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[Assistant] On the market for child labor. Let's go to the highly complicated last figure. Let me walk you through this. Here is the market for child labor. Okay? On the X axis is the amount of child labor. On the Y axis is the wage of kids. Okay? We start at point one. Initial demand, initial supply. Wage one, L one. Now, we liberalize trade.


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[Assistant] And that leads to more demand for child labor because we want to produce more rice. So that shifts us out to D2 and point two. So we have more child labor. That's bad.


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[Assistant] And with the income effect, they will buy their kids education. They'll pull their kids out of working and put them in school.


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[Assistant] That's represented as a shift to the left of the supply curve. So we move from point two to point three through the income effect.


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[Assistant] Why? Because the benefits of more kids working in terms of producing more rice is exceeded by the value to the firms of taking their, of the families of taking the extra money they're making and putting it into education for their kids.


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[Assistant] And in fact, the study showed that we did move to a point like point four.


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[Assistant] Okay, we actually found that child labor fell when they liberalized trade.


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[Assistant] That the, that the ar- the intuitive argument that gee, if they sell more, more kids are gonna work is wrong. That in fact, when you sell more,


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[Assistant] Yes, more kids demand for more kids, but families are so rich, they put their kids in education rather than their fields.


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[Assistant] Okay, and that is a wonderful sort of counterintuitive story of how what economists, I'll talk about economists like free trade.


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[Assistant] How free trade can actually have an unexpected positive effect, we might think it's negative. I know there's a question you can come up if you want to talk, but we gotta end now.


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[Assistant] So thank you for staying a minute extra, and uh, I will see you guys on Wednesday.


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[Assistant] It's a shame about Dr. Octavius. His work had so much promise. Any changes since this morning? Dizziness, aches, pains, anxiety, impulsive thoughts? Nope. I've never been better. That's what worries me.


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[Assistant] It's funny, Harry's getting a second chance, but I feel like I'm getting one too.


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[Assistant] No. He doesn't take days off.


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[Assistant] Only downside to going straight. The game keeps you in shape.


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[Assistant] Hm. They couldn't have off me if they tried. Sides, they were waiting for their boss to do the deed.


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[Assistant] Okay, it's just a lot right now. So much to take care of in this city. Super stressed about my college essay. Pete's busy doing other stuff. And Lee. Lee is still out there. Doesn't that bother you?


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[Assistant] Yeaah. But Lee?


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[Assistant] Yeah, but I always have time for my community.


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[Assistant] We, once again, remember the big picture. We started with the first fundamental theorem of welfare economics, which is that the competitive market will maximize total social welfare.


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[Assistant] Then we said that will not be true under conditions of market failure. Remember, market failure doesn't mean market collapse. It means that when there are barriers to the market achieving this first best outcome. Okay, one barrier is imperfect competition. One barrier was imperfect information. A third barrier to


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[Assistant] Okay, that's the third source of market failure and we're going to talk about that today. What is an externality? We're going to be very clear about the definition. An externality occurs whenever one party's actions makes another party better or worse off. Okay?


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[Assistant] Better or worse off. But I don't fear the consequences. Then there's an externality. Okay?


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[Assistant] So let's talk about that in the context. Let's start with the classic example of externalities, which is a negative production externality.


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[Assistant] But as a byproduct of that production, it dumps sludge into the river. Okay, you guys remember the Lorax? It's basically the Lorax, okay? So basically the steel plant dumps sludge into the river.


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[Assistant] Okay, that sludge floats down the river and kills the fish.


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[Assistant] So if every unit of steel produced, there's one unit of sludge that emits from the factory. Okay, just to make this model easy. So every unit of steel, there's one unit of sludge. That sludge flows down the river and kills the fish. Unfortunately, there are fishermen down this river who are trying to catch fish. And that hurts their livelihood. Okay?


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[Assistant] So this is a classic example of voting by an externality. Because the steel plant's behavior is imposing a cost on the fisherman.


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[Assistant] Their sludge is the most cost to fishermen. But the steel plant doesn't bear any consequence of that. They just dump the sludge and forget about it.


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[Assistant] Okay, so that means by negative, it's a negative externality because my actions are hurting you. The steel plant's actions are hurting the fisherman.


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[Assistant] It's a production externality because it comes out of the production process, in this case for steel. So that's what I mean by negative production externality. It means that when one party's production adversely affects another party,


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[Assistant] But the party doing the production doesn't bear any consequences of that, then that's a negative production externality. So what effect does that have? Let's go to figure 22-1.


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[Assistant] And talk graphically about how we think about production externalities. Okay? This is the market for steel.


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[Assistant] Which is equal to the marginal benefit that consumers get from consuming the good.


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[Assistant] Is the firm's marginal willingness to supply, which is their marginal cost.


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[Assistant] Okay, so in the perfectly competitive market where marginal benefit equals marginal cost, we get equilibrium.


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[Assistant] And that yields the welfare maximizing outcome. The market succeeds. It does not fail. Okay?


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[Assistant] The difference now is we're now gonna drive a wedge.


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[Assistant] Between privately perceived benefits and social benefits.


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[Assistant] So for the consumption of steel with the demand curve, we're gonna say the benefit to individuals is the benefit to society. They're one and the same. That's what we've assumed all course.


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[Assistant] But for the supply of steel, we're going to say, wait a second, the benefit to society is different than the benefit to the steel producers. Or I'm sorry, the cost to society is different than the cost to steel producers.


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[Assistant] The cost to your producers, which is their private marginal cost, is supply curve. But the social marginal cost,


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[Assistant] Is adds the damage they're doing to the fishermen. That a society encompasses.


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[Assistant] All the actors in society. It encompasses both the steel plant and the fisherman.


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[Assistant] So the ca- marginal cost of society is the cost of producing the steel. Plus!


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[Assistant] The marginal damage being done to the fisherman. So social marginal cost equals private marginal cost plus marginal damage.


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[Assistant] Social marginal cost equals private marginal cost plus the marginal damage. And we see that as the red line.


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[Assistant] What that means from a welfare perspective, what we care about is social marginal benefits and costs, not private marginal benefits and costs. So what that means is the social optimum,


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[Assistant] Points C's to upper maximizing optum where the social marginal cost equals the social marginal benefit.


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[Assistant] Not considering the damage they're doing through production of the fishermen produces too much. This fuel company


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[Assistant] Okay, that's the, that's the private market decision.


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[Assistant] But in fact, it should be producing at the point where social marginal cost


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[Assistant] Equals private marginal benefit. Private marginal benefit. Equals social marginal benefit. Okay?


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[Assistant] Because lower production avoids, reduces the damage being done to the fisherman down the river. Okay? So the optimum, from society's perspective, is point C.


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[Assistant] In other words, there is a market failure. The private market is not delivering the welfare maximizing outcome. And we could see that creates a deadweight loss. The deadweight loss


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[Assistant] Is the units that are traded that are socially inefficient.


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[Assistant] Why are they socially inefficient? They're privately efficient. Using Q2 and Q1.


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[Assistant] Before we introduce externalities, we'd say, well, it's a shame if they don't get produced, right? If you ignore externalities, we'd say the incident Q2 and Q1, well, they have a benefit higher than their cost. So they should get produced.


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[Assistant] But actually in the world of externalities, their benefit isn't lower than their cost. Because their cost incorporates the damage done to the fish.


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[Assistant] So there's a deadweight loss. Critically, you gotta know how to draw these deadweight loss triangles. Remember, deadweight loss triangles always point to the optimum.


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[Assistant] The deadly loss triangle is the area ABC.


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[Assistant] Okay, it's drawn, it's units that are sold where the social marginal cost exceeds the social marginal benefit. And that's that deadweight loss triangle. So there's an inefficiency


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[Assistant] Arising from the fact that private actors do not account for the social implications of their actions. Okay? Questions about that?


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[Assistant] So we have a classic example, perhaps the classic example of all of economics, of a market failure.


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[Assistant] The classic example is a market failure happens when the social implications of your actions, okay, are different than the private implications.


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[Assistant] Since people maximize their own private well-being, that's what Adam Smith sort of taught us. The notion of the invisible hand is that the market acting in its own interests will deliver the best outcomes for society. We're saying no, that's not true. If the market in its own interests has implications for other parties that are not accounted for. Okay? Now.


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[Assistant] Externalities don't have to just be on the, uh, production side. We could also have negative


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[Assistant] Why isn't that an externality? If I consume the, if I want to consume the good, the price goes up, everyone pays a higher price. Why is that not an externality? Yeah.


