How Money Actually Works

0:00 (light mysterious jazz music)- If we took all

0:08 of the gold that has ever been mined in all

0:10 of human history and put it all in one place in a giant cube here in Washington,

0:14 DC., it would look like (air whooshing) (lively string music) this!

0:18 (gold cube slams) (light whimsical music) Oh, this is it?

0:22 (knuckles tapping) I mean, it's pretty big,

0:26 but I kinda thought it was gonna be a lot bigger.

0:29 So, what's all this gold even used for?

0:31 Well, 45% of it is used for, like, decoration and jewelry.

0:36 You got necklaces, you got earrings.

0:38 You've got this giant Buddha that's just solid gold.

0:42 There's an old Egyptian coffin made of pure gold.

0:45 Largest gold coin in the world, it's got a kangaroo on it.

0:48 It's 45% of all the gold.

0:49 You got a small portion of all this stuff that gets used for industry.

0:52 Stuff like the fillings in your teeth or electronic

0:56 components that use the special properties of gold to work.

1:01 But then a huge portion of all this gold

1:03 is just sitting in vaults around the world.

1:06 Mostly in New York and London, in the form of bars gathering dust.

1:11 Governments and investors have been on a gold-buying spree lately.

1:14 I mean, look at the price of gold.

1:16 President Trump is seeking more control of the Federal Reserve.

1:19 Gold prices saw to a record high

1:21 after US President Donald Trump criticized Federal Reserve.

1:25 Russia and China have been buying a lot of gold bars.

1:27 And Florida is trying to make it so that gold can be used as real money again.

1:32 It seems like gold is having a comeback.

1:34 But actually, what I'm learning is that it never went away in the first place.

1:39 [Speaker] Would you look at that.

1:41 (wondrous orchestral music) (ethereal choir music) (light mysterious music) So,

1:51 how did all of this gold get here to Earth?

1:54 Well, a lot of the gold that humans mined came to us on one

1:57 of these: an asteroid loaded up

1:59 with heavy metals that formed from exploding stars.

2:02 (star booming) If you zoom into one of those metals,

2:06 you'll see some really weird-looking atoms.

2:09 The electrons are moving nearly the speed of light.

2:11 This absorbs the blue light and reflects the yellow and red light.

2:16 Look, it's yellow.

2:17 It's shiny like the Sun.

2:19 No other metal does it quite like this.

2:22 (asteroid slamming) These gold deposits sat

2:28 in Earth's crust for billions of years, undiscovered.

2:32 Some rivers dug in, eroding the earth

2:34 and revealing these pieces of shiny stardust.

2:37 It caught the eye of some humans who noticed it was different.

2:40 Found this shiny rock that they dug out of the ground,

2:43 that they could turn into things, that it didn't tarnish.

2:46 [Johnny] It was a dense metal, but it was somehow soft and workable.

2:49 It didn't rust.

2:50 It was incorruptible.

2:52 Was it eternal?

2:54 Gold has chemical properties that have proven to be very interesting

2:58 and useful to many societies across the kind of many centuries.

3:02 And some of those properties have to do with its purity.

3:06 Some of them have to do with its malleability.

3:09 Some of them have to do with its indestructibility.

3:11 And some of it has to do with its aesthetic intrigue.

3:16 From China to the Indies, people independently fell under gold's spell.

3:20 At first, for decoration and celebration of their rulers and their gods.

3:25 Indian healers made medicine with it.

3:27 To the Inca, gold was the sweat of the Sun.

3:30 They covered their temples and adorned their faces with it.

3:33 The Greeks made statues.

3:34 King Solomon plated his temple with it.

3:36 And 6,000 years ago, this guy was buried with a gold bracelet with beads,

3:41 with this scepter, with a sheath.

3:43 Oh, and not for his sword, but for his...

3:47 Yeah, I mean, I guess it was pretty valuable stuff.

3:50 Chinese emperors ingested gold trying to become immortal,

3:53 which, spoiler alert, doesn't work.

3:56 But as humans gathered in larger and larger groups, empires grew.

3:59 They became greedy and hungry for more land.

4:01 The story of gold starts to evolve,

4:03 helping kick off one of the most significant psychological

4:06 inventions humans ever came up with: the invention of money.

4:11 (coins clinking) (ethereal choir music)- It's

4:14 a commonly accepted medium of exchange,

4:16 and many people are willing to accept it.

4:18 In early societies, one of the most common things was cattle.

4:22 (slurping) Yep.

4:23 We're talking about cows.

4:24 We'll get back to gold in just a sec.

4:25 Let's go inside the human brain to see how money evolves.

4:30 So yeah, instead of just trading something I want for something you want,

4:33 humans started settling on commonly useful things that they could carry around,

4:38 and that would be valuable to most people.

4:41 Historically, lots of objects have served as monies.

4:44 So, you got barley, salt.

4:46 [Thomas] Cows were something that many people needed for food.

4:48 They were transportable 'cause they could walk.

4:50 They were pretty easy to maintain 'cause they eat grass.

4:53 This is the most obvious version of money.

4:55 Something that is practical and useful.

4:57 It'll help you survive.

4:58 But they also have drawbacks.

5:00 Cows don't make good money.

5:02 That's a weird sentence I never thought I would say.

5:04 (laughs) But yeah, they spoil.

5:05 They're hard to divide.

5:07 You can't easily bring them to far-away places to do trading.

5:10 So, eventually humans found something better:

5:12 that shiny soft metal pulled from the riverbeds.

5:15 It was easy to shape, to split up.

5:18 So it's easy to carry around; it's easily divisible.

5:21 And it just looks cool.

5:22 (sniffs) And humans love shiny things.

5:24 (slurping) So, that was like a nice added bonus.

5:26 It was rare, but not too rare.

5:28 Like, there was enough of it, but it wasn't, like, everywhere.

5:30 Which, like, that's an important part of this.

5:32 But gold doesn't feed you.

5:34 It doesn't keep you warm.

5:35 It doesn't shelter you.

5:37 Yes, you can make jewelry and, like, a dagger out of it or something.

5:40 But like, it's not that intrinsically useful.

5:42 Unless we introduce a very powerful ingredient to the mix.

5:46 It's a very human ingredient called belief.

5:49 (bright thoughtful music) This guy believes gold is valuable,

5:53 and so does this guy.

5:54 If someone believes that gold is valuable and so does another person,

5:57 that belief turns metal into a system.

6:00 He trades it for wheat.

6:01 "I'll give you gold.

6:03 You give me wheat." You then take that gold and go trade it for salt or fabric.

6:09 Gold becomes valuable not because of what it does,

6:12 but because what we believe it means.

6:15 So, this is a big psychological step for us.

6:17 From cattle, which has utility, to gold,

6:20 which has no utility, but is scarce, durable, divisible, universal.

6:25 And don't forget, nice and shiny.

6:27 And all this is made possible because of collective belief.

6:30 Belief that if I have this metal,

6:32 I will be able to go use it to buy things that help me survive.

6:35 And if everyone believes it, then it works.

6:37 [Lawrence] Gold and silver became the dominant monies throughout the world.

6:41 (lively string music)- So,

6:47 the belief in gold spreads throughout the world a few thousand years ago.

6:50 Not just as a thing that we do to worship the gods,

6:52 but as a means of trade, a currency, a money.

6:55 This also happened with gold's forgotten cousin, silver.

6:59 Poor silver.

7:00 It just didn't get those fast-moving electrons to make it shiny.

7:03 And there's like too much of it, too.

7:04 Anyway, soon gold was being stamped into standardized coins,

7:08 being used as a near-universal form of money all around the world.

7:11 It was magic, but it was also mania.

7:15 (light pensive music) When the Spanish landed

7:18 on the shores of modern-day Mexico in 1519, they met the Aztec civilization,

7:24 and one thing caught their eye: gold, lots of gold.

7:29 Including these gifts that the Aztec king was presenting to the Spaniards.

7:33 Giving it to them for free.

7:35 The Aztecs were using lots of gold, but not as a currency,

7:39 but as decoration, for worship, for armor, for blades.

7:42 It wasn't economic.

7:44 But to the Spanish, gold had become economic, a means of trade.

7:48 It was wealth.

7:49 And here it was in extreme abundance, and they wanted it.

7:53 Or, in the words of one Spanish conqueror.

7:55 "We suffer from a disease of the heart that can only be cured by gold."

8:00 (tense contemplative music) The Spanish ended up massacring

8:04 the Aztecs with their weapons and their diseases.

8:07 (crowd clamoring) They took as much gold as they could find.

8:10 These statues and masks and jewelry and blades.

8:13 Melted them down, shaped them into uniform units of value,

8:17 and stamped them with a seal of authority.

8:20 They spent the next century ripping through the Americas,

8:22 chasing every rumor of golden cities and sacred wealth.

8:26 Places like El Dorado, Cibola.

8:29 Men fevered by greed for this shiny metal stuff,

8:32 fueled by conquest and spoils that built their cathedrals,

8:37 and ended up kicking off a race among the European empires.

8:40 A race for more and more gold.

8:43 Let's not forget what the Spanish found when they came to the New World.

8:47 Gold!

8:48 Mountains of it.

8:49 And then, of course, this leads to a cottage industry of renegade sailors,

8:53 sometimes hired by other empires,

8:55 trying to intercept these ships going to and from the New World,

8:58 with hopes of finding one of these chests full of gold.

9:01 Now, I was disappointed in my reporting when I discovered that (laughs)

9:05 most pirates weren't actually after gold and didn't find a lot of gold.

9:09 They were after more boring stuff like lumber.

9:11 And they didn't really have these X-marks-the-spot type

9:14 maps where they buried their chest of gold.

9:16 (gasps) Look, it's the X.

9:20 X marks the spot!

9:21 That's mostly a myth,

9:21 but it's also kind of a useful example of how gold inspired these, like,

9:27 big grand stories of adventure, of jackpot.

9:30 How it enlivened the imagination and inflamed this greed in people's minds.

9:35 I mean, I get it.

9:36 How sick is the idea of a bunch

9:38 of gold that never rusts buried somewhere in the Caribbean,

9:41 ready to turn a peasant into a count?

9:44 Greetings.

9:45 God, I love "The Count of Monte Cristo" from the early 2000s.

9:48 (slurping) So by the 1800s, this psychological leap is complete.

9:52 There is a near-universal belief in gold as a currency,

9:56 a means for exchange, the universal money.

9:59 Big European empires had already torn across continents in search for it.

10:02 And now, it was the turn of regular people.

10:04 The dreamers, the risk takers, the desperate men who joined the hunt for gold.

10:09 Men with nothing to lose.

10:10 Chasing rumors of riches and doing pretty reckless and extraordinary things,

10:15 all for a shot at striking gold.

10:17 A big group of them in 1849 fled into the Western United States,

10:21 helping build California, becoming the 49ers, all in search for gold.

10:25 These guys are in Canada's Yukon,

10:27 where it is very cold and they're looking for gold.

10:29 I mean, this happened everywhere.

10:30 South Africa, Australia, the Amazon.

10:33 Each place, the same story.

10:35 Men intoxicated by the idea of getting rich off of gold,

10:38 doing whatever it takes to get their hands on the stuff.

10:41 Even forcing others to mine it for them.

10:44 This frenzy of hope, chaos, migration.

10:47 It was gold fever, and it didn't just move markets;

10:50 it moved human beings, entire populations.

10:53 It was, as the writer of this excellent book puts it,

10:57 "a murderous, cruel, intoxicating, brutal adventure that swallowed an entire

11:02 civilization and spatted out as coins." Man,

11:05 I love when rigorous historians write beautiful language.

11:09 Okay, let's dive back into the brain really quick and see what's going on next.

11:13 We're about to take another big psychological leap here.

11:16 The leap from a belief in this soft, shiny metal to a belief in paper.

11:20 (coins clinking) (ethereal choir music)- One of the problems with physical

11:24 gold is that if you wanna trade it in large quantities,

11:27 it's pretty heavy to carry around a lot of gold.

11:29 And what people decided was if they could deposit their gold into a bank,

11:33 it would give them a bank note, which was essentially an IOU.

11:36 One ounce of gold was worth approximately $20.

11:40 So, basically, if you had a $20 bill,

11:42 you could go into a bank and redeem it for one ounce of gold.

11:45 Most individuals, when they got paid,

11:47 they gonna pay envelopes stuffed with bank notes.

11:50 So, that was the everyday medium of exchange.

11:52 As long as you trusted that the bank notes were good,

11:55 you really didn't think about much which bank had issued the notes.

11:59 They all exchanged one-to-one against each

12:01 other and against gold and silver dollars.

12:04 If you wanted gold instead of the bank note,

12:05 you could come in and redeem the bank note, and they would give you gold.

12:10 So, now instead of believing in gold, we are believing in banks.

12:14 Trusting them that if they give us this piece of paper,

12:17 it actually represents the gold that they are holding safe in their vault.

12:20 And that at any moment, if I needed the gold,

12:22 could go to the bank, get the gold.

12:24 That is now a pretty far abstraction from cows.

12:28 Something that feeds us.

12:29 We're now carrying around paper.

12:30 But once again, it follows the same rule that if everyone believes it

12:35 and if the banks don't give us any reason not to believe it,

12:38 then this worthless piece of paper turns into economic power, a currency.

12:43 And in fact, if we can do that, it's really convenient.

12:45 It makes trade way easier.

12:47 Theoretically, everyone thrives here.

12:49 So...

12:50 Oh.

12:50 Yeah, silver.

12:51 Okay, yeah.

12:52 Instead of gold in the vault, a lot of economies had silver in the vault.

12:55 And a lot of economies were trying to have both metals,

12:58 giving them each a specific value and pegging

13:00 that value so that it wouldn't change too much.

13:01 But this becomes a problem.

13:03 It's really hard to have two metals as the foundation of your paper money.

13:07 And then suddenly, if there's a big discovery of silver in Nevada or something,

13:11 there's way more silver.

13:12 So, it throws off the value of silver, but it's pegged to the value of gold.

13:14 And so, all this arbitrage happens.

13:16 This was a huge decades-long debate here in the United States.

13:19 It got really political.

13:20 You've got this guy running for office, mostly on a platform of silver.

13:24 And some people think that the "Wizard of Oz" is

13:26 an entire commentary on this debate between gold and silver.

13:30 And while reporting this story,

13:31 I was multiple times very tempted to go down this rabbit hole.

13:34 (inhales deeply) This is a video about gold, not about silver.

13:38 Sorry, silver.

13:39 So, we'll save that one for another day.

13:41 And indeed, by 1900, gold,

13:43 this shiny metal that humans have been using for thousands of years to do trade,

13:47 endured as the one metal that we would base our entire economy off of.

13:53 At least here in the United States.

13:54 But a lot of countries too.

13:56 We set a firm standard.

13:57 20 bucks gets you one ounce of gold.

14:00 There's a finite number of gold.

14:01 It doesn't fluctuate too much.

14:03 Anyway, this was called the gold standard.

14:05 And the United States and a bunch of other big

14:07 countries were on the gold standard in the early 1900s.

14:10 (tense orchestral music) So it's pretty clear that the economy is,

14:15 like, a big, confusing thing.

14:17 And especially in the last couple of years,

14:20 we have seen a pretty chaotic economy.

14:22 Higher grocery bills, unaffordable housing, confusing insurance costs.

14:26 But here's what's tricky.

14:27 The way that we understand these changes, what's actually happening,

14:32 differs dramatically depending on where we get our information.

14:36 And honestly, that applies to this video.

14:37 I've chosen some explanations of the economy that I

14:41 think are a useful way to understand it,

14:43 but I've chosen the narrative here, and those choices matter.

14:47 That's why I keep coming back to Ground News,

14:50 because it's the one place that helps me separate facts from framing.

14:54 Ground News is an app and website that allows

14:56 me to compare coverage from many different outlets,

14:59 including outlets from different countries, so that I can make up my own

15:03 mind instead of inheriting someone else's narrative.

15:06 Take this example.

15:07 Walmart recently announced it was lowering prices.

15:10 One outlet framed it as the administration successfully pushing down prices.

15:15 But another outlet, just in their framing, argues that the president took credit

15:20 for routine discounts while prices remain historically high.

15:23 This is the same fact, the same underlying announcement,

15:26 but each version gives you a completely different narrative,

15:30 a different impression of what actually happened.

15:32 They try to tell you whether it matters and who should get the credit.

15:36 We must remain vigilant.

15:38 And this is why I'm such a big fan of Ground News,

15:40 because it's exactly how I try to approach my own coverage,

15:44 my own videos, ingesting a lot of different perspectives and making

15:48 sure that what I cover includes a lot of those perspectives.

15:51 This is context that hopefully allows you to come to your own conclusions.

15:57 But my videos still have a framing.

15:59 I'm still a person with bias.

16:01 And Ground News is a tool that I use to make sure I'm checking those biases,

16:06 that I am aware of my framings.

16:09 Ground News was built by a former NASA engineer

16:11 who approached this as a problem to be solved.

16:15 A problem with how we get our information.

16:17 It's one of the few tools that I

16:19 found that actually tries to give you more context,

16:22 instead of less of it, which I think is so important right now.

16:25 So you can get 40% off, a big discount, on Ground News.

16:28 You can get in on their Vantage Plan,

16:29 which gets you in on all these features that you can check out.

16:32 You just gotta go to the link that's in my description.

16:33 It's ground.news/johnnyharris.

16:36 You can also click this lovely QR code.

16:38 I'm grateful to Ground News for existing, for what they do.

16:41 I'm also grateful that they sponsored today's compilation.

16:45 And with that, let's dive back into the wild world of our economy.

