The business cycle

WEBVTT
Kind: captions
Language: en

00:00:00.368 --> 00:00:02.891
Let's make a plot of real GDP

00:00:02.891 --> 00:00:05.403
as a function of time.

00:00:05.403 --> 00:00:07.563
This axis right over here is going to be

00:00:07.563 --> 00:00:10.319
real GDP, so it's an actual measure,

00:00:10.319 --> 00:00:11.406
not just nominal GDP.

00:00:11.406 --> 00:00:13.006
It's an actual measure
of the goods and services

00:00:13.006 --> 00:00:14.895
produced by an economy or

00:00:14.895 --> 00:00:16.886
the productivity of an economy.

00:00:16.886 --> 00:00:20.798
Over here let's have time.

00:00:20.798 --> 00:00:23.151
In our little country or whatever economy

00:00:23.151 --> 00:00:25.063
we're studying here, let's assume

00:00:25.063 --> 00:00:28.335
that over time its population is growing.

00:00:28.335 --> 00:00:29.935
Let me write these things down.

00:00:29.935 --> 00:00:35.339
So, population is growing over time,

00:00:35.339 --> 00:00:38.228
and this is not an unrealistic assumption,

00:00:38.228 --> 00:00:40.162
this is true of most countries.

00:00:40.162 --> 00:00:42.063
Population is growing over time.

00:00:42.063 --> 00:00:44.744
Also, let's assume that
productivity is improving.

00:00:44.744 --> 00:00:48.138
Productivity ... Productivity is just

00:00:48.138 --> 00:00:50.610
essentially how much can each individual

00:00:50.610 --> 00:00:51.152
person produce?

00:00:51.152 --> 00:00:52.744
Productivity.

00:00:52.744 --> 00:00:54.938
Productivity is going up.

00:00:54.938 --> 00:00:57.669
Productivity goes up due to technology,

00:00:57.669 --> 00:01:00.276
probably mainly technology,

00:01:00.276 --> 00:01:02.732
technology

00:01:02.732 --> 00:01:04.414
Mainly technology, but there could be

00:01:04.414 --> 00:01:06.420
discoveries of resources.

00:01:06.420 --> 00:01:09.268
Discovery of resources ...

00:01:09.268 --> 00:01:11.148
Or it could be new business processes.

00:01:11.148 --> 00:01:12.751
People wouldn't even consider that

00:01:12.751 --> 00:01:16.879
maybe technology, so new processes.

00:01:16.879 --> 00:01:18.758
On a per person basis, they're able to

00:01:18.835 --> 00:01:20.406
produce more and more over time.

00:01:20.406 --> 00:01:21.786
Because of these trends, and these are

00:01:21.786 --> 00:01:23.322
trends that do take place over

00:01:23.322 --> 00:01:25.180
long periods of time in
many, many economies,

00:01:25.180 --> 00:01:27.683
you would expect the real productivity

00:01:27.683 --> 00:01:30.049
of that economy to increase.

00:01:30.049 --> 00:01:31.854
If you were to just do the long-term

00:01:31.854 --> 00:01:33.313
trend just based on these two things,

00:01:33.313 --> 00:01:36.025
the population growing and
productivity improving,

00:01:36.025 --> 00:01:39.729
over time, real GDP should have a trend

00:01:39.729 --> 00:01:41.293
something like that.

00:01:41.293 --> 00:01:44.184
That is the long-term trend of most

00:01:44.184 --> 00:01:46.788
properly functioning economies.

00:01:46.788 --> 00:01:49.124
When you look at it on the short-term,

00:01:49.124 --> 00:01:50.788
it doesn't look like a nice, smooth

00:01:50.788 --> 00:01:52.385
trend line like this.

00:01:52.385 --> 00:01:54.188
When you study any major
economy in the world,

00:01:54.188 --> 00:01:56.505
or any economy, any normal economy,

00:01:56.505 --> 00:01:59.983
instead of going this
nice, smooth trend line,

00:01:59.983 --> 00:02:02.932
it tends to look something more like this.

00:02:02.932 --> 00:02:06.925
Real GDP will be going really fast,

00:02:06.925 --> 00:02:08.931
maybe higher than trend line,

00:02:08.931 --> 00:02:10.550
and then all of a sudden,

00:02:10.550 --> 00:02:13.180
it will essentially recede,

00:02:13.180 --> 00:02:14.519
or it will essentially shrink.

00:02:14.519 --> 00:02:15.933
Then it'll start growing again,

00:02:15.933 --> 00:02:17.563
maybe go above the trend line,

00:02:17.563 --> 00:02:19.163
then it'll recede ...
Go below the trend line.

00:02:19.163 --> 00:02:20.433
Then it'll go above the trend line,

00:02:20.433 --> 00:02:23.854
it'll just keep fluxuating around

00:02:23.854 --> 00:02:26.453
a trend line like that.

00:02:26.453 --> 00:02:28.669
This fluxuation around this trend line,

00:02:28.669 --> 00:02:30.856
this is called the business cycle.

00:02:30.856 --> 00:02:32.666
This right over here
... And you could maybe

00:02:32.666 --> 00:02:34.505
call one cycle, you could say it's from

00:02:34.505 --> 00:02:36.049
one peak to one peak or

00:02:36.049 --> 00:02:37.019
one trough to one trough,

00:02:37.019 --> 00:02:39.400
or whatever you want to call it,

00:02:39.400 --> 00:02:41.422
it's this idea that the economy isn't

00:02:41.422 --> 00:02:44.676
just a nice, steady-as-you-go growth,

00:02:44.676 --> 00:02:46.858
you have periods of fast growth

00:02:46.858 --> 00:02:48.257
going maybe above the trend line,

00:02:48.257 --> 00:02:50.297
and then it recedes, then it expands,

00:02:50.297 --> 00:02:51.866
then it recedes.

00:02:51.866 --> 00:02:54.793
This is the business cycle.

00:02:54.793 --> 00:02:58.093
Business cycle.

00:02:58.093 --> 00:03:00.465
The term "cycle" is a
little bit misleading.

00:03:00.465 --> 00:03:02.194
Whenever you think of a cycle,

00:03:02.194 --> 00:03:03.772
even the way I drew it,
it kind of looks like

00:03:03.772 --> 00:03:05.868
a nice well-defined pattern and every

00:03:05.868 --> 00:03:08.401
the same amount of years you're going

00:03:08.401 --> 00:03:11.300
up and down, it kind of implies that

00:03:11.300 --> 00:03:11.862
it's predictable.

00:03:11.862 --> 00:03:13.459
The reality is that the business cycle

00:03:13.475 --> 00:03:14.697
is very unpredictable.

00:03:14.697 --> 00:03:15.954
And economists more than anyone

00:03:15.954 --> 00:03:18.017
have trouble predicting
the business cycle.

00:03:18.017 --> 00:03:19.616
When you think of a cycle,

00:03:19.616 --> 00:03:22.432
it's not this nice, sinusoid pattern,

00:03:22.432 --> 00:03:24.335
it's much, much more unpredictable.

00:03:24.335 --> 00:03:27.329
It does fluxuate up and down above

00:03:27.329 --> 00:03:28.866
a trend, but it's hard to predict.

00:03:28.866 --> 00:03:31.689
Hard to predict.

00:03:31.689 --> 00:03:34.127
In general, you don't have the same

00:03:34.127 --> 00:03:35.873
period of time between every peak

00:03:35.873 --> 00:03:37.194
and every trough.

00:03:37.194 --> 00:03:39.264
That is why it is so hard to predict.

00:03:39.264 --> 00:03:42.102
There are different terms for different

00:03:42.102 --> 00:03:43.906
phases of the business cycle.

00:03:43.906 --> 00:03:45.649
I kind of used it just in describing

00:03:45.649 --> 00:03:46.871
what was happening.

00:03:46.871 --> 00:03:49.455
Over here, where the economy is growing,

00:03:49.455 --> 00:03:51.383
so the economy is growing
from there to there,

00:03:51.383 --> 00:03:53.449
from there to there, we would call this

00:03:53.449 --> 00:03:55.401
phase of the business cycle,

00:03:55.401 --> 00:03:57.675
I'll highlight that in green,

00:03:57.675 --> 00:03:59.150
we would call that expansion

00:03:59.150 --> 00:04:02.646
because the economy is
literally expanding.

00:04:02.646 --> 00:04:04.630
There's more goods and services being

00:04:04.630 --> 00:04:05.727
produced in that economy.

00:04:05.727 --> 00:04:08.273
Then when, and we'll talk about the

00:04:08.273 --> 00:04:09.467
reasons why this is happening,

00:04:09.467 --> 00:04:12.183
and then when it starts to shrink,

00:04:12.183 --> 00:04:13.360
the economy starts to shrink,

00:04:13.360 --> 00:04:15.645
this right over here, or
you could call it "recedes",

00:04:15.645 --> 00:04:18.316
if you think of it in a title analogy,

00:04:18.316 --> 00:04:22.320
this right over here is
called a "recession".

00:04:22.320 --> 00:04:24.650
This right over here is a ...

00:04:24.650 --> 00:04:25.929
So that purple part right over there,

00:04:25.929 --> 00:04:28.720
is a recession.

00:04:28.720 --> 00:04:31.124
If a recession is bad enough,

00:04:31.124 --> 00:04:33.537
it is sometimes categorized
as a "depression",

00:04:33.537 --> 00:04:35.119
and there's different
categories for a depression;

00:04:35.119 --> 00:04:36.020
there's the famous joke,'

00:04:36.020 --> 00:04:38.984
"When your neighbor loses
his job, it's a recession.

00:04:38.984 --> 00:04:42.950
When you lose your job,
it is a depression."

00:04:42.950 --> 00:04:45.453
The interesting thing
is we see this pattern

00:04:45.453 --> 00:04:47.943
happening, whether it's every 8 years,

00:04:47.943 --> 00:04:49.182
7 years, every 10 years,

00:04:49.182 --> 00:04:51.323
but we don't fully understand exactly

00:04:51.323 --> 00:04:53.116
why it's happening.

00:04:53.116 --> 00:04:54.460
What we're going to try to attempt to do

00:04:54.460 --> 00:04:56.967
in the next few videos is look at models

00:04:56.967 --> 00:04:59.274
that do attempt to explain it.

00:04:59.274 --> 00:05:00.951
That's actually the whole purpose

00:05:00.951 --> 00:05:02.600
why we're going to study aggregate demand

00:05:02.600 --> 00:05:04.276
and aggregate supply.

00:05:04.276 --> 00:05:06.105
With that said, I want you to view those

00:05:06.105 --> 00:05:07.484
models with a huge grain of salt

00:05:07.484 --> 00:05:09.049
because those are, I would argue,

00:05:09.049 --> 00:05:11.198
overly simplified economic models

00:05:11.198 --> 00:05:13.420
that don't take into consideration

00:05:13.420 --> 00:05:15.195
probably the most important factor

00:05:15.195 --> 00:05:16.938
in the economic cycle or any type

00:05:16.938 --> 00:05:20.416
of market cycle, and
that is human emotions.

00:05:20.416 --> 00:05:23.115
Human emotions.

00:05:23.115 --> 00:05:24.538
You might notice in most of our studies

00:05:24.538 --> 00:05:26.655
of economics so far, we haven't really

00:05:26.655 --> 00:05:28.344
talked a lot about human emotions or

00:05:28.344 --> 00:05:29.928
human's tendencies to extrapolate

00:05:29.928 --> 00:05:33.072
the recent past, or human's greed

00:05:33.072 --> 00:05:35.780
or risk of fear and greed,
and all of these things,

00:05:35.795 --> 00:05:37.003
that are very real things because

00:05:37.003 --> 00:05:38.251
in traditional economics, they don't

00:05:38.251 --> 00:05:39.270
fit neatly into the models.

00:05:39.270 --> 00:05:42.169
There are new fields
in behavioral economics

00:05:42.169 --> 00:05:44.898
and behavioral finance that do try to

00:05:44.898 --> 00:05:47.114
take into account things
like human emotions,

00:05:47.114 --> 00:05:48.573
but it's not going to make its way into

00:05:48.573 --> 00:05:50.469
the models that we're going to study

00:05:50.469 --> 00:05:55.084
in aggregate supply and aggregate demand.

00:05:55.084 --> 00:05:56.377
The reason why I say human emotions,

00:05:56.377 --> 00:05:58.061
and because just based on,

00:05:58.061 --> 00:06:00.748
I spent I think it was six or seven years

00:06:00.748 --> 00:06:02.924
in markets while I was an analyst at

00:06:02.924 --> 00:06:05.326
an investment firm, it
was very clear to me

00:06:05.326 --> 00:06:07.525
that what drove market cycles and

00:06:07.525 --> 00:06:09.855
economic cycles to a large degree,

00:06:09.855 --> 00:06:12.095
was based on human emotions.

00:06:12.095 --> 00:06:13.796
That what you have happening over here

00:06:13.796 --> 00:06:16.001
is that the longer time,

00:06:16.001 --> 00:06:18.427
once again, this isn't what you would

00:06:18.427 --> 00:06:20.366
classically learn in
your freshman economics

00:06:20.366 --> 00:06:21.446
class, I'm just going to say this ...

00:06:21.446 --> 00:06:23.422
Before we start studying the classical

00:06:23.422 --> 00:06:25.609
one, because I think this
does give a better sense

00:06:25.609 --> 00:06:28.780
of what's probably happening
in an economic cycle.

00:06:28.780 --> 00:06:30.450
Right over here when the expansions

00:06:30.450 --> 00:06:32.862
phase is starting, people
are still skeptical.

