insignificant portion of the total gdp so you'll never see such an experiment produce price inflation. What you will see is an accumulation of these studies as an argument for UBI which will produce massive inflation if implemented.
@@MoneyMacro Will you publish the whole interview?
Yep important point about the UBI, it is adding a constant unlike means-tested state or commercially targetted welfare does. Friedman was right and wrong, but mostly wrong.
Giving poor people money makes them less poor. Who would've thought?
Not Friedman's supporters? 😅
free money rarely ever works out.
we had all that free covid money and that is what caused inflation.
that was market-led inflation (yield curve inverted) and not due to 'free covid money'
@foobarf8766 free money is why yield curve inverted
that also happened in developed economies. I think it'd be stupid to say something that worked in Kenya is automatically a good idea in the US.
This experiment is very fascinating. I don't think it's very ethical to be so random with aid funding, even for advancing scientific understanding, but I have also bought lottery tickets before so I won't go on-and-on like a hypocrite.
Watch the video, it's not random but targetting at the most impoverished, similar to old fashioned state welfare programs which are politically unpopular.
If you’re introducing more money to the supply of money - make sure there’s enough supply of goods to meet the demand, As well as, making sure price gougers, don’t price gouge!
Printing money will never solve the problem
Price gouging is normal behavior. Even the most brutal of dictators cannot defy the invisible hand.
There was a rapid increase of money supply even before that. From 2010 to 2020 money supply rose by roughly 160 % without central banks meeting their inflation targets (or barely). Household net worth in the US trippled and gold was up just 10 %.
@@solarpalmero the randomized controlled trial set-up accounts for that as this would affect both the control and treatment group
Nice, so demand was constrained! If theres enough supply of goods and services there wont be notable inflation.
That also means, if government spending increases supply of goods and services down the road, that will counteract the inflationary pressure that comes from deficit spending. An example I think of is the CHIPS Act in the US. It deficit spent in the short term to improve domestic chip manufacturing capabilities and bring down chip prices in the long term.
Inflation still occurs at S-D equilibrium
Super interesting.
Good that you interviewed an involved expert.
Nice work Joeri!
Thanks!
10M sounds like a drop in an ocean. How much money there were in this system to begin with?
Some chinese proverb says Give a man a fish and you feed him for a day. Teach him to hunt it and you will feed him for life.
it is not Chinese proverb
@rncmv Maybe you're right, some say it is japanese, some chinese.It doesn't matter so much.
This could have real world implications here in the US. Instead of distributing aid via FEMA, just give it to the people who need it, like in Western North Carolina after Helene. You eliminate all the middle man costs
the problem would be supply constraints in that case. You can't spend any money if 1) you have no outside communication (i.e cell networks are down and roads are washed away) 2) All the things needed are quickly sold out. So FEMA tries to address the supply-side constraints with unique capabilities that would be very uneconomic in non-disaster zones e.g doing logistics by helicopter.
FEMA is already that, giving directly to people without conditions or imposition of a loan. Levy bill's are politically unpopular in NZ we had a major earthquake but the right wing shot down every attempt to pay for reconstruction using taxpayer funds.
Who was right, Friedman or Keynes?
yes
BEDMAS is the only winner
I'm not sure this accurately tests Milton Friedman's hypothesis, since this economy is absolutely tiny (in relation to the global supply of dollars) and imports are ridiculously high. If you give them dollars, they will actually have more purchasing power and you won't actually have "more dollars chasing the same amount of goods", so they will just import more without impacting the price level of the goods they are importing.
Milton Friedman's idea was about increasing the money supply in a way it would alter the value of a currency. Of course if you just give someone (or a few thousand people) some 10 million dollars, nothing will happen to the value of the dollar. However if you gave 100 million people 10 trillion dollars, then his predictions will come true
Interesting study, and interesting analogy with the system having slack and absorbing the extra demand.
I guess in a sense this experiment has probably resulting in an equalising effect on wealth in the area, for instance with the hair dresser example. If previously some people had money and some didn't then that would mean people wouldn't bother offering their services or labour to people without money. But if people have even a little money, that slack in the system should be able to accomodate them, as doing a service for some small change is better than sitting around doing nothing at all. I wonder if the benefit is not so much related to the increase in the money supply itself but in the increased levels of wealth equality as a result of giving everyone money. This also does lend itself to the universal basic income idea.
While I understand the need for the experiment, I also find it a bit crazy. "Yeah bro, so when I was young some American dudes came and gave us money, but not to my cousin living next village." Imagine the experience... I would question a bit the morals of doing the experiment.