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[Assistant] Consumption functionalities happen more directly when my consumption affects you. So the best example of this would be smoking. Okay? When I smoke, it affects you.


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[Assistant] It affects you in a number of ways. Most directly, if I smoke in this classroom, you get secondhand smoke and you get ill as a result. But that's not all. It affects you because if I smoke and I get sick and my healthcare costs go up,


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[Assistant] Then while I work at MIT, all my fellow MIT employees bear those costs because we all share health insurance. And when I retire, all society bears those costs because those costs are paid for by the Medicare program, which is financed by taxation. So my health care costs are an externality. Second hand smoke is an externality. What are some other externalities from smoking? What are other externalities that can occur from smoking? Yeaah. Well, that would be a production externality.


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[Assistant] Okay, we're gonna leave that alone for now. I'm just talking about from consuming cigarettes.


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[Assistant] I'm consuming cigarettes. What else? What other damage comes? So I may make you sick through secondhand smoke. I might raise healthcare costs. Well,


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[Assistant] I might raise healthcare costs, okay? What else is there externally? What else does smoking do?


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[Assistant] Well, turns out there are 100,000, this is a number which I triple check, because I still can't believe it, 100,000 people every single year die in fires caused by smokers. Not in the US, worldwide.


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[Assistant] Which is a crazy number, but if you think about how tightly packed slums are in developing countries, one person falling asleep with a cigarette burning can kill thousands of people. Okay? That is an externality because my action to smoke has killed you. Okay, I'm clearly not going to compensate you for that. So that's another externality. Okay? What about the fact that smokers are less productive at work? They have to take more smoke breaks, they might get sick more often,


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[Assistant] The fact that smokers are less productive at work, is that external or not? Why or why not? Yeah.


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[Assistant] Exactly. It's not an externality if they're paid less. This is the key thing.


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[Assistant] Okay, which is only external if you don't bear the consequences. Smokers are less productive at work and they get paid less as a result by exactly the same amount they're less productive. There's no externality.


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[Assistant] Aspect of externalities, you have to think about whether people are compensating for it. Okay? You have to think about that. Okay. Most importantly, the fact I kill myself by smoking is not an externality.


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[Assistant] Okay, smokers die seven years earlier on average.


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[Assistant] Roughly speaking, every cigarette you smoke lowers your life by seven minutes. It's pretty linear. Okay?


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[Assistant] There's only externality if we have one of these mechanisms like if in smoking I'm in the woods and I start a fire and the fire company has to come, that's an externality.


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[Assistant] But as long as I just sit by myself, I don't, I don't bother anybody, I just smoke till I die, there's no externalities. Okay, so externalities come through the effects on others. So let's think about the externalities of smoking. Let's think about a negative consumption externality. Okay, here we have the market for cigarettes.


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[Assistant] On the x-axis, we have the number of cigarettes, quantity of cigarettes consumed. On the y-axis, we have the price of cigarettes per pack. We have initial equilibrium point A.


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[Assistant] Which is where the private marginal benefit equals the private marginal cost.


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[Assistant] Okay, there may be production externalities too. We covered those. You already know how to think about those.


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[Assistant] Here, but here let's assume there aren't any. Let's assume the social marginal cost equals the private marginal cost. No production externalities. But there is a consumption externality. Every cigarette I smoke is bad for society. What that means is the social marginal benefit is below the private marginal benefit.


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[Assistant] The social marginal benefit is the private marginal benefit minus marginal, the marginal damage I'm doing. MD is the marginal damage.


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[Assistant] The marginal damage I'm doing. That's estimated to be about...


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[Assistant] Absent secondhand smoke, the damage of smoking is about 50 cents a pack. The secondhand smoke part is really hard.


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[Assistant] Uh, and the estimates are anywhere from one cent to two dollars per pack. So that's hard to know how big that is. Okay? But certainly, uhm,


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[Assistant] Uh, we have, we have this negative consumption externality, which is that basically, uhm,


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[Assistant] The, every pack of cigarettes I smoke is worth at least 50 cents less to society than it's worth to me. Because I have these external effects on society, perhaps a lot more than that. As a result,


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[Assistant] I should smoke. I choose to smoke at point A. But the social optimum is point C.


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[Assistant] And a dead weight loss, because they're units that are privately optimal to consume, but not socially optimal.


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[Assistant] Externalities, this is kind of a fun topic because it is interesting. I talked, so let's talk for a second about secondhand smoke and whether that's actually an externality.


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[Assistant] So almost all the damage taken at smoke is not done by smoking in a crowd, it's done to family members.


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[Assistant] Almost all the damage taken at smoke is done to family members. Mostly it's that you make your family member sick by smoking. Is that an externality?


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[Assistant] When or when is it not an extra under what conditions might it not be an externality? Yeah.


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[Assistant] Yeah, if I care about my family, in particular if I maximize family utility, that is not an externality.


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[Assistant] If I maximize not my own utility, but my family's utility, then I will essentially internalize


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[Assistant] Means that I bear the consequences for being a less productive worker. Okay? If I care about my whole family's happiness and I make my kids sick by smoking,


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[Assistant] Then my smoking decision will actually reflect the total consequences for my family. I will smoke only if it's optimal for my family for me to do so. It doesn't mean I won't smoke. It just means I must, I'll have to enjoy it enough that it's worth making my kids sick. Okay? It doesn't mean that's an incorrect decision because after all,


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[Assistant] The odds are you're gonna make your kids that sick and, you know, you might like smoking a lot.


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[Assistant] Okay, it's just that you will internalize the external because you only smoke to the extent that it is optimal for the whole family. So it's not necessarily an externality. Okay.


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[Assistant] So we'd like actually to test, whether it's an external, there's actually a clever test of this. Which is, there's a test of whether people maximize family utility. Which is, if people maximize family utility, what would be the implications of giving


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[Assistant] A father a dollar versus giving a mother a dollar. If both the father and the mother are maximizing a family utility function, the same family utility function.


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[Assistant] Then should it matter whether I give a dollar to a father or a dollar to a mother? No, it shouldn't.


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[Assistant] Because it's a dollar to the family. We're maximizing family utilities to a family budget constraint. It shouldn't matter who gets the dollar.


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[Assistant] So one test of family utility maximization is, does it matter who gets the money? And it turns out it does a lot. Okay? So it's a great test of this. They, uhm, in the UK, these have a tax system.


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[Assistant] Where essentially, uh, the way, there was a credit they gave for every kid. And the way the credit worked is there'd be a check sent home. Okay?


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[Assistant] Then they changed it, so instead they said, well instead of sending a check home, we're just going to add it into pay, into wages. So instead of getting a check sent home, we're just going to raise your wages.


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[Assistant] Well, it had no effect on family budgets. They literally just changed it. The difference was, back in the 70s, men worked and women didn't. So when the check came home, women controlled it. But within wages, men controlled it. So if there's family utility maxillation, it shouldn't matter.


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[Assistant] But it turned out as soon as they changed the way they paid it, spending on kids went down and spending on drugs and alcohol went up. Because basically guys don't care about kids as much as women do. Sorry guys.


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[Assistant] It's just, I don't know what the evolution of biology is. At least in the 70s they didn't.


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[Assistant] So that's sort of a rejection of family utility maximization. Who had the dollars actually matter? It's kind of a neat study for how you think about these, about these theories. So it suggests that second hand smoke, probably people don't perfectly maximize family utility, so there probably are some externalities. Okay?


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[Assistant] So that's, uh, so that's a negative consumption externality. There can also of course be positive externalities. So let's talk about a positive consumption externality.


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[Assistant] Let's talk about my neighbor. I don't get along with my neighbor. Okay, uhm, and partly it's because my neighbor


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[Assistant] And about 25 years ago, 20 years ago, he started a big project to landscape his yard.


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[Assistant] Created these huge mounds of dirt that I look at directly from my kitchen and then stopped. So for 20 years, I've had to stare at huge mounds of dirt. Okay? Now, uhm, let's think about my neighbor's decision to go ahead and get rid of those piles of dirt.


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[Assistant] Let's say that that would cost one thousand dollars. So the cost is a thousand dollars. Okay?


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[Assistant] And let's say the benefit to my neighbor from doing so is clearly less than a thousand dollars we would have done it. Let's say it's eight hundred dollars. So that's why he leaves those piles of dirt.


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[Assistant] Because the cost is a thousand dollars to remove them, it's only worth a hundred to him. But what he's not accounting for is if he removed them, there would be a positive benefit to me of another three hundred dollars.


