[Script Info]
Title: 
[Events]
Format: Layer, Start, End, Style, Name, MarginL, MarginR, MarginV, Effect, Text
Dialogue: 0,0:00:00.12,0:00:02.34,Default,,0000,0000,0000,,♪ [music] ♪
Dialogue: 0,0:00:03.52,0:00:06.98,Default,,0000,0000,0000,,- [Tyler] Now let's say you could\Nonly teach two words to everyone.
Dialogue: 0,0:00:07.42,0:00:09.24,Default,,0000,0000,0000,,What would the two words be?
Dialogue: 0,0:00:10.05,0:00:13.88,Default,,0000,0000,0000,,My candidate would be\N"incentives matter."
Dialogue: 0,0:00:14.49,0:00:17.46,Default,,0000,0000,0000,,If there could only be one lesson\Nfrom an economics class,
Dialogue: 0,0:00:17.46,0:00:18.78,Default,,0000,0000,0000,,a single takeaway --
Dialogue: 0,0:00:19.04,0:00:20.68,Default,,0000,0000,0000,,I can't boil it down to one word.
Dialogue: 0,0:00:20.68,0:00:24.36,Default,,0000,0000,0000,,Even in German there's not one word\Nfor "incentives matter."
Dialogue: 0,0:00:24.36,0:00:25.75,Default,,0000,0000,0000,,I hope they coin one.
Dialogue: 0,0:00:25.75,0:00:26.98,Default,,0000,0000,0000,,[audience laughter]
Dialogue: 0,0:00:27.46,0:00:31.95,Default,,0000,0000,0000,,But to train or teach students\Nthroughout life, in all areas,
Dialogue: 0,0:00:31.95,0:00:35.27,Default,,0000,0000,0000,,to keep on seeing whether\Nour economic knowledge in those areas
Dialogue: 0,0:00:35.27,0:00:38.60,Default,,0000,0000,0000,,is certain or uncertain --\Nincentives are playing a role.
Dialogue: 0,0:00:38.89,0:00:40.76,Default,,0000,0000,0000,,So just very simple examples.
Dialogue: 0,0:00:41.02,0:00:43.37,Default,,0000,0000,0000,,In a number of cities,\Nthere are proposals
Dialogue: 0,0:00:43.37,0:00:46.34,Default,,0000,0000,0000,,to ban tipping\Nof waiters and waitresses.
Dialogue: 0,0:00:47.04,0:00:49.65,Default,,0000,0000,0000,,There have since then\Nbeen studies that show
Dialogue: 0,0:00:49.65,0:00:53.60,Default,,0000,0000,0000,,that if tipping is banned,\Nthe quality of service goes down.
Dialogue: 0,0:00:54.00,0:00:56.16,Default,,0000,0000,0000,,Of course this is,\Nto us, common sense.
Dialogue: 0,0:00:56.46,0:01:00.43,Default,,0000,0000,0000,,It has more or less\Nbeen verified empirically.
Dialogue: 0,0:01:00.43,0:01:03.76,Default,,0000,0000,0000,,If the waiter or waitress\Ndoes not get more
Dialogue: 0,0:01:03.76,0:01:05.71,Default,,0000,0000,0000,,by bringing you your plate\Nwhen you need it
Dialogue: 0,0:01:05.71,0:01:07.27,Default,,0000,0000,0000,,because you leave a larger tip,
Dialogue: 0,0:01:07.27,0:01:09.01,Default,,0000,0000,0000,,they're not going to be\Nas keen to do it.
Dialogue: 0,0:01:09.01,0:01:11.44,Default,,0000,0000,0000,,It doesn't mean that\Nall people care about is money.
Dialogue: 0,0:01:11.44,0:01:13.63,Default,,0000,0000,0000,,It does mean that incentives matter.
Dialogue: 0,0:01:14.42,0:01:16.42,Default,,0000,0000,0000,,You look at these\NSilicon Valley companies.
Dialogue: 0,0:01:16.42,0:01:18.94,Default,,0000,0000,0000,,That's my trip after this.\NI'm going out there.
Dialogue: 0,0:01:18.94,0:01:21.56,Default,,0000,0000,0000,,Like Google and Facebook --\Nthey've all gone public now,
Dialogue: 0,0:01:21.56,0:01:22.76,Default,,0000,0000,0000,,the famous ones.
Dialogue: 0,0:01:22.76,0:01:23.91,Default,,0000,0000,0000,,It was really striking.