16:50 Okay, let's get back to the human brain because we're about

16:52 to go through our third massive leap in the psychology of money.

16:56 Let me warn you, this one's kind of weird.

16:58 And I went to college for this one monetary policy in economics,

17:02 and I'm gonna do my best to explain it, but starts to get a little bit wacky.

17:06 And we're also entering some controversial territory.

17:08 Economists, who are much smarter than I,

17:10 debate this stuff what I'm about to say.

17:12 And they all have different takes, and they have strong feelings about it.

17:14 So, I'm gonna do my best here.

17:15 But like, in the comments, you're gonna see some strong opinions.

17:18 I welcome them.

17:19 Just be nice.

17:20 (ethereal choir music) So, it's early 1900s.

17:25 Banks have gold in their vaults.

17:27 They give you a piece of paper that says

17:29 you're entitled to the gold in the vault.

17:30 But it turns out, human beings are struggling to adopt to the paper thing fully.

17:36 There are a series of financial panics.

17:38 You probably don't wanna get into the causes of the panics.

17:40 The banks had a limit to how many bank notes they could issue.

17:43 So, when people wanted more currency and they couldn't get bank notes,

17:47 they would take gold and silver coins outta the bank vaults.

17:50 And now the banks are losing reserves.

17:52 Now, they have a problem.

17:54 So, here they all are at the same time,

17:55 rushing to the bank to pull their money out all at once.

17:58 (rousing orchestral music) (crowd yelling) This is not good

18:02 for an economy that grows when you give banks money to lend

18:06 out to other people and trust that not everyone's gonna

18:09 try to take it all out at the same time.

18:10 We made a whole video about this.

18:11 How modern finance and credit works and how

18:14 that multiplies the money supply in these weird ways.

18:16 You can check that out.

18:17 But for now, just look at this picture of a bunch

18:20 of people on Wall Street trying to get their gold out.

18:22 And know that this is not good for the economy.

18:25 So, the US government decides that having

18:27 all of these decentralized private banks

18:30 who are giving out paper money is just too prone to these vulnerabilities,

18:35 to everyone going and taking all the money out at the same time.

18:37 So, they decide to make one bank.

18:39 One bank to rule them all, AKA the central bank,

18:43 AKA the Federal Reserve, AKA the Fed.

18:48 We're just gonna call it the Fed from now on.

18:50 Why did the US government decide they

18:53 needed to centralize this around a single bank?

18:57 It's a federal institution that will cope with potential

19:00 panics and shortages of currency and shortages of back reserves.

19:04 The Fed would be the big bank that would be given a bunch

19:06 of power to set the rules for the rest of the banks.

19:10 By issuing more currency when it's desired.

19:13 Now, it was still technically pegged to the gold standard,

19:15 but a huge difference was now,

19:17 you couldn't just go to the bank and exchange your paper for gold.

19:20 And the Fed would be in charge of controlling how

19:22 many of these bank notes were floating around the economy.

19:25 [Thomas] And so, in the United States,

19:26 we have the Federal Reserve that is the monopoly provider of dollars.

19:31 Which, in turn, determines how the economy works,

19:34 how people spend money, how people borrow money.

19:36 And their goal at first was just to make sure that this doesn't happen again.

19:39 (tense thoughtful music) Look at this fancy machine that the Fed has.

19:45 It's not a literal machine.

19:46 This is completely symbolic.

19:48 Don't overinterpret the analogy here.

19:50 So to be clear, we're still on the gold standard at this point.

19:52 It's like 1913 or something.

19:54 Every 20 bucks is pegged to an ounce of gold.

19:56 But now, the Fed has all of these levers to play with.

20:00 These levers that invisibly incentivize people to borrow

20:03 money with the interest rate, to spend money.

20:06 And with their new power,

20:07 the Fed starts fiddling around with all of these levers.

20:10 Hey, look, if you lower the interest rate, more people will borrow money.

20:14 They'll spend money, they'll start businesses, more jobs.

20:17 Many critics have said that they kept

20:19 interest rates below where they should have been.

20:21 They made credit too abundant.

20:23 And so, you had an overinvestment boom in the 1920s

20:27 that, although there were genuine

20:29 investment opportunities due to technological change,

20:32 electrification, the automobile, things like that.

20:34 Wow, look, it's an economic boom.

20:36 It's the roaring '20s.

20:37 The stock market just quadrupled in five years.

20:40 Times are good.

20:41 Thanks in part to the Fed pulling some of these levers.

20:45 Though this, like many assertions I'm about to say, is kinda debated.

20:48 Try not to get sucked down the economic debate rabbit hole here.

20:50 So, things were good in the 1920s.

20:52 Maybe a little too good.

20:54 Uh-oh!

20:55 (lively percussive music)- [Lawrence] The Fed over-amplified

20:58 that boom and raised it to an unsustainable pitch.

21:07 [Johnny] The bubble burst, the good times ended,

21:08 and the US and the rest of the world falls into a Great Depression.

21:13 [Lawrence] The money supply in the early

21:14 years of the Great Depression, starting in 1930,

21:16 there are bank runs that drained a lot of the gold

21:18 out of the banking system into individuals' wallets and under their mattresses.

21:23 Again, we made a whole video about what recessions and depressions are.

21:26 Check that out.

21:27 Okay, but watch what happens here.

21:28 One of the very important levers that the Fed has

21:31 on this symbolic machine is to put more money into the economy.

21:35 And they do this through a bunch of different indirect mechanisms.

21:38 But the result is there's more money to go around,

21:40 and borrowing money is cheaper.

21:42 They can make the interest rate go down.

21:43 So, it's like doesn't cost that much to borrow money.

21:46 During the Great Depression,

21:47 most economists agreed that the Fed should have done this.

21:51 So, why aren't they using this?

21:52 It's the Great Depression.

21:53 People aren't spending money; people are losing their jobs.

21:55 Lower the interest rate; get more money into the economy.

21:57 But look, they can't really do that very much.

22:02 The money supply is fixed to gold.

22:05 If the Fed started to issue more notes, it could reach a point where it was

22:10 constrained by not having enough gold to back them.

22:13 If you lower the interest rate, then people are gonna borrow a bunch of money.

22:17 But then, what if they show up to the bank with all

22:19 that money and demand gold bars in exchange for their paper?

22:23 They might do that.

22:23 Everyone's kinda panicky.

22:24 So, the Fed is envisioning this nightmare

22:26 scenario where all of their gold goes away, and the whole system falls apart.

22:29 So, instead of lowering the interest rate, they hike it up.

22:33 They defend their gold.

22:34 The historians who debate this stuff don't agree on all of this, but they

22:38 do agree that this course of action made the whole thing worse.

22:42 Made the Great Depression last a lot longer.

22:44 10 years of misery.

22:46 And so, the Federal Reserve, instead of saying, "Hey, we made a big mistake.

22:50 We shouldn't have caused this bubble in the economy." They said, "You know what?

22:53 We need even more power to control the money supply." And that's what happened.

22:57 That resulted in the president coming out and saying,

23:00 "Hey, the gold standard really just screwed us over.

23:02 We weren't able to pull all of our levers because

23:05 we were pegged to this obsession with being backed by gold.

23:08 So, let's be done.

23:09 Enough is enough.

23:10 We need flexibility in a crisis." And if

23:12 you wanna go way down the technical rabbit hole, look up the unholy trinity.

23:16 That's a very technical explanation of what's going on here.

23:19 All the sources are in the description as always.

23:21 So it's 1933, and FDR comes out with an executive order saying that Americans

23:26 need to turn in their gold bars in exchange for flimsy dollar bills.

23:32 And the government could now print as much or as little money

23:36 as they wanted to guide the economy's behavior to keep it humming along,

23:40 and hopefully keep prices stable.

23:43 Now, you don't have a finite thing called gold.

23:46 That is, like, there's only so much of it.

23:47 Because now you just have an infinite thing called dollars and a central

23:52 bank that can effectively print as much of it as they want.

23:56 The more they print, the less each is worth.

23:58 So, prices go up; that's inflation.

24:00 Anyway, let's go back into the brain because this is,

24:02 like, the biggest psychological leap of them all.

24:05 Money is still belief, but without the gold standard,

24:09 the belief is in the government,

24:11 in their paper, even if it's not backed by anything.

24:15 It is a belief in the government's ability to run this machine properly.

24:20 This is called fiat money,

24:21 and it's a whole lot different than cows, where we started.

24:25 It started in 1933.

24:26 This is how money was valued in the United States by a decree from above.

24:31 (pulsing electronic-synth music) Now, full disclosure.

24:35 I went to Brigham Young University, studied econ,

24:38 and studied under a school of thought that was very much like pro-Fed.

24:42 The Fed and fiat money is sort of, like, the best thing we got going.

24:45 It makes mistakes sometimes, but, like, it's better than the gold standard.

24:48 I intentionally talked to two economists for this story who were, like,

24:51 a little more skeptical of that take to kind of help balance me out.

24:55 And my hope is that the story I just told

24:57 you about in this moment in time is a fair characterization.

25:00 But if there's any professional economist watching,

25:02 I would love your take on this.

25:04 Like, I would love a good-faith critique or, like,

25:07 an alternative view or whatever.

25:09 Economics is not science; it is psychology.

25:11 And so, we get to debate it endlessly.

25:13 So, gold is out.

25:14 And so, what?

25:15 Are we at the end of the road for this shiny metal,

25:17 this thing that humans have loved forever?

25:20 Not so fast.

25:21 (coin clinking) (ethereal choir music) So 1944, World War II is winding down.

25:27 (groovy jazz music) The US is realizing that, in just a matter of years,

25:32 became the most powerful country in the world

25:34 and defeated the two rising empires, and was now on top of everything.

25:38 So, they get all of their ally countries together, couple dozen countries,

25:42 in a hotel in the mountains of New Hampshire,

25:44 with the goal of designing a new global economic system.

25:47 A set of rules that everyone will play by.

25:53 And the US, of course, takes the lead on what this system will look like.

25:57 They propose that instead of creating some universal global currency,

26:01 as some were proposing,

26:03 the world should instead opt for the US dollar to become the universal,

26:07 globally accepted currency that everyone else's

26:09 currency would be like attached to.

26:11 And the rest of the countries are like, "Um,

26:13 it seems kinda sketchy that we're just trusting

26:15 you and your dollar." And the US says,

26:17 "Okay, but remember, all of our dollars are still backed up with gold.

26:21 Normal citizens can't turn it in for gold.

26:23 But we promise to you, countries,

26:25 that all of your dollars can be turned in for real gold bars, $35 per ounce.

26:30 You can come to us and exchange them for gold whenever you want,

26:33 and we'll promise we'll keep it in the vault.

26:35 Speaking of the vault, look at our vault.

26:37 This is Fort Knox.

26:39 It's in Kentucky.

26:40 This is where we keep our gold,

26:41 and we have a lot of it now because a lot of you all,

26:44 world, gave us your gold in exchange for weapons we made for you during the war.

26:49 So, the dollar is king, and we'll back it up with gold.

26:52 Take it or leave it, guys." And they indeed took it,

26:54 and the dollar became the king of global trade and investing.

26:58 And gold was once again at the center of our concept of money, but not for long.

27:03 Turns out the US couldn't keep its promise to back

27:06 up all of its dollars with gold in its vaults.

27:09 They were printing more money,

27:10 they were giving it out, and the world catches on.

27:13 And some countries get kinda pissed.

27:15 Until finally there were so many dollars that they started to redeem them.

27:18 Germany and France in particular.

27:20 [Johnny] Like, France apparently sends a navy ship in the '60s

27:23 to show up to New York, to be like, "Hey, we're gonna give you our dollars;

27:26 we want our gold."- And the Treasury ran out of gold,

27:29 and we shut the gold window in 1971.

27:32 I directed Secretary Connally to suspend temporarily the convertibility

27:35 of the dollar into gold or other reserve assets.

27:38 And finally, the president at the time, who is President Nixon,

27:41 comes out and is like, "Okay, okay, okay.

27:43 Yes, we don't have the gold anymore.

27:44 You got us.

27:45 But guys, come on, be reasonable.

27:47 We're all used to using the dollar by now.

27:49 The whole global economy is used to this.

27:51 We're America.

27:52 We've proven that we're stable.

27:54 You can trust us.

27:55 I mean, look at our economy and look at our military.

27:58 We are safe and stable.

28:00 Use our currency, invest in our government,

28:02 and you can sell those bonds whenever you want.

28:04 We'll give you dollars, and you can use that to buy,

28:06 like, oil and whatever you want in the global economy.

28:08 We promise we're good." And the world without much choice was like, "Okay,

28:13 fine." (gentle contemplative music) And just when we thought we

28:18 couldn't get any further away from cows, here we are.

28:21 Our concept of money takes one more bonus step to here,

28:25 where so much of the global economy runs on a currency

28:29 that is built off of collective belief in a story,

28:33 in a system, in an S with a line through it.

28:36 In 19 people who sit in a fancy white building in Washington, DC,

28:41 and try to accurately predict the future

28:44 and make decisions to pull proverbial levers

28:47 to ensure that the dollar doesn't lose its value in all of our minds.

28:56 So, have they done a good job?

28:57 Well, a lot of people say yes.

28:59 People from the Fed would say, "Look, we've done a great job.

29:02 You know, the Federal Reserve is better than putting

29:04 this into a private market like we had before the Fed."-

29:07 That being able to create new money in the economy helped

29:10 us recover relatively quickly in the 2008 crash or during COVID.

29:14 But a lot of people say no.

29:15 That the Fed does a terrible job.

29:17 But I think the evidence says that, actually, they have not done very good.

29:19 You know, the Fed basically caused the Great Depression.

29:22 That inflation is out of control and that the people running it

29:25 are never faced with the consequences for not doing a good job.

29:28 Several economists I talk to think that it's a lot of power

29:32 to put in a government agency that isn't incentivized by the free market.

29:36 But most monetary economists, the people who study this stuff,

29:40 like the vast majority, think that, hey, the Fed's not perfect,

29:45 doesn't get it right all the time, but like,

29:47 this is the best version of a modern complex economy, and it generally works.

29:52 What you described as the Fed has made some mistakes,

29:54 but we can't imagine living without it,

29:56 that's probably 90% of the econ profession.

30:00 Or maybe higher.

30:01 (chuckles) But everybody now has grown up in a world where

30:04 it's hard to imagine what things would look like without the Fed.

30:07 And it's especially hard to imagine once you're on a fiat money standard.

30:10 If you're on a fiat money standard,

30:12 somebody has to control the quantity of fiat money.

30:14 And if it's not a central bank, how do you do that?

30:17 I'm actually not gonna have an opinion on this.

30:19 I'm still kind of making up my mind.

30:22 (coins clinking) (ethereal choir music) So,

30:25 let's wind this video down by getting back to the central

30:28 question at the beginning that we started with, which is,

30:30 "Why are people buying gold again?

30:32 Why is this happening?"- The price of gold is near an all-time high.

30:35 Have you seen the price of gold lately?

30:37 [News Reporter] Gold is up more than 13% this year.

30:40 So, since we've gone totally off the gold standard since 1971, and, in fact,

30:44 even before that, people have started holding gold as a hedge against inflation.

30:49 Despite all of these mental leaps and these vast abstractions of economic value,

30:53 here we are turning back to gold.

30:55 First off, foreign governments never got rid of their gold.

30:58 The US still has huge stores of thousands and thousands

31:01 of tons of gold in Fort Knox and other facilities.

31:04 And so do a lot of other countries.

31:06 A lot of countries store their gold in the United States, in New York City,

31:10 in this gold reserve that is buried,

31:12 like, 50 feet into the bedrock of Manhattan.

31:15 And it just sort of sits there,

31:16 gathering dust and being a little reserve, a just-in-case type of thing.

31:20 But a lot of regular people, investors,

31:22 buy gold too whenever they start to feel a little bit

31:25 sketchy about the big psychological bargain they've made with the government.

31:29 This, all of this, is pretty actually kind of squishy.

31:33 It's very mental.

31:34 All of this requires us to believe,

31:36 but over here really requires us to believe and even trust.

31:40 Trust in the US government and an economy.

31:41 And recently that trust has been waning.

31:43 America has rival nations that are trying

31:45 to get the world to stop trusting the dollar.

31:48 They wanna replace it.

31:49 They don't like how much leverage it gives the US.

31:51 The US economy and government have also

31:53 been kind of all over the place recently.

31:55 The stop-and-go and stop-and-go of tariffs from the Trump

31:59 administration for a few months in office, got people really spooked.

32:02 Like, "Can we trust these people

32:04 with our entire sense of value in our currency?"

32:08 And now that Trump is attacking the Fed and threatening to control it,

32:12 people are turning to gold in a bigger and bigger way.

32:15 And at least for now, while I'm recording this, there seems to be

32:19 some trepidation about people believing in the dollar.

32:22 But that's why you see this kind

32:23 of going back in time on the psychological leaps.

32:26 (groovy mid-tempo music)- In the last few months,

32:29 well, since the start of the Trump administration,

32:31 there has been a loss of faith in the dollar vis-a-vis other fiat currencies.

32:35 People are worried inflation may go up either

32:38 because of real shocks like the imposition of tariffs.

32:42 So, people are rushing to other stores

32:44 of value that don't rely on a central government.

32:47 The shiny metal, gold, is one of them.

32:48 But there's another currency that people are opting for, that kind

32:52 of looks a little bit like gold, at least mentally.

32:55 [News Reporter] Bitcoin is essentially the new gold.

32:57 It's becoming really the true digital gold.

32:59 I think a lot of young people are comfortable with digital assets

33:01 and digital currencies and would switch over to Bitcoin or something different.