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[Assistant] So actually the total social benefit of removing the dirt piles is higher than the social cost. So from a social perspective, he should do it. But he doesn't. Because privately, it's not optimal to do so. Okay? So that is a positive consumption externality. Yeaah.


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[Assistant] Well this leads to a very deep question, which is, can't all externalities simply be internalized? Let's take this example. Why can't I just go over and offer to pay him? Okay?


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[Assistant] And indeed, there's a school of thought which suggests that exercise aren't really a problem. They can all just be internalized. But of course, that's totally wrong.


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[Assistant] Okay, let's start with a hard example. Let's talk about the biggest environmental externality, which is global warming. Okay?


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[Assistant] Bring people of Bangladesh that much closer to being underwater. How could you possibly negotiate that?


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[Assistant] How could you possibly negotiate where the people of Bangladesh would come and say, well drive a little bit less so I don't go underwater? Okay, that's not happening. Okay, but even with these simple cases, think about this. Why can't I just go to my neighbor and offer him 200 bucks? There's three problems. First problem.


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[Assistant] Okay, the second problem is he doesn't know how I feel. So it's an information asymmetry, which makes negotiations hard.


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[Assistant] There's a third problem too, which is it'd just be deeply weird to do that.


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[Assistant] Right? I mean, it's just not how society works. You think about a class case of an externality you probably all run into, which is your neighbor playing their music too loud. Okay? If your neighbor plays their music too loud, that is an externality on you.


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[Assistant] Okay, now in principle, you go to your neighbor and say, well look, I'm studying for a test. This test will raise my grade by 10 points.


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[Assistant] A higher grade in this class will raise my earnings by a thousand dollars.


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[Assistant] So I'm willing to pay you $83 to stop playing music, because I've calculated my lifetime earning effect you're playing the music. Okay, even at MIT. Okay, that'd be sort of deeply weird to do. So what do you do? You either shut up about it or you go yell at them. Okay, but yelling...


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[Assistant] Induces an honestly efficient way to resolve it because maybe they really want to play the music. The efficient thing would be if it's worth more than 83 dollars to them to play the music, they should get to pay it and just pay you 83 dollars. But in fact that doesn't work.


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[Assistant] So in fact, private solutions to these problems simply do not work.


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[Assistant] Okay, it's just hard to figure out how you can really get people privately to internalize, uh, these, uhm, uh, these externalities. Okay, because negotiation is difficult because it's just socially awkward.


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[Assistant] There is a famous apocryphal story told of a famous economist who was on a flight and wanted to get work done and couldn't.


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[Assistant] Uh, I don't believe that actually happened, but you know, makes for a good story. Okay? So that's a positive consumption externality. Finally, we have positive production externality.


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[Assistant] The classic example of positive production externality is uhm, uh, R&D by private firms. Okay. When a firm does research and development, they don't just create learning for themselves, they create learning that might benefit other firms as well.


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[Assistant] Okay, and indeed the best economic estimates suggest that the social returns to a dollar of R&D are two and a half times the private returns.


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[Assistant] Every dollar of R&D a firm does benefits society by two and a half times how much it benefits the firm.


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[Assistant] To, uh, that's leading to too little R&D being done in society and that affects all of us because that affects growth. That's what my new book Jumpstarting America is all about. Is about why we need the government to come in and invest more in R&D because firms under invest.


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[Assistant] Okay, essentially firms don't account for the spillovers.


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[Assistant] That their investments have on others. So a great example we use in the book.


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[Assistant] Is the example of when two drug companies were racing to invent statins. You guys are too young to know about statins, but statins are basically a cholesterol-lowering drug that's a miracle. It saves hundreds of thousands of lives every year. That's about 200,000 lives a year saved by people lowering their cholesterol for being on statins.


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[Assistant] Statens are being invented in the early 1980s by two rival drug companies, Merck in the U.S. and Senkyo in Japan. And they were racing to develop these statens.


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[Assistant] And then Senku suddenly stopped. And Merck found out that the grapevine is because some dogs got sick in the animal trials.


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[Assistant] And so Merck went to thank you and said, hey, where's him dog? What's going on? He said, we're not going to tell you. You're our competitor.


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[Assistant] So Merck offered to pay the money. They offered to partner. Cenk, you said no way.


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[Assistant] This is private R&D, we don't want to share it with you. So Merck Stop 2.


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[Assistant] Five years later, some academics got permission to run trials on statins. Turns out that what happened to the dogs had nothing to do with the drug. They were fine. It's totally safe. And statins were invented and save 200,000 lives a year, but five years after they should have. Literally one million people died.


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[Assistant] Okay, because there was, you could not benefit from the spillovers of R&D knowledge.


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[Assistant] Okay, this is an example by underinvestment in R&D. Okay?


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[Assistant] So we have x values can be negative or positive that can be production side or consumption side. Questions about that?


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[Assistant] Yes, we're also negative or positive, and we still create deadweight loss. Because if they're positive, I should, I should, uhm...


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[Assistant] Uhm, Jason, just send me a note. Next year, next year we should have in the handout a positive graph. Well, I'll just do it here. I can, I'm not, I'm capable of drawing a graph. So let's talk about R&D. Okay, here's the quantity of R&D. Okay, here's the cost of R&D, the price of R&D. So basically, and here's the, the, uhm, here's the, uh,


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[Assistant] So here's gonna be the demand for R&D. Okay, here's gonna demand, which is private marginal benefit.


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[Assistant] And here's the, uh, here's the supply, which is the private marginal cost.


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[Assistant] Okay, and let's just say that there's no x values from actually, this is a consumption exercise, this is a production externality.


[User] Please transcribe this text

[Assistant] So basically the point is that when a firm does R&D, they do R&D to the benefits to the firm.


[User] Please transcribe this text

[Assistant] Is that in fact what they're missing is that the cost to them are actually well below.


[User] Please transcribe this text

[Assistant] Uh, well below what it truly costs because they are benefiting others by doing it.


[User] Please transcribe this text

[Assistant] Okay, so the supply curve, the pri-, the, the true social supply curve is down here. The social marginal cost is the private marginal cost minus the social benefits.


[User] Please transcribe this text

[Assistant] So as a result, they should be doing Q2 R&D.


[User] Please transcribe this text

[Assistant] But they're not. They're doing too little R&D. And that's making a deadweight loss. The deadweight loss, remember, is with reference to the optimal point. This is the deadweight loss. This deadweight loss from under producing, uhm, R&D. The difference between


[User] Please transcribe this text

[Assistant] Uh, no I'm sorry, I got that wrong. The triangle's always confusing to draw, I got that wrong. Okay, it's the difference between the social marginal cost, between the social marginal cost and the private marginal benefit. So basically, let me think about this for one second, it's always a little bit hard to do.


[User] Please transcribe this text

[Assistant] So basically they're units, they, they're units they underproduce. So essentially what they're, they should be producing this many units. Yeah, between the, with the private march. Yeah, it's this, I had it right. That's the deadweight loss.


[User] Please transcribe this text

[Assistant] Okay, yeaah. So basically what you have is you're going to have underproduction of R&D, just like you had overproduction of steel. Okay, yeaah.


[User] Please transcribe this text

[Assistant] Because the marginal benefit is, what's the marginal benefit of another dollar of R&D? That's, that's basically, that's essentially what's the knowledge created.


[User] Please transcribe this text

[Assistant] Okay, you could, you could view this either way, but the idea here is I'm producing R&D, I'm not consuming R&D. This is the benefit of consuming R&D.


[User] Please transcribe this text

[Assistant] This is sort of the benefit side of consuming that R&D. This is the use, so you think it was lower in the cost of producing the R&D. It's sort of the way we think about it. Okay? But the main thing is not, is not, yeaah.


[User] Please transcribe this text

[Assistant] Yeah, exactly, because, because I'm making constant. In fact, you can imagine it could be growing or shrinking. Okay? Now,


[User] Please transcribe this text

[Assistant] With this in mind, and realizing the private sector can't solve this for the reasons we talked about, let's talk about the role, let's talk about the role of government. Government solutions.


[User] Please transcribe this text

[Assistant] Which is that, uhm, the basic logic of the class, which is that, uhm, if, uh, the basic logic of the class is that the market knows best,


[User] Please transcribe this text

[Assistant] Unless there's a market failure. If there's a market failure, the private market will deliver a deadweight loss. Now we have to ask, can the government actually make it better? Remember we talked about monopoly regulation, the government may or may not make it better. Okay?