That story could also be told like: Guy in the next village had an Xbox while we played with sticks and stones, then I got a PS5
Could we apply this to domestic social welfare as well?
If you can surmount the social darwinism that makes state welfare politically unpopular, sure I guess?
I think maybe the "culture" or lifestyles of the people getting the money matters as well. If they are poor because they dont have the opportunities and have always had to be self responsible to survive (e.g. poor Kenyans) VS if they already have a tendency to be more disfunctional, have been trained to be welfare dependant, or have drug or alcohol problems; or a great sense of entitlement towards the rest of the community "our land, we own this not you, we deserve everything etc" e.g some sections of Australian Aboriginals appear to me to unfortunately be raised like this to their great detriment.
Solutions need to fit the situation.
Ive heard of handouts being quite wastefull when given to dysfunctional people, who have no incentive to be less dysfunctional. I dont know details on hand.
This is an issue in my own life as well.
Silly comment. Hearsay is not an economic model. Social darwinist thought like that was an important feature of the NSDAP's political rhetoric though...
Maybe this theory is not relevant to this kind of rural economy. They should maybe consult Kenian economists and live in that society and work in it alongside people. Then, they will learn the experiment does not make sense.
Hey Money Macro, i dont know if youve already done a video like this before, but would you consider doing a "How Britain can fix its economy and start growing again" sort of video please? :)
traditional development aid is just grift for NGO's and foreign governments.
so pour cash into a region with no infrastructure to sell booze and find people don't buy booze wow that's amazing, come back in a few years
Very nice
I liked the experiment. And i've always been personaly a fan of keynesian economics. But doesn't that experiment have a massive conflict of interest?
Hmmmm🤔🤔🤔🤔🤔🤔🤔🥴🥴🥴🥴🥴🥴🥴
If that's conflicted interest then wait until you hear about Friedman's paid lecture gigs lol
Unfortunately these results have to be taken with skepticism, those conducting the study had a strong incentive to make it a success. If the study showed the opposite, people’s careers and reputation would have been greatly harmed. This ‘science experiment’ was really the equivalent of a product demonstration on infotainment TV; not impartial.
Friedman was also invested in being a political polemicist, same argument applies to his theories. Keynes on the other hand took a scientific approach, would even counter his own theories.
3:35 except there was an experiment with UBI half a year ago and participants have ended up with fewer savings and lower income. This seems like another overly optimistic hype "study".
Also medicine isn't science, it's art.
8:14 Hey, this is the Budapest Central Market Hall, I recognize it!
wait, it was 2.5x? what would happen if it looped then? would break at somepoint, right??
Nope, gdp is money circulating inside an area. You increase the amount of money, you increase the gdp. As simple as that
Free money isn’t useful unless there’s a reserve bank managing labor. Tired of this argument that free money by itself benefits long-term economic development. It’s nothing but a tool of economic colonialism.
Friedman's supporters are generally also in favour of removing employment targets from OCR targets...
Has he done a video on microloans? I'm going to check. Those always look like a good way to benefit people directly but also feels like it could be scams.
I already heard a podcast about this and how in some places people bought a motorcycle to do taxi work, or finally had a zinc roof so they didn't have to spend on maintenance yearly or every 6 months.
It's actually disgusting to target loans at people already impoverished, taking some percent of their future revenues
Is there anything we could infer, based on these studies (or any other study), as to strategies for improving homelessness in large cities in developed countries? For example I am thinking of the type of situation you find in San Francisco or Vancouver. One would think there'd be first-order similarities between these issues-- But it's unclear how far you can take the comparison because the structural causes of these issues is a bit different.
Rory Stewart did a whole talk on this matter a few months ago. It seemed like a lot of "commentators" laughed him off as being some sort of geopolitical puppet. I mean that might be true, but it seems so was his ted talk...
I have not watched the whole video yet. I am still here 2:01 I am skeptical about free money programs. But it does not mean it wont work. It's just that we need to water the seeds that are in well-tilled soil.
one should look at it on the long term. Years, maybe even generations
If food supply is very localized, then we should expect that the food prices will increase after the oversupply is dealt with. If the food supply is globalized, the inflationary effect will be negligible, depending on the demand added and money printed.
Global market prices are also a curse. When supplying richer economies locals are priced out of buying exported goods in their own currency. This is evident where I live in New Zealand because lower PPP means it's paradoxically cheaper to buy NZ butter on other side of the world.
what do you think about the mercosur deal?
what type of inflation are you talking about?
I have a question: can you see the time during the video that people click thumbs up or thumbs down? Surely Google can but I'm curious if you can. BTW, I clicked just after you said Friedman wasn't right. I actually do understand and agree with his argument except that if deserves a lot of caveats whereas he put none.
really interesting, thanks for sharing
Friedman is talking about an increase in the money SUPPLY by institutions like the fed, not charities giving away money because charities don’t print money.