Dialogue: 0,0:01:23.91,0:01:25.51,Default,,0000,0000,0000,,Right after they go public,
Dialogue: 0,0:01:26.06,0:01:29.69,Default,,0000,0000,0000,,there is a spike in the divorce rate\Nfor their employees.
Dialogue: 0,0:01:29.69,0:01:30.100,Default,,0000,0000,0000,,[audience chuckles]
Dialogue: 0,0:01:30.100,0:01:32.00,Default,,0000,0000,0000,,Now why is that?
Dialogue: 0,0:01:32.00,0:01:34.09,Default,,0000,0000,0000,,Is it that being\Nin a publically run company
Dialogue: 0,0:01:34.09,0:01:35.36,Default,,0000,0000,0000,,is more stressful?
Dialogue: 0,0:01:35.74,0:01:39.97,Default,,0000,0000,0000,,Or somehow causes people\Nto spend more time away from home?
Dialogue: 0,0:01:39.97,0:01:41.01,Default,,0000,0000,0000,,I don't know.
Dialogue: 0,0:01:41.01,0:01:43.74,Default,,0000,0000,0000,,But there's a pretty simple\Neconomic reason --
Dialogue: 0,0:01:44.26,0:01:46.57,Default,,0000,0000,0000,,that once it's\Na publicly traded company
Dialogue: 0,0:01:46.57,0:01:49.33,Default,,0000,0000,0000,,people can sell\Ntheir shares of stock, right?
Dialogue: 0,0:01:49.33,0:01:51.34,Default,,0000,0000,0000,,And if there's a divorce settlement,
Dialogue: 0,0:01:51.85,0:01:55.12,Default,,0000,0000,0000,,the partner who has more money\Ncan pay off the other,
Dialogue: 0,0:01:55.12,0:01:56.94,Default,,0000,0000,0000,,and they can reach an arrangement,
Dialogue: 0,0:01:56.94,0:01:59.75,Default,,0000,0000,0000,,whereas if you're holding\Nrelatively illiquid shares,
Dialogue: 0,0:01:59.76,0:02:02.80,Default,,0000,0000,0000,,or you're not allowed\Nto sell them so rapidly,
Dialogue: 0,0:02:02.80,0:02:05.35,Default,,0000,0000,0000,,and you have to reach\Na divorce settlement,
Dialogue: 0,0:02:05.35,0:02:06.50,Default,,0000,0000,0000,,it's much harder to do.
Dialogue: 0,0:02:06.50,0:02:07.90,Default,,0000,0000,0000,,Maybe you have to borrow to do it.
Dialogue: 0,0:02:07.90,0:02:09.76,Default,,0000,0000,0000,,People are reluctant to do that,
Dialogue: 0,0:02:09.76,0:02:12.88,Default,,0000,0000,0000,,so they don't get divorced\Nuntil the company goes public.
Dialogue: 0,0:02:13.32,0:02:16.05,Default,,0000,0000,0000,,You would think,\N"My goodness! That's cruel
Dialogue: 0,0:02:16.05,0:02:19.96,Default,,0000,0000,0000,,or cold-hearted, or calculating,\Nor Machiavellian!"
Dialogue: 0,0:02:20.72,0:02:24.14,Default,,0000,0000,0000,,Morally, you may approve\Nor not approve,
Dialogue: 0,0:02:24.14,0:02:27.69,Default,,0000,0000,0000,,but the point still remains --\Nincentives matter.
Dialogue: 0,0:02:29.64,0:02:31.19,Default,,0000,0000,0000,,In the United States right now,
Dialogue: 0,0:02:31.19,0:02:33.64,Default,,0000,0000,0000,,one big problem\Nwe have with incentives
Dialogue: 0,0:02:33.64,0:02:36.52,Default,,0000,0000,0000,,is that when people\Nat lower income groups
Dialogue: 0,0:02:36.52,0:02:40.73,Default,,0000,0000,0000,,climb the income ladder\Nthey lose a lot of their benefits.
Dialogue: 0,0:02:40.73,0:02:43.94,Default,,0000,0000,0000,,That is like\Nan implicit tax rate on them.
Dialogue: 0,0:02:44.48,0:02:45.62,Default,,0000,0000,0000,,So, in some estimates --
Dialogue: 0,0:02:45.62,0:02:47.53,Default,,0000,0000,0000,,again, it depends\Non your circumstance --
Dialogue: 0,0:02:47.53,0:02:51.33,Default,,0000,0000,0000,,but if you go from being poor\Nto being, say, middle class,
Dialogue: 0,0:02:52.07,0:02:57.15,Default,,0000,0000,0000,,your marginal tax rate might be,\Nsay, 50 to 70% in some cases.