[User] Please transcribe this text

[Assistant] Information asymmetries, it may or may not make it better. Same thing with externals, the government may not make it better. So let's see how the government, in theory, could make it better. Okay? Well, there's two ways the government could make it better. One way is by regulation. So go back to figure, uhm, 22-1. Okay? The government could literally regulate


[User] Please transcribe this text

[Assistant] And could say, look, we know the optimal level of steel to be produced is Q2. We're just gonna tell you, you produce Q2. That's it. Problem solved. Okay? We just say, hey, steel plant, we know the optimal Q2, you produce Q2. Problem solved. The problem with that is that requires the government to know quite a lot.


[User] Please transcribe this text

[Assistant] The government needs to know both the supply and the demand curves to figure out where Q2 is and what they should regulate.


[User] Please transcribe this text

[Assistant] All I know is that for every unit of steel you produce, which is unit of sludge, you're killing $100 worth of fish. That's what I know. That I can study environmentally. Okay? What if I simply tax the steel plant by $100 for every unit of steel they produced? That is, if I impose a tax on the steel plant,


[User] Please transcribe this text

[Assistant] One unit of steel is one unit of sludge in this example. So I'm going to tax every unit of steel they produce, which is, which has, which is the same as producing one unit of sludge. Okay. What if I impose that tax? Well, let's look at figure 22.3. What does that do to the firm's decision? Okay.


[User] Please transcribe this text

[Assistant] Where their private marginal cost equals the private marginal benefit, which is the social marginal benefit. Now the government comes in and levies a tax.


[User] Please transcribe this text

[Assistant] It levies attacks of exactly MD, the marginal damage.


[User] Please transcribe this text

[Assistant] What does it do? It shifts their private marginal cost curve to the social marginal cost curve.


[User] Please transcribe this text

[Assistant] It has caused the firm to internalize the externality.


[User] Please transcribe this text

[Assistant] Because now the firm is paying an amount exactly equal to the damage they're doing to society.


[User] Please transcribe this text

[Assistant] So a corrective tax can cause the firm to internalize the externality. Corrective tax cause the firm to internalize the externality.


[User] Please transcribe this text

[Assistant] Okay, essentially corrective tax by the government can get us to the right answer because it gets firms to do the right thing.


[User] Please transcribe this text

[Assistant] Okay, gets firms to pay attention to social costs, not just the, uh, not just the private costs. Okay?


[User] Please transcribe this text

[Assistant] Similarly to the same thing with a positive externality. What could the government do with a positive externality? Yeah.


[User] Please transcribe this text

[Assistant] It could subsidize by exactly, so imagine I knew exactly how much.


[User] Please transcribe this text

[Assistant] Social benefit there was per unit of R&D. If I subsidize the firm doing R&D,


[User] Please transcribe this text

[Assistant] Then I would lower their costs, right? If I offered them a subsidy of this amount, their cost curve would shift down. I would lower the cost of things so R&D would get to the right point.


[User] Please transcribe this text

[Assistant] So a corrective tax of the amount of damage gets firms to internalize the externality, a corrective subsidy of that amount gets firms to internalize the externality, or individuals to externalize the internality, and we can get to the optimal outcome.


[User] Please transcribe this text

[Assistant] Okay, taxes have been bad throughout this course.


[User] Please transcribe this text

[Assistant] This is saying no, a tax can actually play a positive role because a tax can correct a market failure.


[User] Please transcribe this text

[Assistant] Now as always, if the tax is set incorrectly, it could make things worse.


[User] Please transcribe this text

[Assistant] Okay, instead of attacks that was five times the marginal damage, you'd make things worse.


[User] Please transcribe this text

[Assistant] But if you set it correctly, it can make things better. We're offering the potential for government intervention to make things better here. Questions about that? Okay?


[User] Please transcribe this text

[Assistant] So what do we have? We have a situation where the private market is not delivering the optimal outcome. The private market is not delivering the optimal outcome.


[User] Please transcribe this text

[Assistant] Where it seems hard to think of private solutions.


[User] Please transcribe this text

[Assistant] But where a government solution is through regulation or easier, corrective taxation can get us to the optimal outcome.


[User] Please transcribe this text

[Assistant] So now let's ask, how does this actually work in practice?


[User] Please transcribe this text

[Assistant] And let's talk about two examples. Let's talk about environmental externalities and health externalities.


[User] Please transcribe this text

[Assistant] Start with environmental externalities, and of course the most important is global warming.


[User] Please transcribe this text

[Assistant] Okay, uh, currently the amount of carbon dioxide in the atmosphere is at its highest level in 400,000 years. Uhm,


[User] Please transcribe this text

[Assistant] Uh, basically every year becomes the hottest year on record, almost linearly, almost monotonically, every year is the hottest year on record. We're heating up. Scientists predict, uh, that it's possible, the central prediction is that temperatures will rise by more than 2 degrees Fahrenheit by the end of the...


[User] Please transcribe this text

[Assistant] Uh, by, I'm sorry, by more than 2 degrees Celsius by the end of the, of the, uhm, of the century. But it could be more than that.


[User] Please transcribe this text

[Assistant] There's actually currently the best estimate is that there's, there's a


[User] Please transcribe this text

[Assistant] All, there's as much as a 10% chance that temperatures go up by 10 degrees by the end of the century, which would end human life. Basically in most of the world.


[User] Please transcribe this text

[Assistant] Okay, there's a non-trivial chance we're all gone by 2100. Not my problem. Largely not your problem. Certainly your kid's problem. Okay?


[User] Please transcribe this text

[Assistant] Okay, by and large, we are basically, uh, we are basically, we have a, we know for sure there's gonna be negative implications. Basically, we are essentially, unless, unless there's a radical new technology invented, Bangladesh is gone. It's over for Bangladesh. Cape Cod is gone. Much of Florida is gone. That's already happening.


[User] Please transcribe this text

[Assistant] Okay, at this point the question is can we actually stop the entire east and west coasts and much of the south from disappearing as well and many other countries in the world from disappearing. Okay, that's the sort of decision we have to make now. Okay, so basically


[User] Please transcribe this text

[Assistant] This is a classic negative externality because that negative situation, you were not thinking about that when you filled up your car last time.


[User] Please transcribe this text

[Assistant] You're not thinking about the fact that the fossil fuels you're emitting are contributing to that. Okay, it's a classic negative externality. So what can the government do? Well, the natural solution would be corrective taxation. The natural solution would be to have a carbon tax.


[User] Please transcribe this text

[Assistant] To literally say, this is the amount, we actually have a pretty good sense from, from engineering models what the cost of carbon is. What the marginal cost of carbon is.


[User] Please transcribe this text

[Assistant] Okay, and we could literally impose a tax on the use of carbon of that amount.


[User] Please transcribe this text

[Assistant] I think it would amount to something, I don't know the numbers these days, it's something like between 25 and 50 cents a gallon of gas.


[User] Please transcribe this text

[Assistant] Okay, in Europe they already have gasoline taxes well above that level. Okay, so corrective taxation in principle could be the answer.


[User] Please transcribe this text

[Assistant] We could literally just use engineering models to compute the cost, social cost of carbon. We could put a tax on it.


[User] Please transcribe this text

[Assistant] And then at least we would stop global warming going forward. You know, Bangladesh may be gone, but we can maybe save a lot of the rest of the world. Okay? So that's uhm,


[User] Please transcribe this text

[Assistant] That's in theory. In practice, in 1994, Bill Clinton proposed a three-cent gas tax and lost Congress. Okay? In practice, people don't like gas taxes. Uh, it's very hard politically in the U.S. and other places. And that is why the world has turned to a different approach, which is quantity regulation. Which is to say, look, in practice, we should have a global carbon tax,


[User] Please transcribe this text

[Assistant] In theory, show global cortex. In practice, that's hard. That's why we have...


[User] Please transcribe this text

[Assistant] Negotiations. That's why we try to have a global negotiation to try to get a global cap on carbon emissions. Actually have a quantity regulation.


[User] Please transcribe this text

[Assistant] Okay, to actually have a quantity regulation. We started this, the first true global negotiator was in Kyoto, Japan.


[User] Please transcribe this text

[Assistant] Uh, in, uh, December 1997, um, I was fortunate enough to be there for that negotiation. I was in the Clinton administration at the time. And, um, uh, we got to, uh, go over and do that negotiation. It was actually pretty neat because they said I was going to the last minute and the only plane left to go on was Air Force 2. So I had to fly over with the Vice President on Air Force 2, which was pretty cool.