00:06:32.862 --> 00:06:34.395
They've just been through this,

00:06:34.395 --> 00:06:36.446
people were getting laid off over here,

00:06:36.446 --> 00:06:38.953
people were losing their jobs,

00:06:38.953 --> 00:06:40.275
people were having
trouble paying the bills,

00:06:40.275 --> 00:06:43.458
companies had very low profits or maybe

00:06:43.458 --> 00:06:44.537
no profits at all,

00:06:44.537 --> 00:06:45.720
bankruptcies were occurring,

00:06:45.720 --> 00:06:47.446
so even though the economy is starting

00:06:47.446 --> 00:06:48.828
to expand right over here,

00:06:48.828 --> 00:06:50.108
people were kind of skeptical.

00:06:50.108 --> 00:06:51.988
In the recent past, they
remember all of this pain

00:06:51.988 --> 00:06:53.358
so they don't want to go out there

00:06:53.358 --> 00:06:54.272
and start spending money.

00:06:54.272 --> 00:06:55.357
They don't want to go out there

00:06:55.357 --> 00:06:56.390
and start investing.

00:06:56.390 --> 00:06:58.056
The further and further
they go from that point,

00:06:58.056 --> 00:06:59.702
and I'm just explaining the emotional

00:06:59.702 --> 00:07:02.618
aspect of the economic cycle which I think

00:07:02.618 --> 00:07:03.940
is probably the most powerful one,

00:07:03.940 --> 00:07:06.125
the further and further
they go away from this,

00:07:06.125 --> 00:07:07.401
they say maybe this is for real.

00:07:07.401 --> 00:07:08.790
Maybe this is really happening.

00:07:08.790 --> 00:07:10.722
Their memories of that pain are

00:07:10.722 --> 00:07:12.265
more and more distant.

00:07:12.265 --> 00:07:13.613
Their memories of all the risk,

00:07:13.613 --> 00:07:14.998
the memories of all the layoffs

00:07:14.998 --> 00:07:16.060
and the bankruptcies become

00:07:16.060 --> 00:07:16.968
more and more distant

00:07:16.968 --> 00:07:18.726
and then they become
more and more confident

00:07:18.726 --> 00:07:20.271
and more and more eager to invest.

00:07:20.271 --> 00:07:21.691
They start investing and

00:07:21.691 --> 00:07:22.668
spending more and more,

00:07:22.668 --> 00:07:23.824
they start hiring,

00:07:23.824 --> 00:07:25.546
and because of all of that,

00:07:25.546 --> 00:07:27.226
they see fewer and fewer bankruptcies,

00:07:27.226 --> 00:07:28.433
fewer and fewer layoffs,

00:07:28.433 --> 00:07:29.592
hiring is starting to occur,

00:07:29.592 --> 00:07:31.519
people are getting more and more and more

00:07:31.519 --> 00:07:33.831
optimistic, so the economy keeps growing.

00:07:33.831 --> 00:07:35.597
When you go to points right around here,

00:07:35.597 --> 00:07:38.472
it's been a long time since anyone really

00:07:38.472 --> 00:07:40.796
talked about major
layoffs and bankruptcies,

00:07:40.796 --> 00:07:44.534
and foreclosures and all the rest.

00:07:44.534 --> 00:07:47.000
People over here are feeling
super, super confident

00:07:47.000 --> 00:07:49.238
and they're probably underplaying risk

00:07:49.238 --> 00:07:50.063
at this point.

00:07:50.063 --> 00:07:51.463
They're investing money,

00:07:51.463 --> 00:07:53.264
they're spending money
like there's no tomorrow

00:07:53.264 --> 00:07:54.816
because they think there will always be

00:07:54.816 --> 00:07:55.937
good growth.

00:07:55.937 --> 00:07:56.938
They're essentially extrapulating

00:07:56.938 --> 00:07:58.399
the recent past.

00:07:58.399 --> 00:08:00.192
They think, and there's actually even

00:08:00.192 --> 00:08:03.127
been studies that show
that even economists,

00:08:03.127 --> 00:08:04.355
when you ask them at this point,

00:08:04.355 --> 00:08:06.608
what's the foreseeable future going

00:08:06.608 --> 00:08:08.374
to look like, they tend to extrapulate

00:08:08.374 --> 00:08:09.358
the recent past.

00:08:09.358 --> 00:08:10.596
They say the recent past, we were growing

00:08:10.596 --> 00:08:12.394
like that, so in the future
we will grow like that.

00:08:12.394 --> 00:08:14.324
At this point, essentially people are

00:08:14.324 --> 00:08:17.371
being too bullish, they're
being too optimistic

00:08:17.371 --> 00:08:19.582
and they're probably
misallocating investment.

00:08:19.582 --> 00:08:23.323
As soon as things don't grow as people

00:08:23.323 --> 00:08:24.947
expect, they start getting
a little bit fearful,

00:08:24.947 --> 00:08:26.585
but they're still in denial at this point,

00:08:26.585 --> 00:08:27.927
they get a little bit more fearful,

00:08:27.927 --> 00:08:28.707
but here they say,

00:08:28.707 --> 00:08:29.984
"Oh my God, something is going on."

00:08:29.984 --> 00:08:31.782
They start panicking,
layoffs start happening,

00:08:31.782 --> 00:08:34.565
economy recedes and then we have

00:08:34.565 --> 00:08:36.160
the entire cycle again.

00:08:36.160 --> 00:08:37.939
To kind of understand
this emotional aspect

00:08:37.939 --> 00:08:40.254
of it, this is something I redrew.

00:08:40.254 --> 00:08:45.409
I redrew a graph that always gets kind of

00:08:45.409 --> 00:08:47.368
chain mailed around or sent around

00:08:47.368 --> 00:08:50.559
usually during every bubble when

00:08:50.559 --> 00:08:52.077
people start becoming skeptical

00:08:52.077 --> 00:08:53.662
of the growth and economy.

00:08:53.662 --> 00:08:56.591
It traditionally refers
to stock market cycles.

00:08:56.591 --> 00:08:58.259
Stock market cycles are closely linked

00:08:58.259 --> 00:09:00.254
to actual economic cycles.

00:09:00.254 --> 00:09:02.154
I think these words really do capture

00:09:02.154 --> 00:09:04.788
the emotional sentiment of what's going on

00:09:04.788 --> 00:09:06.490
in either during the business cycle

00:09:06.490 --> 00:09:08.188
or during a stock market cycle.

00:09:08.188 --> 00:09:11.729
Right when we're in the
middle of an expansion,

00:09:11.729 --> 00:09:13.938
people are pretty optimistic.

00:09:13.938 --> 00:09:15.600
A little bit further into it,

00:09:15.600 --> 00:09:16.653
people are feeling excitement.

00:09:16.653 --> 00:09:18.394
They're saying, "Maybe this
is a new type of thing.

00:09:18.394 --> 00:09:19.810
Maybe we're going to be
able to grow forever."

00:09:19.810 --> 00:09:21.822
Then there's a thrill that people,

00:09:21.822 --> 00:09:23.202
just the last few years,

00:09:23.202 --> 00:09:24.829
all they do is they remember making money.

00:09:24.829 --> 00:09:26.135
They say, "I'm going to put all my money

00:09:26.135 --> 00:09:27.671
in the stock market. I'm going to start

00:09:27.671 --> 00:09:28.938
buying Pets.com and whatever else."

00:09:28.938 --> 00:09:30.941
Then there's euphoria.

00:09:30.941 --> 00:09:32.274
They're just like, "Wow, easy money.

00:09:32.274 --> 00:09:33.246
I don't have to work for a living.

00:09:33.246 --> 00:09:34.697
I can just keep flipping houses or

00:09:34.697 --> 00:09:37.947
buying stocks of Pets.com,"
or whatever else,

00:09:37.947 --> 00:09:38.885
day trading.

00:09:38.885 --> 00:09:40.644
Then all of a sudden, you have some signs

00:09:40.644 --> 00:09:42.202
that maybe there was some bad investment,

00:09:42.202 --> 00:09:44.125
that people's investments weren't turning

00:09:44.125 --> 00:09:45.404
out as good as they expected.

00:09:45.404 --> 00:09:48.584
People get a little
anxious, but then as you

00:09:48.584 --> 00:09:50.455
still foresee this, they start denying it.

00:09:50.455 --> 00:09:53.489
Some people say, "Are we
in a recession thing?"

00:09:53.489 --> 00:09:55.118
"No, no, no, no, we're not in a recession.

00:09:55.118 --> 00:09:56.527
It's been so long since
we were in a recession.

00:09:56.527 --> 00:09:57.716
Things are different this time.

00:09:57.716 --> 00:09:59.085
The internet changes everything.

00:09:59.085 --> 00:10:00.630
Housing never goes down."

00:10:00.630 --> 00:10:02.214
But then as it continues,

00:10:02.214 --> 00:10:03.639
as the recession really does continue,

00:10:03.639 --> 00:10:05.533
they start to get fearful,
they start saying,

00:10:05.533 --> 00:10:06.786
"Maybe this is something going on,"

00:10:06.786 --> 00:10:08.865
then desperate, then panic,

00:10:08.865 --> 00:10:10.272
and that's when people really,

00:10:10.272 --> 00:10:11.480
if you think of a stock market cycle,

00:10:11.480 --> 00:10:14.225
really start to sell in the case of a

00:10:14.225 --> 00:10:15.854
regular business cycle,

00:10:15.854 --> 00:10:17.189
they start to maybe underspend,

00:10:17.189 --> 00:10:19.017
they start to really hoard things,

00:10:19.017 --> 00:10:20.949
then capitulation ...
This is when they say, '

00:10:20.949 --> 00:10:22.599
"Things are just bad. They're never going

00:10:22.599 --> 00:10:23.800
to get any better," and then they become

00:10:23.800 --> 00:10:25.537
despondent and eventually,
you could even say,

00:10:25.537 --> 00:10:28.067
emotionally people start getting depressed

00:10:28.067 --> 00:10:29.923
because they say it's been so long since

00:10:29.923 --> 00:10:32.072
we've felt all of these good emotions

00:10:32.072 --> 00:10:33.240
right over here.

00:10:33.240 --> 00:10:35.793
As any good investors will tell you,

00:10:35.793 --> 00:10:37.358
"This is the best time to invest."

00:10:37.358 --> 00:10:40.110
"This is the worst time to invest."

00:10:40.218 --> 00:10:42.192
Even though there's maybe a little bit

00:10:42.192 --> 00:10:43.476
of growth right over here,

00:10:43.476 --> 00:10:45.193
it's been so long since we've experienced

00:10:45.193 --> 00:10:47.062
all of these emotions.
People are depressed,

00:10:47.062 --> 00:10:48.678
but then as the growth continues,

00:10:48.678 --> 00:10:50.155
They start to feel
hopeful, a little relieved,

00:10:50.155 --> 00:10:52.105
they say, "At least we're not getting

00:10:52.105 --> 00:10:53.412
worse and worse," and then you get

00:10:53.412 --> 00:10:54.736
back to optimism again.

00:10:54.736 --> 00:10:56.662
So keep this in mind because

00:10:56.662 --> 00:10:58.660
in my mind, the emotions really are

00:10:58.660 --> 00:11:00.403
the main factor that are playing in

00:11:00.403 --> 00:11:02.739
either stock market
cycles or economic cycles.

00:11:02.739 --> 00:11:05.494
We we study it kind of classically

00:11:05.494 --> 00:11:07.288
in an economics class, we're going to take

00:11:07.288 --> 00:11:10.165
human emotions a bit out of the picture,

00:11:10.165 --> 00:11:12.063
which is a little bit artificial because

00:11:12.063 --> 00:11:14.967
they might be the most
important part of the picture.


Money supply and demand impacting interest rates

WEBVTT
Kind: captions
Language: en

00:00:01.001 --> 00:00:02.674
Now that we know that we
can view interest rates

00:00:02.674 --> 00:00:04.672
as essentially the price of renting money.

00:00:04.672 --> 00:00:06.672
I want to go through a bunch of scenarios

00:00:06.672 --> 00:00:09.545
just so we can understand
how different things that

00:00:09.545 --> 00:00:12.543
happen in the economy might
effect interest rates.

00:00:12.543 --> 00:00:15.123
I just draw a bunch of
supply and demand curves

00:00:15.123 --> 00:00:17.474
right over here. Once
again we're talking about

00:00:17.474 --> 00:00:20.474
the market for essentially renting money.

00:00:20.474 --> 00:00:23.413
That right over here
is the price of money,

00:00:23.413 --> 00:00:27.408
which we know is the interest rate on the

00:00:27.408 --> 00:00:31.150
vertical axis. Then the
horizontal axis we have

00:00:31.150 --> 00:00:34.007
the quantity of money
that is borrow or lent

00:00:34.007 --> 00:00:38.209
in a given time period.
Quantity and this is a

00:00:38.209 --> 00:00:40.800
given time period that
is borrowed or lent.

00:00:40.800 --> 00:00:50.069
Quantity borrowed in a
year. We know there is

00:00:50.069 --> 00:00:53.338
some ... if we just wanted
to draw a demand curve

00:00:53.338 --> 00:00:55.939
our starting demand curve.
The first few dollars

00:00:55.939 --> 00:00:58.006
out in the economy
people are willing to pay

00:00:58.006 --> 00:00:59.801
a very high interest
rate on them. Then every

00:00:59.801 --> 00:01:03.007
incremental dollar after
that people get less

00:01:03.007 --> 00:01:05.400
marginal benefit. They
might not find as good

00:01:05.400 --> 00:01:07.131
of a place to put that
money. Their borrowing

00:01:07.131 --> 00:01:08.736
it for a reason. Their
either going to borrow

00:01:08.736 --> 00:01:10.800
to consume to buy
something that they always

00:01:10.800 --> 00:01:12.550
wanted that they think
will make them happy,

00:01:12.550 --> 00:01:14.668
or more likely their
borrowing it to invest it

00:01:14.668 --> 00:01:17.223
and hopefully getting a
return higher than what

00:01:17.223 --> 00:01:20.328
they are borrowing at. You have a marginal

00:01:20.328 --> 00:01:22.993
benefit curve that would
be downward sloping

00:01:22.993 --> 00:01:25.199
something like that.
Maybe it looks something

00:01:25.199 --> 00:01:30.002
like that. That is our
demand curve or our marginal

00:01:30.002 --> 00:01:31.141
benefit curve.