33:05 Either one of those things would provide a check

33:07 on the Federal Reserve because people would have an alternative,

33:10 and the Fed would know that if they created too much inflation,

33:13 people would switch over.

33:15 Bitcoin and other cryptocurrencies may represent a future path

33:19 for this psychological journey of money that we've seen here.

33:22 But it seems to be too early to tell.

33:24 But it does seem like we are entering a new

33:27 chapter on this journey of our sense of value and currency,

33:30 and trust and belief.

33:33 I'm not sure what it's gonna look like.

33:35 I don't presume to know.

33:36 But as we've seen in this story,

33:38 I think it's a pretty good guess that no matter what happens next,

33:42 no matter what we invent with crypto or whatever,

33:44 that shiny metal, that thing that has fascinated us for thousands of years,

33:49 the thing that can be divided and stored

33:51 and doesn't tarnish and that shines like the Sun?

33:54 Gold, I think, will always remain in the background

33:57 as this thing that we turn to when things feel uncertain.

34:01 One of the things that making all these videos

34:03 has taught me is that facts are vital.

34:06 They're important, but they aren't the fullness of how a story gets made,

34:11 how a story gets told.

34:13 Framing and narrative matter, which is why I keep coming back to Ground News.

34:17 As a viewer of my channel, you can get the same Vantage Plan that I

34:20 use for 40% off if you head to ground.news/johnnyharris.

34:25 All right, let's get back to the next one.

34:27 (bright tinkling music)- This is me if I lived in 1955.

34:33 Here I am in 1975.

34:36 And 1995.

34:38 2015.

34:39 And then today.

34:42 I'm gonna put myself in the shoes of a middle-income earner in all

34:46 of these decades to answer a very important question about the United States.

34:50 Is the average American better off today than they were all these decades ago?

34:55 Does the typical American make more money,

34:57 have a better chance of owning a home?

34:59 It's an important question because this graph shows

35:01 that our economy has grown immensely since the '50s.

35:05 I mean, we've got the largest economic pie on Earth.

35:09 And even when you account for inflation

35:11 and the fact that our population has grown, you still see immense growth.

35:16 I mean, look at this.

35:16 We've added tons of prosperity in this country that, theoretically,

35:20 every person is entitled to some part of, or, as some economists put it,

35:24 has our country produced shared prosperity?

35:28 When I think about how well the economy delivers,

35:30 I think about how well it delivers for the people,

35:33 for the workers, and their families.

35:35 How well are they receiving that prosperity?

35:41 I'm gonna show you how all of this economic

35:43 prosperity we've created has been shared or not shared.

35:47 (gentle contemplative music) And in all of this, I wanna get

35:57 to the bottom of perhaps one of the most important questions in our country,

36:01 which is: is everyone able to move up?

36:04 If they work hard enough or if they get educated,

36:07 can you climb the economic ladder here?

36:09 Are you gonna do better than your parents?

36:11 Can you reach higher levels of income?

36:14 Can you change your relative position?

36:16 The "American dream," we sometimes call it, a quote: "dream of a better,

36:21 richer, happier life for all citizens of every rank." Is that still alive?

36:26 And if not, why?

36:29 I believe that answering these key questions is

36:32 incredibly important for the future of this country,

36:34 which is why we've been deep in all of the data.

36:37 And I'm going to try to lay it

36:38 out as clearly as possible by traveling through time.

36:41 As always, all of the assertions in this video

36:43 are fact-checked and linked in our sources.

36:46 So with that, let's start traveling back in time.

36:49 (gentle mysterious music)- [Jay Gatsby] Can't repeat the past?

36:52 Why, of course, you can.

36:54 Okay, so I'm traveling back towards the 1950s.

36:56 As we move through time, I'm going to be keeping an eye on this main graph.

37:01 This graph is kind of our anchor.

37:03 It will be showing how the economy has grown over time.

37:06 And again, it's adjusted for prices and population growth.

37:10 When this graph goes up,

37:11 it means that there's more economic prosperity to go around.

37:15 We're gonna see how it gets divided up.

37:17 And for each decade, I'm gonna be looking at these four economic indicators.

37:20 Am I making more money?

37:21 Can I afford a house?

37:23 Is this economic growth being shared equally by everyone?

37:27 And how likely am I to be making more than my parents?

37:30 Oh, look, we're arriving to the 1950s.

37:33 (groovy jazz music) So it's the 1950s here in America,

37:38 and I, the middle-income earner,

37:40 have just returned from fighting in the most devastating war of human history.

37:44 But we Americans came out on top, and our economy is booming.

37:48 I work in this car factory.

37:50 It's one of the many factories that was converted from making

37:52 weapons to now making valuable stuff that we're shipping around the world.

37:56 Our country is getting rich.

37:57 I am making an average income.

37:59 So my income right now is $4,400.

38:03 In today's money, that's more like $41,000.

38:06 We're gonna adjust everything for modern dollars.

38:09 In this case, 2023 dollars.

38:10 Prices are higher these days,

38:12 so our money's more valuable to make it all make sense.

38:14 Okay, wait, pause.

38:15 I'm not gonna do that every single time, like, talk about the inflation.

38:18 I'm just gonna say everything from now on in modern dollars.

38:21 It'll allow us to compare a lot easier between the decades.

38:24 Okay, with that, let's get all the magic going again.

38:27 Pretty cool, right?

38:28 Let's meet my family.

38:30 So my wife doesn't work.

38:32 Only 1/3 of women did back then.

38:33 And really, she doesn't need to.

38:35 My factory job supports the whole family.

38:38 And look, I own that home.

38:40 I paid $84,000 for this thing, again in modern dollars.

38:44 That's actually not that much more than my yearly salary.

38:46 This is considered very affordable.

38:48 And a major reason why is because the government

38:50 is helping me pay for a lot of this.

38:52 And they've got the cash to do it.

38:54 I mean, look at the top tax rate for the rich.

38:56 (bright upbeat music) So a booming economy and all this tax

39:00 revenue means that the government is helping build all of these suburban

39:04 homes and is giving us veterans good deals on mortgages

39:07 so that we can get in on the prospering US economy,

39:10 start building wealth by owning a home.

39:13 [Narrator] Our returning serviceman, who was starting his own business,

39:16 would get a financial boost from the government.

39:19 Our money would be advanced to buy property or a home.

39:22 We're coming out of World War II.

39:24 There are absolutely lots of public programs.

39:26 Policymakers today and back then had a lot to do

39:30 with how typical workers and their families were doing.

39:33 Okay, so the economy is booming.

39:34 Let's see how all of this prosperity is being shared.

39:37 And for that, I'm going to show you this amazing graph.

39:40 I love this graph.

39:41 We're gonna see it over the decades, and it tells a very useful story.

39:46 This is my income: the median earner.

39:48 Here's the income of the top earners.

39:50 And this line is the low income in America.

39:53 And down here is, like, years.

39:56 Okay, watch what happens.

39:57 Ready?

39:57 Go.

39:58 (light thoughtful music) (chart clicking) Look at this.

40:02 Look what's happening.

40:03 All three of these income brackets are increasing their income at the same rate.

40:08 We are all getting in on this prosperity.

40:11 We are sharing the spoils of a booming economy.

40:13 Nice.

40:14 In the roughly two, three decades after World War II,

40:17 we saw what I would consider broadly shared prosperity.

40:20 As the economy grew, as workers became more productive,

40:23 workers across the board were actually seeing gains in their living standards.

40:29 This is a great indicator that income equality

40:31 in the United States is good and healthy.

40:33 Okay, last thing for the 1950s, let's check in on the American dream.

40:37 Can I move up the ladder?

40:38 There's a really nice data set for this that says

40:40 that I am nearly 100% likely to earn more than my parents.

40:45 There is upward motion in the economy.

40:47 The American dream is alive, at least for me, which is an important caveat here.

40:52 Women were mostly left out of this economic version of the American dream.

40:55 And so were people who weren't white,

40:57 like Black Americans, 10% of the population.

41:00 Over a million of whom fought in the war, but upon returning,

41:03 were met with these custom maps that were drawn

41:06 to determine where they could and could not buy homes.

41:09 They were largely left out of all of this government help

41:12 that allowed me to get education and buy a home and build wealth.

41:15 But if you're just looking at the numbers,

41:16 the 1950s was a really good time for the median-income earner.

41:20 You could have a family, work in a factory,

41:22 and be loaded with opportunities to move up the economic ladder

41:25 thanks to a booming economy and a bunch of government programs.

41:28 So now let's move forward in time to the 1970s.

41:32 Let's do the Time Warp again♪ (horn

41:35 blaring) (groovy upbeat music)- Welcome to the 1970s.

41:39 A lot has changed.

41:41 The economy is producing a lot more prosperity to go around,

41:44 as you can see by this graph.

41:46 And we'll see how that's all being distributed in a second.

41:48 But first, let's check in on my pay.

41:50 I'm still working in a factory.

41:52 I now earn about $66,000.

41:54 That's an improvement from the '50s.

41:56 Or should I say "we?" Like millions of other women,

41:59 my wife has entered the workforce.

42:01 They still only earn 60% of what men do,

42:03 but look, they're breaking into the workforce.

42:06 Nearly half of all women are gonna be working by the end of the decade.

42:09 Partly as a push for freedom and economic autonomy, but partly as a necessity.

42:14 It's becoming harder for a family to be supported by a single earner.

42:17 The result is that our income is better off than it was in the '50s.

42:21 But things are also kind of expensive right now.

42:23 Inflation is up, partly because there's war

42:25 in the Middle East and they're cutting us off oil.

42:28 So there's long lines at these gas stations, and everything is more expensive.

42:32 Anyway, check out my house.

42:33 I had to pay $230,000 for this house.

42:36 Housing is getting more expensive,

42:38 and the government is raising the interest rate to slow down inflation,

42:41 which is making my monthly payment a little more expensive.

42:44 Home purchasing is becoming a little less accessible to the median,

42:46 but I still have this cool house.

42:48 Okay, let's go back to this super useful graph

42:50 that tells us how the economic spoils are being shared.

42:54 Remember, that's me, the median income earner.

42:56 (lively electronic music) And look, my income continues to grow at the same rate

43:01 as the high-income and low-income earners in our country.

43:04 The growing economy is being shared by these different income groups.

43:08 It's actually pretty impressive how, like,

43:09 tight everything is moving together as the economy grows.

43:13 Oh, and look, they've started collecting data on how

43:15 much more CEOs are making than the typical employee.

43:18 Looks like by the middle of the decade, it's about 26 times more.

43:22 Wait, are CEOs making too much?

43:24 Is that bad?

43:24 What do you think?

43:25 I dunno; let's keep an eye on this chart as time continues,

43:28 and we can assess if we think this is unfair.

43:31 Okay, but what about the American dream?

43:33 How easy it is to make more than your parents?

43:35 Well, if I'm an adult in the 1970s, it means I was born in the 1950s,

43:39 which, according to this data set,

43:40 means I'm 80% likely to earn more than my parents.

43:44 I mean, pretty good.

43:45 The American dream seems to be doing pretty well.

43:47 So, I would say that economic life in the 1970s is

43:51 better for the median earner than it was in the '50s.

43:53 And something that we're not covering here,

43:55 'cause we're looking at the cold hard data,

43:56 is that there's also a revolution happening that's making it more

43:59 equal and more fair for minority groups in the United States.

44:03 So these are good trends.

44:04 Let's see how they continue as we move on to the 1990s.

44:08 [Marty McFly] I guess you guys aren't ready for that yet.

44:11 But your kids are gonna love it.

44:12 (groovy upbeat music)- [Johnny] To the '90s,

44:15 we have to go through the '80s and look at all of this economic growth.

44:20 The president has been very busy slashing taxes,

44:22 getting rid of regulation and social programs,

44:24 and rejiggering the economy to benefit businesses,

44:27 making it harder for workers to, like,

44:29 gather and get leverage over their employers.

44:32 Ronald Reagan, the actor?

44:35 And look, we are arriving to the 1990s.

44:37 What a great decade.

44:43 The big standoff between the United States and the Soviet Union is over,

44:46 and people are stoked.

44:48 We entered the 1990s with this little recession.

44:50 We're getting ready for a big surge of more

44:53 growth thanks to the rise of the internet.

44:55 Remember, I am still playing the role of the middle-income earner, okay?

44:59 So it's not like I was, like, born back in the '50s and I've been growing up.

45:02 I am a young adult who is the middle-income earner.

45:06 How am I doing?

45:07 So I still work at a factory.

45:08 America is still a manufacturing powerhouse here in the '90s,

45:11 though that is literally right about to change.

45:13 I wish I could warn myself.

45:15 My household brings in $76,000 a year,

45:17 which is definitely better than the '50s and '60s,

45:21 but you can kind of see that things are flattening out.

45:24 And in fact, I'm not making that much more than I was in the late '70s.

45:29 Check out my cool '90s house.

45:31 Cost me $273,000.

45:33 That's almost four times our yearly income.

45:35 Way more expensive than in the '50s.

45:37 Housing is getting a little less affordable.

45:39 Okay, the economy's doing well.

45:40 How are we sharing all of this economic prosperity?

45:43 Remember, we started back in the '50s, and we saw how the high-income,

45:47 the low-income, and me, the middle-income,

45:49 we all saw similar growth in our income gains.

45:52 We all got in on economic growth equally.

45:54 That continued through the '70s.

45:56 But wait, look what happens right here.

45:58 (groovy upbeat music) Whoa!

46:03 They're diverging.

46:05 It's around the 1980s when you see the top

46:07 earners start to pull away from the rest of us.

46:09 Their income is going up faster than mine,

46:12 and my income is going up a little faster than the low-income population.

46:15 Okay, that's unsettling.

46:16 I liked it more when they were all kind of, like,

46:18 on top of each other, growing at the same rate.

46:20 We'll keep an eye on this graph,

46:21 but there's a bunch of other graphs starting to come out.

46:24 Another divergence happening on how productive the economy

46:27 is versus how much I get paid.

46:29 They're both going up at the same time.

46:31 I'm more productive, I get paid more, cool.

46:33 But around the same time, the same split happens.

46:36 My pay starts to flatline even as productivity continues to go up.

46:41 So then there's this period that starts around 1979 in the early '80s,

46:45 where we see this pulling apart between economic growth and what

46:51 typical workers and their families receive from that economic growth.

46:56 So, who's getting in on all this extra productivity?

46:59 This growth that's happening in our economy, if not me?

47:02 Well, let's check in on those CEOs.

47:03 So remember back in the '70s, CEOs were making,

47:05 like, 25 times more than the typical worker.

47:08 Kind of seems like a lot.

47:09 Let's see what happens here.

47:10 Oh, my God!

47:11 Look at this.

47:12 Okay, whoa.

47:13 By the end of the '90s, CEOs are making almost 400 times the typical worker.

47:18 And I thought 20 times was a lot.

47:20 Those at the top are receiving much larger shares of that growing economy

47:26 than those at the middle or at the bottom of the wage distribution.

47:29 So that pulling apart, that increasing economic inequality, is apparent,

47:35 no matter how you look at it; that high is going increasingly to the very top.

47:41 Okay, okay.

47:41 But isn't inequality often seen as a byproduct of rapid economic growth?

47:47 Could this be a good thing for our economy?

47:49 Yes, people are getting really rich really fast,

47:51 but it's because they're innovating and making our economy more productive.

47:55 And plus, everything I've shown you is before taxes, guys.

47:58 So, like, the rich pay a lot of taxes.

48:00 Okay, so let's see what happens to the income of the rich people after taxes.

48:04 Here we go.

48:06 Oh, okay.

48:08 Well, um....

48:13 The...

48:14 The taxes didn't do that much.

48:15 (light electronic music) There's something going on here.

48:18 The rich are getting really rich really fast.

48:20 I mean, what these lines all show is that 1980 was kind of this inflection point

48:27 in our economy where the top earners kind

48:29 of started to get in on most of the prosperity.

48:32 And yes, there are economists who argue

48:34 that inequality isn't bad for an economy.

48:36 It actually spurs growth and investment into the economy.

48:40 And eventually, that raises all boats.

48:42 It trickles down.

48:43 And advocates for this way of thinking

48:44 say that we shouldn't focus on inequality, but instead on poverty reduction.

48:48 Okay, poverty reduction, how we doing?

48:51 Poverty plummeted after World War II.

48:54 But you can see that at this time,

48:56 in, like, 1980, when inequality starts to get really bad,

48:59 poverty basically stays the same, goes up for big series of years.

49:04 So this is concerning, and this is my interpretation of the data.

49:09 I'm sure some of you have very different interpretations,

49:12 and I would love to see you down in the comments.

49:14 Anyway, let's check in on the American dream.

49:16 America's all about big risk, big rewards.

49:18 So yeah, inequality's happening, but, like,

49:21 if you can go from rags to riches, maybe that's very American and okay.

49:26 If I was born in the 1970s, I'm now an adult in the 1990s,

49:29 and the data says that 59% of us

49:31 born to the middle income will outearn our parents.

49:35 So that means that 40% of my peers here

49:38 in the middle-income will earn the same or less than their parents,

49:42 even as we are seeing all of this economic growth.

49:46 I mean, you can see this trend here.

49:48 The American dream of being able to move up the ladder is becoming

49:51 less and less a reality for a bigger and bigger portion of the population.

49:57 Okay, so that was a big change from all the trends.

50:00 Let's see what happens next.

50:02 (clicks fingers)- [Doctor Who] People assume that time

50:04 is a strict progression of cause to effect,

50:06 but actually, it's more like a big ball of wibbly, wobbly, timey, wimy stuff.

50:12 Okay, we're moving into the new millennium.