[User] Please transcribe this text

[Assistant] Super cool, they have really nice seats and stuff, and so I sat down and the phone next to me rang. I was like...


[User] Please transcribe this text

[Assistant] Uhm, they, in Japan, they sell, uhm, they sold the time this coffee in cans. So you just chug these cans of coffee all the time. And stay awake. And basically everyone's so tired by the angels to greet. Just to kind of get it done. And that's sort of the way the negotiations work.


[User] Please transcribe this text

[Assistant] Uhm, so we agreed to the Kyoto Global Warming Treaty, which would have lowered emissions, uh, worldwide, but the US did not sign on.


[User] Please transcribe this text

[Assistant] Uhm, the U.S. refused to sign on. Uh, there's been continuing negotiations, most recently we know about the Paris round of negotiations, which the U.S. did sign on to, but the current administration has pulled this back out of.


[User] Please transcribe this text

[Assistant] So, we have a problem, which is that basically we're heading to this environmental catastrophe and the world can't agree on, uhm, actions to take. Uh, and, you know, uh,


[User] Please transcribe this text

[Assistant] It's not, it's not really a choice. And we have to do something. Uh, or, or, or our grandkids will all be underwater. Or our great kids, our grandkids will all be underwater. We have to do something. Uhm, the optimistics case that will do something comes from the example of what's called chlorofluorocarbons. When I was a kid,


[User] Please transcribe this text

[Assistant] Many, many products are made with what's called chlorofluorocarbons. They were in refrigerators, they were in aerosol sprays, uh, etc.


[User] Please transcribe this text

[Assistant] Scientists realized they were actually damaging the ozone layer, which protects us from ultraviolet rays from the sun.


[User] Please transcribe this text

[Assistant] And people are like, yeaah, whatever. Much like they are with global warming now. Yeaah, whatever. But then, a fucking hole opened up in the ozone layer.


[User] Please transcribe this text

[Assistant] And 180 countries got together almost overnight and banned chlorofluorocarbons. Like literally almost overnight they were gone. It was amazing.


[User] Please transcribe this text

[Assistant] International cooperation, uh, terrific international cooperation to take an environmental catastrophe on and deal with it.


[User] Please transcribe this text

[Assistant] The problem is global warming doesn't quite work that way. Okay, by the time we say, oh my god, Bangladesh is underwater, it's too late. So the question is sort of how do we get


[User] Please transcribe this text

[Assistant] Politicians and the public interested in taking something on, we don't have to symbol like a hole in the ozone layer to actually


[User] Please transcribe this text

[Assistant] Represent the damage that's being done, and that is the challenge of facing something like global warming, but we have to take it on. Okay?


[User] Please transcribe this text

[Assistant] So that's environmental externalities. The other big type of externalities are health externalities.


[User] Please transcribe this text

[Assistant] But indeed, there are huge externalities levied by a bunch of activities that we do that impact our health. So for example, drinking. Drunk driving causes 13,000 deaths per year. 13,000 deaths per year. Okay, to put a...


[User] Please transcribe this text

[Assistant] To put a sort of blunt face on it, four 9-11s every year. From drunk driving.


[User] Please transcribe this text

[Assistant] Okay, plus 400,000 injuries every year for people driving drunk. Uhm, consuming gasoline, global warming.


[User] Please transcribe this text

[Assistant] Okay, is a huge externalities. Uhm, perhaps one of the biggest externalities facing us, the biggest social externalities, obesity.


[User] Please transcribe this text

[Assistant] Okay, obesity causes a lot of illnesses, uh, that cost a lot of money. Uhm, projections are that children born in the year 2000, so about, about your kid, about your generation, uhm, one third of them will get diabetes before they die.


[User] Please transcribe this text

[Assistant] Okay, based on current wave projections. Now as you notice looking around this room, that's not a problem of the elite East Coast people.


[User] Please transcribe this text

[Assistant] Okay, it's not a problem of, it's a problem of the less educated, it's a problem concentrated more in the South.


[User] Please transcribe this text

[Assistant] Okay, but nonetheless, it's, if you look at a number of southern states, the obesity rate is above 35%.


[User] Please transcribe this text

[Assistant] Literally, more than one in three people in the state are obese.


[User] Please transcribe this text

[Assistant] Okay, this is a huge problem and it's gonna cause huge social, it's gonna have huge social consequences for our country.


[User] Please transcribe this text

[Assistant] The question is, what do we do about these? What do we do about things like smoking and drinking and obesity? And there's essentially, uhm, there's essentially, uh, four answers. The first is information. Can we just inform people about the damages? And indeed, this has been shown to work with smoking.


[User] Please transcribe this text

[Assistant] Okay, we knew smoking was bad for you in about 1954. Okay, but we only really got through to people.


[User] Please transcribe this text

[Assistant] Starting really in the 1970s and 80s. But it's had enormous effect. Smoking's fallen incredibly in the US to that information. But here's the interesting thing. Okay, smoking rates...


[User] Please transcribe this text

[Assistant] Smoking used to be 50% in the entire, every adult, the 50% of adults smoke, didn't matter race, gender, class, whatever.


[User] Please transcribe this text

[Assistant] So information works, but only works in a very, uh, uh, inequitable way. Okay, so information is one solution. The second solution is taxation.


[User] Please transcribe this text

[Assistant] And indeed, this has been shown to work for cigarettes once again.


[User] Please transcribe this text

[Assistant] Smoking is price sensitive. The elasticity of smoking with respect to the price is about minus 0.4. About every 10% you raise the price of cigarettes, there's about 4% less smoking. It works. In particular, used smoking is very price sensitive. Used are very price sensitive because used have less money, so they're very price sensitive.


[User] Please transcribe this text

[Assistant] So, so, so it actually works. Uhm, but that's sort of the easy case. Taxing cigarettes is easy, because every cigarette is bad for you. Taxing alcohol is trickier, because after all, most of the damage is done by a tiny share of drinkers. Most of us will consume alcohol responsibly most of our lives, and not cause any external damage.


[User] Please transcribe this text

[Assistant] Okay? But most of the damage is done by a tiny share of drinking, so taxes is trickier. If I pose the big rise in alcohol taxes, people would say, wait a second, I'm a responsible drinker, why are you taxing?


[User] Please transcribe this text

[Assistant] Why are you taxing me? So that's a little bit trickier. Not to mention obesity, taxing food is maybe the trickiest of all. Okay? So taxes are trickier. You could maybe try an alternative thing you could do is penalties. So instead of taxing alcohol, we could just steepen the penalties for drunk driving. You know, if you killed a few drunk drivers, it'd be less drunk driving.


[User] Please transcribe this text

[Assistant] Okay? But the problem is, that's a pretty extreme penalty, and what if you got it wrong? You feel kind of bad about killing someone because the breathalyzer didn't work. There was a series of articles in the New York Times about how terrible breathalyzers are, and how inaccurate they are.


[User] Please transcribe this text

[Assistant] Okay, so problem with penalties is we can't enforce them perfectly.


[User] Please transcribe this text

[Assistant] Okay, so that's the third solution. The final solution, the one that's really most discussed right now, is illegality.


[User] Please transcribe this text

[Assistant] What if we just made these things illegal? And this comes to the discussion of marijuana. Should marijuana be legal?


[User] Please transcribe this text

[Assistant] Okay, well, illegality is an extreme form of, uh, lowering externalities. Now obviously when pot's illegal, people still smoke pot.


[User] Please transcribe this text

[Assistant] But it's still true, when you make it legal, it's consumed at much higher levels. Okay. Legality doesn't matter. So for example, you've done studies,


[User] Please transcribe this text

[Assistant] Yes, people under 21 drink, but literally if you look at people the day after the 21st birthday, they drink much more than the day before the 21st. Not on the 21st birthday, it's a party. We ignore that.


[User] Please transcribe this text

[Assistant] But the day after the 21st birthday and thereafter, they're drinking at much higher levels than before. Legality matters.


[User] Please transcribe this text

[Assistant] Okay, it's also true the day after 21st birthday, people are much more likely to die in a drunk driving accident than the day before their 21st birthday. Okay?


[User] Please transcribe this text

[Assistant] So legality matters. So the point is we have a whole series of tools to think about this and the question is how should we combine and use them? And the answer is take 1441 and I'll teach you all about it.


[User] Please transcribe this text

[Assistant] But we don't have any more time here. This just raises the issues. To think about with externalities, it's an important topic to think about. I realize it's a lot to cover in one lecture. I just want to sort of give you a taste for how economists think about analyzing this kind of market failure.