00:01:31.141 --> 00:01:33.384
The supply curve. Now,
once again this is the

00:01:33.384 --> 00:01:35.004
exact same logic we use
with the demand and supply

00:01:35.004 --> 00:01:36.926
curve for any good or service.

00:01:36.926 --> 00:01:39.007
For money might look
like this. Those first

00:01:39.007 --> 00:01:42.346
few dollars someone has
a very low opportunity

00:01:42.346 --> 00:01:44.671
cost of lending it out,
so, their willing to

00:01:44.671 --> 00:01:46.537
lend it out at a very low interest rate.

00:01:46.537 --> 00:01:48.604
Then every incremental
dollar after that theirs

00:01:48.604 --> 00:01:51.208
higher opportunity cost,
and people will lend

00:01:51.208 --> 00:01:53.140
it out at a higher and higher rate.

00:01:53.140 --> 00:01:57.260
Then you have a market
equilibrium interest rate.

00:01:57.260 --> 00:01:59.346
Let me copy and paste
this. Then we could think

00:01:59.346 --> 00:02:02.133
about what happens in different scenarios.

00:02:02.133 --> 00:02:06.429
Copy and paste. Now we
have 2 scenarios that

00:02:06.429 --> 00:02:10.356
we can work on, and then let
me just do 1 more. 3 scenarios.

00:02:10.356 --> 00:02:13.594
Let's think of a couple.
Let's say that the central

00:02:13.594 --> 00:02:15.669
bank of our country, in the United States,

00:02:15.669 --> 00:02:18.334
that would be the Federal
Reserve, the central

00:02:18.334 --> 00:02:20.341
bank prints more money.
Then decides to lend

00:02:20.341 --> 00:02:23.134
out that money. That
actually is ... in the

00:02:23.134 --> 00:02:26.166
previous video I talked
about the central bank

00:02:26.166 --> 00:02:27.864
printing money and then dropping it from

00:02:27.864 --> 00:02:30.198
helicopters, that is not
how money is actually

00:02:30.198 --> 00:02:32.993
distributed. It is
disturbed when central banks

00:02:32.993 --> 00:02:35.927
print money. The way that
it enters into circulation

00:02:35.927 --> 00:02:38.197
in most countries is that the central bank

00:02:38.197 --> 00:02:41.197
then goes and essentially
lends that money.

00:02:41.197 --> 00:02:44.056
The way it's done in the US Fed, most part

00:02:44.056 --> 00:02:47.318
they go out and buy government securities

00:02:47.318 --> 00:02:48.983
which is essentially lending money to the

00:02:48.983 --> 00:02:51.005
Federal Government. They
do that because that's

00:02:51.005 --> 00:02:52.832
considered to be the safest investment.

00:02:52.832 --> 00:02:54.663
They go out there and they lend money.

00:02:54.663 --> 00:02:59.060
If this is our original supply curve.

00:02:59.060 --> 00:03:01.929
If this is our original
supply curve, but now

00:03:01.929 --> 00:03:05.751
your Federal ... Central
Bank is printing more money

00:03:05.751 --> 00:03:07.758
and lending it out.
What is going to happen

00:03:07.758 --> 00:03:10.463
over here? Your supply
curve is going to shift

00:03:10.463 --> 00:03:15.334
to the right at any
given price, at any given

00:03:15.334 --> 00:03:17.794
interest rate. Your going to have a larger

00:03:17.794 --> 00:03:20.540
quantity of money being
available. It might look

00:03:20.540 --> 00:03:23.455
something like ... your
new supply curve might

00:03:23.455 --> 00:03:25.538
look something like that.

00:03:25.538 --> 00:03:27.545
Assuming that's the
only change that happens

00:03:27.545 --> 00:03:30.716
you see its effect. Your
new equilibrium price

00:03:30.716 --> 00:03:32.624
of money, the rent on
money, or the interest

00:03:32.624 --> 00:03:36.912
rate on money is now
lower. That's why when the

00:03:36.912 --> 00:03:39.049
Federal Reserves say I
want to lower interest

00:03:39.049 --> 00:03:42.049
rates, they do so by printing money.

00:03:42.049 --> 00:03:44.045
They print that money,
and they lend it out in

00:03:44.045 --> 00:03:45.985
the market. That essentially
has the effect of

00:03:45.985 --> 00:03:48.458
lowering interest rates.

00:03:48.458 --> 00:03:50.208
Let's think about another situation.

00:03:50.208 --> 00:03:59.257
Let's say this is the Fed
prints and lends money.

00:03:59.257 --> 00:04:01.848
Their lending the money by
buying government bonds.

00:04:01.848 --> 00:04:03.649
When you buy a government
bond, your essentially

00:04:03.649 --> 00:04:06.319
lending that money to
the Federal Government .

00:04:06.319 --> 00:04:08.575
I've done other videos
on that where we go into

00:04:08.575 --> 00:04:09.998
a little bit more detail on that.

00:04:09.998 --> 00:04:11.412
Let's think of another situation.

00:04:11.412 --> 00:04:21.474
Let's think about
consumer savings go down.

00:04:21.474 --> 00:04:23.530
One interesting thing
about savings, savings

00:04:23.530 --> 00:04:26.503
and investment are two
opposite sides of the same

00:04:26.503 --> 00:04:30.541
coin. When you save money
... you literally put

00:04:30.541 --> 00:04:34.086
it into a bank. You
have the whole financial

00:04:34.086 --> 00:04:36.169
system right over here.
This is the finincial

00:04:36.169 --> 00:04:42.006
system. Financial system.
That money goes out and

00:04:42.006 --> 00:04:45.086
is lent to other people.
For the most part,

00:04:45.086 --> 00:04:47.668
hopefully, that money
when it's lent is used

00:04:47.668 --> 00:04:52.257
to invest in someway. This is lending.

00:04:52.257 --> 00:04:54.536
If consumer savings
goes down that means the

00:04:54.536 --> 00:04:57.339
supply of money will
be shifted to the left.

00:04:57.339 --> 00:04:59.678
At any given price and
any given interest rate

00:04:59.678 --> 00:05:01.674
their be less money available.

00:05:01.674 --> 00:05:04.534
In this situation our
supply curve is shifting

00:05:04.534 --> 00:05:09.586
to the left. That would
increase interest rates.

00:05:09.586 --> 00:05:11.601
Then you could even
make an argument that if

00:05:11.601 --> 00:05:13.869
consumers savings is
going down consumers are

00:05:13.869 --> 00:05:16.928
going to borrow less as well. You could

00:05:16.928 --> 00:05:19.842
argue that maybe demand
would go up as well.

00:05:19.842 --> 00:05:23.735
Your demand could go
up and that would make

00:05:23.735 --> 00:05:27.862
the equilibrium interest
rate even even higher.

00:05:27.862 --> 00:05:31.323
Let's do another scenario.
Let's say that the

00:05:31.323 --> 00:05:34.273
Federal Government in
an effort to ... let's

00:05:34.273 --> 00:05:36.489
say that for whatever
reason, their trying to

00:05:36.489 --> 00:05:39.520
finance a war or some type
of public works project

00:05:39.520 --> 00:05:41.321
and they don't want to raise taxes.

00:05:41.321 --> 00:05:44.251
The government decides to
borrow a lot more money.

00:05:44.251 --> 00:05:53.522
The government is essentially
going expand it's deficit.

00:05:53.522 --> 00:05:58.119
The government is going to borrow money.

00:05:58.119 --> 00:06:00.410
Here our supply isn't
changing. I'm assuming

00:06:00.410 --> 00:06:02.922
the Central Bank isn't
changing it's policies,

00:06:02.922 --> 00:06:05.744
how much it's printing.
Savings rates aren't

00:06:05.744 --> 00:06:08.119
changing. The demand is going to go up.

00:06:08.119 --> 00:06:10.657
Government is borrowing
money. The government

00:06:10.657 --> 00:06:13.075
is going to borrow more
money than it was already

00:06:13.075 --> 00:06:15.987
doing. At any given price
the demand for money

00:06:15.987 --> 00:06:18.450
is going to increase. We're going to shift

00:06:18.450 --> 00:06:20.450
to the right, and our
new equilibrium interest

00:06:20.450 --> 00:06:22.919
rate, remember the
rental price of money, is

00:06:22.919 --> 00:06:26.187
going to go up.

00:06:26.187 --> 00:06:27.907
The whole point of this
is just to show you

00:06:27.907 --> 00:06:30.328
that you really can't think
about money like any other

00:06:30.328 --> 00:06:33.326
good or service. If the
supply of money goes

00:06:33.326 --> 00:06:37.328
up then the price of
money, which is interest

00:06:37.328 --> 00:06:39.412
rates, will go down.
Let me write this down.

00:06:39.412 --> 00:06:44.586
If the supply goes up
then the price, which is

00:06:44.586 --> 00:06:48.581
just the interest rates goes down.

00:06:48.581 --> 00:06:56.187
If the demand goes up,
then the price of money

00:06:56.187 --> 00:07:03.081
will go up. Interest rates will go up.

00:07:03.081 --> 00:07:04.655
Then we think about all
the other combinations

00:07:04.655 --> 00:07:07.249
where demand goes down,
then interest would

00:07:07.249 --> 00:07:09.076
go down. Which is essentially just price.

00:07:09.076 --> 00:07:12.115
If supply went down,
interest rates would go up.

00:07:12.115 --> 00:07:14.494
If something becomes
more scarce the price of

00:07:14.494 --> 00:07:16.395
it goes up. The whole
point of this is just

00:07:16.395 --> 00:07:17.984
to show that it's not that complicated.

00:07:17.984 --> 00:07:20.456
You'll see people say,
oh, government borrowing,

00:07:20.456 --> 00:07:22.334
it's crowding out other
savings, interest rates

00:07:22.334 --> 00:07:24.001
go up, and it sounds
like something deep is

00:07:24.001 --> 00:07:25.855
happening. They are just talking about the

00:07:25.855 --> 00:07:27.592
supply and demand for
money. You just have to

00:07:27.592 --> 00:07:29.674
remember that interest
rates really are nothing

00:07:29.674 --> 00:07:32.340
more than the rental price for money.


Interest as rent for money

WEBVTT
Kind: captions
Language: en

00:00:00.487 --> 00:00:01.641
Voiceover: What I want to do in this video

00:00:01.641 --> 00:00:05.641
is talk a little bit about
money and interest rates

00:00:05.641 --> 00:00:08.736
and do it in kind of a
microeconomic framework,

00:00:08.736 --> 00:00:10.404
so that we understand the relationship

00:00:10.404 --> 00:00:13.406
between the supply of
money and demand for money

00:00:13.406 --> 00:00:15.473
and the price of money, which we'll see

00:00:15.473 --> 00:00:18.405
is what interest rates actually are.

00:00:18.405 --> 00:00:21.306
Once we do that, then we'll
be able to be more fluent

00:00:21.306 --> 00:00:23.890
in discussing money and
interest rates and supply

00:00:23.890 --> 00:00:25.557
and demand and price of money

00:00:25.557 --> 00:00:28.482
in a macroeconomic context.

00:00:28.482 --> 00:00:30.559
Maybe the most confusing thing,

00:00:30.559 --> 00:00:33.337
when you view money in
a microeconomic context

00:00:33.337 --> 00:00:39.141
is what is the price of money?

00:00:39.141 --> 00:00:41.472
You might already be
guessing the price of money

00:00:41.472 --> 00:00:43.404
is the interest rate.

00:00:43.404 --> 00:00:45.269
To understand that a little
bit better, the best way

00:00:45.269 --> 00:00:48.056
to think about it is you're
not necessarily buying money.

00:00:48.056 --> 00:00:55.806
Interest is rent on money.

00:00:55.806 --> 00:00:57.937
If I said, "What is the
price of an apartment

00:00:57.937 --> 00:00:59.404
"in my neighborhood?"

00:00:59.404 --> 00:01:02.556
Someone might say a one-bedroom apartment,

00:01:02.556 --> 00:01:04.138
and that actually is
pretty close to the prices

00:01:04.138 --> 00:01:06.471
where I live, here in northern California.

00:01:06.471 --> 00:01:08.225
If you want even the most basic,

00:01:08.225 --> 00:01:10.069
one-bedroom apartment,
it's going to run you

00:01:10.069 --> 00:01:16.737
about $1200 per month,

00:01:16.737 --> 00:01:21.223
which is about $14,400 per year.

00:01:21.223 --> 00:01:27.975
We should say per apartment per year.

00:01:27.975 --> 00:01:30.559
This is essentially the
cost of your apartment.

00:01:30.559 --> 00:01:33.738
Now, if I went to the bank and I said,

00:01:33.738 --> 00:01:37.141
"Hey, I want to borrow $10,000."

00:01:37.141 --> 00:01:39.336
Maybe I want to buy a car or something,

00:01:39.336 --> 00:01:40.974
they would quote an interest rate.

00:01:40.974 --> 00:01:42.602
They would say, "Okay, you can borrow that

00:01:42.602 --> 00:01:44.671
"at an interest rate of -

00:01:44.671 --> 00:01:45.064
I don't know.

00:01:45.064 --> 00:01:46.585
Interest rates are pretty low right now.

00:01:46.585 --> 00:01:48.920
They'll say, "You can borrow
that at an interest rate

00:01:48.920 --> 00:01:50.520
"at 5%."

00:01:50.520 --> 00:01:53.063
To see that is essentially
the cost of renting money,

00:01:53.063 --> 00:01:57.216
we could essentially
just say that this is 5 -

00:01:57.216 --> 00:02:07.550
We could view this as
$0.05 per dollar per year.

00:02:07.550 --> 00:02:08.997
Once again, when you're
renting an apartment,

00:02:08.997 --> 00:02:13.063
it was $14,000 per apartment per year.