50:13 America's fighting a couple of wars.

50:15 The economy's actually doing pretty well until, whoops, whoa!

50:18 The bankers got a little loosey-goosey for a couple years,

50:21 making obscene amounts of money and crashing the entire world economy.

50:24 But okay, let's move on from the biggest recession of our time.

50:27 We're arriving to the 2010s.

50:30 This is a world that most of us are familiar with.

50:33 Let's see how the median income earner fares.

50:36 I don't work in a factory anymore.

50:38 All of those have dried up and been shipped to Asia.

50:41 So I now work as a middle manager at an insurance company,

50:43 and my household income is $81,000 a year.

50:47 Which is, wait a minute, same as 1997?

50:49 But wait, during this same 13-year period from 1997 to 2010,

50:53 the economy grew by this much.

50:55 I mean, that line's going up;

50:57 the economy's making more stuff, there's more prosperity.

50:59 Even when you adjust for inflation per capita, the economy grew.

51:03 There should be more to go around.

51:05 But my household pay is the same as it was 13 years previous.

51:10 Why?

51:11 Well, we'll see in a second.

51:12 But first, let's talk about my house.

51:14 I always love talking about my house.

51:16 Look at this beauty.

51:17 I can still afford a house.

51:19 In fact, here in, like, post-recession America,

51:23 housing prices are actually pretty low.

51:25 The bubble burst; interest rates had to go down to stimulate the economy.

51:30 And so home purchasing was actually pretty accessible for a few years.

51:34 But don't worry, housing prices will be back on the rise in a second.

51:38 And in fact, they'll start rising faster than my income,

51:41 making housing less and less affordable.

51:44 And homeownership still seems to be available mostly

51:47 for certain groups and not as much for others.

51:50 In fact, that hasn't changed much since the segregation days.

51:54 Meanwhile, I think I know what's gonna happen to this graph.

51:57 Yep, the richer just getting richer faster than my income is going up,

52:01 and my income's kind of stagnating.

52:04 Okay, what about the CEOs?

52:05 Do they pay a price for the big bubble burst?

52:07 Nope.

52:07 They didn't pay.

52:08 I mean, they kind of did up and down, but they're still,

52:10 by the end of the decade, getting paid hundreds of times more than me.

52:14 Maybe they think they are hundreds of times more productive and they deserve it.

52:18 (groovy contemporary jazz music) I mean,

52:21 you get the point on the inequality stuff.

52:22 This is what we've been hearing about for a long time.

52:25 All of these graphs have the same shape:

52:27 this great divergence that happens in the '80s, where the economy is growing,

52:33 but the wages for the average person just kind of flatten while

52:37 the top earners just sort of get in on all of that prosperity.

52:41 Okay, but the American dream.

52:42 You can climb the ladder, right?

52:44 So if you're born in the 1980s, which I was, you're now an adult in the 2010s,

52:49 and it looks like for the median earner,

52:53 the majority of us will earn the same or less than our parents.

52:57 Yeah, this is a problem and probably doesn't seem fair to a lot of people.

53:03 But wait, there's hope.

53:04 [James Rhodes] "Star Trek," "Terminator," "Timecop," "Time

53:05 After Time," "Quantum Leap," "A Wrinkle in Time,"

53:08 "Somewhere in Time."- "Hot Tub Time Machine."-

53:10 "Hot Tub Time Machine."- Okay, I'm back.

53:12 2025, that's when I'm making this video.

53:15 So that's modern-day for me.

53:17 We went through a pandemic.

53:18 The economy kind of got freaked out for a little bit.

53:20 And the median income earner actually started to see

53:23 some gains after years and years of flatlining.

53:27 So you do see some potential movement here, some hope.

53:31 But let's get back to the original question that we started this video with.

53:33 Is the average American better now than they were back in the '50s,

53:39 and over these decades that we talked about?

53:41 In a lot of ways, the answer is yes.

53:44 Especially if you are a woman or not white,

53:47 then the answer is yes, at least in terms of economic opportunity.

53:51 But what we've seen on this journey is that the American economy has

53:55 produced an incredible amount of prosperity

53:57 and growth over these last seven decades.

54:00 And that was shared broadly by all of us for a time.

54:04 But in the last 30, 40 years, the data is very clear that the fruits

54:10 of the economic growth these days have not been broadly shared.

54:14 One group is collecting most of the growth.

54:18 And I didn't even talk about wealth,

54:20 like the stuff you just own and how that makes money.

54:23 We were talking just about income on this.

54:25 Now, this isn't the first time that we've been in this situation.

54:28 The top 10% collected almost half of all the income way back in the early 1900s,

54:34 before World War II.

54:35 But we changed that.

54:37 Look.

54:38 (light thoughtful music) (chart clicking) And the income

54:41 starts to be distributed more equally.

54:43 But this graph tells the same story.

54:45 Look, 1980, boom, here it goes.

54:47 We're back.

54:49 We're back to where we were.

54:52 Now, does this mean that our economy is broken?

54:54 No, actually, our economy is not broken.

54:57 It is working exactly how it was designed to work.

55:00 And this, and this, and this, and this, it's the result of changes to the rules,

55:07 policies that end up determining who gets the money and who doesn't.

55:10 These policies are made by people that we elect,

55:14 and if we don't think that this is fair,

55:16 we have the power to pressure them to design a system that is fair.

55:21 Now, the median income earner doesn't have nearly as much power these days.

55:26 The top income earners and the corporations have really gotten their foot

55:30 in the door for the people who have the power to set the rules.

55:33 So it's harder than ever.

55:34 But this still is a democracy, and if we don't think a system is fair,

55:37 we still have the power to pressure our politicians to change it.

55:41 And it's not actually just about income inequality.

55:44 Yes, that has risen.

55:46 The rich get richer much faster.

55:48 It's also about the American dream,

55:49 this idea of being able to move up if you get educated, if you work hard.

55:55 As inequality has gone up, the American dream has gone down.

56:00 These graphs are built on robust data, and this is the story that it tells.

56:05 The rungs of the economic ladder have gotten wider and wider apart.

56:10 And that American dream, ironically, a term coined by a rich investment banker

56:15 born into a rich family in New York City,

56:18 that dream is looking more and more like a myth.

56:22 (light thoughtful electronic music) This is what a $25

56:28 million-a-year salary looks like versus a$ 25,000-a-year salary.

56:33 About 20% of Americans live on this amount of money or less.

56:37 I wanna show you the lifestyles of people who make

56:39 this much money versus this much money and everything in between.

56:44 The reason I wanna look at these differences is because of this graph;

56:48 it's going up, which is a problem.

56:52 Let's start with $25,000 a year.

56:55 (light thoughtful music) All right, so let's say my name is George.

56:59 I live in Atlanta, Georgia.

57:00 I am single, and I have no kids, and I'm looking for a job.

57:04 After some searching,

57:05 I found this job as a security guard at a TV studio in downtown Atlanta.

57:09 It'll pay me $12.50 an hour,

57:12 which is quite a bit more than the minimum wage of $7.25 an hour.

57:16 Let's assume I work 40 hours a week,

57:19 and I work every week except two that I set aside for holidays,

57:23 sickness, and vacation.

57:24 This means I make $25,000 a year.

57:27 At this level, around 29% of Americans earn as much or less than me.

57:31 So how will I spend it?

57:32 This comes out to be just over $2,000 a month that I have to spend.

57:35 I gotta pay taxes.

57:36 That brings me down to $1,764 to live on this month.

57:41 To calculate this next part for this income and all

57:43 of the incomes we're looking at, I used some data from the US

57:47 Bureau of Labor Statistics that shows that people in this income

57:50 bracket spend about 41% of their pre-tax income on housing.

57:55 I've got about $850 for all my housing expenses.

57:58 That's nearly half my after-tax budget.

58:00 I'll definitely be renting instead of owning a house at this budget.

58:04 A lot of landlords these days require you

58:05 to earn three times more than monthly rent.

58:08 So I'm probably gonna need roommates if I'm gonna get approved for an apartment.

58:11 All right, let's look at Craigslist.

58:13 I really can't afford to live downtown, so I'm gonna look in the outskirts,

58:17 and I found this place right outside the city.

58:20 This is gonna work, and it's within my budget for rent and utilities.

58:24 So how am I gonna get to my job,

58:26 which is in downtown Atlanta, that's 20 minutes away from where I live?

58:30 And like most American cities, there's not great public transportation here,

58:33 so I'm gonna need to have a car.

58:35 Let's just say, in this assumption,

58:37 and it's kind of a big assumption, that I already have a car.

58:40 And let's assume it's this car.

58:41 It's a 2004 Toyota Solara that I got on Facebook Marketplace.

58:45 Lower-income Americans spend more on their income

58:48 for transportation than any other segment of the population.

58:51 The data we'll use says about 15% of pre-tax income is spent on transportation.

58:56 So that's $313 for gas, insurance, parking,

59:00 and saving up for maintenance and repairs.

59:02 We gotta be pretty careful about how much extra driving

59:05 we do and hope that no big maintenance issues arise.

59:08 According to this BLS data, I spend about 15% of my income on food;

59:13 that includes both groceries and eating out.

59:15 That's $313 a month for food.

59:18 A lot of people think that this income

59:20 bracket just goes to McDonald's all the time,

59:22 but the reality is, the average order amount at McDonald's is between $7 and $8.

59:26 So that will not get me through the month.

59:28 That will get me through 13 days' worth of food.

59:30 So I gotta go to the grocery store.

59:32 Unfortunately, in most lower-income areas in this country,

59:34 there aren't a ton of grocery stores,

59:36 and the ones that are available are much less

59:39 likely to carry fresh produce or other nutritious food.

59:41 So I'm gonna see what I can do by stocking up on beans and rice,

59:45 peanut butter and jelly, Wonder Bread, Top Ramen, freezer meals.

59:49 For fresh options, I'll be looking at potatoes and some of the cheaper produce.

59:53 And no eating out, or rarely, occasionally on special occasions, eating out.

59:58 If I do, I'll be looking at the value menu at a fast food restaurant.

1:00:02 I'll be looking for discounts, checking every price in the convenience store.

1:00:06 Okay, but wait, don't I get government assistance for food, like food stamps?

1:00:09 So from my research, I can see that to get government assistance,

1:00:12 I need my savings account to be less than $2,000.

1:00:15 Check.

1:00:16 My income needs to be lower than 19,578, and I make $25,000.

1:00:24 So nope, I don't qualify.

1:00:26 Okay, so we've covered our basic needs of housing, food,

1:00:29 and transportation, but I still have a lot of expenses.

1:00:32 We hear a lot about healthcare being a massive personal cost in the US,

1:00:36 but what does that actually look like?

1:00:38 Georgia's Medicaid website says that I qualify for government help,

1:00:42 but even with that, I will be paying around

1:00:44 10% of my income on health-related expenses like medicine,

1:00:48 doctor visits, getting care that isn't covered by this government insurance.

1:00:52 This is one of the reasons why people in my income

1:00:56 bracket live around seven years less than the richest Americans.

1:01:00 After all these main expenses,

1:01:02 I'm left with a small amount of money for everything else,

1:01:05 and there's a lot more that I need to spend just to live.

1:01:07 Laundry, internet connection, cell phone, conservatively, that adds up to $105,

1:01:13 not taking into account the overcharges and hidden fees.

1:01:16 Like you're starting to see what's happening here.

1:01:18 This doesn't add up.

1:01:19 Entertainment, fitness, and travel just isn't feasible.

1:01:24 I have no emergency savings, no rainy day fund,

1:01:26 and live in stress of an unexpected car repair, a health emergency.

1:01:31 Any of these unexpected charges could be a major setback.

1:01:34 I'm probably gonna have to join the huge number

1:01:36 of Americans that rely on debt to get through the month,

1:01:39 whether that's credit card debt or short-term loans with high interest rates.

1:01:42 Maybe I'll need to move back in with my parents or take on a second job.

1:01:45 Maybe I'll start driving Uber or DoorDash.

1:01:49 But what's clear is that my full-time job,

1:01:52 which pays much more than the minimum wage,

1:01:54 is still not enough to make it through the month.

1:01:57 All right, now let's see what we can do with $40,000 a year.

1:02:00 Now, my name is Simon.

1:02:01 I am the representative of the median American income of a single earner.

1:02:05 I make $40,000 a year as an event coordinator at a country club in Atlanta.

1:02:10 My $40,000 salary gives me just over $3,000 a month.

1:02:14 After federal and state taxes, I'm left with just under $2,700.

1:02:18 (light groovy music) Using that same data set, my budget for housing is $1,133.

1:02:25 I'm kind of filling this one-bedroom house.

1:02:27 Let's say between rent for this house and my utilities,

1:02:30 I'm paying 1,133 for my monthly housing expenses.

1:02:34 The country club is kind of far from my house,

1:02:36 and because there's no public transportation, I'm gonna need a car.

1:02:38 I saved up and purchased this 2011 Subaru Forester on Facebook Marketplace.

1:02:43 I got it for $4,500.

1:02:45 So, like George, I spend about $136 a month just on gas to get to my job.

1:02:50 This leaves me with a little over $400 for everything else.

1:02:54 Guy's gotta eat.

1:02:55 What am I gonna do for food?

1:02:57 According to the BLS data, someone like me spends around $467 a month on food.

1:03:02 I typically spend about $100 a week on groceries

1:03:05 and can use the rest on a dinner out or two.

1:03:07 I've got a Kroger grocery store four minutes away from my house.

1:03:10 And at this point, I'm definitely cognizant of every price on these shelves.

1:03:14 I'm using coupons, trying to get the best deal,

1:03:17 but I have leeway to spend a little bit more

1:03:19 on maybe a decent cut of meat or some fresh produce.

1:03:23 Maybe I buy organic every once in a while.

1:03:25 I can comfortably feed myself if I'm smart about

1:03:28 how I spend and I don't eat out too much.

1:03:31 This income level is right on the threshold

1:03:34 where employers start to sponsor your healthcare plan;

1:03:37 they start to subsidize it.

1:03:38 That's a thing here in America, and luckily my employer does.

1:03:42 But even still, I spend $300 a month on health, medicine,

1:03:46 out-of-pocket doctors, pre-deductible expenses, and now I get to pay for a gym.

1:03:52 I signed up for this low-cost gym for 10 bucks a month.

1:03:54 So after covering these basic needs,

1:03:56 I have $231 left for everything else; all of my other essentials.

1:04:00 Laundry, cell phone, internet brings me down to $126.

1:04:03 I will try to put some of this away for an emergency or a trip,

1:04:07 put it into a savings account with a good interest rate so it'll grow over time.

1:04:11 But to be honest, I'm probably gonna spend this on entertainment.

1:04:14 Like, I want to go out and have fun.

1:04:15 I wanna go to a movie.

1:04:16 I want to subscribe to Hulu and Netflix.

1:04:19 I might buy a book, might go out with some friends.

1:04:21 And after all of that, I end up around zero.

1:04:25 So all in all, I'm doing better than George, but not that much better.

1:04:29 I've got some money left over at the end of the month,

1:04:31 but an emergency expense would still leave me in debt.

1:04:34 All right, let's up this to 100 grand a year and see what our budget looks like.

1:04:38 Okay, now I'm Tim, and I just found this job in sales.

1:04:42 It makes me $100,000 a year.

1:04:44 I'm officially in the six figures.

1:04:46 I make four times more than George

1:04:48 and double the median income that Simon makes.

1:04:51 I'm now near the top 10% of earners in this country.

1:04:54 My salary gives me $8,333 every month; 2,200 of that is gonna go to taxes,

1:05:01 and I'm left with just over six grand.

1:05:04 In this income bracket,

1:05:05 you see that people spend around 30% of their income on housing.

1:05:08 Until recently, this salary would've been more than enough to buy a house,

1:05:12 but these days not so much.

1:05:15 But for the case of our assumption, let's assume that I, Tim,

1:05:18 have been saving for 10 years and I'm finally ready to purchase my first home.

1:05:22 Zillow is telling me that I can afford a house that's around $314,000.

1:05:27 I'm gonna buy this nice one-bedroom townhouse in Atlanta.

1:05:30 It's got these nice wood floors, all of this natural light.

1:05:33 Oh wait, no.

1:05:34 Looks like there's a condo fee,

1:05:36 $426 per month, probably for that fancy workout room.

1:05:39 Okay, we're gonna have to keep looking.

1:05:40 (groovy mid-tempo music) Okay, I found one.

1:05:43 It's a one-bedroom condo.

1:05:45 It's got a fireplace, access to a pool, and a fitness room.

1:05:48 It's in a pretty good location, and it's just under $260,000.

1:05:51 With the condo fee, I'll be paying around $2,700 per month,

1:05:56 which is about 32% of my income for housing.

1:05:58 I get to spend more on housing than George and Simon make in a month.

1:06:02 Oh, and by the way, I will have to cough up $20,000,

1:06:05 which is my whole savings for a 5% down

1:06:08 payment and closing cost to make this house purchase.

1:06:11 Thanks to my good credit, I can qualify for a good car loan

1:06:14 that allows me to buy this beauty, a $50,000 BMW.

1:06:18 It'll cost me $754 a month for five years,

1:06:21 and it will leave me with $579 every month to spend on gas,

1:06:26 repairs, and insurance.

1:06:27 I'm even starting to be able to afford

1:06:29 to bring it to a professional car wash place,

1:06:31 get it detailed every couple months.

1:06:34 I am upper middle class now,

1:06:35 so I only have to pay 11% of my income on food per month just to feed myself.

1:06:41 I get to eat out a lot more lately.

1:06:43 When I'm at the grocery store,

1:06:44 I get to peruse the fresh and nutritious food much more abundantly.