[User] Please transcribe this text

[Assistant] I can't lose this job. Your job is to write the truth.


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[Assistant] The truth is, I'm the hero here, not you.


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[Assistant] I said I'd find him. I've got this under control.


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[Assistant] Is Spider-Man doing more harm than good? How about now? Now who needs the old Spider-Man?


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[Assistant] His dad is working on another cure. One that doesn't involve aliens.


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[Assistant] Dr. Connors, I got the suit off. It's contained, but what do I do now?


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[Assistant] Does Harry know?


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[Assistant] I've got a lot more apologies to make when this is all settled. One thing at a time.


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[Assistant] Storing some more boxes at the house. Just checked on Harry. But how are you? I saw the news about the lizard chase.


[User] Please transcribe this text

[Assistant] Oh, it's under the rocks. I can't reach it. Huh?


[User] Please transcribe this text

[Assistant] Perfect time for the ferris wheel. It's beautiful out tonight.


[User] Please transcribe this text

[Assistant] Hey, the important thing is that you're okay. And you got the serum. You did great, buddy. I'll start prepping the gear.


[User] Please transcribe this text

[Assistant] Okay, I've overlaid the serum with an old sample of Connor's blood. If you can destroy the atoms blocking the lizard receptors, we can make an antidote, and then we're golden. Like a goose. Like a clever goose.


[User] Please transcribe this text

[Assistant] So how's the suit working out for you? It's good. Great, even. Just takes some getting used to. Yep. I'm gonna really put it through its paces when this is over. Won't be long now.


[User] Please transcribe this text

[Assistant] Huzzah? Huzzah. Wait. Does the structure look unstable to you?


[User] Please transcribe this text

[Assistant] Pressure change pops in their section out of alignment. There's no way to fix it without going inside.


[User] Please transcribe this text

[Assistant] More static discharges. The accelerator's still running though. The serum's okay.


[User] Please transcribe this text

[Assistant] Grab the antidote, find Dr. Connors. Not so fast. There are 67 shutdown steps. If we take it out before then we'll lose the antidote.


[User] Please transcribe this text

[Assistant] I meet people pretty much every day who say, style isn't for me, that's for other people. That couldn't be more wrong. Style is for literally every person. If you are not a nudist, style is for you.


[User] Please transcribe this text

[Assistant] A common misconception is that, uh, straight men, you out there, are worried that if you look too stylish, people are gonna think you're gay. First of all, that would be quite the compliment. Second of all, that's not a concern. Nobody's gonna think that. They will just think that you're a stylish man. Clothes don't make you gay.


[User] Please transcribe this text

[Assistant] For most people who look at a fashion magazine or use Instagram and see bloggers or models or entertainers, they think, well, that's their world, that makes sense because they're in entertainment for a living or they're in the public eye for a living.


[User] Please transcribe this text

[Assistant] You are still in your version of the public eye. People are seeing you. Unless you don't leave your house for a few years at a time. You have your own public image to protect. Whether it be with your family, your friends, your colleagues.


[User] Please transcribe this text

[Assistant] So your style does matter. I wasn't in entertainment up until two and a half years ago, but style was still important to me and it helped mold my life.


[User] Please transcribe this text

[Assistant] There is a way to incorporate style no matter whether you have an entertainer's budget or an average regular person budget. I did it on a shoestring budget for about 17 years.


[User] Please transcribe this text

[Assistant] To anyone who thinks, well it doesn't matter, clothes are just clothes, style is superficial.


[User] Please transcribe this text

[Assistant] Actually it has had a massive impact on my life and everybody who I work with. And now I live the life that I only thought was a fantasy as a child. And it's because of clothes. And for many people that may sound so shallow, but when you really do start to invest in your image and how you style yourself,


[User] Please transcribe this text

[Assistant] It can really mold your whole life. I've always seen my wardrobe as being the vehicle to achieving what I want to achieve in my life. If I want to be taken seriously, I will dress a certain way, whether that be at work in the dating world. I want to make sure that people see me first and foremost as somebody they should respect.


[User] Please transcribe this text

[Assistant] And by making an effort with your style, by making conscious choices, you are saying, I'm worthy and I deserve your respect.


[User] Please transcribe this text

[Assistant] Your wardrobe is the last thing you should be focusing on because you've got bills to pay, you've got a job to do. The way you are presenting yourself to the world will help facilitate all those other things that are going on. If you're wanting to improve your social life, date somebody, get that promotion, your wardrobe will help facilitate that.


[User] Please transcribe this text

[Assistant] There are certain people who say that there are no style rules. Uh, I disagree respectfully. Yes, I know that fashion is play. Style is play. It should be fun. However, there are some basics that really help mold great style.


[User] Please transcribe this text

[Assistant] Those things are important to consider. Yes, you want to have fun with style but you also want to be well put together. No matter what style of clothing you're going for, no matter what genre of style you're going for, you still want to know some of the basic rules to make sure that you don't lock


[User] Please transcribe this text

[Assistant] Like a seven-year-old playing dress up in mommy's clothes. Those rules


[User] Please transcribe this text

[Assistant] Often can be broken, but you need to know those rules before you can break them. There are truly just two rules to remember. It couldn't be more simple. Know your proportions and know who you are.


[User] Please transcribe this text

[Assistant] Know your proportions and dress for your proportions. And I want to give an example of this, which is more of a cautionary tale. You may see on the runway the hottest supermodel of the moment.


[User] Please transcribe this text

[Assistant] Maybe not. And so know your proportions. Know your body well. Do you have hips? Do you have a larger bosom? Do you have a tiny waist? Do you have a shorter frame? Do you have a much taller frame? Learn your proportions first before you even start to click online for something you might be looking for.


[User] Please transcribe this text

[Assistant] I'm actually going to show you how to dress for your proportions and we'll cover as many possible scenarios as we can.


[User] Please transcribe this text

[Assistant] A basic style rule is learn who you are or who you want to be. If you're the kind of boy who doesn't want to wear a flat shoe and you want a two inch cuban heel,


[User] Please transcribe this text

[Assistant] Go for it. If you are a woman who hates a dress, why would you think, ooh, I need to try and find a way to incorporate that dress because that's what all the cool kids are wearing. It doesn't matter.


[User] Please transcribe this text

[Assistant] Choose something else that is going to work for you. Know who you are and follow your own rules as far as style goes.


[User] Please transcribe this text

[Assistant] Don't wear something that is not you. Fundamentally not you. Because it's going to affect your self-esteem. It's going to affect who you are. It's going to confuse you as a person. If I end up wearing something just because it's hot, I'm going to look at myself in the mirror and not know who I am. I'm not going to recognise myself. It sets me up for the day on a bad footing.


[User] Please transcribe this text

[Assistant] I want to be able to look at myself and know I'm representing who I am completely without a doubt. And so I'm sure that if you look back at some of the outfits that you really dislike and you regret wearing those things, it's probably because you were trying to keep up with Janet or Bob. Who cares about Janet and Bob? Do you?


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[Assistant] If you don't really know who you are yet, that's absolutely fine. Many of us are on a journey. That's what I'm here for. I'm here to guide you through it.


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[Assistant] However, there are a lot of rules that are a little more archaic.


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[Assistant] People still stick with and that might be encouraging you to not embrace style. And I want to talk about those right now and encourage you to let them go.


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[Assistant] First and foremost, if you are a curvy lady and you have hips, you have bosoms, sizable bosoms, it has been encouraged for you to wear A-line dresses or skirts. To hide that and to minimise it, that's


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[Assistant] Like there's no reason to. If you love your hips and you know you look fantastically feminine, wear that bodycon moment. Wear a pencil skirt. You're going to look better for it. I don't need you to hide away. Nobody needs you to hide away.


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[Assistant] This one's a rule that is simple. It's one that's talked about a lot. It's accessorizing. It's something that Coco Chanel talks about. When you are about to leave your house, take one last look at yourself and remove the last thing you put on.


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[Assistant] I actually am going to go against that. I'm going to say look at them in the mirror and think is there one other thing that I can add that's going to add that final kiss of something that's going to make me feel amazing. I like more. And the reason I can do this is because I've decided what my second rule is going to be, which is I'm going to be myself, not Coco Chanel.


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[Assistant] And so, I want a little more. And so, when you look at yourself in the mirror, choose who you want to be. Coco Chanel or Tante France? Do you want to take something on or add something on?