00:02:13.063 --> 00:02:15.332
Now, at an interest rate of 5%,

00:02:15.332 --> 00:02:18.263
that is $0.05 per dollar per year.

00:02:18.263 --> 00:02:19.885
It's the exact same thing.

00:02:19.885 --> 00:02:27.463
This right over here is the rental price

00:02:27.463 --> 00:02:30.800
on the actual money that I'm borrowing.

00:02:30.800 --> 00:02:32.135
Once you have that in your head

00:02:32.135 --> 00:02:33.264
and you feel comfortable with that,

00:02:33.264 --> 00:02:35.598
now we can actually draw
a supply and demand graph

00:02:35.598 --> 00:02:37.465
and the microeconomics context.

00:02:37.465 --> 00:02:39.966
Now that we know how to
think about the price

00:02:39.966 --> 00:02:40.967
of money.

00:02:40.967 --> 00:02:45.397
Let's draw a little
supply and demand diagram

00:02:45.397 --> 00:02:48.716
right over here and we're
going to, like we often do

00:02:48.716 --> 00:02:51.135
in our little economic models we do,

00:02:51.135 --> 00:02:53.398
we're going to super oversimplify it.

00:02:53.398 --> 00:02:55.731
We're going to not think
about things like credit risk

00:02:55.731 --> 00:02:59.271
and the chances of probability
that people do pay back

00:02:59.271 --> 00:03:00.999
or won't pay back the
money and things like

00:03:00.999 --> 00:03:02.332
(unintelligible) and all of that.

00:03:02.332 --> 00:03:04.463
We'll just assume that
everyone is going to pay back

00:03:04.463 --> 00:03:06.936
the money and they're all risk free.

00:03:06.936 --> 00:03:09.730
They're all going to do
exactly what they said.

00:03:09.730 --> 00:03:12.064
In this axis right over here, this is -

00:03:12.064 --> 00:03:24.931
Let's call this the
market for borrowing money

00:03:24.931 --> 00:03:27.664
for 1 year.

00:03:27.664 --> 00:03:29.373
As we'll see and you might already know,

00:03:29.373 --> 00:03:31.400
they'll have different
prices for borrowing money

00:03:31.400 --> 00:03:32.733
for different lengths of time.

00:03:32.733 --> 00:03:34.730
I might charge you more
to borrow money for a year

00:03:34.730 --> 00:03:37.800
than I would charge
you for borrowing money

00:03:37.800 --> 00:03:41.289
for a month, because
maybe I won't have access

00:03:41.289 --> 00:03:42.957
to that money or there's a bigger risk

00:03:42.957 --> 00:03:44.664
that something might happen in that year,

00:03:44.664 --> 00:03:45.731
so I'll charge you more for it.

00:03:45.731 --> 00:03:47.064
I have to fix the year.

00:03:47.064 --> 00:03:49.800
The market for borrowing money for 1 year.

00:03:49.800 --> 00:03:52.398
Most of these supply and demand graphs,

00:03:52.398 --> 00:03:54.957
the vertical axis, we have price, but now,

00:03:54.957 --> 00:03:57.731
as we just indicated, the price of money

00:03:57.731 --> 00:04:01.332
is really just the interest rate.

00:04:01.332 --> 00:04:04.265
I'll call this price, so this is our -

00:04:04.265 --> 00:04:07.998
Same yellow, so this is our price axis

00:04:07.998 --> 00:04:11.805
and it's measured as
interest rate percentage.

00:04:11.805 --> 00:04:16.207
Interest rate is how
we're going to measure it.

00:04:16.207 --> 00:04:19.799
This right over here, let's
say that that is 30% interest,

00:04:19.799 --> 00:04:25.135
this is 15% interest, and
then this would be 10%, 5%,

00:04:25.135 --> 00:04:26.866
this would be 20%, 25%.

00:04:26.866 --> 00:04:27.732
Pretty good.

00:04:27.732 --> 00:04:30.532
Then over here we would
have the quantity of money

00:04:30.532 --> 00:04:32.266
and I'll just pick some values here.

00:04:32.266 --> 00:04:36.465
We could even say that that
is in billions of dollars.

00:04:36.465 --> 00:04:38.624
We could size it right, based
on whether we're talking

00:04:38.624 --> 00:04:41.665
about our town, our city, or
whatever, the whole world,

00:04:41.665 --> 00:04:42.198
or whatever it is.

00:04:42.198 --> 00:04:44.338
It depends on what
currency and all of that,

00:04:44.338 --> 00:04:46.008
but we're just assuming
that we're on some island

00:04:46.008 --> 00:04:49.674
with one currency and all the rest.

00:04:49.674 --> 00:04:53.592
Let's say that this is 1
billion, 2 billion, 3 billion,

00:04:53.592 --> 00:04:56.195
4 billion, and 5 billion.

00:04:56.195 --> 00:04:57.342
You can imagine, let's first think

00:04:57.342 --> 00:04:58.592
about the demand curve.

00:04:58.592 --> 00:05:02.124
We could think of it as
a marginal benefit curve.

00:05:02.124 --> 00:05:05.343
Those first few dollars
that are out to be lent,

00:05:05.343 --> 00:05:07.011
there are someone who is going to get

00:05:07.011 --> 00:05:08.850
a huge marginal benefit of it.

00:05:08.850 --> 00:05:10.782
They want to take that,
either they want to borrow it

00:05:10.782 --> 00:05:12.450
and use it for some type of consumption

00:05:12.450 --> 00:05:16.850
that they want to buy
that would make them very,

00:05:16.850 --> 00:05:18.518
very, very happy, or at least
they think it'll make them

00:05:18.518 --> 00:05:20.426
very happy, or they want
to use it for some type

00:05:20.426 --> 00:05:21.924
of investment, where they're like,

00:05:21.924 --> 00:05:23.451
"Wow, if I could just borrow some money,

00:05:23.451 --> 00:05:25.450
"I have this no-risk
investment that's just going

00:05:25.450 --> 00:05:28.117
"to make me a gazillionaire."

00:05:28.117 --> 00:05:30.118
Those first few dollars
there's huge demand,

00:05:30.118 --> 00:05:32.383
huge marginal benefit for you.

00:05:32.383 --> 00:05:34.924
You could use as a willingness to pay

00:05:34.924 --> 00:05:37.116
for those first few dollars is very high,

00:05:37.116 --> 00:05:38.594
so maybe it is way up here.

00:05:38.594 --> 00:05:40.676
People are willing to pay an excess of 30%

00:05:40.676 --> 00:05:42.451
for those first few dollars.

00:05:42.451 --> 00:05:43.783
Then, as there's more and more dollars,

00:05:43.783 --> 00:05:46.850
the incremental next borrower
gets a little bit less

00:05:46.850 --> 00:05:48.840
marginal benefit from it.

00:05:48.840 --> 00:05:51.518
You would have a declining demand curve

00:05:51.518 --> 00:05:52.677
that looks something like this.

00:05:52.677 --> 00:05:55.011
This is the exact same thought process

00:05:55.011 --> 00:05:56.785
as you would have if we were
thinking about the market

00:05:56.785 --> 00:05:59.184
for ice cream of if we're
thinking about the market

00:05:59.184 --> 00:06:01.261
for apartments or for anything else.

00:06:01.261 --> 00:06:05.392
This is our demand curve.

00:06:06.174 --> 00:06:08.174
When we think about the supply curve,

00:06:08.174 --> 00:06:14.383
same exact thought process
as we would for supply

00:06:14.383 --> 00:06:16.450
of any product.

00:06:16.450 --> 00:06:20.052
Those first few dollars, the
people lending the money,

00:06:20.052 --> 00:06:22.924
there are probably people
there willing to lend

00:06:22.924 --> 00:06:23.720
for very little.

00:06:23.720 --> 00:06:26.088
They have nothing else
to do with that money.

00:06:27.117 --> 00:06:30.212
Another way to think of it is
they have very little to do

00:06:30.212 --> 00:06:31.143
with that money.

00:06:31.143 --> 00:06:32.852
Their marginal cost of lending that money

00:06:32.852 --> 00:06:34.635
is very low.

00:06:35.212 --> 00:06:37.220
The supply curve might start over here.

00:06:37.220 --> 00:06:39.468
People will start to be
willing to lend the money

00:06:39.468 --> 00:06:40.934
to very low interest rate.

00:06:40.934 --> 00:06:42.668
This looks like about 1%.

00:06:42.668 --> 00:06:45.386
Then, each incremental
dollar, the opportunity cost

00:06:45.386 --> 00:06:48.489
for that lender is going
to get higher and higher.

00:06:48.730 --> 00:06:51.922
The interest for that
next incremental dollar

00:06:51.922 --> 00:06:54.064
is going to get higher and higher.

00:06:54.064 --> 00:06:56.231
We've now drawn the
supply and demand graphs

00:06:56.231 --> 00:07:00.145
for the market for
borrowing money for 1 year.

00:07:00.145 --> 00:07:01.167
This is right here.

00:07:01.167 --> 00:07:04.732
This is the supply and this is in billions

00:07:04.732 --> 00:07:09.320
of dollars per year.

00:07:09.320 --> 00:07:12.653
This is how much is going
to be lent in that year

00:07:12.653 --> 00:07:15.320
and it's for borrowing money for a year.

00:07:15.320 --> 00:07:18.320
As we see, we can view
money just like we can view

00:07:18.320 --> 00:07:19.718
any other product.

00:07:19.718 --> 00:07:21.814
There's going to be an
equilibrium price here,

00:07:21.814 --> 00:07:24.253
an equilibrium quantity.

00:07:24.253 --> 00:07:27.147
The way I drew it right over
here, the equilibrium price

00:07:27.147 --> 00:07:28.730
and remember the price
of money is really just

00:07:28.730 --> 00:07:29.919
the interest rate.

00:07:29.919 --> 00:07:32.653
The equilibrium price
right over here is 10%,

00:07:32.653 --> 00:07:35.989
which you could view as
$0.10 per dollar per year.

00:07:35.989 --> 00:07:39.052
The equilibrium quantity
of money that gets lent

00:07:39.052 --> 00:07:42.934
and borrowed looks like it's about 2.7

00:07:42.934 --> 00:07:48.522
or 2.8 billion dollars gets
lent and borrowed in that year,

00:07:48.522 --> 00:07:49.770
in each year.

00:07:49.770 --> 00:07:51.398
When we look at it this way,
then we can start thinking

00:07:51.398 --> 00:07:53.899
about some macroeconomics phenomenon.

00:07:53.899 --> 00:08:01.453
What happens if all of a
sudden everybody in the world

00:08:01.453 --> 00:08:04.316
or in our little universe
right over here gets

00:08:04.316 --> 00:08:06.984
a little bit more money
thrown in their pocket.

00:08:06.984 --> 00:08:09.453
The government prints a bunch of money,

00:08:09.453 --> 00:08:12.649
drops it from helicopters,
and everyone has more money

00:08:12.649 --> 00:08:13.855
in their pockets.

00:08:13.855 --> 00:08:18.566
Well, then, all of a sudden,
at any given interest rate,

00:08:18.566 --> 00:08:23.588
the supply will go up.

00:08:23.588 --> 00:08:27.056
The supply curve will
shift in this direction,

00:08:27.056 --> 00:08:28.930
so we might have a new
supply curve that looks

00:08:28.930 --> 00:08:30.922
something like this.

00:08:30.922 --> 00:08:32.653
We might have a new
supply curve that looks

00:08:32.653 --> 00:08:35.554
something like this.

00:08:35.556 --> 00:08:38.723
Then, also, maybe the demand will go down.

00:08:38.723 --> 00:08:41.084
At any given interest
rate, at any given price,

00:08:41.084 --> 00:08:43.501
there will be less demand,
because those people

00:08:43.501 --> 00:08:45.056
who needed to borrow money, now they have

00:08:45.056 --> 00:08:46.588
to borrow less money.

00:08:46.588 --> 00:08:50.321
This will shift to the left.

00:08:50.321 --> 00:08:54.551
The new demand curve might look like that.

00:08:54.551 --> 00:08:55.135
What happened?

00:08:55.135 --> 00:08:58.301
What would be our new equilibrium price?

00:08:58.301 --> 00:09:00.254
It depends how much I
shift one or the other,

00:09:00.254 --> 00:09:02.218
but the way I drew it,
our equilibrium quantity

00:09:02.218 --> 00:09:03.719
doesn't change much, but it could change,

00:09:03.719 --> 00:09:06.219
depending on how much the
supply or demand shifts.

00:09:06.219 --> 00:09:08.221
What does definitely
happen, when that money

00:09:08.221 --> 00:09:11.186
got printed and distributed
to all of these people,

00:09:11.186 --> 00:09:14.469
is now all of a sudden, the
equilibrium interest rate

00:09:14.469 --> 00:09:15.718
has gone down.

00:09:15.718 --> 00:09:16.968
The equilibrium interest rate now,

00:09:16.968 --> 00:09:18.854
based on the way I drew
it, looks like it's closer

00:09:18.854 --> 00:09:22.252
to about, I don't know, about 6%.

00:09:22.252 --> 00:09:23.301
The whole -

00:09:23.301 --> 00:09:24.470
You can even think of
another reality where,

00:09:24.470 --> 00:09:26.635
all of a sudden, money
disappears from the market,

00:09:26.635 --> 00:09:28.551
or a reality where, for whatever reason,

00:09:28.551 --> 00:09:30.719
because of good marketing
or a psychological shift

00:09:30.719 --> 00:09:36.455
in people, all of a sudden,
people want to save less,

00:09:36.455 --> 00:09:38.654
so that there is less supply of money.

00:09:38.654 --> 00:09:39.988
Or maybe, all of a sudden, there's all

00:09:39.988 --> 00:09:41.802
these great investment opportunities,

00:09:41.802 --> 00:09:43.922
so now there's more demand for money

00:09:43.922 --> 00:09:45.219
and you could think about how these curves

00:09:45.219 --> 00:09:47.470
would shift and what would
happen to the interest rate.