1:06:49 I can buy nice meat and nice produce.

1:06:51 I'm not overly concerned about the prices.

1:06:54 And lately, since meal delivery apps have become more common,

1:06:59 I'm ordering DoorDash like once or twice a week.

1:07:01 I'm starting to be able to use money to save myself time and stress.

1:07:06 My job pays for a lot of my health insurance,

1:07:09 and yet I still pay $500 a month on health,

1:07:12 medicine, and these kind of expensive supplements I've been buying.

1:07:15 I'm able to save money at this point so

1:07:17 that a minor medical emergency isn't a huge deal.

1:07:19 But the doctors I do go to have to be covered by my insurance plan.

1:07:23 I can't go out of network.

1:07:24 It would be too expensive to pay out of pocket.

1:07:26 With all my big expenses covered,

1:07:27 I still have $665 to cover Wi-Fi, unlimited data on my phone.

1:07:33 And since laundry and a gym are in my apartment,

1:07:35 I actually don't need to use much cash for that.

1:07:38 So even after all of these essentials, I have money to save and invest,

1:07:42 and even still, I have cash left over to go out with friends.

1:07:45 Every few months, I'm able to save up enough to go on vacation.

1:07:47 My work pays me even when I'm taking time off,

1:07:50 so I don't need to worry about that.

1:07:52 I do have to strategically choose my travel

1:07:54 locations to make sure that they're affordable.

1:07:56 Because I chose a cheaper place,

1:07:57 I'm able to enjoy drinks and food while I'm there.

1:08:00 When I come home, I do have to save

1:08:02 and scrounge for a couple of months to recuperate, but it's not too stressful.

1:08:07 Not bad, and in fact, much better than the vast majority of Americans.

1:08:11 All right, now let's up this to $1 million

1:08:13 a year and see what our budget starts to look like.

1:08:16 Hi, my name is Noah.

1:08:18 I am a junior managing director at a big private equity fund.

1:08:22 I'm in finance.

1:08:23 I'm looking for a man in finance.

1:08:24 I work 70 hours a week.

1:08:26 I make big deals.

1:08:27 They're very important.

1:08:28 And I am earning $1 million a year.

1:08:31 That is $83,000 a month.

1:08:34 After taxes, it's more like $48,000 a month.

1:08:38 In one month, I'm making double what George makes in an entire year.

1:08:42 In three years, I'll make more than he makes in an entire lifetime.

1:08:46 I've got some serious money to work with here.

1:08:49 Like, I'm officially among the top 1% of income earners in this country.

1:08:52 And I'm very lucky because my income and wealth

1:08:55 are increasing at a faster rate than everyone else's.

1:08:58 And we'll see why in just a second.

1:09:00 Making this much money,

1:09:01 I can get a really nice house by spending 28% of my income,

1:09:05 which means I can afford around a $2.6 million house.

1:09:09 Wow, this one's kinda nice.

1:09:11 This five-bedroom, five-bathroom home in this quiet Atlanta suburb.

1:09:15 Man, it is nice here.

1:09:17 Look at this kitchen.

1:09:18 Oh, and this beautiful yard out here.

1:09:20 I might pick up croquet.

1:09:21 And it even comes with this little friend.

1:09:23 Hey, bud.

1:09:25 I've always wanted my own taxidermy fox.

1:09:27 This house is gonna cost me around $19,000

1:09:30 every month for the mortgage and other expenses,

1:09:33 like house cleaners that come once a week

1:09:35 to clean my entire house and do my laundry.

1:09:38 My yard is maintained by a local landscaping company.

1:09:41 I'm spending 16% of my income on transportation,

1:09:44 which means a little over $13,000 a month on everything, cars and planes.

1:09:49 Instead of owning a car, I lease one in three-year periods so that I

1:09:54 can always be driving the newest, fanciest car.

1:09:55 Like this Rivian, it's gonna cost me about a thousand bucks a month all in.

1:09:59 I can totally afford that.

1:10:00 I'm also taking a lot of taxis lately because I can afford it,

1:10:04 and I can afford a private driver here and there,

1:10:06 though I don't have a full-time private driver.

1:10:08 I can hop on a flight too whenever I want.

1:10:10 And when I fly internationally, I even splurge on business class.

1:10:14 Still pretty expensive,

1:10:15 but I've got all of these airline miles that I've racked up

1:10:18 from all of my work travel that I actually get upgraded for free often.

1:10:21 And now I'm actually pretty hungry, so let's talk about food.

1:10:24 My budget for food has ballooned.

1:10:26 Based on the BLS data,

1:10:27 I could technically afford to spend $8,000 on food every month,

1:10:32 but I'm not sure that's totally common among this income bracket.

1:10:34 There's not a ton of good data on the one-percenters.

1:10:37 So I estimate that somebody in this bracket

1:10:39 is spending more like $3,500 per month on food, which is still a lot.

1:10:43 I'm officially deep in the don't look at food prices,

1:10:46 don't shop for my own groceries,

1:10:48 don't worry about ordering takeout whenever I want kind of rich.

1:10:51 I could pay 20 bucks for a salad.

1:10:52 I can pay $16 for a smoothie.

1:10:54 I could even drop $300 per person on a nice

1:10:58 restaurant and not really be too stressed about it.

1:11:00 Now, I can't afford a private chef yet,

1:11:02 but I have opted for a high-end meal service that delivers dinners to my house.

1:11:07 I have to work a lot.

1:11:08 The difference is that, per hour, my hours are much more financially valuable.

1:11:13 George, Simon, and Tim all had to spend

1:11:15 a lot of their hours cooking and cleaning,

1:11:17 and traveling around, but I can just pay to get a lot of that time back.

1:11:20 I could technically afford to spend $4,000 a month on health, but again,

1:11:24 we estimate that it's a little bit lower, more like $2,500,

1:11:27 which would still mean a totally different healthcare world.

1:11:31 I can go to any doctor; I can pay for a therapist out of pocket.

1:11:34 I can easily afford to see a specialist for any kind of preventative care.

1:11:38 Physical therapy, elective surgeries,

1:11:40 even stuff that isn't uncovered by my very good insurance, I can pay for it.

1:11:45 I can pay out of pocket, and it's not too crazy for me.

1:11:47 And even though I have a gym in my house

1:11:50 because I converted one of the mini rooms into a gym,

1:11:52 I actually pay for another nice gym membership at this luxury spa

1:11:57 and gym so that I can use their hot tub and sauna.

1:11:59 I also get in on their personal trainers, who are really great.

1:12:02 I recently signed up for this fancy doctor's office where I pay a monthly fee,

1:12:06 and I never have to wait more than 10 minutes in the room.

1:12:09 Remember, my time is extremely valuable,

1:12:11 and this is one reason why my life expectancy is way up here.

1:12:14 I'm probably gonna live seven or eight years longer than George.

1:12:17 Laundry, cell phone bills, Wi-Fi, these are all negligible costs for me.

1:12:21 I'm left with at least $10,000.

1:12:24 And it could be way more if I reduced some of these assumptions,

1:12:28 like spending thousands of dollars every month on food for just me.

1:12:31 So what do I do with all this leftover money?

1:12:32 Well, I do have a semi-complicated investment

1:12:35 portfolio that I love to talk about.

1:12:37 My money is in the stock market,

1:12:39 24/7, growing, compounding into more and more wealth.

1:12:43 It allows my wealth to grow much faster

1:12:45 than those who don't have extra money to invest.

1:12:48 I go on vacations, though they do get interrupted by work.

1:12:51 My job is very important.

1:12:52 For international trips, I do sometimes splurge on business class tickets

1:12:56 so I can lay down on the flight.

1:12:57 What's interesting, though, is that even at this crazy income bracket,

1:13:01 people can still blow their money every month,

1:13:04 trying to keep up with their expanding lifestyle.

1:13:06 But let's be clear, they're living unrecognizable lives

1:13:10 to the previous income tiers we've talked about.

1:13:12 So let's see what happens next.

1:13:13 All right, now let's see what happens when we turn this into $25 million a year,

1:13:18 which is an amount of money that some

1:13:20 people in this country actually make every year.

1:13:22 Let's see what their budget looks like.

1:13:24 My name is Robert.

1:13:26 You'll never hear about me because I am

1:13:28 the owner of a highly successful national car wash chain,

1:13:32 or maybe I'm the CEO of Zillow or Chevron,

1:13:36 or maybe I'm a pretty famous celebrity, and I make $25 million a year.

1:13:40 Noah was already in the top 1% of income earners,

1:13:43 but now I am truly in the ranks of the global elite.

1:13:46 And we need to pause and talk about how rich people think about their wealth.

1:13:50 At this point, we have to start to rethink

1:13:52 money because people at this income bracket think less about

1:13:55 their yearly salary and more about the total value

1:13:58 of all of the stuff they own, their net worth.

1:14:01 Most of my pay is in stocks, not cash.

1:14:04 I spend money knowing that I have all

1:14:06 of these assets that I could sell if needed,

1:14:09 even if it doesn't come to me in a paycheck every month,

1:14:12 which is actually really great because I'm not taxed

1:14:14 on this stuff unless I sell it for cash.

1:14:17 And even then, I'm taxed at like 15 to 20%, which means that in a lot of years,

1:14:21 my tax rate will be less than Tim who makes $100,000.

1:14:26 I'm paying less of my income in taxes than he is.

1:14:28 This is very good for my net worth.

1:14:30 So let's see what I can buy.

1:14:31 (groovy upbeat music) Now, given my gargantuan income,

1:14:35 I could technically afford this house.

1:14:39 It has a pool.

1:14:40 It's got this really cool statue and this garden that looks like

1:14:43 it's straight out of "Princess Diaries."- I don't want to be a princess!

1:14:47 But because I'm planning to buy my summer house in Italy this year,

1:14:50 I'm gonna go with something a little bit more modest, like this one.

1:14:55 I really like this house.

1:14:56 The doorknob in the shape of someone's hand,

1:14:58 the animal print details, the golf room.

1:15:01 I love this golf room.

1:15:02 I mean, what can I say?

1:15:04 I'm Robert.

1:15:04 I'm an eccentric boy.

1:15:06 This house has a pool, it's got a gym.

1:15:08 It's got this wooden tub,

1:15:10 which is something I never thought I needed, but I absolutely do.

1:15:14 What you'll start to see with this house

1:15:15 and everything else in this income bracket

1:15:17 is how it allows me to physically isolate

1:15:20 myself from the concerns that most people have.

1:15:22 I don't have to think about crime, homelessness, noise, pollution.

1:15:27 I can live surrounded only by people who are wealthy like me.

1:15:31 Getting around is really easy for me.

1:15:33 I've got a couple of cars.

1:15:34 I rotate driving them every once in a while, except for this one.

1:15:38 This one I don't drive, because it's an antique and I just like to look at it.

1:15:41 Oh, and did I mention I have a full-time driver?

1:15:43 I pay him $51,000 a year.

1:15:46 He whisks me around from important meeting to important meeting.

1:15:49 I'm spending two times what George makes in a year to pay

1:15:53 for this, and it's totally worth it because it saves me time.

1:15:56 When I travel, he drives me right onto

1:15:58 the runway where I jump into a private jet.

1:16:00 Now, I don't own this jet yet, but I do charter private flights,

1:16:04 like when I need to fly from Atlanta to New York,

1:16:06 cost me about $27,000 for this two-hour flight.

1:16:10 I can easily do that.

1:16:11 27 grand feels to me what $43 feels like to Simon.

1:16:16 I'll pay that for a nice private jet.

1:16:18 Now, I don't fly private all the time.

1:16:19 I do fly commercial if I'm going on vacation to Paris.

1:16:23 I'll be flying first class, obviously.

1:16:25 I have a separate security checkpoint, my own lounge,

1:16:28 and when I get on the plane, I get one of those little cabins all to myself.

1:16:32 By the way, this ticket costs me $31,000.

1:16:35 When I get to Paris, I usually book the penthouse in one of my favorite hotels.

1:16:39 I have hotel staff available at any moment.

1:16:42 Do I cook?

1:16:43 No, I do not cook.

1:16:45 I enter grocery stores only when I feel like it would

1:16:47 be fun to feel like a regular person for a moment.

1:16:50 Hey, chef, do you wanna cut this up for her?

1:16:52 And yet, magically, when I open my refrigerator, everything I need is in there.

1:16:57 It's all been fully designed by my nutritionist,

1:16:59 purchased by my house manager, prepared by my personal chef.

1:17:03 And yes, you can see I have a whole staff of people who help me manage my life.

1:17:08 My house manager is really good at just making this all disappear,

1:17:11 like the landscaping gets done,

1:17:13 the pool gets cleaned, and a bunch of other stuff that I don't even know.

1:17:16 I'm sure all of this costs a lot of money,

1:17:18 but honestly, I've never even thought about it.

1:17:20 I've got my friends over,

1:17:21 and our personal chef is putting together a beautiful meal,

1:17:25 and he's even doing the wine pairing tonight,

1:17:28 selected from my collection of quirky

1:17:30 cult wines in my temperature-controlled cellar.

1:17:33 I don't pay attention to prices for food or wine,

1:17:36 except when knowing the price of this bottle,

1:17:39 for example, helps confirm how rare and special it is.

1:17:41 I think we spent $16,000 on this bottle,

1:17:45 or this other one that I splurged on for $150,000.

1:17:49 I go out to restaurants, but it's a little different than the rest of the world.

1:17:53 I have connections that allow me to get

1:17:55 into the private back room of whatever restaurant I want.

1:17:57 Okay, this is insane.

1:17:59 And while these costs are very feasible for someone who makes $25 million,

1:18:04 not everyone who earns this much money lives like this.

1:18:07 In fact, a lot of super rich people are incredibly frugal,

1:18:10 making their high earnings that much more

1:18:12 impactful because they can get rich much faster.

1:18:15 But what we see with Robert is that you actually could spend

1:18:19 this much money on food and housing given your income, and many do.

1:18:24 So in addition to my nutritionist and chef,

1:18:27 I have a personal trainer and health coach who comes

1:18:30 to my house every day and guides me through my workout.

1:18:32 He even travels with me to keep me exercising while I'm on the road.

1:18:35 I have a private doctor who is on call who comes to my house.

1:18:39 I pay her 20 grand a year just to be on call.

1:18:42 She's available, and she'll come do whatever I need,

1:18:45 like a quick steroid shot to my bum knee before I play a game of tennis.

1:18:49 My healthcare is mostly preventative.

1:18:51 I get all the scans and tests and routines

1:18:54 done to ensure that I'm in tip-top shape.

1:18:56 I can afford any surgery or healthcare routine or procedure that I want.

1:19:00 And last year, I fully replaced all of my front teeth with veneers.

1:19:05 It only cost me $28,000.

1:19:07 And remember, $28,000 for me is what it feels like

1:19:12 when Tim spends $112 or what George feels like spending $28.

1:19:17 Not nothing, but not a huge deal.

1:19:20 Even after spending on all of this, I still have lots of money

1:19:24 that my financial manager funnels into sophisticated

1:19:27 investment portfolios that just keep on growing.

1:19:29 Investing can be really fun for me at this point.

1:19:32 I'll just take 30 grand here and there to buy collector's items that I'm into.

1:19:36 A couple weeks ago, I paid $5,000 for this authentic World War II helmet.

1:19:40 This piece of art costs me 50 grand,

1:19:43 but it's a great investment because the artist

1:19:45 is actually gonna be the next big thing, so.

1:19:47 This stuff is fun, but it also contributes to my net

1:19:50 worth because all of this retains and grows in value.

1:19:53 And my clever accountant has recently mentioned that he found a way

1:19:57 to occasionally sell this stuff and get a nice tax break on the profits.

1:20:01 Now listen, I make a meaningful difference in my community with philanthropy.

1:20:05 Like, I'm donating $1/2 million to my family foundation,

1:20:09 which is promoting education in the city.

1:20:11 Funneling money and assets into this foundation allows

1:20:14 me to get some really nice tax breaks, helps me avoid capital gains tax,

1:20:18 and it gives me a buzz of feeling like I'm a generous millionaire.

1:20:22 I even donated a few hundred thousand

1:20:24 dollars to my nephew's private school last year.

1:20:26 They didn't really need the money,

1:20:27 but now they're putting my name at the top of their donor list,

1:20:30 which is, like, really great.

1:20:31 And even after all of this, I've got tons of leftover income.

1:20:34 I'm easily able to cover the mortgage on my secondary property in Lake Como.

1:20:39 It's only $30,000 a month.

1:20:41 And the views here are just chef's kiss.

1:20:44 I mean, look at it.

1:20:44 One of my favorite parts about this level of wealth is how much access I

1:20:48 now have to obscure elite clubs like this one in New York called the Core.

1:20:52 I had to pay 50 grand for an initiation fee and then $17,000 annually.

1:20:57 But it allows me to rub shoulders with really important people.

1:20:59 And yes, there are echelons above me that someday maybe I'll reach,

1:21:04 but I'm still existing on a fully different

1:21:06 plane than most every single person in the world.

1:21:09 Almost every stressor that you can think of, I can pay away.

1:21:12 And the ones that I can't pay away, like heartbreak, grief, and social anxiety,

1:21:17 I won't be able to pay that away at any level of wealth.

1:21:19 I am protected financially from just about

1:21:22 any emergency that could occur in my life.

1:21:24 And so long as I manage my finances responsibly,

1:21:27 I will never experience life below this level of wealth.

1:21:30 The difference between these levels of income it's kind of hard to fathom.

1:21:35 If you're in the $25 million camp,

1:21:37 you make more in one hour than George makes in six months.

1:21:42 In just one eight-hour workday,

1:21:45 you're making more than George makes in four years.