Friedman was wrong about that, too. The Philips (yield) curve shows markets lead inflation not issuance by central banks.
Well, some conclusion is that indeed exists slack in impoverished communities. So, some human capital is not being outputted properly due to constraints in their life quality.
This seems so incredibly simplified. Obviously there's no inflation, the community is part of a wider economy and the increase wasn't in Kenyan Shillings but USDs, so money wasn't printed out of thin air like Friedman was implying, but it was a transfer of wealth by US citizens to Kenyans. Really tricky video, to justify a correct and already known ending...
@@Bolognabeef no. They chose the area because of its economic isolation. Money was distributed not in USD but in local currency. So, it was essentially printed out of this air. This is why the researchers actually expected some inflation going in
@@MoneyMacrohow did they get that local currency? It wasn’t printed out of thin air it was exchanged for USD.
@@Dominic416_ Why does that matter for the context of a local relatively isolated economy?
Do you think an exchange rate movement somehow would have countered this?
@@MoneyMacrobecause no economy is ‘isolated’. When they spent their extra currency for imports the money supply will return to equilibrium but they will have more goods. Basically short term inflation until the trade balance works itself out.
@@Dominic416_many economies are relatively isolated. But, indeed not completely. That's for example why the multiplier was not higher than 2.5. and yes indeed the extra money will leak out.
But, the interesting finding was precisely that they did not observe statistically significant short term inflation at all
you didnt increase the supply of us dollars by one bit, it is backed by its use on a global stage
The biggest free money experiment in history happens to be when losses are socialized and profits are privatized. One very good example is on the collapse of FTX. This required a backstop of the banking sector, in order to avoid a bank run.
What happened was a dramatic inversion of the yield curve in the U.S., and a peak in inflation. Ppl found that their money simply wasn’t enough to take care of their needs in the bond market sell-off(meaning their interest rate costs became too large). The poorest were seriously struggling without any borrowing capacity.
You can get away with this kind of experiment in an economy with no apparent bond market, where interest rates go unaffected.
It shouldn't be controversial to suggest 'free' markets are the primary covariant of inflation (yield over dividend specifically) but economic models and fitting data isn't what Friedman's support base exists for, it's social darwinist thought all the way down. Not even a left/right thing, either camp can be infected with that attitude.
@ Such a rationalization! The problem comes in when bank nationalizations or bailouts occur. The purchasing power parity of the currency drops through the floor.
Where I live, they CUT benefits to the poor, when in fact, they aught to have increased benefits(according to the hype of showering the poorest with money.) Those working in corporations now protected by deposit insurance are benefitting, widening the GINI coefficient.
The conclusion of this idealistic experiment aught to be a widening of the GINI coefficient.
The entire premise of the video is BS. They take an example of a country like Kenya - with a very low HDI score (Kenya ranks 146 out of 193 countries in human development) and seem to indicate that any effects on their economy are indicative of ALL economies in the world. Let me illustrate:
1. Would we see the same amount of increase in economic activity if this were a developed country like Japan or US, with a top 10% GDP per capita? An advanced economy is more efficient, and hence will not have the "slack" that is experienced by countries like Kenya. An economy is advanced when it has a more developed employment sector, and people use their time efficiently and the employment rate is high. I suspect Kenya doesn't have a high skilled population, so most of their population is self-employed and is driven by demand, not supply (which is theoretically much higher than demand, since their low-level services are not required that often).
An actual real study would compare the multiplier effect between Kenya and say, Canada. This is just another study posed by "researchers" to support foreign aid initiatives.
2. Secondly, they didn't run a parallel study to compare the effects of giving cash to mostly consumers vs giving cash to only business owners who are looking to invest. Consumption does boost the economy in the short-term, but in the long term, it leads to job losses, low productivity and could even increase national debt, as the government borrows more money to meet immediate needs, such as those for oil, gas and food. Dont need to look further than the current downwards trajectory of the Western nations with their particular focus on consumer-driven economy over quickly developing economies with a much higher focus on investment like Vietnam and China.
This study has only one conclusion - and that is cash transfer to poor people in undeveloped countries leads to some short-term benefits, but there is no way to asses if the same benefit can be seen over the longer-term, or even in higher developed countries with little to no need of stimulating demand in the economy.
Other way around, smaller economies are more efficient it follows a basic log curve, like Benfords law. Simple scalar problem. Friedman was a fraud who never tried fitting data to models that countered his pre-conceived conclusions based on social darwinist thought. Keynes (love or hate the guy) at least took a scientific approach.