00:09:47.470 --> 00:09:49.886
Just how you would think
about it for any good

00:09:49.886 --> 00:09:53.400
or service in a microeconomic context.


Marcos Ojeda

WEBVTT
Kind: captions
Language: en

00:00:00.132 --> 00:00:04.885
Interviewer: I'm here with Marcos.
What is this an experiment we're doing?

00:00:04.885 --> 00:00:06.349
I was like hey instead
of having pictures on our

00:00:06.349 --> 00:00:07.905
website, maybe we should
have videos of people.

00:00:07.905 --> 00:00:09.048
Marcos: Nice. Nice.

00:00:09.048 --> 00:00:10.221
Interviewer: So, what do you do here?

00:00:10.221 --> 00:00:11.844
Marcos: I'm a designer
here at the Khan Academy.

00:00:11.844 --> 00:00:14.354
That actually goes two different ways.

00:00:14.354 --> 00:00:16.466
One, I'm kind of doing
my software design, and

00:00:16.466 --> 00:00:19.138
that's kind of touching on the
exercise framework that we have.

00:00:19.138 --> 00:00:21.724
Right now I've been focused
a lot on trying to make

00:00:21.724 --> 00:00:23.810
more interactive exercises
easier to develop.

00:00:23.810 --> 00:00:26.429
There's a framework that
I'm building for that

00:00:26.429 --> 00:00:28.218
I'm [open sourcing] at the same time.

00:00:28.218 --> 00:00:30.639
Interviewer: What do you mean
by more interactive exercise?

00:00:30.639 --> 00:00:33.935
Marcos: Right now a lot of
our exercises present to you

00:00:33.935 --> 00:00:36.809
with a question. It's like, what
is the sum of blah blah blah?

00:00:36.839 --> 00:00:39.839
Or, complete the square.
It ask you this very simple

00:00:39.839 --> 00:00:42.954
one step computation. A lot
of stuff that I'm looking at

00:00:42.954 --> 00:00:44.744
is how do you make exercises
that let you follow

00:00:44.744 --> 00:00:47.959
a larger kind of narrative
of problem solving.

00:00:47.959 --> 00:00:50.741
In that case it would be
like, let's say you are

00:00:50.741 --> 00:00:53.189
this tall here, and your
shadow is this feet long.

00:00:53.189 --> 00:00:57.652
Your friend is over, maybe,
35 nautical miles away, and

00:00:57.652 --> 00:01:01.528
his shadow is this long.
Giving that what do you

00:01:01.528 --> 00:01:03.104
expect the circumference
of the earth to be?

00:01:03.104 --> 00:01:03.784
Interviewer: Oh yeah.

00:01:03.784 --> 00:01:06.654
Marcos: You're recreating like
the greatest ... doing all the

00:01:06.654 --> 00:01:10.704
scientific discoveries.
Their not very hard if

00:01:10.704 --> 00:01:12.490
you know the basic concepts in there.

00:01:12.490 --> 00:01:14.870
You just need someone to
guide you along the way.

00:01:14.870 --> 00:01:17.882
A lot of what I've been
thinking about is developing

00:01:17.882 --> 00:01:19.915
a framework and actually
developing a framework

00:01:19.915 --> 00:01:20.948
not just thinking about it.

00:01:20.948 --> 00:01:21.859
Interviewer: Right. Right.

00:01:21.859 --> 00:01:22.915
Marcos: For making that happen.

00:01:22.915 --> 00:01:25.373
Interviewer: You'r background
is pretty interesting.

00:01:25.373 --> 00:01:28.848
You started off at MIT. CS major?

00:01:28.848 --> 00:01:30.537
Marcos: Math with CS.

00:01:30.537 --> 00:01:31.261
Interviewer: Math with CS.

00:01:31.261 --> 00:01:32.836
Marcos: People call it diet 6.

00:01:32.836 --> 00:01:35.895
Interviewer: Diet 6. 6 is
of course computer science.

00:01:35.895 --> 00:01:37.237
Marcos: 6 is computer science.

00:01:37.237 --> 00:01:39.928
Interviewer: It's kind of the math
... computer science really is math.

00:01:39.928 --> 00:01:45.504
Then you decided that that was not enough.

00:01:45.504 --> 00:01:48.005
Marcos: I think I was pleasantly surprised

00:01:48.005 --> 00:01:50.453
with how that had gone.
What I was really focused

00:01:50.453 --> 00:01:53.079
on at the time was the
[unintelligible] in the context

00:01:53.079 --> 00:01:55.587
of making text books. Text
books [unintelligible]

00:01:55.587 --> 00:01:59.206
dining out or whatever. I
still believe. I want to

00:01:59.206 --> 00:02:00.921
make a really good text book.

00:02:00.921 --> 00:02:05.339
Interviewer: We got text books
here and some science books.

00:02:05.339 --> 00:02:07.604
Marcos: I actually ended
up doing after teaching

00:02:07.604 --> 00:02:10.630
web design for about a year
and a half was applying

00:02:10.630 --> 00:02:13.520
to design school. The whole
purpose behind that was

00:02:13.520 --> 00:02:16.064
to make a really awesome text book.

00:02:16.064 --> 00:02:17.726
Interviewer: I didn't
realize this. This didn't

00:02:17.726 --> 00:02:20.102
even come out in the
interview. You wanted to

00:02:20.102 --> 00:02:21.850
re-event text books?

00:02:21.850 --> 00:02:23.475
Marcos: Yeah. Yeah. I
wanted to actually make

00:02:23.475 --> 00:02:26.226
the coolest text book.
Like after being in design

00:02:26.226 --> 00:02:27.836
school making handmade books for example.

00:02:27.836 --> 00:02:30.439
Like 4 x 6 little book
would be really sweet.

00:02:30.439 --> 00:02:32.246
I was like really excited
and jazzed about this.

00:02:32.246 --> 00:02:37.393
Then as I started in
2007 to 2009, it was you

00:02:37.393 --> 00:02:39.282
have the iPad, iPhone,
all these technological

00:02:39.282 --> 00:02:41.683
advances just happen
while I'm in grad school.

00:02:41.683 --> 00:02:43.685
I will have to rethink this a little.

00:02:43.685 --> 00:02:45.114
I got this design degree.

00:02:45.114 --> 00:02:46.292
Interviewer: From [Risty].

00:02:46.292 --> 00:02:47.299
Marcos: From [Risty].

00:02:47.299 --> 00:02:49.727
Interviewer: That's a serious
design school. That's around there.

00:02:49.727 --> 00:02:51.957
Marcos: I had did my
grad program in design.

00:02:51.957 --> 00:02:55.201
I got a lot of the basics.
I learned all of the

00:02:55.201 --> 00:02:57.153
fundamentals hypography, design, layout.

00:02:57.153 --> 00:03:00.727
I got really attuned to
that, and then focused

00:03:00.727 --> 00:03:03.943
my energies again thinking
about how do I create

00:03:03.943 --> 00:03:08.727
reusable design systems. I
ended up being my thesis was ...

00:03:08.727 --> 00:03:10.344
Interviewer: How many
CS majors were there?

00:03:10.344 --> 00:03:14.523
Marcos: Actually, when I
left there was 1 and a half.

00:03:14.523 --> 00:03:16.482
Interviewer: 1 and a half. (laughing)

00:03:16.482 --> 00:03:19.149
Marcos: It's an up and coming thing.

00:03:19.149 --> 00:03:21.751
Interviewer: Yeah. I think
that's a good combination.

00:03:21.751 --> 00:03:23.855
In fact, I think, probably,
design should be a critical

00:03:23.855 --> 00:03:25.556
part of more engineers.

00:03:25.556 --> 00:03:29.038
Marcos: Yeah. Exactly.
What I noticed, at least,

00:03:29.038 --> 00:03:33.001
there was a lot of similarity.
The Christopher Alexander design

00:03:33.001 --> 00:03:35.896
patterns thinking. That
system thinking, actually,

00:03:35.896 --> 00:03:37.818
is massive in graphic design.

00:03:37.818 --> 00:03:38.516
Interviewer: Yeah.

00:03:38.516 --> 00:03:42.309
Marcos: It was also huge
in the design pattern

00:03:42.309 --> 00:03:46.481
movement in [Seasia]. There's
a lot of happy medium there.

00:03:46.481 --> 00:03:48.481
Interviewer: Why did
you decide to come here?

00:03:48.481 --> 00:03:51.089
How did you even find out
about what were doing?

00:03:51.089 --> 00:03:53.096
Marcos: I saw a lattice
multiplication video.

00:03:53.096 --> 00:03:56.857
I was like this is
ridiculous. I was watching ...

00:03:56.857 --> 00:03:58.149
Interviewer: In a good or bad way?

00:03:58.149 --> 00:04:00.560
Marcos: At first I saw
it and I was like I have

00:04:00.560 --> 00:04:02.021
never heard of lattice multiplication.

00:04:02.021 --> 00:04:05.553
I saw this massive list
of links. Somebody had

00:04:05.553 --> 00:04:08.241
a link to it. I was a
little skeptical. For some

00:04:08.241 --> 00:04:10.651
reason I finished watching
the video, and I'm

00:04:10.651 --> 00:04:11.843
like well that's interesting.

00:04:11.843 --> 00:04:14.007
Interviewer: This was one of our videos.

00:04:14.007 --> 00:04:15.550
Marcos: This was one of your videos.

00:04:15.550 --> 00:04:17.161
Interviewer: It was a good ridiculous.

00:04:17.161 --> 00:04:18.553
Marcos: Yeah. It was a good ridiculous.

00:04:18.553 --> 00:04:20.341
First, I was incredibly
skeptical. I was just like

00:04:20.341 --> 00:04:23.119
no, no, no. I done my little
concentration education

00:04:23.119 --> 00:04:25.933
at secondary school, and
I was like I don't know.

00:04:25.933 --> 00:04:29.178
You find yourself actually
finishing the video,

00:04:29.178 --> 00:04:31.705
and you're like oh.
There's something here.

00:04:31.705 --> 00:04:34.034
There's actually something
there. I didn't actually

00:04:34.034 --> 00:04:35.943
see you guys again for a year and a half.

00:04:35.943 --> 00:04:40.395
I was working at CMU and doing
my own thing at that time.

00:04:40.395 --> 00:04:42.108
Interviewer: What was your own thing?

00:04:42.108 --> 00:04:44.781
Marcos: I was doing freelance
work at the same time.

00:04:44.781 --> 00:04:47.683
I was also working with the HCI Institute.

00:04:47.683 --> 00:04:49.733
Interviewer: CMI is Carnegie Mellon.

00:04:49.733 --> 00:04:52.537
Marcos: Yeah. Carnegie Mellon.
Human-Computer Interaction Institute.

00:04:52.537 --> 00:04:53.184
Interviewer: Okay.

00:04:53.184 --> 00:04:57.199
Marcos: With Laura Dabbish and
Rob Kraut an amazing group.

00:04:57.199 --> 00:05:00.310
Their doing a really
interesting work with team

00:05:00.310 --> 00:05:01.846
team based dynamics online.

00:05:01.846 --> 00:05:04.420
Interviewer: What were you doing?

00:05:04.420 --> 00:05:07.017
Marcos: I was actually staff designer, and

00:05:07.017 --> 00:05:09.118
then doing some CS work from the side.

00:05:09.118 --> 00:05:10.933
It's like doing a lot of
re-factoring with code based

00:05:10.933 --> 00:05:12.354
and making sure that
we could re-producively

00:05:12.354 --> 00:05:17.185
preform these experiments
on these couple thousand

00:05:17.185 --> 00:05:18.449
Facebook users every week.

00:05:18.449 --> 00:05:19.460
Interviewer: Okay.

00:05:19.460 --> 00:05:21.298
Marcos: We were running
these massive experiments

00:05:21.298 --> 00:05:23.853
until I learned, even though
I wasn't doing the straight up

00:05:23.853 --> 00:05:26.600
experience design, I kind
of osmosed a lot of that

00:05:26.600 --> 00:05:27.884
stuff while I was there.

00:05:27.884 --> 00:05:30.816
Interviewer: I interrupted your story.

00:05:30.816 --> 00:05:32.772
How did you find out
about what we're doing?

00:05:32.772 --> 00:05:35.111
Marcos: I started seeing
... I think Ben came ...

00:05:35.111 --> 00:05:37.224
Interviewer: We have 9 Ben's. (laughing)

00:05:37.224 --> 00:05:40.360
Marcos: 9 Ben's. So, Ben
Kamens did a prety good

00:05:40.360 --> 00:05:42.298
job posting out [unintelligible]
every once in a while.

00:05:42.298 --> 00:05:45.694
Then, I was like man this
is totally changed from the

00:05:45.694 --> 00:05:48.397
time I saw it. The first time,
I think, it had all ready

00:05:48.397 --> 00:05:51.355
gone through that one design
aeration. It was pretty interesting.

00:05:51.355 --> 00:05:53.025
Then I saw you guys were
actually posting for jobs.

00:05:53.025 --> 00:05:55.531
I was like this is
perfect. What could be more

00:05:55.531 --> 00:05:59.350
perfect than this? I just
threw my hat in the ring.

00:05:59.350 --> 00:06:02.014
The rest is history. (laughing)

00:06:02.014 --> 00:06:03.209
Interviewer: The rest
is history. (laughing)

00:06:03.209 --> 00:06:11.597
Hopefully for the future
too. What we're hoping to do

00:06:11.597 --> 00:06:14.805
here? Has it been surprising?
Has it been just as you expected?

00:06:15.635 --> 00:06:17.823
Marcos: I think, actually,
when I first got here,

00:06:17.823 --> 00:06:19.331
I think I even wrote that in my cover.

00:06:19.331 --> 00:06:23.163
I don't know what I
will do when I get here,

00:06:23.163 --> 00:06:25.520
but I'm really excited to do stuff here.