1:21:48 100 years ago, the divide between the rich

1:21:51 and the poor was incredibly stark in this country.

1:21:54 The top 1% would bring home 20% of all of the income.

1:21:58 But then look what happened.

1:21:59 We kinda fixed it.

1:22:01 We taxed the super rich.

1:22:02 The working class organized and rose up, fighting for fair pay.

1:22:06 And by the 1980s, it was more like 10% of the income went to the top 1%.

1:22:11 But watch what happens next.

1:22:13 (soft tense music) We're going back up,

1:22:18 and we're leaving people like George in a trap.

1:22:21 It's not hard to see why someone like George would have lost faith

1:22:25 in our government and our institutions and the concept of an American dream.

1:22:30 The system is not working for George.

1:22:32 Each cost leads to another cost,

1:22:34 creating a poverty trap with no chance of getting out.

1:22:38 Expensive housing far from work means a car.

1:22:40 A car means maintenance and insurance, and fuel,

1:22:43 which means less money for food and healthcare.

1:22:45 He makes too much for government assistance on any of this.

1:22:48 How is George supposed to have the time, the money,

1:22:51 or even the brain space to think about school or improving his skills?

1:22:55 His social mobility is limited.

1:22:57 We often think about America as this land of opportunity.

1:23:01 If you work hard, you can move up.

1:23:03 But the data shows us that that just isn't the case anymore.

1:23:06 For someone like George or for the tens of millions of Americans like him,

1:23:10 the gap is getting wider, and it's getting harder to close.

1:23:13 And that's bad.

1:23:14 Not just bad because it's unfair, but it's bad for our economy.

1:23:18 It's bad for our politics.

1:23:20 And it's bad for the 44 million people

1:23:22 who live in the richest country in the world,

1:23:24 but don't have enough food every day.

1:23:26 The people who only have access to credit via predatory lenders.

1:23:30 People whose lives are rocked when they get a $25

1:23:33 overdraft fee or who can't afford an oil change.

1:23:36 It's time for the people in charge in this country to do what

1:23:40 they did 100 years ago and reverse this curve before it becomes too late.

1:23:44 [Newscaster] Top 1% hold nearly 10 times

1:23:47 more wealth than the bottom 50% combined.

1:23:51 (paper fluttering)- There's people getting rich off this graph.

1:23:54 (soft thoughtful music) What we're looking at here is the number

1:24:02 of Americans that don't make enough money for basic survival.

1:24:06 So, like a family of four, two parents,

1:24:07 two kids, living off of $31,000 a year or less.

1:24:12 That's considered poverty in the United States,

1:24:15 and there's millions of people who live with that kind of income.

1:24:17 The US government spends about $1 trillion every

1:24:20 year helping these people meet their basic needs.

1:24:23 In recent decades, a lot of that money has been flowing through a middleman:

1:24:27 private corporations who are supposed to be

1:24:29 more efficient in administering this money.

1:24:32 So welfare is big business.

1:24:33 And of course, that's the irony of this whole thing:

1:24:34 that there's so much money to be made from poverty.

1:24:44 (pulsing electronic music) (paper rustling)- Now

1:24:50 this is not easy stuff to understand.

1:24:51 We're talking about government welfare programs and bureaucracy.

1:24:55 Sometimes they're intentionally hard to understand,

1:24:56 and these corporations don't really want to be known by anyone.

1:25:01 But if you start to dig, which we've been doing,

1:25:04 and you look deep enough into this, you start

1:25:07 to see what all of this actually looks like, who's actually getting rich,

1:25:11 what the incentives are within this system, where the loopholes are,

1:25:14 and whether or not this is actually

1:25:16 benefiting the people that it's designed to benefit.

1:25:19 So in this video, I'm gonna show you who gets rich off the poor.

1:25:22 And I'm just gonna do a few case studies that demonstrate how this works.

1:25:26 I'll be making a list of examples here,

1:25:28 going from what I see as the least egregious abuse of this system to the most.

1:25:33 I am bracing myself to get sued or intimidated by the companies that I'm calling

1:25:39 out in this video because that's how

1:25:40 a lot of these powerful shadowy companies work.

1:25:43 So as always, every assertion in this video

1:25:45 is rigorously fact-checked and in my sources.

1:25:48 Lawyers, go check that first before you send me your cease and desist order.

1:25:52 Thank you.

1:25:53 And with that, let's look at who gets rich off the poor.

1:25:56 Let's go back to this graph one last time and just zoom back to the 1950s,

1:26:00 where you can see that the poverty rate was double what it is today.

1:26:04 It's like 22%.

1:26:06 This was really bad.

1:26:07 And it led to the president at the time declaring war.

1:26:11 And this administration today, here and now,

1:26:15 declares unconditional war on poverty in America.

1:26:20 We shall not rest until that war is won.

1:26:26 So, "A War on Poverty" by Lyndon B.

1:26:29 Johnson in 1964.

1:26:30 This is what that war looked like.

1:26:33 This big line.

1:26:35 This is social spending as a share of GDP.

1:26:37 You can see this is where he gives this speech, right here, this flat line.

1:26:41 Social spending just skyrockets right after.

1:26:43 The government spends tons of money for this war on poverty.

1:26:47 That money goes towards programs like Medicare and Medicaid, food stamps,

1:26:51 public education, which is why you see this big dip.

1:26:54 22%, all the way down to 12%, 13%.

1:26:58 And for a time, all this spending worked.

1:27:01 Poverty declined 30% in five years.

1:27:03 But eventually, progress slowed.

1:27:05 The government kept spending, and people got tired of it.

1:27:08 The economy wasn't doing well,

1:27:10 and people were tired of subsidizing these welfare programs.

1:27:14 And that's where this guy comes in.

1:27:16 My friends, some years ago,

1:27:18 the federal government declared war on poverty, and poverty won.

1:27:23 This is where things start to get a little bit murky.

1:27:25 So we needed help.

1:27:27 We got it from Anne Kim, who is an expert,

1:27:30 who literally wrote the book on this history and the modern-day poverty economy,

1:27:35 and sat down with us to talk through this history and how it works today.

1:27:40 Remember during the 1980s, we had this...

1:27:42 Well, no, you don't remember the 1980s.

1:27:45 (laughs) Well, during the 1980s, there was really this mythologization,

1:27:51 if that's a word, of the CEO.

1:27:53 At the same time, the government spending was ballooning.

1:27:56 Economic times were not that great.

1:27:59 So Americans were not feeling particularly

1:28:01 generous about funding social services programs.

1:28:04 And so the CEOs were really kind of held up on a pedestal as the ones

1:28:08 who are going to make government just

1:28:10 as efficient as they made their own companies.

1:28:12 [Johnny] So it's the 1980s, Reagan wants to rein in all of this spending.

1:28:16 He's also afraid that Americans are becoming too reliant on the welfare system.

1:28:20 So he kicks off a bunch of changes that, over time,

1:28:23 would lead to "a fundamental shift in delivering income

1:28:27 support to low-income populations."- They wanted to privatize Medicaid,

1:28:32 Medicare, prisons, air traffic control.

1:28:35 This privatization of government spending started under Reagan,

1:28:37 but it continued into the future administrations,

1:28:41 especially under Bill Clinton, who helped expand it.

1:28:44 And the fundamental shift looks like this.

1:28:46 We're gonna be using a graphic like this, not only for right now,

1:28:50 but for the future cases of how this works today.

1:28:53 Taxpayers give money to the government.

1:28:55 The government used to give money to citizens in need directly.

1:28:58 But after these reforms, the money would start to be distributed to the states.

1:29:02 The states would then hire for-profit companies to do the complicated

1:29:07 work of distributing this money to eligible people in need.

1:29:11 They would be responsible for making sure that no one's abusing the system,

1:29:14 determining who's eligible and who's not.

1:29:16 And the thinking here was that the government

1:29:18 is much less efficient than private companies.

1:29:21 And that is true in most cases.

1:29:23 And that if we apply business and the free market and profit motives to welfare,

1:29:29 that the for-profit companies would make this more efficient.

1:29:32 Less government spending, less waste,

1:29:34 and less over-reliance on the welfare system.

1:29:37 And the big part of all of this is that there would be more requirement

1:29:41 for people to be looking for a job

1:29:42 or be working in order to qualify for benefits.

1:29:45 And who would verify that applicants are actually working?

1:29:47 These for-profit companies.

1:29:49 And so this is how our welfare system

1:29:51 works today in a very kind of American way.

1:29:54 It is administered by private companies that you've never heard about,

1:29:57 who are given lots of money from the government

1:29:59 to dole it out to people in need.

1:30:01 So Reagan started this privatization train,

1:30:04 and it was really President Bill Clinton

1:30:06 who not only hopped on board that train,

1:30:09 but got it accelerating to his destination,

1:30:11 which was total privatization of a lot of social services in America.

1:30:17 Okay, so that's the context here.

1:30:19 It's been 45 years since this big

1:30:22 experiment began of privatizing our welfare system.

1:30:26 I've always wondered, like, did this work?

1:30:28 So that's sort of been the curiosity at the heart of this story.

1:30:31 Is government more efficient?

1:30:33 Are we saving money?

1:30:34 Is this helping vulnerable populations in a more efficient way?

1:30:37 The answer is, in some cases, yes.

1:30:40 Like, there have been positive outcomes of outsourcing

1:30:44 to contractors within the welfare system and public spending.

1:30:47 A good example of that is food stamps that used to come in these paper coupons,

1:30:52 but now are delivered electronically on a debit card.

1:30:55 This is more secure; it's more efficient.

1:30:57 It ensures that people use these for food.

1:31:00 There are a lot of instances where

1:31:02 private companies have made government spending more efficient,

1:31:04 but the purpose of this video is to shine a light

1:31:06 on the many instances where private companies have gotten really

1:31:10 rich off of this system in a way that has

1:31:13 not benefited the most vulnerable and needy people in our country:

1:31:16 the poor, the elderly, children in need, the disabled.

1:31:20 So finally, the reason you clicked on this video:

1:31:23 let's draw up this list of who gets rich off the poor.

1:31:26 And for that, I'm gonna need to look at all these papers, so we need more space.

1:31:31 Let's go to the big table.

1:31:32 Okay.

1:31:34 (light groovy music) (Johnny slurping) One last time,

1:31:38 thanks to Ground News for sponsoring today's compilation.

1:31:41 Ground News is where I go first when I'm researching

1:31:43 a story because it's where I can compare narratives and framings

1:31:48 and understand the bias of different stories before I start

1:31:51 making up my mind on the story I'm gonna tell.

1:31:53 Go to ground.news/johnnyharris, get the Vantage Plan for yourself.

1:31:58 And yes, I am in Mark Rober's CrunchLabs headquarters right now,

1:32:02 filming this, because I'm visiting him.

1:32:05 All right.

1:32:05 Thanks for watching.

1:32:06 Okay, so the first one on our list

1:32:09 is slightly adjacent to the privatization of welfare,

1:32:13 but it follows the same incentives and dynamics.

1:32:15 And it has to do with taxes.

1:32:17 One of the ways that the government subsidizes

1:32:19 the lives of lower-income people is through a tax credit.

1:32:22 So when you file your taxes,

1:32:23 you show that you've been working, you've made money,

1:32:25 but you didn't make that much money,

1:32:27 and therefore you qualify for an earned income tax credit.

1:32:30 If you have kids, it goes up, and it kind of maxes out at around $7,000.

1:32:34 This is a very simple thing.

1:32:36 In a lot of countries, you like,

1:32:37 check a box and you get this refund or this subsidy to your life.

1:32:40 But in the United States, it looks like this.

1:32:43 (papers thudding) (paper flicking) This is a 45-page instruction

1:32:50 manual about all the specifics on the earned income credit,

1:32:54 something that should be so simple,

1:32:55 and that is a key way of helping lower-income people live their lives.

1:32:59 The tax code here in the United States is deathly complicated,

1:33:02 intentionally designed to be so to make certain companies rich.

1:33:07 And this is one way that works.

1:33:08 I have a lot of feelings about this.

1:33:09 I made a whole video on "The New York Times" about this very thing,

1:33:13 but I didn't focus on this aspect of it.

1:33:15 Because it's so complicated, low-income people who qualify for this credit

1:33:19 don't wanna fill it out themselves, and so they go to a tax preparer.

1:33:23 Enter this guy.

1:33:26 Well, not this guy specifically,

1:33:27 but a guy like this representing a company like this.

1:33:31 Liberty Tax is one of many tax preparation

1:33:34 companies that advertise to low-income people to come

1:33:36 in so that they can prepare their taxes

1:33:38 and get them in on the earned income tax credit.

1:33:41 But we now know they do so using some pretty shady means.

1:33:45 There's a lawsuit.

1:33:46 Lawsuit, lawsuit, lawsuit.

1:33:49 District of Columbia vs.

1:33:51 Liberty Tax Service.

1:33:53 Liberty Tax was recently sued for luring low-income people

1:33:58 by saying that they will prepare their taxes for them,

1:34:00 only to deceive these customers by secretly skimming

1:34:03 extra money off the top of their tax refund,

1:34:07 which, remember, includes the earned income tax

1:34:09 credit that is meant to subsidize their lives.

1:34:11 Liberty Tax also gives out loans to people,

1:34:14 saying that they can pay them back once they get their tax refund.

1:34:19 But what that really has done is create a market

1:34:21 for high-interest cash products like refund

1:34:25 anticipation loans or refund anticipation checks,

1:34:27 which are basically just payday loans that are secured by the refund.

1:34:31 And so this predatory industry has grown to take advantage of the complexity

1:34:35 of an incredibly important benefit that a lot

1:34:38 of poor people count on every year.

1:34:40 These loans would often come with high interest rates and unexpected fees.

1:34:43 In fact, the pricing in all of this has been kind of a black box,

1:34:47 allowing Liberty Tax to take advantage of low-income Americans trying to get

1:34:51 in on the benefit that they are entitled to because of this tax credit.

1:34:55 Okay, and this is where I have to come clean.

1:34:57 I worked for this company.

1:34:59 Not for very long, and not in any high position.

1:35:02 I was one of these Statue of Liberty guys.

1:35:05 One winter, I was home from university waiting for a security

1:35:08 clearance for an internship at NATO, and I needed money.

1:35:11 And so I found this job: being the Statue of Liberty holding this sign.

1:35:16 I didn't know what the sign said, okay?

1:35:19 But it probably said something like, "Need money today?

1:35:22 Apply for a $500 to $6,250 easy advance." Hm.

1:35:28 In other words, I was probably a part of luring desperate people into get

1:35:32 a bad loan or to have their tax refund skimmed by this corporation.

1:35:38 I had no idea, and I'm sorry.

1:35:39 Liberty is just one of many corporations who has gotten in on these schemes,

1:35:44 targeting low-income people to try to get in on their tax credits.

1:35:48 And to me, this is actually a failure of our tax system.

1:35:52 For this segment of the population, this should be a very easy thing,

1:35:55 like it is in every other country.

1:35:57 A box on a free government website that you can fill out in five minutes.

1:36:00 But instead, we've got a privatized corporate middleman who

1:36:04 is making all of this money off the poor.

1:36:07 Okay, number two, housing.

1:36:11 So here in the US, instead of building big public housing complexes,

1:36:15 like they do in some countries and like we used to do,

1:36:17 the privatized version of the American government gives vouchers

1:36:20 to low-income people and allows them to go choose a house.

1:36:23 And the government will basically pay for a portion of their rent.

1:36:27 This is called Section 8 housing.

1:36:29 And there are landlords that specialize in renting to Section 8 tenants,

1:36:35 getting this government subsidy voucher that goes to pay for the rent.

1:36:39 But what you find is that some of these landlords jack

1:36:42 up their prices because they know the government will pay for it.

1:36:45 Like here in DC, an apartment that should cost $1,600 a month,

1:36:49 the landlord might charge almost $1,000 more,

1:36:52 like $2,500 a month, well above the market price.

1:36:55 Knowing that the government who has poor oversight over this program,

1:36:59 won't pick up on this and will subsidize that inflated price.

1:37:04 Now I'm not just making this up;

1:37:05 those are real numbers from an investigation here in DC

1:37:08 by the Washington Post who found that the DC

1:37:11 government is overpaying thousands of apartments to the tune

1:37:15 of $1 million every month here in little DC.

1:37:18 But this is happening all over the country.

1:37:21 Enriching landlords while depleting the assisted housing fund,

1:37:25 all while distorting the market.

1:37:27 Like, this is not free market; this is a totally distorted thing.

1:37:32 Number three on our list is corporate middlemen, which is kind of a big section.

1:37:37 I'll try to work through it fairly concisely,

1:37:39 but it's kind of the biggest one here.

1:37:41 This is where a lot of people get really rich off the poor.

1:37:44 Remember from our history section just

1:37:46 a few moments ago that Ronald Reagan shook

1:37:48 up the welfare system by, instead of giving money directly to people in need,

1:37:53 instead giving it to the states,

1:37:54 who would then give it to a corporate middleman who would then distribute it.

1:37:58 And that corporate middleman also had

1:38:00 to kind of determine the eligibility of people,

1:38:02 making sure they're working or they're looking for a job.

1:38:05 And all of that is a lot of work,

1:38:06 and these corporations were the ones to be doing it.

1:38:09 So these are the folks who are getting government

1:38:12 contracts to act as government in running welfare programs.

1:38:16 They're basically agents of the government.

1:38:18 They are mercenaries for the public sector.

1:38:20 They're making huge decisions that benefit

1:38:23 the everyday lives of low-income people.

1:38:25 One of these companies, for instance, was a company called Maximus,

1:38:28 which is one of the largest welfare services providers today.