Dialogue: 0,0:02:57.43,0:02:59.36,Default,,0000,0000,0000,,It's probably at least 40%.
Dialogue: 0,0:02:59.53,0:03:01.77,Default,,0000,0000,0000,,So if you ask who are\Nthe people in this country
Dialogue: 0,0:03:01.77,0:03:03.56,Default,,0000,0000,0000,,who face the highest tax rates?
Dialogue: 0,0:03:03.83,0:03:05.94,Default,,0000,0000,0000,,It's not generally the rich people.
Dialogue: 0,0:03:06.23,0:03:08.62,Default,,0000,0000,0000,,It's not even\NWarren Buffett's secretary.
Dialogue: 0,0:03:09.10,0:03:12.33,Default,,0000,0000,0000,,Very often, when you understand\Nincentives properly,
Dialogue: 0,0:03:12.33,0:03:13.82,Default,,0000,0000,0000,,it is the poor people.
Dialogue: 0,0:03:14.66,0:03:17.02,Default,,0000,0000,0000,,When I was in Montreal,\None thing that struck me
Dialogue: 0,0:03:17.83,0:03:21.15,Default,,0000,0000,0000,,is there's\Nrelatively little gentrification.
Dialogue: 0,0:03:21.15,0:03:24.38,Default,,0000,0000,0000,,Rents are quite low,\Nby most American standards,
Dialogue: 0,0:03:24.38,0:03:26.16,Default,,0000,0000,0000,,for a city that large.
Dialogue: 0,0:03:26.16,0:03:29.62,Default,,0000,0000,0000,,And when you walk around\Nit was striking to me
Dialogue: 0,0:03:29.62,0:03:31.85,Default,,0000,0000,0000,,how many restaurants\Nare closed for lunch.
Dialogue: 0,0:03:32.33,0:03:33.71,Default,,0000,0000,0000,,So think of Montreal.
Dialogue: 0,0:03:33.95,0:03:36.37,Default,,0000,0000,0000,,The city still has a feel\Na bit like in the '70s.
Dialogue: 0,0:03:36.37,0:03:39.72,Default,,0000,0000,0000,,It's not poor,\Nbut it hasn't grown very rapidly.
Dialogue: 0,0:03:39.72,0:03:41.28,Default,,0000,0000,0000,,It doesn't have a tech sector.
Dialogue: 0,0:03:41.28,0:03:43.09,Default,,0000,0000,0000,,Investment has been afraid\Nto go there,
Dialogue: 0,0:03:43.09,0:03:45.06,Default,,0000,0000,0000,,because of all the talk\Nof secession.
Dialogue: 0,0:03:45.31,0:03:47.08,Default,,0000,0000,0000,,So it has a retro feel.
Dialogue: 0,0:03:47.60,0:03:49.03,Default,,0000,0000,0000,,Rents are much lower.
Dialogue: 0,0:03:49.35,0:03:50.69,Default,,0000,0000,0000,,So you have a restaurant,
Dialogue: 0,0:03:50.69,0:03:54.63,Default,,0000,0000,0000,,you don't necessarily\Nhave to open it for lunch
Dialogue: 0,0:03:54.63,0:03:55.79,Default,,0000,0000,0000,,to stay in business.
Dialogue: 0,0:03:55.79,0:03:58.71,Default,,0000,0000,0000,,And if you open it for lunch\Nyou work your staff more hours,
Dialogue: 0,0:03:58.71,0:04:00.96,Default,,0000,0000,0000,,you bump up\Nagainst labor regulations.
Dialogue: 0,0:04:00.96,0:04:03.73,Default,,0000,0000,0000,,Again, incentives matter,\Nincentives matter,
Dialogue: 0,0:04:03.73,0:04:04.94,Default,,0000,0000,0000,,incentives matter.
Dialogue: 0,0:04:05.12,0:04:07.22,Default,,0000,0000,0000,,It's true in the non-profit sector.
Dialogue: 0,0:04:07.22,0:04:08.74,Default,,0000,0000,0000,,It is true in government.
Dialogue: 0,0:04:08.74,0:04:11.03,Default,,0000,0000,0000,,It is true in every country\Nof the world.
Dialogue: 0,0:04:11.44,0:04:14.52,Default,,0000,0000,0000,,Of course incentives mattering\Ndoes not have to be a good thing.
Dialogue: 0,0:04:14.77,0:04:18.09,Default,,0000,0000,0000,,It does help us get\Nmany good things done, right?