00:06:25.520 --> 00:06:29.159
I had no idea that I'd be
working on interactive exercises.

00:06:29.159 --> 00:06:30.891
I think that a good glimmer in my eye.

00:06:30.891 --> 00:06:33.295
I though straight out of design school.

00:06:33.295 --> 00:06:34.916
Straight out like a year and
a half out of design school.

00:06:34.916 --> 00:06:37.585
I thought I would probably
be doing business cards,

00:06:37.585 --> 00:06:39.995
logos, kind of stupid stuff.

00:06:39.995 --> 00:06:45.072
Interviewer: Really. You were
capable of more than business cards.

00:06:45.072 --> 00:06:46.166
Marcos: Of course. I'm capable.

00:06:46.166 --> 00:06:49.419
Interviewer: That's where my
design skills were. (laughing)

00:06:49.419 --> 00:06:51.829
Marcos: In my mind I
kind of expected to spend

00:06:51.829 --> 00:06:54.583
a couple of months doing that.
I ended up just diving on in.

00:06:54.583 --> 00:06:57.832
Thinking about new features.
Thinking about ways to make the

00:06:57.832 --> 00:07:01.623
site more friendly, and
overall, it was a huge

00:07:01.623 --> 00:07:04.336
mind-shifting, like the
terminal of like impacting scale

00:07:04.336 --> 00:07:08.732
and the ability to do something
really cool in education.

00:07:08.732 --> 00:07:12.916
It was like we did this
thing with David, one of

00:07:12.916 --> 00:07:15.911
our awesome interns, and
it was how can we make

00:07:15.911 --> 00:07:19.866
this [sweep] more fun.
We play with this very

00:07:19.866 --> 00:07:23.032
simple visual forms and
like what happens when

00:07:23.032 --> 00:07:25.250
you loose [street] bar.
What does that feel like?

00:07:25.250 --> 00:07:29.218
A lot of these are very
designish things that

00:07:29.218 --> 00:07:30.975
we're probing, but we
ended up coming up with

00:07:30.975 --> 00:07:33.337
a very ... and he actually
deserves most of the

00:07:33.337 --> 00:07:35.920
credit. He came up with
a very stunning model

00:07:35.920 --> 00:07:39.219
for making that a more
interesting and more

00:07:39.219 --> 00:07:42.997
appropriate way of engaging
and measuring our proficiency.

00:07:42.997 --> 00:07:45.898
Interviewer: Deep design
questions got to measure.

00:07:45.898 --> 00:07:50.469
Marcos: Does it feel better
to drop down to something

00:07:50.469 --> 00:07:54.004
like to drop down to arbitrary
amount and start over again?

00:07:54.004 --> 00:07:56.304
Does it feel better to
drop to a percentage

00:07:56.304 --> 00:07:58.670
which represents our actual belief, and

00:07:58.670 --> 00:08:01.005
how far you're doing? Which of these ...

00:08:01.005 --> 00:08:03.647
Interviewer: How doing means you
actually belief in how your doing.

00:08:03.647 --> 00:08:06.755
Marcos: Exactly. A lot
of that your questions of

00:08:06.755 --> 00:08:09.699
would it feel better as
your gaining proficiency?

00:08:09.699 --> 00:08:13.169
You have a moving indicator.
Something that kind of

00:08:13.169 --> 00:08:17.365
moves along and animates. It was born out

00:08:17.365 --> 00:08:20.425
of these playful ideas.
It actually ended up

00:08:20.425 --> 00:08:23.357
evolving into something that
was very more metro rigorous.

00:08:23.357 --> 00:08:26.621
Then like back and forths
that we were having

00:08:26.621 --> 00:08:28.227
initially when we sketching it out.

00:08:28.227 --> 00:08:31.058
Interviewer: Where do you hope this goes?

00:08:31.058 --> 00:08:35.474
Marcos: I think, recently,
I've been spending

00:08:35.474 --> 00:08:38.638
a lot of time thinking about
the interactive exercises,

00:08:38.638 --> 00:08:42.865
and I actually feel like
I'm going closer to my

00:08:42.865 --> 00:08:44.560
original idea for this text book.

00:08:44.560 --> 00:08:47.981
I mean it sounds kind of
silly, but it feels like

00:08:47.981 --> 00:08:50.614
what I'm doing and the
work that I'm working on

00:08:50.614 --> 00:08:54.849
gets me closer to designing
these portable text books.

00:08:54.849 --> 00:08:57.014
Which I mean not portable,
because we have phones

00:08:57.014 --> 00:09:00.313
iPad's, and whatnot, but
things that are engaging

00:09:00.313 --> 00:09:02.596
that are light weight, and that'll let you

00:09:02.596 --> 00:09:05.399
dive in at any level. At your own risk.

00:09:05.399 --> 00:09:06.696
Interviewer: Do things that
text books couldn't do?

00:09:06.696 --> 00:09:08.604
Marcos: I think text books
are capable of a lot.

00:09:08.604 --> 00:09:11.927
I'll be honest. Maybe
we disagree. (laughing)

00:09:11.927 --> 00:09:13.777
Interviewer: (laughing) No. No.

00:09:13.777 --> 00:09:16.892
Marcos: I firmly in the
power of the text book.

00:09:16.892 --> 00:09:20.146
I think for the things
that ... for the reactive

00:09:20.146 --> 00:09:22.788
exercises we can pull
off and for the ability

00:09:22.788 --> 00:09:26.144
to ask questions that are experimentally.

00:09:26.144 --> 00:09:29.678
You can place a little
experimental test bed

00:09:29.678 --> 00:09:32.748
in one of these exercises,
and I think that's powerful.

00:09:32.748 --> 00:09:35.761
I think it's huge right,
being able to see a whole.

00:09:35.761 --> 00:09:38.624
I got the answer. What
happens if I have done this.

00:09:38.624 --> 00:09:42.402
Seeing that there's an
exercise that is able to

00:09:42.402 --> 00:09:44.231
adapt to that way of
thinking. I think that's huge.

00:09:44.231 --> 00:09:46.698
Interviewer: Right. That
would have been hard

00:09:46.698 --> 00:09:47.942
with a traditional text book.

00:09:47.942 --> 00:09:51.988
Marcos: Yeah. You end up having
to build this scalpelling,

00:09:51.988 --> 00:09:55.275
basically in paper, which
again totally fine. Right.

00:09:55.275 --> 00:09:58.850
It's the time you can loose
being unable to explore

00:09:58.850 --> 00:10:01.781
and play with tweaking values.
I think that's awesome.

00:10:01.781 --> 00:10:03.346
Interviewer: Very cool.


Elizabeth Slavitt

WEBVTT
Kind: captions
Language: en

00:00:01.182 --> 00:00:02.443
Voiceover: I'm here
with Elizabeth Slavitt.

00:00:02.443 --> 00:00:04.511
What do you do here at the Khan Academy?

00:00:04.511 --> 00:00:07.073
Elizabeth: Well I work on the
school implementations team,

00:00:07.073 --> 00:00:11.553
which means that I work with schools
that want to use Khan Academy software,

00:00:11.906 --> 00:00:15.478
to individualize in their classrooms
and to be really innovative.

00:00:15.478 --> 00:00:17.651
I work with them to figure
out how to make that happen.

00:00:17.974 --> 00:00:20.809
I also work on lots of different
parts of the product and things too.

00:00:20.809 --> 00:00:22.810
Since we're a startup we
all kind of do everything.

00:00:22.810 --> 00:00:26.250
Voiceover: And what were
you doing before this?

00:00:26.835 --> 00:00:29.368
What's kind of the arc of your career?

00:00:29.368 --> 00:00:32.441
What did you think you were going
to do when you were in college,

00:00:32.441 --> 00:00:35.307
and what did you end up doing, and then
how did you essentially end up here?

00:00:35.307 --> 00:00:36.082
Elizabeth: Sure, yeah.

00:00:36.082 --> 00:00:36.934
Those are great questions.

00:00:36.934 --> 00:00:40.347
So, in college I studied history at Penn.

00:00:40.347 --> 00:00:43.685
I studied, actually, intellectual
history, so the history of ideas.

00:00:44.177 --> 00:00:46.443
I focused a lot on human rights.

00:00:46.443 --> 00:00:49.278
I really was interested and still
am interested in human rights,

00:00:49.278 --> 00:00:53.185
and how that term changes
in meaning over time.

00:00:53.785 --> 00:00:57.658
I thought about spending my career
in human rights in some way,

00:00:57.658 --> 00:01:00.536
which is very vague and
kind of very esoteric idea.

00:01:00.536 --> 00:01:01.272
Voiceover: Idealistic.

00:01:01.272 --> 00:01:02.270
Sounds good though.

00:01:02.270 --> 00:01:03.842
Elizabeth: Idealistic, yes.

00:01:03.903 --> 00:01:04.692
Also kind of vague.

00:01:04.692 --> 00:01:08.175
After college I wanted
some tangible skills,

00:01:08.175 --> 00:01:11.313
so I went and worked as a
management consultant at McKinsey,

00:01:11.313 --> 00:01:14.407
where I got to help solve a lot
of really interesting problems.

00:01:14.407 --> 00:01:16.009
Voiceover: So to work at
McKinsey coming out of U,

00:01:16.009 --> 00:01:17.773
you must have been a pretty good student.

00:01:17.773 --> 00:01:19.217
Elizabeth: Yeah, I was a good student.

00:01:19.463 --> 00:01:22.686
Voiceover: Like McKinsey, if
you have straight C students
they don't interview, right?

00:01:23.070 --> 00:01:25.400
Elizabeth: Yeah, I guess not (laughs).

00:01:25.429 --> 00:01:26.468
Voiceover: Well anyway.

00:01:26.468 --> 00:01:27.388
What was your thought [unintelligible],

00:01:27.388 --> 00:01:31.611
because went from a very idealistic
human rights, save the world,

00:01:31.611 --> 00:01:36.327
to oh I'm going to go whisper in CEOs ears
and tell them how to run their company.

00:01:36.327 --> 00:01:36.963
What was the-

00:01:36.963 --> 00:01:37.812
Elizabeth: Yeah, there's
a lot of whispering.

00:01:37.812 --> 00:01:39.422
Voiceover: Yeah, exactly [unintelligible].

00:01:39.422 --> 00:01:42.330
So what was the thought, McKinsey's
a great company obviously.

00:01:42.330 --> 00:01:44.830
What was the thought process
of deciding to do that?

00:01:44.830 --> 00:01:45.499
Elizabeth: Yeah.

00:01:45.499 --> 00:01:48.124
I guess I felt like coming out of college,

00:01:48.124 --> 00:01:52.172
there was actually an interesting article
recently about this in the Atlantic,

00:01:52.172 --> 00:01:55.250
about how a lot of people go and
study these really esoteric things,

00:01:55.250 --> 00:01:58.619
and then they're like, "I don't have any
skills. Let me go become a consultant,

00:01:58.619 --> 00:02:01.033
"or work on Wall Street or
something and learn some skills."

00:02:01.033 --> 00:02:02.421
That was kind of true for me.

00:02:02.421 --> 00:02:05.110
I knew I wanted to solve
complicated problems.

00:02:05.110 --> 00:02:06.822
Wasn't quite sure how to do that.

00:02:06.822 --> 00:02:08.870
I knew McKinsey solved
complicated problems.

00:02:08.870 --> 00:02:12.268
Even if they weren't exactly the
problems I wanted to solve long term,

00:02:12.268 --> 00:02:13.782
I thought it'd be a good
way to get some skills,

00:02:13.782 --> 00:02:17.323
and also just to understand how the
world works, how the economy works.

00:02:17.323 --> 00:02:19.745
All these thing that
seemed kind of vague to me,

00:02:19.745 --> 00:02:21.846
that I thought I could
kind of get a window into.

00:02:21.846 --> 00:02:23.316
Voiceover: So what was
that experience like?

00:02:23.316 --> 00:02:25.673
Was it what you expected?

00:02:25.673 --> 00:02:26.737
Elizabeth: Yeah.

00:02:26.737 --> 00:02:27.621
I learned a lot there.

00:02:27.621 --> 00:02:29.358
It was a great education.

00:02:29.358 --> 00:02:31.129
In a lot of ways it was
like being in school,

00:02:31.129 --> 00:02:32.823
because every few months
you're learning something new,

00:02:32.823 --> 00:02:35.004
and you're learning all
these different industries,

00:02:35.004 --> 00:02:38.511
and solving all these crazy problems
that are probably way beyond,

00:02:38.511 --> 00:02:40.997
anything I should have been thinking
about at that point in my life (laughs).

00:02:40.997 --> 00:02:42.442
But it was fascinating.

00:02:42.442 --> 00:02:45.500
The people were really smart so
I got to learn a lot from them.

00:02:45.500 --> 00:02:47.168
Voiceover: And you were very
young and you were in rooms,

00:02:47.168 --> 00:02:52.440
with heads of corporations and executives
and that must've been pretty neat.

00:02:52.440 --> 00:02:54.276
Elizabeth: Yeah it was cool and
also kind of scary and weird.

00:02:54.276 --> 00:02:57.292
There were times I thought like, "Man
this should be a novel or something."

00:02:57.292 --> 00:02:58.415
Voiceover: Oh really?

00:02:58.415 --> 00:02:59.356
I haven't heard about those.

00:02:59.356 --> 00:03:00.115
Elizabeth: It's just so weird.

00:03:00.115 --> 00:03:01.850
Voiceover: That'll be future videos.

00:03:01.850 --> 00:03:02.266
We'll change the names.

00:03:02.266 --> 00:03:04.343
Elizabeth: No, I mean, it was great.

00:03:04.343 --> 00:03:07.897
I learned a ton but I knew
I still wanted to get back,

00:03:07.897 --> 00:03:11.189
to the problems that were
really interesting to me.

00:03:11.189 --> 00:03:12.936
And McKinsey does work
on that to some extent,

00:03:12.936 --> 00:03:16.022
but a lot of what I was doing
were problems that were different,

00:03:16.022 --> 00:03:17.927
than the ones I really
wanted to spend my time on.