1:38:32 They had revenues of about $88 million in 1995.

1:38:35 And just a few years later, their revenues were already up to $500 million.

1:38:39 And today they're a $4.9 billion business.

1:38:42 Now this was exactly the point for Reagan and his reformers.

1:38:47 These corporate middlemen were supposed to be

1:38:49 much more efficient in administering this government money.

1:38:52 And indeed, they are for-profit companies,

1:38:55 and they operate much more efficiently than the government itself,

1:38:59 cutting costs and looking for ways to do things more efficiently.

1:39:03 But let's remember, this is not like a normal corporation like McDonald's

1:39:08 that is selling a product to a customer that can go somewhere else.

1:39:12 Let's see what happens.

1:39:13 (light pensive music) A few years ago,

1:39:18 Maximus took over Tennessee's health insurance program,

1:39:20 state-run health insurance program.

1:39:21 It's called Medicaid.

1:39:22 And what you saw is that many children and elderly

1:39:26 people very quickly were booted out of the program.

1:39:29 They were found ineligible.

1:39:30 There was a 23% increase in the number of uninsured children in the state.

1:39:35 That's more than any other state at the time, 2018.

1:39:40 It took me a while to get my head around this.

1:39:41 Like, why would a for-profit company want to kick children

1:39:44 and old people off of the state health insurance program?

1:39:48 I'll explain in just a sec, but let's look at one more example.

1:39:51 In 2016, Maximus took over the Medicaid program in Kansas.

1:39:57 And soon thereafter,

1:39:58 applicants started to see huge delays in their applications.

1:40:02 Backlogs started to build up, which, remember, what we're talking about here.

1:40:05 This isn't abstract.

1:40:06 This is vulnerable people, in this case, mostly elderly people,

1:40:10 not being able to access their basic health needs for weeks

1:40:14 and sometimes months because their application was pending for a very long time,

1:40:19 meaning Maximus was working on it, but presumably very slowly.

1:40:23 And that's because children and low-income people

1:40:26 and elderly people are not Maximus' customer.

1:40:30 They do not have an incentive to serve those people,

1:40:33 partly 'cause those people can't go anywhere else.

1:40:35 Those people think that they're interacting with the government.

1:40:37 They don't know who Maximus is.

1:40:39 And mostly because their main job is to get more government contracts and then

1:40:44 to cut costs so that they can capture

1:40:46 as much of that government contract as profit.

1:40:49 So in this case, what that means is cutting staff,

1:40:52 making it as cheap as possible to process these applications.

1:40:56 This answers my question about why a company like

1:40:59 Maximus would want to get people off the rolls,

1:41:02 to deem them ineligible for these benefits, because it's cheaper for them.

1:41:08 They are motivated to find people who do not qualify and to pare down

1:41:12 their list so they have fewer people to work on, which is less cost for them.

1:41:17 So yes, there is cost-cutting and "efficiency" that's happening here,

1:41:20 but it happens to be at the expense of vulnerable,

1:41:24 needy people who the government is trying to give money to.

1:41:27 Now, actually, I don't blame Maximus very much for this.

1:41:31 I don't think they're bad people.

1:41:32 I think they provide a very useful service in most cases.

1:41:35 We should expect a corporation to behave like this.

1:41:38 The definition of a for-profit corporation is someone who does

1:41:42 everything in their power to make money for their company.

1:41:45 That is their job.

1:41:46 So without proper oversight and competition

1:41:49 and regulation and performance review,

1:41:51 these corporations should be expected to minimize the resources

1:41:55 they have to put into processing applications and administering benefits.

1:41:59 And another point of fairness here: if you look at the financials of Maximus,

1:42:04 they're not some crazy profitable company.

1:42:06 Yes, they bring in billions of dollars.

1:42:08 They've captured a huge amount of this government services market.

1:42:11 Their gross profit margin is 20%, which seems like a lot,

1:42:14 but if you actually look at their net profit margin,

1:42:16 which is kind of their more typical profit margin, it's like 3%.

1:42:19 That's a pretty poor performance for a company.

1:42:22 They're not insanely profitable.

1:42:24 The CEO did make $7.3 million last year in full compensation,

1:42:28 and they did spend over $1 million in lobbying and funding elections.

1:42:32 My point here is corporate middlemen

1:42:34 who administer welfare are not robber barons,

1:42:37 and they're not running some corrupt scheme,

1:42:39 but they are for-profit corporations who will cut costs where they can.

1:42:44 And if they're not held accountable for doing that, the people who

1:42:46 suffer are the people who are already vulnerable and needy in our country,

1:42:51 which is what all these programs are meant to help.

1:42:54 Because they're one of only a handful of companies that are in this business,

1:42:57 you can get away with a lot of behaviors

1:43:00 that may not fly in a more competitive marketplace.

1:43:04 I remember interacting with these companies.

1:43:07 I didn't know I was interacting with them until I started reporting the story,

1:43:10 but when my son was like 1 1/2,

1:43:13 he was diagnosed with autism, and we started to look around for services,

1:43:19 realized our insurance didn't cover anything,

1:43:21 so we went to Medicaid, and we qualified.

1:43:24 And my wife has spent hours and hours on the phone with what I

1:43:30 now know was a corporate middleman trying

1:43:33 to work through these applications and processes.

1:43:36 And it was mind-numbingly complicated and difficult,

1:43:40 and the wait times were so long,

1:43:42 and the paperwork and the hoops that we had to jump through.

1:43:45 And I remember feeling a lot of anger at the inefficiency of the government.

1:43:49 The government has no incentive to perform because we're not their customer.

1:43:54 What I realize now is that I was dealing with a corporation.

1:43:57 I was not the customer, Iz was not the customer,

1:43:59 my son, Henry, who needed services, was not the customer.

1:44:03 And in fact, complicated forms and more wait times

1:44:06 and process is actually more business for these corporate middlemen.

1:44:10 They have an incentive to sell more paperwork to all of us.

1:44:14 To me, that is a distortion of what Ronald Reagan dreamt about.

1:44:19 Of corporations swooping in and making our government more efficient.

1:44:23 Okay, that's corporate middlemen.

1:44:24 Let's move on to number four.

1:44:27 Medicaid dentists.

1:44:29 Now, I've had some positive experiences with Medicaid.

1:44:31 When I was a freshly married,

1:44:32 in my young 20s university student with no insurance, and we had our first baby,

1:44:38 I got hit with a $10,000 bill from the hospital

1:44:41 and freaked out and went to the billing department at the hospital,

1:44:45 and they told me about this magical thing called Medicaid

1:44:47 for someone like me who was very low income at the time.

1:44:50 And lucky for me, whoever the benefits

1:44:52 contractor in Utah was handled it very well, and it really saved my bacon.

1:44:56 But if you look at all sides of Medicaid,

1:44:58 you start to see entire industries that exist

1:45:01 to take advantage of the Medicaid system.

1:45:04 A good example of this is dentistry.

1:45:07 [Anne] It's created an enormous business opportunity for some dentists who

1:45:10 see that they can make a living treating exclusively Medicaid patients.

1:45:15 Unlike regular private insurance,

1:45:16 Medicaid doesn't reimburse very much for dental procedures.

1:45:20 So because of that, a lot of dentists don't take Medicaid as an insurance.

1:45:24 And on the other side, there are some dentists that only take Medicaid.

1:45:28 They specialize in appealing to patients who qualify for Medicaid,

1:45:32 getting them in and doing as many procedures

1:45:35 as possible to get in on those Medicaid benefits.

1:45:37 And once again, if we're talking rational corporate behavior and incentives,

1:45:41 these offices will often target lower-income or disabled,

1:45:46 or elderly patients who are less likely

1:45:49 to advocate for themselves and against medically unnecessary procedures.

1:45:55 So inevitably, what's happened over time is

1:45:57 that this market has turned into a very exploitative one

1:46:01 where dentists have been prosecuted for charging for procedures

1:46:05 that didn't exist or procedures that were completely unnecessary.

1:46:08 For instance, there was a dentist in North Carolina who was

1:46:11 prosecuted for having performed 17 root canals on a three-year-old toddler.

1:46:17 And it's not just one bad apple in North Carolina.

1:46:19 This is a lawsuit where the US

1:46:22 government settled with a company called Kool Smiles,

1:46:25 and they are a Medicaid-specific dental franchise

1:46:29 who had to pay close to $24 million

1:46:32 because an investigation found that they were

1:46:34 performing dental operations that were not medically necessary.

1:46:37 They were taking advantage of poor patients

1:46:39 in order to get more money from Medicaid.

1:46:42 According to the lawsuit, they performed tooth extractions,

1:46:45 gave out stainless steel crowns,

1:46:46 did root canals on babies that did not need them.

1:46:51 Like, there are multiple things really wrong with this.

1:46:55 Obviously, exploiting a government system to deplete

1:46:59 the Medicaid fund is one aspect,

1:47:03 but performing, like, dental surgeries on people,

1:47:07 root canals on babies for money, is a level of greed and corporate exploitation

1:47:14 that I cannot really get my head around.

1:47:16 But again, in a world where companies will maximize profits,

1:47:21 this is to be expected if the incentive structure is set up that way.

1:47:25 Let's get to number five, which is similar to the dental clinics,

1:47:29 but it has to do with kidneys.

1:47:31 Here in the US, lower-income people

1:47:33 are disproportionately plagued with kidney failure,

1:47:36 a disease where your kidneys fail,

1:47:38 and your blood can't be cleaned by your kidneys,

1:47:40 so you need a machine called a dialysis machine to clean your blood for you.

1:47:44 Luckily, since the '70s, the United States now heavily subsidizes

1:47:48 people who need dialysis for their kidneys.

1:47:50 And dialysis is meant to be a temporary

1:47:53 intervention while you wait for a kidney transplant.

1:47:56 There's always a long waiting list for a kidney transplant,

1:47:58 so you're on dialysis until you can get a transplant,

1:48:00 which increases your chances of living.

1:48:02 It is a wonderful thing that the government

1:48:04 subsidizes this because it saves a lot of lives.

1:48:07 But inevitably, here comes the exploitation.

1:48:11 Overnight, it instantly created an industry opportunity to offer dialysis

1:48:15 because now the government was going to pay for it.

1:48:17 One of these companies is called DaVita.

1:48:19 I think they're the largest dialysis center company in the United States.

1:48:23 And because of this set of incentives,

1:48:25 we can start to piece together how they would behave.

1:48:29 And the thing again about dialysis is,

1:48:31 like Medicaid dentistry, it's a volume business.

1:48:34 The government pays dialysis centers per treatment.

1:48:37 And last year, it was about $380 per treatment.

1:48:40 So it is unfortunately in the interest of dialysis companies that run

1:48:45 dialysis centers to keep those machines occupied as many hours of the day

1:48:49 as they can to cycle through as many patients as they

1:48:52 can because an empty dialysis machine is $380 that they're not making.

1:48:58 Okay, so a company making sure

1:49:00 that their machines are being used at full capacity,

1:49:03 actually, there's nothing inherently wrong with that.

1:49:05 That is a company just using its resources efficiently,

1:49:09 administering a life-saving treatment.

1:49:12 But that's kind of just the beginning.

1:49:13 What you see in these for-profit dialysis centers

1:49:16 is less staff to help with the treatment, and you see higher death rates.

1:49:21 And this is where it becomes so clear where the failure is.

1:49:23 You see 17% fewer referrals for kidney transplant.

1:49:29 Meaning these people who are on a temporary dialysis intervention,

1:49:32 who are supposed to be waiting for a kidney transplant,

1:49:35 are kept on the machines longer because a for-profit

1:49:38 company makes money the longer they're in the chair.

1:49:42 So why would they refer them to get a kidney transplant

1:49:44 when they make more money keeping them on the dialysis treatment?

1:49:48 If someone gets a transplant, that is a lost customer.

1:49:51 [Anne] Unfortunately,

1:49:51 it's an option that's being denied a lot of people because it's

1:49:54 in the financial interest of dialysis centers

1:49:56 to keep someone in dialysis rather than,

1:49:59 quote, "losing them to transplant."- Now,

1:50:01 DaVita has paid like $1 billion in settlements and for some of this behavior,

1:50:07 including $350 million they had to pay after being

1:50:11 sued by the US government for paying doctors to go

1:50:14 out to recruit people to come to their dialysis centers

1:50:18 so that they could corner the market in certain areas.

1:50:21 They had to pay another $450 million because they were found billing

1:50:25 the government for medicine that they had received and just thrown out,

1:50:30 and charged the government anyway so that they could get reimbursed.

1:50:33 All of this, once again, further draining the money that is allocated

1:50:39 by our government to help people in need.

1:50:42 And finally, number six, the last on our list,

1:50:46 the one I'm deeming the most egregious because it has to do with children.

1:50:49 And not just any children, the most vulnerable children in our society.

1:50:54 Specifically, children who have been removed from their family because of abuse,

1:50:59 abandonment, or death: foster children.

1:51:02 If a foster child loses a parent or is physically or mentally disabled,

1:51:06 the federal government entitles them to around

1:51:10 $700 a month to subsidize their lives.

1:51:13 This is one that goes straight from the federal government,

1:51:15 from the Social Security Fund,

1:51:17 straight to these children, or at least it should.

1:51:21 But here comes the corporate middlemen once again.

1:51:23 States will often hire corporate middlemen, like Maximus, who is, in fact,

1:51:28 a part of this, to look through the databases of foster

1:51:32 children to identify which of those children qualify for this benefit,

1:51:36 meaning which of these children have a dead

1:51:38 parent or are physically or mentally disabled.

1:51:41 And then to go through the process of diverting

1:51:44 that money away from the children and into state coffers.

1:51:48 The state says they're doing this to help supplement the foster

1:51:51 care program in their state to help boost their budget.

1:51:54 But what feels very icky about this to me is that it creates, once again,

1:51:58 a business opportunity for a for-profit company who

1:52:01 is incentivized to scour these databases looking for children

1:52:05 who qualify for this benefit to divert

1:52:08 the money away from them and towards the state.

1:52:11 And Maximus gets paid a fee to do this.

1:52:14 They're incentivized to do this as a service for the state.

1:52:17 To look through these databases and look for children who qualify.

1:52:20 There's one NPR report from a while

1:52:22 back that reports that the corporate middleman Maximus,

1:52:26 who we've talked about at length here and who I will probably get sued

1:52:29 by, would get $1,600 per child that they found who qualified for this benefit.

1:52:35 Remember, a child whose parents are dead or who has a physical or mental

1:52:40 disability who's entitled to around $700

1:52:42 a month to supplement their very difficult life.

1:52:45 If Maximus finds that child and diverts that money into state coffers,

1:52:49 Maximus gets paid $1,600.

1:52:51 That was in Alaska.

1:52:53 Oh, but it's still going on.

1:52:54 In 2018, Washington State worked with Maximus

1:52:58 to get $6.89 million of foster children's money.

1:53:01 Wisconsin got $4.13 million from their foster children,

1:53:05 thanks again to the services of Maximus.

1:53:07 Illinois, $18.7 million from foster children.

1:53:12 Illinois didn't work with Maximus in this case,

1:53:14 but another similar corporate middleman called Diversified

1:53:17 Services Network to do the same thing.

1:53:20 None of these companies want to be known or spoken out loud.

1:53:23 They just sort of operate as, like, a proxy for the government.

1:53:26 They just...

1:53:28 This is what they do.

1:53:29 This money is being diverted from going directly to the foster

1:53:33 children to going into the statewide foster care program.

1:53:36 So it still is benefiting those children indirectly,

1:53:40 but it feels wrong to me because

1:53:42 this money was intended to benefit them directly.

1:53:45 These are the most vulnerable children in our society.

1:53:48 This money is entitled to go to them.

1:53:51 (paper rustling) Okay, so that was kind of awful.

1:53:57 I learned a lot about how the welfare system works and what privatization means.

1:54:02 I also learned that there are situations where this makes a lot of sense.

1:54:08 I didn't go into the full evaluation of privatization versus not.

1:54:13 I don't think that was the scope of this video.

1:54:14 What I've been trying to do here is look at places where,

1:54:18 in our vast welfare system,

1:54:20 profit-seeking corporations have found ways to exploit that system to make money

1:54:26 at the expense of vulnerable populations that are entitled to that money,

1:54:31 who we, the taxpayer,

1:54:32 pay to help supplement their life so that they can have a better life.

1:54:37 Now, what can we do about this?

1:54:39 Is this just totally hopeless?

1:54:41 The answer is no.

1:54:43 How do we fix the situation?

1:54:44 Well, you know, there's an old saying

1:54:46 that the first rule of holes is to stop digging.

1:54:49 (laughs) And in this case, the first rule would be to stop privatization.

1:54:53 The industry has kind of grown under the radar,

1:54:55 unchecked, unmonitored for decades now.

1:54:59 And we don't know how big the problem is,

1:55:01 and we can't tackle it unless we get some sense of how much money is

1:55:04 going to this, the amount of drag

1:55:06 that the government is experiencing from the poverty sector.

1:55:09 And I think that's the first step, one of the first steps to take.

1:55:13 I believe that there's a version

1:55:15 of privatized contractors administering public services and welfare

1:55:18 that is responsible and actually works

1:55:21 for serving the vulnerable populations it's intended to.

1:55:24 To do that, it will require much more oversight

1:55:28 and regulation that takes into account all of these incentives,

1:55:32 that treats corporations like adults who are going to find

1:55:35 whatever loophole they can in whatever system to make money,

1:55:38 and closes those loopholes.

1:55:40 Also, if we're gonna call this privatization,

1:55:43 we need competition, real competition, not these near-monopoly,

1:55:47 massive companies that kind of own entire sectors of public spending.