@@foobarf8766
TL; DR: Africa and other nations will not develop with cash transfers because money is temporary but skills are forever. We need more skills, not more money.
Long version:
I think you're missing the key point raised by the video, and which is a staple of Keynesian economic models - which is demand-stimulation. The whole argument rests on the idea that people don't spend due to some "reasons" and thus the economy won't grow and we won't get more output.
This is a wholly incorrect understanding of human economics. Spending is not what drives the economy - I could spend $500 tomorrow on a small tin of caviar instead of spending $500 on groceries - you can guess which kind of spending creates an overall positive or "driving" effect on the economy (spoiler alert: its the groceries).
The problem with relying on using demand as the factor in these studies is that demand is intimately linked to scarcity as well as the intrinsic value of the product. Supply may or may not catch up to meet the demand and lower the price. E.g. drinking water is cheap because its mostly free and abundant due to govt monopoly. But in drought-stricken areas of the world, its sold or rationed, and carries a much higher price. It does effect the demand of water, but its not that elastic and a certain volume is always consumed if possible. But the same logic cannot be applied to gemstones - if suddenly there was a scarcity of gemstones - a lot of people might simply give up on owning them, due to them costing more and not being intrinsically valuable, even though they were being bought due to being relatively less scarce before. There is no limit to how few gemstones would be sold - it could be close to zero also (e.g. there is not market for 1000 caret diamonds - which is an impossible to find product).
On the other hand, the supply is constrained not only by the demand or "need" of the product - but it also depends on whether society is already setup to create those goods and services in time to meet the demand. A demand for water can be easily met by opening the taps or packaging a few water bottles next to it. But there is no easy way to mine gemstones, process them and then transport them and sell using local shops within a couple of days based on fluctuating demand.
Hence, these studies always miss the flipside of what actually is a good strategy to build an economy - which is to have a reasonable supply of useful goods and services that will benefit and actually will be demanded by the consumers so as to not lead to oversupply. A free market generally does a much better job of growing supply without overproduction.
But there's also a caveat here - supply may also need stimulation for certain goods and industries, unlike demand. For example, countries choose to invest in high-tech machines for agriculture and manufacturing, setup universities and setup quotas to train their population. That is one thing that I believe a free market doesn't do on its own - and that is human development.
Left alone, humans will always take the shortest route to success, which leads them to not try and excel at what they should do. So in this case, instead of doing "cash transfers", ideally, a benefactor should be looking to do "talent transfer".
So my argument here is that yes, Kenya would feel positive affects of cash transfer for a time, but the effects will not be self-sustaining and they will also not be able to use that extra cash on an individual basis to build a productive workforce that can contribute much more to the society than by simply trading goods as unskilled shop-owners.
If economists really wanted to help poor countries in the global south, they would instead lobby Oxford, Cambridge, Harvard and MIT to setup satellite instituations all across Africa, and ask companies to setup industries to use that workforce to kickstart the new economy of these countries. But they won't ever do that - simply because
A) It takes much longer and its result cannot be neatly published in a 10 page Econ paper and B) Which country would want to build a competing nation in the South and risk them gaining technology that could have a 0.1% chance of being detrimental to the former?
Where did you get the idea that the video or the study was trying to say that this example is indicative of ALL economies in the world?
@@stephengray1344 thats what he said - when he started out by saying it disproves one theory and proves the other. Thats called reading between the lines.
Keynsian Kenyian 😅
Money is lent into existence. What the researchers did is foreign direct investment. Capital inflows strengthen a currency
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Watch the video it's not investment lol, why are Friedman's supporters unable to get the basics here? It was not a loan and therefore not investment.
@@foobarf8766fair. It wasn't really an investment but I used the term "foreign direct investment" just to illustrate the injection of capital. The government didn't devalue the currency proportionately to the capital injected into the economy by the researchers. That's why there wasn't inflation and governments printing/redistributing money can't replicate the results of the experiment.
@@TheSnugglery The United States imports 70% of its goods. Wouldn't that mean creating dollars doesn't cause inflation if it's spent on only goods and not services?
@@ThatonedudeCR12956 depends on how much excess production capacity the foreign producers have. But it'll be tough to find a place to put all those cheap foreign goods when a house costs a billion dollars
In truth i believe that the low inflation is more realitioned with productivity growth because the capital influx.
1. Poor people have needs that cannot be met.
2. Small business owners have an oversupply of goods and services.
3. Give the poor people money to meet their needs which in turn will meet the capacity of the small business owners.
Something is telling me it’s not as simple as this.