00:03:17.927 --> 00:03:19.852
I thought maybe I'd go
get some more skills,

00:03:19.852 --> 00:03:21.147
and go to law school.

00:03:21.147 --> 00:03:25.179
As we've talked about, I was planning to
go to law school right after McKinsey,

00:03:25.179 --> 00:03:29.702
and work on human rights, go back to what
I really had wanted to do for a while.

00:03:29.702 --> 00:03:34.225
Then I heard about Khan Academy
and just sounded really exciting,

00:03:34.225 --> 00:03:37.495
and of course, I know I'll embarrass
you, but I watched the Ted Talk,

00:03:37.495 --> 00:03:39.372
I was very inspired.

00:03:39.372 --> 00:03:40.451
I'm very excited.

00:03:40.451 --> 00:03:44.794
I heard that Khan Academy was looking
to put together a schools team,

00:03:44.794 --> 00:03:45.793
to work with schools.

00:03:45.793 --> 00:03:48.906
It sounded exciting to
me and so here I am.

00:03:48.906 --> 00:03:51.240
Voiceover: Was there anything that was ...

00:03:51.240 --> 00:03:53.262
because you were on
this kind of fast track.

00:03:53.262 --> 00:03:54.289
You were at McKinsey.

00:03:54.289 --> 00:03:55.535
You spent what 2, 3 years?

00:03:55.535 --> 00:03:56.142
Elizabeth: 3 years, yeah.

00:03:56.142 --> 00:03:58.177
Voiceover: 3 years at McKinsey and,
actually, I saw some of your reviews.

00:03:58.177 --> 00:04:00.648
You were like one of the most
highly rated person we've ...

00:04:00.648 --> 00:04:03.761
[Shadnu] told me that, "The
type of ratings Elizabeth gets,

00:04:03.761 --> 00:04:06.141
"not very few people at McKinsey get."

00:04:06.141 --> 00:04:08.758
So you were on this fast track, you're
set probably for a very good law school.

00:04:11.818 --> 00:04:12.779
Was it just the mission?

00:04:12.779 --> 00:04:14.152
That we're education?

00:04:14.152 --> 00:04:18.335
What spoke to you about this whole thing?

00:04:18.335 --> 00:04:20.116
Elizabeth: Yeah, it was
largely the mission.

00:04:20.116 --> 00:04:23.094
I think that mission means a lot to me.

00:04:23.094 --> 00:04:24.758
Knowing that I could get up every
morning and work on something,

00:04:24.758 --> 00:04:28.800
that I'm really excited
about was a lot of it.

00:04:28.800 --> 00:04:29.911
It was also something even
bigger than the mission,

00:04:29.911 --> 00:04:32.843
if there's anything bigger than
educating the whole world for free,

00:04:32.843 --> 00:04:33.369
I don't know.

00:04:33.369 --> 00:04:36.196
I think it was getting
to start something new.

00:04:36.196 --> 00:04:38.398
It was this idea that,
how often in your life,

00:04:38.398 --> 00:04:41.477
does someone come along and say
to you, "Be part of this team,

00:04:41.477 --> 00:04:43.674
"that's building something
that doesn't yet exist."

00:04:43.674 --> 00:04:46.768
It's not just sort of different than
a bunch of other things that exist.

00:04:46.768 --> 00:04:50.885
It's something totally new that's
trying to solve a really, really tough,

00:04:50.885 --> 00:04:52.376
entrenched social problem.

00:04:52.376 --> 00:04:55.549
It's a start up and maybe
it'll work and maybe it won't,

00:04:55.549 --> 00:04:58.532
but it's going to be with a lot
of really smart, dedicated people,

00:04:58.532 --> 00:05:00.503
who really want to make a go of it.

00:05:00.503 --> 00:05:01.722
That's exciting.

00:05:01.722 --> 00:05:06.345
I think that I just felt like I could
stay on the tried and true path,

00:05:06.345 --> 00:05:08.398
and I'm sure that would have
been rewarding in its own right.

00:05:08.398 --> 00:05:12.210
Or I could branch off that and try
to build something from scratch,

00:05:12.210 --> 00:05:13.715
with a lot of other awesome people.

00:05:13.715 --> 00:05:15.306
And try to make a goal of it.

00:05:15.306 --> 00:05:17.388
Really try to solve this problem.

00:05:17.388 --> 00:05:19.513
I just felt like I couldn't
pass up the opportunity.

00:05:20.835 --> 00:05:23.314
Voiceover: You joined,
about 7 or 8 months now,

00:05:23.314 --> 00:05:27.489
at the time we're doing this
interview in late February of 2012.

00:05:29.519 --> 00:05:30.614
Is there anything that's been surprising,

00:05:30.614 --> 00:05:31.986
or it's just as you expected?

00:05:31.986 --> 00:05:35.640
Exactly as you visualized it while
you were about to leave McKinsey?

00:05:35.640 --> 00:05:36.569
Or disappointing?

00:05:36.569 --> 00:05:38.679
What's your view of things so far?

00:05:38.679 --> 00:05:42.208
Elizabeth: Yeah, I think I'd have
to have an amazing crystal ball,

00:05:42.208 --> 00:05:44.393
or something to know exactly
what it would look like.

00:05:44.393 --> 00:05:47.948
I really didn't exactly know what
I was getting myself into at all.

00:05:47.948 --> 00:05:49.139
It's been exciting.

00:05:49.139 --> 00:05:50.162
Voiceover: That's how I live my life.

00:05:50.162 --> 00:05:51.674
Elizabeth: Yeah (laughs).

00:05:51.674 --> 00:05:52.782
It's been really fun.

00:05:52.782 --> 00:05:55.027
I've been really happy to be here.

00:05:55.027 --> 00:05:57.129
I think some of the things
that have been surprising,

00:05:57.129 --> 00:06:01.641
have just been the scale of change,

00:06:01.641 --> 00:06:03.456
and the pace at which we're working.

00:06:03.456 --> 00:06:07.775
I guess, when I joined in July, we'd
worked with one school district,

00:06:07.775 --> 00:06:09.748
Los Altos, and we're
still working with them.

00:06:09.748 --> 00:06:12.238
But instead of working with
4 teachers they were working,

00:06:12.238 --> 00:06:15.164
with a whole bunch of teachers in
the district, about 40 of them.

00:06:15.164 --> 00:06:17.791
Then we have all these other
schools we're working with as well.

00:06:17.791 --> 00:06:18.871
Voiceover: It's like
10,000 people sounds like.

00:06:18.871 --> 00:06:19.996
Elizabeth: 10,000 people yeah.

00:06:19.996 --> 00:06:21.016
Voiceover: It's probably
12,000 now [unintelligible].

00:06:21.016 --> 00:06:21.905
Elizabeth: Yeah.

00:06:21.905 --> 00:06:22.900
It's growing so fast.

00:06:22.900 --> 00:06:26.206
And what's amazing is we're working
really closely with these schools,

00:06:26.206 --> 00:06:28.210
and that's great for those few schools,

00:06:28.210 --> 00:06:30.130
and that's where we're really
seeing a lot of the innovation.

00:06:30.130 --> 00:06:33.847
But then, every time we discover something
exciting at a school we're working with,

00:06:33.847 --> 00:06:37.174
we can just throw it up online
and then all these other people,

00:06:37.174 --> 00:06:39.186
around the world can
see it and use it too.

00:06:39.186 --> 00:06:42.597
Or we'll say, "Oh wow. It'd be great
if we had exercises on this topic,

00:06:42.597 --> 00:06:46.215
"or features on our site that
would help schools in these ways."

00:06:46.215 --> 00:06:48.296
Then we can create them
with the rest of the team,

00:06:48.296 --> 00:06:50.587
and then suddenly there's millions
of people around the world,

00:06:50.587 --> 00:06:52.203
who are benefiting from those.

00:06:52.203 --> 00:06:56.767
It's really fast, rapid
movement from having an idea,

00:06:56.767 --> 00:06:58.102
to making the idea happen.

00:06:58.102 --> 00:06:59.814
To having it affect a lot of people.

00:06:59.814 --> 00:07:03.014
I think that's something that's exciting,
probably about software in general.

00:07:03.982 --> 00:07:06.978
But especially here, where
it's like we don't have a way,

00:07:06.978 --> 00:07:09.265
for people to graph linear equations.

00:07:09.265 --> 00:07:11.641
Let's create a way for them
to graph linear equations.

00:07:11.641 --> 00:07:12.399
Oh wow, look.

00:07:12.399 --> 00:07:14.365
A million people just
graphed linear equations.

00:07:14.365 --> 00:07:16.050
That's exciting to see.

00:07:17.973 --> 00:07:19.189
Voiceover: What are your hopes?

00:07:19.189 --> 00:07:21.038
Over the next couple of years or whatever.

00:07:21.038 --> 00:07:22.614
What are you hoping to see happen?

00:07:22.614 --> 00:07:25.081
Elizabeth: Well, I'm hoping that we're
going to reach a lot more people,

00:07:25.081 --> 00:07:26.178
around the world.

00:07:26.178 --> 00:07:27.299
I'm hoping for a lot of things.

00:07:27.299 --> 00:07:30.393
As someone on the schools
team I'm really excited,

00:07:30.393 --> 00:07:33.722
about helping to push the
boundaries on education.

00:07:33.722 --> 00:07:35.496
I think there's a lot
of people in education,

00:07:35.496 --> 00:07:37.994
who've been coming up with
lots of innovative ideas,

00:07:37.994 --> 00:07:40.006
and wanting to do a lot
of things for a long time.

00:07:40.006 --> 00:07:42.505
Teachers really want to meet
the needs of all their students,

00:07:42.505 --> 00:07:44.649
but they haven't had the
tools to be able to do that.

00:07:44.649 --> 00:07:47.804
Teachers might have been willing
to question a lot of assumptions,

00:07:47.804 --> 00:07:50.613
in education but haven't
really had the right tools,

00:07:50.613 --> 00:07:51.484
to make that happen.

00:07:51.484 --> 00:07:53.636
I'm excited to work with
those kinds of teachers,

00:07:53.636 --> 00:07:54.804
in those schools.

00:07:54.804 --> 00:07:57.628
To say, "Let's get rid of age
based grouping. Let's throw out,

00:07:57.658 --> 00:08:01.026
"all these basic assumptions we
have about a 9 month school year,

00:08:01.026 --> 00:08:04.372
"and about students plodding
along from 45 minutes of this,

00:08:04.372 --> 00:08:07.510
"to 45 minutes of that. Why do you
have to have math class separate,

00:08:07.510 --> 00:08:09.415
"from science class,
separate from art class?"

00:08:09.415 --> 00:08:12.562
I'm excited to work with schools that
want to break those boundaries down,

00:08:12.562 --> 00:08:14.921
and see what we can do to
make learning more exciting,

00:08:14.921 --> 00:08:16.672
and more engaging for students.

00:08:16.672 --> 00:08:18.929
Then take whatever we learn
there and help translate that,

00:08:18.929 --> 00:08:21.281
through our platform to
the rest of the world.

00:08:21.281 --> 00:08:23.331
So that people who even
aren't in schools like that,

00:08:23.331 --> 00:08:25.860
can still have similar
exciting learning experiences.

00:08:25.860 --> 00:08:27.106
Voiceover: Very cool.


Euclid as the father of geometry

WEBVTT
Kind: captions
Language: en

00:00:00.640 --> 00:00:04.520
"The laws of nature are but the
mathematical thoughts of God."

00:00:04.520 --> 00:00:06.900
And this is a quote by
Euclid of Alexandria,

00:00:06.900 --> 00:00:09.570
who was a Greek mathematician
and philosopher who

00:00:09.570 --> 00:00:12.230
lived about 300
years before Christ.

00:00:12.230 --> 00:00:14.080
And the reason why
I include this quote

00:00:14.080 --> 00:00:19.220
is because Euclid is considered
to be the father of geometry.

00:00:19.220 --> 00:00:20.450
And it is a neat quote.

00:00:20.450 --> 00:00:23.340
Regardless of your views of
God, whether or not God exists

00:00:23.340 --> 00:00:25.250
or the nature of God,
it says something

00:00:25.250 --> 00:00:27.130
very fundamental about nature.

00:00:27.130 --> 00:00:31.080
The laws of nature are but the
mathematical thoughts of God.

00:00:31.080 --> 00:00:34.760
That math underpins all
of the laws of nature.

00:00:34.760 --> 00:00:37.440
And the word geometry
itself has Greek roots.

00:00:37.440 --> 00:00:40.600
Geo comes from Greek for Earth.

00:00:40.600 --> 00:00:43.736
Metry comes from
Greek for measurement.

00:00:43.736 --> 00:00:45.110
You're probably
used to something

00:00:45.110 --> 00:00:46.680
like the metric system.

00:00:46.680 --> 00:00:49.620
And Euclid is considered to
be the father of geometry

00:00:49.620 --> 00:00:52.350
not because he was the first
person who studied geometry.

00:00:52.350 --> 00:00:55.240
You could imagine the very
first humans might have studied

00:00:55.240 --> 00:00:55.920
geometry.

00:00:55.920 --> 00:00:58.170
They might have looked at
two twigs on the ground that

00:00:58.170 --> 00:00:59.880
looked something
like that and they

00:00:59.880 --> 00:01:01.320
might have looked at
another pair of twigs

00:01:01.320 --> 00:01:03.460
that looked like that and
said, this is a bigger opening.

00:01:03.460 --> 00:01:04.710
What is the relationship here?

00:01:04.710 --> 00:01:08.340
Or they might have
looked at a tree that

00:01:08.340 --> 00:01:12.529
had a branch that
came off it like that.

00:01:12.529 --> 00:01:14.320
And they said, oh
there's something similar

00:01:14.320 --> 00:01:17.970
about this opening here
and this opening here.