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[Assistant] We have so many of our internal rules or our beliefs that are very much limiting when it comes to our style. We may have heard along the way from a parent or just in passing that


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[Assistant] As if it's gospel. For those of you who say, I can't pull off this kind of colour, or I can't pull off this kind of shape, or I can't pull off that kind of trend.


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[Assistant] Have you tried it? Have you actually tried it? I'm guilty of saying those things. In the past I've said, I can't wear that color. And then once I tried it, I realized, oh, I love that color on me. I just, I was always told that people of my skin tone can't wear that color. And one of those things is brown.


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[Assistant] This brown looks gorge on me. I love this brown suit on me. But I was told for years, oh, brown looks terrible on us. No, it doesn't. It looks lovely. Try it. You may surprise yourself. Step out of your comfort zone. Try that thing on that you were told you can't do, you can't wear, that's not going to look good in you. And you decide for yourself whether it looks good or not.


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[Assistant] Here's the thing about age. I used to, I used to think that of a certain age a person should be wearing this, of a certain age somebody should be wearing that.


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[Assistant] That's not the case anymore. Times have changed so greatly. I think that those notions of age are quite outdated and somewhat archaic at this point. Now I think we live in a world where age shouldn't matter. We saw somebody incredible perform on a pole at the Super Bowl at the age of 50. If that person can do that,


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[Assistant] I think as long as it makes you feel good, as long as you want to play with style, as long as you want to find new ways of expressing yourself, I don't care if you're 25 or 55, if that thing makes you feel good, wonderful, go for it. And if even for a second you think this feels distasteful, it probably is.


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[Assistant] I will sometimes embrace clothing that somebody much younger than me is wearing. I am 36. And often these cool kid trends are for people in their very early 20s.


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[Assistant] And I see those, and I love those, and so I will try it, but I will try it once or twice, and I'll realize it just doesn't make me feel the way I want to feel, and I will get rid of it. You have to learn to self-edit.


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[Assistant] And that's my philosophy with anything at this point. It doesn't matter your gender, your race, your culture, your religion, none of those things. If something makes you feel just wonderful, go for it.


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[Assistant] But if you know in your heart that something feels off, also go with that gut feeling.


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[Assistant] The one guiding principle for great style or even simple style is keep it classic. When in doubt, keep it classic. You can't go wrong. Google what was stylish 50 years ago for a man.


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[Assistant] The most common outfit for a man, google what was stylish for a man 30 years ago, what was stylish for a man 10 years ago, and the same for a woman. And if you can see a trend of one thing in particular, a few things in particular, then you know it's classic. And you will find that in a suit, a button-up, a great white tee,


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[Assistant] A pair of jeans, a great loafer, man or woman, or non-binary, all of those things work for every person across the globe.


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[Assistant] If you have a look that will be relatively classic, even within 15, 20, 30 years, that you can look back and say, on the whole, I look great. I would still wear many of those pieces.


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[Assistant] That in my opinion is great style. That's comfortable, classic, strong style. Incorporate more modern touches in there. Incorporate more contemporary touches in there so you still feel like you're playful. But just always think, could I see myself in that in 15 years time? Or will I look back in 15 years time and find that laughable? That probably isn't luck for you.


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[Assistant] And this may be one of those things where you think, well, Tern France said it, but that's my story, that's my vibe, so be it. I will always disagree with you, but if you are confident enough to wear it, so be it. Jelly shoes. If you are over seven.


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[Assistant] Years old. You do not need jelly shoes in your life. You will look immature and a little childish. But if you insist on doing it, so be it. Will I point and laugh? Probably.


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[Assistant] It's definitely not a good look for anyone over 7. I mean, board shorts are heinous. But...


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[Assistant] Chris Hemsworth wears them and he looks wonderful. I guess if you have the confidence to wear board shorts and you choose to look shorter than you are, so be it. I just think it doesn't do your body any favors. Board shorts are just gonna make you look shorter and wider, whereas if you're wearing shorter shorts, it just makes you look tall.


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[Assistant] Sexy. Who doesn't want to look sexy in their swimwear? You know, one other thing. God, I've got a lot apparently. I thought I didn't have that many rules. I just think too many ruffles are too many ruffles. We are not six. Um, I like a ruffle.


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[Assistant] The 17th layer of ruffle is probably excessive. Just one ruffle is fine, two ruffles is, uh, three ruffles we've gone too far. Calm down, dear. You know what was a big no-no? Until probably two months ago was bootcut jeans. Loathe them.


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[Assistant] I have loathed them for the longest time, probably 20 years since I wore them, and I thought they will never come back. They should never come back. They died in good riddance. However, they're back.


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[Assistant] And now I have a pair. But it's all about how you wear them. So what I will say is, please, please avoid wearing your bootcut jeans with a pair of sneakers. It's just too nineties. It's just rough. And we got through it the first time. I don't know if we'll get through it a second. Just avoid it. And if you really choose a life of, um,


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[Assistant] The opposite of celibacy, you just don't wanna wear those.


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[Assistant] Chapter 1 The Singular Experience of Mr John Scott Eccles


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[Assistant] I find it recorded in my notebook that it was a bleak and windy day towards the end of March in the year 1892.


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[Assistant] Holmes had received a telegram while we sat at our lunch, and he had scribbled a reply


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[Assistant] He made no remark, but the matter remained in his thoughts, for he stood in front of the fire afterwards, with a thoughtful face, smoking his pipe, and casting an uncasional glance at the message.


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[Assistant] Suddenly he turned upon me with a mischievous twinkle in his eyes.


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[Assistant] I suppose, Watson, we must look upon you as a man of letters," said he. How do you define the word grotesque? Strange? Remarkable? I suggested. He shook his head at my definition.


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[Assistant] There is surely something more than that," said he.


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[Assistant] Some underlying suggestion of the tragic and the terrible. If you cast your mind back to some of those narratives with which you have afflicted a long-suffering public, you will recognize how often the grotesque has deepened into the criminal.


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[Assistant] Think of that little affair of the red-headed men. That was grotesque enough in the outset, and yet it ended in a desperate attempt at robbery.


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[Assistant] Or again, there was that most grotesque affair of the five orange pips, which led straight to a murderous conspiracy. The word puts me on the alert.


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[Assistant] Have you it there?" I asked. He read the telegram aloud. Have just had most incredible and grotesque experience, may I consult you? Scott Eccles, Post Office, Charing Cross. Man or a woman? I asked.


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[Assistant] Oh, man, of course. No woman would ever send a reply-paid telegram. She would have come. Will you see him? My dear Watson,


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[Assistant] You know how bored I have been since we locked up Colonel Carruthers.


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[Assistant] My mind is like a racing engine tearing itself to pieces because it is not connected up with the work for which it was built


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[Assistant] Life is commonplace. The papers are sterile. Audacity and romance seem to have passed forever from the criminal world.


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[Assistant] Can you ask me then whether I am ready to look into any new problem, however trivial it may prove? But here, unless I am mistaken, is our client.


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[Assistant] A measured step was heard upon the stairs, and a moment later a stout, tall, grey-whiskered and solemnly respectable person was ushered into the room.


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[Assistant] His life history was written in his heavy features and pompous manner.


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[Assistant] From his spats to his gold-rimmed spectacles, he was a conservative, a churchman, a good citizen, orthodox and conventional to the last degree


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[Assistant] But some amazing experience had disturbed his native composure and left its traces in his bristling hair, his flushed, angry cheeks, and his flurried, excited manner. He plunged instantly into his business.


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[Assistant] I have had a most singular and unpleasant experience, Mr. Holmes," said he.


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[Assistant] Never in my life have I been placed in such a situation.


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[Assistant] It is most improper, most outrageous. I must insist upon some explanation." He swelled and puffed in his anger.


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[Assistant] Pray it sit down, Mr. Scott Eccles," said Holmes in a soothing voice. May I ask, in the first place, why you came to me at all?


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[Assistant] Well, sir, it did not appear to be a matter which concerned the police, and yet, when you have heard the facts, you must admit that I would not leave it where it was.


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[Assistant] Private detectives are a class with whom I have absolutely no sympathy, but nonetheless, having heard your name, quite so.


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[Assistant] But in the second place, why did you not come at once? Holmes glanced at his watch.


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[Assistant] It is a quarter past two," he said. Your telegram was dispatched about one.


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[Assistant] But no one can glance at your toilet and attire without seeing that your disturbance dates from the moment of your waking.


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[Assistant] Our client smoothed down his unbrushed hair and felt his unshaven chin.