1:55:52 And in all of this, I think we should reevaluate

1:55:54 how much profit should play a role in these companies' incentives.

1:55:59 California is also working on a profit cap,

1:56:01 specifically for the dialysis centers,

1:56:03 making it so that they don't even have the ability to profit as much as they do.

1:56:08 Now, unsurprisingly,

1:56:08 this was fought tooth and nail with over $100 million from dialysis centers,

1:56:13 and the Proposition 8 was shot down.

1:56:15 But it's a great policy recommendation, and it begs the question:

1:56:19 how much profit should a corporation

1:56:22 that is administering public welfare be entitled to?

1:56:26 But ultimately, none of this will change unless the customer demands more.

1:56:31 And the customer in this case is the government.

1:56:34 If the government does not measure and demand better performance,

1:56:37 these companies will not do better.

1:56:39 The government seems to not be demanding a lot of change on the whole.

1:56:44 There's a trend towards more and more

1:56:47 privatization in things like Medicaid and other benefits.

1:56:50 Our belief in the market has allowed us to be blind to some of these failures.

1:56:57 And my worry is as we continue to privatize without plugging some of these gaps,

1:57:01 without fixing some of these loopholes,

1:57:03 we are enabling these companies to exploit those loopholes.

1:57:07 And as we've seen, they will do it.

1:57:08 They will find ways to continue to get rich off the poor.

1:57:14 Hey, if you're still watching,

1:57:15 you are probably somebody who wants to better understand the world.

1:57:18 So do the thousands of members of our club called Newpress.

1:57:22 Newpress is where smart,

1:57:23 curious people get a deeper version of what we do across all of our channels.

1:57:28 In-depth interviews with experts we speak to, conversations between creators,

1:57:32 and a place to connect with other members directly.

1:57:34 And I just launched a podcast with Iz that only Newpress members get access to.

1:57:39 Right now, it's 60 bucks a year to become a founding member.

1:57:42 That money goes directly to support work like this.

1:57:45 You can go check it out at newpress.com.

1:57:46 The link is in the description, and I'll see you over there.

1:57:49 (light thoughtful music)- Eggs, milk, bread, ground beef, butter.

1:57:59 Prices at the grocery store are going up.

1:58:02 Especially for people who spend a large amount of their income on food.

1:58:05 So a little price shock can have huge effects.

1:58:08 Grocery prices that usually go up 1% or 2%

1:58:10 a year have started jumping to more like 13% a year.

1:58:14 Prices are going up yet again.

1:58:16 [News Reporter] Sticker shock on store shelves.

1:58:18 You probably don't need to be reminded.

1:58:20 Now, of course, everyone's blaming COVID and broader inflation,

1:58:23 and while those are a part of the explanation,

1:58:25 there's actually something bigger going on here.

1:58:27 I mean, check this out.

1:58:28 Food companies are bringing in record profits.

1:58:30 CEOs of those companies are making way more just in the last few years,

1:58:34 and shareholders are getting huge payouts.

1:58:36 So what is going on here?

1:58:38 That is a question I have had for a long time,

1:58:40 and we're sitting here in the kitchen,

1:58:42 which is also our studio, and I thought, you know, gotta use it sometime.

1:58:46 So why not on the video about food?

1:58:48 Today, we're gonna understand our food system, the vast, complicated,

1:58:51 kind of magical food system that provides a lot of us with our nourishment,

1:58:55 bringing food from all around the world to our grocery store shelves.

1:58:58 And then we're gonna look at the corporations behind this system.

1:59:01 I wanna understand what their incentives are, what their power is,

1:59:04 and what they have to do, if anything, with the rising prices.

1:59:07 I also wanna understand why they're making so much money right now.

1:59:10 And ultimately, I want to answer what and who

1:59:13 is behind this massive increase in grocery store prices.

1:59:16 (bell tolls) About 8,000 years ago in what today is Syria and Iraq,

1:59:22 you could find humans doing something that was pretty unique for the time:

1:59:26 they're growing food, and, in fact, more food than they actually needed,

1:59:29 and then started trading it with other people who had more than they needed.

1:59:33 Now, this was new.

1:59:34 If there was one group who lived near

1:59:36 a salt mine and another group who grew wheat, they would both make a surplus;

1:59:39 they would swap their goods, and both would be better off.

1:59:42 A super basic idea that changed everything.

1:59:45 Humans started doing this at a more and more massive scale,

1:59:47 crossing seas and deserts, building empires to move goods,

1:59:51 to share tools, to spread ideas.

1:59:53 And the collective human focus became: how do we do this better, bigger?

1:59:58 We invented technology to improve it.

1:59:59 We fought wars over it.

2:00:01 We created money and companies and laws,

2:00:03 entire systems just to trade more stuff with more people.

2:00:06 Trade was changing the world,

2:00:08 and a lot of the history of our world is the history of trade.

2:00:11 It's what spread ideas and technology and flavors around the globe.

2:00:16 Arabic math and Chinese inventions, tomatoes arriving to Italy,

2:00:20 chilies arriving to Asia, corn to Africa.

2:00:22 Coffee arrives to Europe in, like, the 1500s and blows everyone's minds,

2:00:28 contributes to a whole revolution in thinking.

2:00:31 (supping) That's good coffee, guys.

2:00:34 But despite all of this global trade and improvement

2:00:37 in connecting the world and bringing flavors everywhere,

2:00:40 food still remained quite expensive.

2:00:43 You still had to work really hard just to feed yourself and your family.

2:00:46 Agriculture and food preparation required immense physical labor,

2:00:49 involving entire households in the effort

2:00:51 to produce sufficient calories to survive.

2:00:54 Like, we have data from the late 1700s that shows

2:00:56 that people in Britain spent 75% of their income just feeding themselves.

2:01:01 Around the same time in France,

2:01:03 they were spending about 70% of their income on bread alone.

2:01:07 (bread tearing) Oh, my God.

2:01:10 (munching) Is there anything better than just white bread?

2:01:13 Okay, but soon that started changing, and fast.

2:01:15 (tray clatters) Let's graph it.

2:01:17 (paper rustling) Look what happens by the year 1900:

2:01:19 a household is spending more like 42% of their income on food.

2:01:22 Then in the '30s, it goes down to 34%.

2:01:24 Just keeps falling.

2:01:25 After World War II, something really dramatic changes in the global economy.

2:01:31 (lively jazz music) The US and its allies built

2:01:34 a global economic system meant to connect the globe.

2:01:37 Maybe if everyone's economy was connected,

2:01:39 it would all be benefiting too much to fight each other,

2:01:41 was kind of the thinking.

2:01:42 And America wanted to set the rules for everyone, and they successfully did.

2:01:46 And with this new system comes a whole new level of efficiency and connection.

2:01:50 Like these magical boxes that can go seamlessly from ships to trains to trucks,

2:01:56 drastically cutting costs and loading time.

2:01:58 The world standardized around everything, from railroad sizes,

2:02:02 pallet sizes, paper sizes, barcodes, shoe sizes, screw sizes.

2:02:06 It's invisible stuff.

2:02:07 This isn't sexy, but it's important.

2:02:08 It's transformative.

2:02:09 The whole idea being that if everyone's using the same system,

2:02:12 everything everywhere becomes more efficient.

2:02:14 Trade gets better.

2:02:15 Now, a tractor part made in South Korea snaps in nicely to a tractor in Kansas.

2:02:20 And then there was the US dollar that everyone could use as the global currency,

2:02:23 along with international agreements that laid the rules for modern trade.

2:02:27 Suddenly, it's like the 1950s, and the whole world is being stitched together

2:02:31 in ways our ancient grain-trading ancestors could have never imagined.

2:02:35 And this is why today,

2:02:37 almost everything you touch has gone to more countries than you have,

2:02:41 because it traverses a huge network of the global economy.

2:02:45 We call it the supply chain.

2:02:46 (bright choral music) Like, look at an iPhone, albeit kind of cracked.

2:02:50 This iPhone traveled to 43 countries before it ended up in my hands.

2:02:54 Okay, but food isn't an iPhone.

2:02:56 Food is squishy and perishable and needs to kind of be refrigerated.

2:03:01 It doesn't go through the same, like,

2:03:03 advanced global supply chain that other stuff does, right?

2:03:06 Wrong, actually.

2:03:07 (peppy upbeat music) This is a beautiful tomato

2:03:11 that was grown here in my local area, that I bought at a farmer's market.

2:03:16 Full disclosure: did not buy this.

2:03:17 My producer bought it, and I'm holding it now,

2:03:19 and I will probably eat it with this bread

2:03:22 and this coffee after I'm done shooting this video.

2:03:24 Anyway, this costs six bucks, okay?

2:03:26 This is a $6 tomato.

2:03:27 Take it in.

2:03:28 That beautiful tomato, wow.

2:03:30 Shoots really nicely.

2:03:31 Five miles from my house, okay?

2:03:32 Then we've got these tomatoes.

2:03:34 They don't look that much different, a little more uniform.

2:03:36 These are tomatoes that came from the global economy.

2:03:40 They're all basically the exact same size.

2:03:42 These have come to me from very far away, not in this country.

2:03:45 We actually do grow a lot of tomatoes here in the United States,

2:03:47 over in California, but most of our tomatoes are grown in Mexico.

2:03:50 Four billion pounds a year come into the US.

2:03:52 So here we are in northern Mexico, here in these endless fertile fields.

2:03:57 I've actually spent a lot of time in this region,

2:03:59 not as a journalist but as a Mormon missionary,

2:04:01 riding in pickup trucks through fields

2:04:04 that grow food destined for US grocery stores.

2:04:07 (John speaking in foreign language) Ah!

2:04:10 Anyway, let's not look at my bad Spanish.

2:04:11 Let's talk about the journey of a tomato.

2:04:13 They're often picked while they're still green; they're not ripe yet.

2:04:16 Often picked by hand and then loaded into trucks.

2:04:19 A tomato like this will often go into a sealed

2:04:21 room where they are gassed with ethylene to ripen them.

2:04:24 Ethylene is just a naturally occurring hormone that helps ripen these guys,

2:04:28 and they want them to all ripen at the same time,

2:04:30 right as they get to the grocery store.

2:04:32 But we have a long way to go before we get to the grocery store.

2:04:34 So they're pumped with this gas.

2:04:35 And then, if they're going into cans,

2:04:36 which a lot of tomatoes do, they go through this industrial factory wizardry.

2:04:40 But for the ones that are gonna end up like this, fresh,

2:04:44 they are on a truck headed north.

2:04:46 They end up in a nearby city, probably the capital, Culiacan,

2:04:49 in this big facility where they're sorted, chilled, and then put on big pallets.

2:04:54 They get back onto a truck, which,

2:04:55 by the way, all of these trucks are refrigerated.

2:04:58 That's a big logistical challenge,

2:04:59 to make sure these things don't get too hot or cold.

2:05:01 And now the truck is heading north.

2:05:03 It gets to the US-Mexico border.

2:05:05 Look, this is where people go back and forth between the two countries,

2:05:07 but over here is a special border crossing just for trucks.

2:05:10 Our tomatoes are in one of these.

2:05:12 It clears customs, and then it probably

2:05:13 ends up at one of these transfer stations,

2:05:15 where the trailer might be transferred onto another truck

2:05:18 to an American driver who will take it from there.

2:05:20 The tomatoes are now in the United States.

2:05:22 Once in the US, they might be re-ripened and repackaged,

2:05:25 and they eventually take a long-haul trip on America's freeways,

2:05:28 ending up at a distribution center like this one in Illinois.

2:05:32 Here, tucked into the endless expanse of farmland,

2:05:34 is this massive building surrounded by cargo trucks.

2:05:38 The tomatoes are unloaded, they're scanned for inventory, they're repackaged,

2:05:41 and then they're back on the road, headed towards the grocery store.

2:05:44 And I promise I'm getting close here.

2:05:46 Okay, we've arrived at the grocery store.

2:05:47 This whole journey was nine days, about 1,000 kilometers, or 620 miles,

2:05:52 and the tomatoes are finally stacked in the vegetable aisle,

2:05:54 ready for you to buy a pound for $2,

2:05:57 bring them home, chop 'em up, and throw them into a sauce.

2:05:59 Bon appetit.

2:06:02 That was crazy, right?

2:06:03 Like, that whole journey, like,

2:06:04 your tomatoes came all the way from a farm in Mexico,

2:06:06 and they somehow made it to the grocery store without being smashed or, like,

2:06:10 going bad, and are somehow significantly cheaper than this?

2:06:14 How does that work?

2:06:15 Like, how does that make any sense?

2:06:16 And it's not just tomatoes.

2:06:18 (light groovy music) Avocados are picked by hand in southern Mexico,

2:06:24 sorted, chilled, trucked, and displayed in the Northeast of the United States

2:06:29 in the dead of winter for, like, three bucks.

2:06:31 Most of our vegetables in the United States come from other countries, like 60%.

2:06:36 And of course, you can imagine that it

2:06:38 gets more complicated with animal products: eggs, milk, meat.

2:06:41 But this is your food system.

2:06:43 Our food system.

2:06:44 The majority of us participate in this food system.

2:06:48 (groovy soft music) So why is food suddenly way more expensive?

2:06:53 Well, there are two answers to that question that we are about to get to.

2:06:57 The first one will make a lot of intuitive

2:06:59 sense because we just traced the journey of a tomato.

2:07:01 The second one will boil your blood.

2:07:04 Answer number one: something happens along the way.

2:07:07 Like, let's go back to this map.

2:07:09 And you see that in this journey,

2:07:10 your tomatoes passed through farmers and packagers

2:07:13 and cold storage and drivers and customs brokers,

2:07:16 international trade treaties, warehouses, wholesalers, grocery stores.

2:07:21 If any part of this system breaks or becomes more expensive,

2:07:26 or if there's a power outage or a storm

2:07:29 or a frost or a drought or gas prices spike,

2:07:32 workers go on strike, there's a new tariff,

2:07:34 that can make any one of these steps more expensive.

2:07:37 And it is you, the final customer, who will pay that price.

2:07:40 We call this a supply chain shock or shortage.

2:07:42 And it's kind of ironic that the system that makes food more

2:07:46 accessible and cheaper is also the same system that makes our prices fragile.

2:07:51 So yeah, that's answer number one: supply chain shocks.

2:07:53 And over the last four years, I mean, you know, there's kind of been a lot.

2:07:57 (lively percussive music) There's obviously COVID,

2:07:59 but that was just the beginning of a domino effect.

2:08:02 There was a drought in the Mediterranean, so olive oil prices went up.

2:08:05 Climate-related issues have screwed up fresh produce.

2:08:07 Writ large, there are both climate stuff that affects how much we can grow,

2:08:11 but also sometimes climate then interacts with, like, disease outbreaks.

2:08:16 A freeze in Texas wiped out a bunch of citrus.

2:08:18 [News Reporter] These farmers are experiencing

2:08:19 some of the worst conditions ever.

2:08:21 Because of the drought, the ground is just not fit for grazing.

2:08:24 And like many others, the rancher here has had to cull

2:08:26 his herd because it's more economical than feeding them.

2:08:29 Russia's invasion of Ukraine messed with a lot of industries.

2:08:32 The war in Ukraine spiked wheat prices there

2:08:34 for a little bit and also spiked fertilizer prices.

2:08:37 And the issue is, Russia controls one type of fertilizer but not two others.

2:08:41 And so it meant farmers had to, like,

2:08:43 retool all of their systems to switch to the other fertilizer.

2:08:46 And then there was a run on those two fertilizers.

2:08:49 Oh, palm oil got really screwed up there for a while because

2:08:52 Indonesia decided to temporarily ban exports

2:08:55 because prices were increasing so much,

2:08:56 so they wanted to make sure they had enough supply.

2:08:58 This was also kind of in the wake of Ukraine.

2:09:00 And so vegetable oil prices were up.

2:09:03 A hurricane in Florida messes with orange groves.

2:09:05 The Houthi rebels in Yemen are firing rockets at these merchant

2:09:09 ships that are the lifeblood of the global economy.

2:09:11 Canada, the largest producer of canola oil,

2:09:13 had a big drought, and so that dropped.

2:09:15 Meat processing during the pandemic,

2:09:17 there were massive COVID outbreaks in meatpacking,

2:09:20 and so they had slowed down a lot

2:09:22 of line speeds because there were fewer workers.

2:09:24 And so just, like, less meat was getting slaughtered and packaged.

2:09:28 And then, of course, there were shortages in random things like packaging

2:09:31 and trucking and cold storage and shipping containers.

2:09:35 During COVID, production of aluminum cans

2:09:36 was lower because factories were closed.

2:09:38 But then trade wars over aluminum have affected cans,

2:09:41 and so for a while, soda was being affected, and beer was being affected.

2:09:45 Each shock to the system triggers

2:09:48 a reverberation through the rest of the system,

2:09:51 which makes things more expensive and unpredictable.

2:09:53 The price goes up, and eventually, the price of your final product,

2:09:56 the thing you see on the grocery aisle, has gone up.

2:09:59 Okay, so no one's disputing that supply chain shocks

2:10:03 are a major reason why prices have gone up,

2:10:05 but this isn't actually the full explanation.

2:10:07 There's something bigger going on here.

2:10:09 And that gets to my second answer

2:10:11 to the question of why grocery prices are more expensive.

2:10:14 I'll just say it upfront here, which is, we've all been kind of tricked.

2:10:18 And there are people making a lot of money off of us being tricked about prices.

2:10:23 Basically, in COVID, I think there was kind of a reckoning.

2:10:26 Customers were pretty understanding when companies said, "Hey,