00:01:17.970 --> 00:01:20.630
Or they might have asked
themselves, what is the ratio?

00:01:20.630 --> 00:01:23.320
Or what is the relationship
between the distance

00:01:23.320 --> 00:01:25.640
around a circle and
the distance across it?

00:01:25.640 --> 00:01:27.970
And is that the same
for all circles?

00:01:27.970 --> 00:01:29.960
And is there a way for
us to feel really good

00:01:29.960 --> 00:01:32.200
that that is definitely true?

00:01:32.200 --> 00:01:34.140
And then once you got
to the early Greeks,

00:01:34.140 --> 00:01:37.240
they started to get even
more thoughtful essentially

00:01:37.240 --> 00:01:40.800
about geometric things when you
talk about Greek mathematicians

00:01:40.800 --> 00:01:44.710
like Pythagoras, who
came before Euclid.

00:01:44.710 --> 00:01:46.520
But the reason why
Euclid is considered

00:01:46.520 --> 00:01:49.200
to be the father of
geometry, and why we often

00:01:49.200 --> 00:01:52.695
talk about Euclidean
geometry, is around 300

00:01:52.695 --> 00:01:56.520
BC-- and this right over
here is a picture of Euclid

00:01:56.520 --> 00:01:57.471
painted by Raphael.

00:01:57.471 --> 00:01:59.470
And no one really knows
what Euclid looked like,

00:01:59.470 --> 00:02:01.090
even when he was
born or when he died.

00:02:01.090 --> 00:02:02.680
So this is just
Raphael's impression

00:02:02.680 --> 00:02:05.770
of what Euclid might
have looked like when

00:02:05.770 --> 00:02:07.700
he was teaching in Alexandria.

00:02:07.700 --> 00:02:10.100
But what made Euclid
the father of geometry

00:02:10.100 --> 00:02:14.550
is really his writing
of Euclid's Elements.

00:02:14.550 --> 00:02:18.985
And what the Elements
were were essentially

00:02:18.985 --> 00:02:21.200
a 13 volume textbook.

00:02:21.200 --> 00:02:24.520
And arguably the most
famous textbook of all time.

00:02:24.520 --> 00:02:26.320
And what he did in
those 13 volumes

00:02:26.320 --> 00:02:30.490
is he essentially did a
rigorous, thoughtful, logical

00:02:30.490 --> 00:02:33.700
march through geometry
and number theory,

00:02:33.700 --> 00:02:35.120
and then also solid geometry.

00:02:35.120 --> 00:02:36.840
So geometry in three dimensions.

00:02:36.840 --> 00:02:39.010
And this right over here
is the frontispiece piece

00:02:39.010 --> 00:02:41.770
for the English version,
or the first translation

00:02:41.770 --> 00:02:44.330
of the English version
of Euclid's Elements.

00:02:44.330 --> 00:02:46.840
And this was done in 1570.

00:02:46.840 --> 00:02:49.560
But it was obviously
first written in Greek.

00:02:49.560 --> 00:02:51.620
And then during much
of the Middle Ages,

00:02:51.620 --> 00:02:53.510
that knowledge was
shepherded by the Arabs

00:02:53.510 --> 00:02:55.200
and it was translated
into Arabic.

00:02:55.200 --> 00:02:58.900
And then eventually in the
late Middle Ages, translated

00:02:58.900 --> 00:03:01.970
into Latin, and then
obviously eventually English.

00:03:01.970 --> 00:03:04.540
And when I say that he did a
rigorous march, what Euclid did

00:03:04.540 --> 00:03:05.914
is he didn't just
say, oh well, I

00:03:05.914 --> 00:03:10.519
think if you take the length
of one side of a right triangle

00:03:10.519 --> 00:03:12.810
and the length of the other
side of the right triangle,

00:03:12.810 --> 00:03:14.840
it's going to be the same as the
square of the hypotenuse, all

00:03:14.840 --> 00:03:15.440
of these other things.

00:03:15.440 --> 00:03:17.770
And we'll go into depth about
what all of these things mean.

00:03:17.770 --> 00:03:19.500
He says, I don't want
to just feel good

00:03:19.500 --> 00:03:21.280
that it's probably true.

00:03:21.280 --> 00:03:24.520
I want to prove to
myself that it is true.

00:03:24.520 --> 00:03:27.300
And so what he did in Elements,
especially the six books that

00:03:27.300 --> 00:03:29.340
are concerned with
planar geometry,

00:03:29.340 --> 00:03:31.970
in fact, he did all of them,
but from a geometrical point

00:03:31.970 --> 00:03:34.970
of view, he started
with basic assumptions.

00:03:34.970 --> 00:03:37.260
So he started with
basic assumptions

00:03:37.260 --> 00:03:40.615
and those basic assumptions
in geometric speak

00:03:40.615 --> 00:03:43.300
are called axioms or postulates.

00:03:43.300 --> 00:03:47.730
And from them, he proved,
he deduced other statements

00:03:47.730 --> 00:03:48.750
or propositions.

00:03:48.750 --> 00:03:50.920
Or these are sometimes
called theorems.

00:03:50.920 --> 00:03:53.750
And then he says, now I know if
this is true and this is true,

00:03:53.750 --> 00:03:55.520
this must be true.

00:03:55.520 --> 00:03:58.190
And he could also prove that
other things cannot be true.

00:03:58.190 --> 00:04:01.047
So then he could prove that this
is not going to be the truth.

00:04:01.047 --> 00:04:02.630
He didn't just say,
well, every circle

00:04:02.630 --> 00:04:03.796
I've said has this property.

00:04:03.796 --> 00:04:05.850
He says, I've now proven
that this is true.

00:04:05.850 --> 00:04:10.200
And then from there, we can go
and deduce other propositions

00:04:10.200 --> 00:04:12.990
or theorems, and we can use
some of our original axioms

00:04:12.990 --> 00:04:13.825
to do that.

00:04:13.825 --> 00:04:15.450
And what's special
about that is no one

00:04:15.450 --> 00:04:18.100
had really done that
before, rigorously proven

00:04:18.100 --> 00:04:22.370
beyond a shadow of a doubt
across a whole broad sweep

00:04:22.370 --> 00:04:23.220
of knowledge.

00:04:23.220 --> 00:04:25.290
So not just one
proof here or there.

00:04:25.290 --> 00:04:29.179
He did it for an
entire set of knowledge

00:04:29.179 --> 00:04:30.220
that we're talking about.

00:04:30.220 --> 00:04:32.400
A rigorous march
through a subject

00:04:32.400 --> 00:04:35.890
so that he could build
this scaffold of axioms

00:04:35.890 --> 00:04:39.439
and postulates and
theorems and propositions.

00:04:39.439 --> 00:04:41.980
And theorems and propositions
are essentially the same thing.

00:04:41.980 --> 00:04:43.980
And essentially for
about 2,000 years

00:04:43.980 --> 00:04:46.100
after Euclid-- so this
is unbelievable shelf

00:04:46.100 --> 00:04:50.090
life for a textbook-- people
didn't view you as educated

00:04:50.090 --> 00:04:54.760
if you did not read and
understand Euclid's Elements.

00:04:54.760 --> 00:04:56.680
And Euclid's Elements,
the book itself,

00:04:56.680 --> 00:04:59.530
was the second most printed
book in the Western world

00:04:59.530 --> 00:05:00.540
after the Bible.

00:05:00.540 --> 00:05:01.950
This is a math textbook.

00:05:01.950 --> 00:05:03.652
It was second only to the Bible.

00:05:03.652 --> 00:05:05.360
When the first printing
presses came out,

00:05:05.360 --> 00:05:06.660
they said OK, let's
print the Bible.

00:05:06.660 --> 00:05:07.720
What do we print next?

00:05:07.720 --> 00:05:10.070
Let's print Euclid's Elements.

00:05:10.070 --> 00:05:13.050
And to show that this is
relevant into the fairly

00:05:13.050 --> 00:05:15.830
recent past-- although
whether or not you

00:05:15.830 --> 00:05:17.790
argue that about
150, 160 years ago

00:05:17.790 --> 00:05:19.850
is the recent past--
this right here

00:05:19.850 --> 00:05:22.460
is a direct quote from
Abraham Lincoln, obviously

00:05:22.460 --> 00:05:24.486
one of the great
American presidents.

00:05:24.486 --> 00:05:26.110
I like this picture
of Abraham Lincoln.

00:05:26.110 --> 00:05:29.660
This is actually a photograph
of Lincoln in his late 30s.

00:05:29.660 --> 00:05:32.630
But he was a huge fan
of Euclid's Elements.

00:05:32.630 --> 00:05:35.506
He would actually use it
to fine tune his mind.

00:05:35.506 --> 00:05:36.880
While he was riding
his horse, he

00:05:36.880 --> 00:05:37.860
would read Euclid's Elements.

00:05:37.860 --> 00:05:40.660
While was in the White House,
he would read Euclid's Elements.

00:05:40.660 --> 00:05:43.420
But this is a direct
quote from Lincoln.

00:05:43.420 --> 00:05:45.340
"In the course of
my law reading,

00:05:45.340 --> 00:05:48.250
I constantly came upon
the word demonstrate.

00:05:48.250 --> 00:05:50.490
I thought at first that
I understood its meaning,

00:05:50.490 --> 00:05:53.190
but soon became
satisfied that I did not.

00:05:53.190 --> 00:05:56.830
I said to myself, what do
I do when I demonstrate

00:05:56.830 --> 00:05:59.040
more than when I
reason or prove?

00:05:59.040 --> 00:06:01.850
How does demonstration
differ from any other proof?"

00:06:01.850 --> 00:06:04.050
So Lincoln's saying, there's
this word demonstration

00:06:04.050 --> 00:06:06.680
that means something more.

00:06:06.680 --> 00:06:07.870
Proving beyond doubt.

00:06:07.870 --> 00:06:08.870
Something more rigorous.

00:06:08.870 --> 00:06:11.660
More than just simple
feeling good about something

00:06:11.660 --> 00:06:13.040
or reasoning through it.

00:06:13.040 --> 00:06:14.830
"I consulted
Webster's Dictionary."

00:06:14.830 --> 00:06:16.620
So Webster's Dictionary
was around even

00:06:16.620 --> 00:06:17.850
when Lincoln was around.

00:06:17.850 --> 00:06:19.846
"They told of certain proof.

00:06:19.846 --> 00:06:22.200
Proof beyond the
possibility of doubt.

00:06:22.200 --> 00:06:25.390
But I could form no idea of
what sort of proof that was.

00:06:25.390 --> 00:06:26.870
"I thought a great
many things were

00:06:26.870 --> 00:06:29.900
proved beyond the possibility
of doubt, without recourse

00:06:29.900 --> 00:06:32.290
to any such extraordinary
process of reasoning

00:06:32.290 --> 00:06:35.450
as I understood
demonstration to be.

00:06:35.450 --> 00:06:38.320
I consulted all the dictionaries
and books of reference

00:06:38.320 --> 00:06:40.890
I could find, but with
no better results.

00:06:40.890 --> 00:06:45.590
You might as well have
defined blue to a blind man.

00:06:45.590 --> 00:06:48.270
"At last I said, Lincoln--"
he's talking to himself.

00:06:48.270 --> 00:06:51.350
"At last I said,
Lincoln, you never

00:06:51.350 --> 00:06:53.360
can make a lawyer if
you do not understand

00:06:53.360 --> 00:06:54.960
what demonstrate means.

00:06:54.960 --> 00:06:56.980
And I left my situation
in Springfield,

00:06:56.980 --> 00:06:59.820
went home to my father's
house, and stayed there

00:06:59.820 --> 00:07:02.260
till I could give any
proposition in the six

00:07:02.260 --> 00:07:03.900
books of Euclid at sight."

00:07:03.900 --> 00:07:06.640
So the six books concerned
with planar geometry.

00:07:06.640 --> 00:07:10.340
"I then found out what
demonstrate means and went back

00:07:10.340 --> 00:07:11.340
to my law studies."

00:07:11.340 --> 00:07:15.080
So one of the greatest
American presidents of all time

00:07:15.080 --> 00:07:17.060
felt that in order
to be a great lawyer,

00:07:17.060 --> 00:07:19.610
he had to understand,
be able to prove

00:07:19.610 --> 00:07:25.320
any proposition in the six books
of Euclid's Elements at sight.

00:07:25.320 --> 00:07:27.080
And also once he was
in the White House,

00:07:27.080 --> 00:07:29.370
he continued to do this
to make him, in his mind,

00:07:29.370 --> 00:07:32.799
to fine tune his mind to
become a great president.

00:07:32.799 --> 00:07:35.340
And so what we're going to be
doing in the geometry play list

00:07:35.340 --> 00:07:36.629
is essentially that.

00:07:36.629 --> 00:07:38.920
What we're going to study is
we're going to think about

00:07:38.920 --> 00:07:42.440
how do we really tightly,
rigorously prove things?

00:07:42.440 --> 00:07:45.700
We're essentially going to be,
in a slightly more modern form,

00:07:45.700 --> 00:07:49.390
studying what Euclid
studied 2,300 years ago.

00:07:49.390 --> 00:07:57.209
Really tighten our reasoning
of different statements

00:07:57.209 --> 00:07:59.500
and being able to make sure
that when we say something,

00:07:59.500 --> 00:08:01.660
we can really prove
what we're saying.

00:08:01.660 --> 00:08:03.900
And this is really some
of the most fundamental,

00:08:03.900 --> 00:08:05.940
real mathematics
that you will do.

00:08:05.940 --> 00:08:08.440
Arithmetic was really
just computation.

00:08:08.440 --> 00:08:10.740
Now in geometry-- and what
we're going to be doing

00:08:10.740 --> 00:08:13.860
is really Euclidean
geometry-- this is really

00:08:13.860 --> 00:08:16.550
what math is about.

00:08:16.550 --> 00:08:19.790
Making some assumptions and
then deducing other things

00:08:19.790 --> 00:08:21.607
from those assumptions.