Dialogue: 0,0:04:18.82,0:04:20.38,Default,,0000,0000,0000,,We have property rights.
Dialogue: 0,0:04:20.38,0:04:23.88,Default,,0000,0000,0000,,Property rights help people\Nwho create value
Dialogue: 0,0:04:23.88,0:04:25.64,Default,,0000,0000,0000,,to internalize value.
Dialogue: 0,0:04:25.80,0:04:27.04,Default,,0000,0000,0000,,That's another incentive.
Dialogue: 0,0:04:27.35,0:04:29.16,Default,,0000,0000,0000,,So I don't really\Nteach property rights
Dialogue: 0,0:04:29.16,0:04:30.72,Default,,0000,0000,0000,,as a separate category.
Dialogue: 0,0:04:30.72,0:04:32.71,Default,,0000,0000,0000,,To me they're an example\Nof incentives.
Dialogue: 0,0:04:32.71,0:04:34.17,Default,,0000,0000,0000,,They're part of the carrot.
Dialogue: 0,0:04:34.17,0:04:36.21,Default,,0000,0000,0000,,They're how you get\Nto eat the carrot.
Dialogue: 0,0:04:36.66,0:04:40.11,Default,,0000,0000,0000,,There's one story I read recently --\Nit's kind of scary, actually.
Dialogue: 0,0:04:40.61,0:04:42.06,Default,,0000,0000,0000,,There was a fellow,
Dialogue: 0,0:04:42.44,0:04:45.73,Default,,0000,0000,0000,,and he bought\Nan old tooth of John Lennon.
Dialogue: 0,0:04:45.73,0:04:47.34,Default,,0000,0000,0000,,Yes, John Lennon the Beatle.
Dialogue: 0,0:04:47.62,0:04:49.52,Default,,0000,0000,0000,,He bought the tooth at auction.
Dialogue: 0,0:04:49.100,0:04:53.55,Default,,0000,0000,0000,,And now he's putting ads\Nall around the internet saying,
Dialogue: 0,0:04:53.83,0:04:57.73,Default,,0000,0000,0000,,"Do you think you might be\Nan unrecognized descendant
Dialogue: 0,0:04:57.73,0:04:59.03,Default,,0000,0000,0000,,of John Lennon?
Dialogue: 0,0:04:59.29,0:05:00.61,Default,,0000,0000,0000,,I have his DNA.
Dialogue: 0,0:05:00.86,0:05:01.78,Default,,0000,0000,0000,,Contact me.
Dialogue: 0,0:05:01.78,0:05:06.01,Default,,0000,0000,0000,,We will test you,\Nand we can bring a lawsuit."
Dialogue: 0,0:05:07.34,0:05:09.23,Default,,0000,0000,0000,,In my opinion --\NIt's now a personal opinion.
Dialogue: 0,0:05:09.23,0:05:10.62,Default,,0000,0000,0000,,I'm not speaking as an economist --
Dialogue: 0,0:05:10.62,0:05:12.68,Default,,0000,0000,0000,,but that's a negative incentive.
Dialogue: 0,0:05:12.68,0:05:15.63,Default,,0000,0000,0000,,So a lot of the troubles\Nwe have in the world
Dialogue: 0,0:05:15.63,0:05:17.64,Default,,0000,0000,0000,,also spring from incentives.
Dialogue: 0,0:05:17.64,0:05:18.100,Default,,0000,0000,0000,,♪ [music] ♪
Dialogue: 0,0:05:18.100,0:05:20.92,Default,,0000,0000,0000,,- [Narrator] Click here\Nto watch the next episode
Dialogue: 0,0:05:20.92,0:05:23.85,Default,,0000,0000,0000,,of "Tyler Cowen's\N9 Big Ideas of Economics."
Dialogue: 0,0:05:24.14,0:05:26.04,Default,,0000,0000,0000,,Or maybe you're not ready\Nto move on,
Dialogue: 0,0:05:26.04,0:05:28.65,Default,,0000,0000,0000,,and instead want to learn more\Nabout this idea.
Dialogue: 0,0:05:28.65,0:05:30.53,Default,,0000,0000,0000,,Then you should\Ncheck out this video.
Dialogue: 0,0:05:30.53,0:05:33.36,Default,,0000,0000,0000,,Or maybe you are dying to attend\None of our teacher events
Dialogue: 0,0:05:33.36,0:05:35.06,Default,,0000,0000,0000,,to mingle with other econ nerds?
Dialogue: 0,0:05:35.06,0:05:36.79,Default,,0000,0000,0000,,Click here for info on that.