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[Assistant] You are right, Mr. Holmes. I never gave a thought to my toilet. I was only too glad to get out of such a house.


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[Assistant] But I have been running around making inquiries before I came to you.


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[Assistant] I went to the house agents, you know, and they said that Mr. Garcia's rent was paid up all right, and that everything was in order at Wisteria Lodge.


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[Assistant] Come, come, sir," said Holmes, laughing. You're like my friend Dr. Watson, who has a bad habit of telling his stories wrong and foremost.


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[Assistant] Please arrange your thoughts, and let me know, in their due sequence, exactly what those events are which have sent you out unbrushed and unkempt, with dress boots and waistcoat buttoned awry, in search of advice and assistance.


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[Assistant] Our client looked down with a rueful face at his own unconventional appearance.


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[Assistant] I'm sure it must look very bad, Mr. Holmes, and I'm not aware that in my whole life such a thing has ever happened before, but I will tell you the whole queer business


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[Assistant] And when I have done so you will admit, I am sure, that there has been enough to excuse me." But his narrative was nipped in the bud.


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[Assistant] There was a bustle outside, and Mrs. Hudson opened the door to usher in two robust and official-looking individuals.


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[Assistant] One of whom was well known to us as Inspector Gregson of Scotland Yard, an energetic, gallant, and, within his limitations, a capable officer. He shook hands with Holmes and introduced his comrade as Inspector Baines of the Surrey Constabulary.


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[Assistant] We are hunting together, Mr. Holmes, and our trail lay in this direction." He turned his bulldog eyes upon our visitor.


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[Assistant] Are you Mr John Scott Eccles of Popham House, Lee? I am. We've been following you about all the morning.


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[Assistant] You traced him through the telegram, no doubt," said Holmes.


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[Assistant] Exactly, Mr. Holmes. We picked up the scent at Charing Cross Post Office and came on here. But why did you follow me? What do you want?


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[Assistant] We wish a statement, Mr. Scott Eccles, as to the events which led up to the death last night of Mr. Aloysius Garcia of Wisteria Lodge near Esher.


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[Assistant] A letter of yours was found in the dead man's pocket.


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[Assistant] And we know by it that you had planned to pass last night at his house. So I did. Oh, you did, did you? Out came the official notebook.


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[Assistant] Wait a bit, Gregson," said Sherlock Holmes. All you desire is a plain statement, is it not?


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[Assistant] And it is my duty to warn Mr Scott Eccles that it may be used against him.


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[Assistant] Mr Eccles was going to tell us about it when you entered the room, I think. Watson, a brandy and soda would do him no harm.


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[Assistant] Now, sir, I suggest that you take no notice of this addition to your audience, and that you proceed with your narrative exactly as you would have done had you never been interrupted.


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[Assistant] Our visitor had gulped off the brandy, and the colour had returned to his face. With a dubious glance at the inspector's note-book, he plunged at once into his extraordinary statement.


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[Assistant] And being of a sociable turn I cultivate a large number of friends.


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[Assistant] Among these are the family of a retired brewer called Melville, living at Abomal Mansion, Kensington.


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[Assistant] It was at his table that I met some weeks ago a young fellow named Garcia. He was, I understand, of Spanish descent, and connected in some way with the Embassy.


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[Assistant] He spoke perfect English, was pleasing in his manners, and as good looking a man as ever I saw in my life.


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[Assistant] In some way we struck up quite a friendship, this young fellow and I. He seemed to take a fancy to me from the first, and within two days of our meeting he came to see me at Lee.


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[Assistant] One thing led to another, and it ended in his inviting me out to spend a few days at his house, with Stereolodge, between Esher and Oxshott.


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[Assistant] Yesterday evening I went to Isha to fulfill this engagement.


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[Assistant] He had described his household to me before I went there. He lived with a faithful servant, a countryman of his own, who looked after all his needs. This fellow could speak English, and did his housekeeping for him


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[Assistant] Then there was a wonderful cook, he said, a half-breed whom he had picked up in his travels, who could serve an excellent dinner.


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[Assistant] I remember that he remarked what a queer household it was to find in the heart of Surrey.


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[Assistant] And that I agreed with him, though it has proved a good deal queerer than I thought.


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[Assistant] I drove to the place, about two miles on the south side of Esher. The house was a fair-sized one, standing back from the road with a curving drive which was banked with high evergreen shrubs. It was an old, tumbled-down building in a crazy state of disrepair.


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[Assistant] When the trap pulled up on the grass-grown drive in front of the blotched and weather-stained door, I had doubts as to my wisdom in visiting a man whom I knew so slightly.


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[Assistant] He opened the door himself, however, and greeted me with a great show of cordiality.


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[Assistant] I was handed over to the manservant, a melancholy, swarthy individual, who led the way, my bag in his hand, to my bedroom. The whole place was depressing.


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[Assistant] Our dinner was tet-a-tet, and though my host did his best to be entertaining, his thoughts seemed to continually wonder, and he talked so vaguely and wildly that I could hardly understand him.


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[Assistant] He continually drummed his fingers on the table, gnawed his nails, and gave other signs of nervous impatience. The dinner itself was neither well served nor well cooked.


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[Assistant] And the gloomy presence of the taciturn servant did not help to enliven us.


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[Assistant] I wish that I could invent some excuse which would take me back to Lee. One thing comes back to my memory.


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[Assistant] Which may have a bearing upon the business that you two gentlemen are investigating. I thought nothing of it at the time. Near the end of dinner a note was handed in by the servant.


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[Assistant] I noticed that after my host had read it, he seemed even more distray and strange than ever.


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[Assistant] He gave up all pretence at conversation and sat smoking endless cigarettes, lost in his own thoughts. But he made no remark as to the contents.


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[Assistant] About eleven. I was glad to go to bed. Some time later, Garcia looked in at my door. The room was dark at the time, and asked me if I had a rung. I said I had not.


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[Assistant] He apologized for having disturbed me so late, saying that it was nearly one o'clock. I dropped off after this and slept soundly all night. And now I come to the amazing part of my tale. When I woke it was broad daylight.


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[Assistant] I glanced at my watch and the time was nearly nine.


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[Assistant] I had particularly asked to be called at eight, so I was very much astonished at this forgetfulness. I sprang up and rang for the servant. There was no response. I rang again and again with the same result.


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[Assistant] Then I came to the conclusion that the bell was out of order.


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[Assistant] I huddled on my clothes and hurried downstairs in an exceedingly bad temper to order some hot water.


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[Assistant] You can imagine my surprise when I found that there was no one there. I shouted in the hall. There was no answer. Then I ran from room to room. All were deserted.


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[Assistant] My host had shown me which was his bedroom the night before, so I knocked at the door. No reply. I turned the handle and walked in.


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[Assistant] The room was empty and the bed had never been slept in. He'd gone with the rest.


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[Assistant] The foreign host, the foreign footman, the foreign cook, all had vanished in the night. There was the end of my visit to Wisteria Lodge.


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[Assistant] Sherlock Holmes was rubbing his hands and chuckling as he added this bizarre incident to his collection of strange episodes.


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[Assistant] Your experience is, so far as I know, perfectly unique," said he. May I ask, sir, what you did then?


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[Assistant] I was furious. My first idea was that I had been the victim of some absurd practical joke. I packed my things, banged the hall door behind me, and set off for Isha with my bag in my hand. I called at Allen Brothers, the chief land agents in the village, and found that it was from this firm that the villa had been rented.


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[Assistant] It struck me that the whole proceeding could hardly be for the purpose of making a fool of me and that the main object must be to get out of the rent. It is late in March, so quarter day is at hand


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[Assistant] But this theory would not work. The agent was obliged to me for my warning, but told me that the rent had been paid in advance.


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[Assistant] Then I made my way to town and called at the Spanish Embassy. The man was unknown there.


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[Assistant] After this I went to see Melville, at whose house I had first met Garcia.


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[Assistant] But I found that he really knew rather less about him than I did.


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[Assistant] When I got your reply to my wire, I came out to you, since I gather that you are a person who gives advice in difficult cases.


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[Assistant] But now, Mr. Inspector, I understand from what you said when you entered the room that you can carry the story on.


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[Assistant] And that some tragedy had occurred, I can assure you that every word I have said is the truth, and that outside of what I have told you, I know absolutely nothing about the fate of this man. My only desire is to help the law in every possible way.


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[Assistant] I'm sure of it, Mr. Scott Eccles, I'm sure of it," said Inspector Gregson in a very amiable tone.


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[Assistant] I'm bound to say that everything which you've said agrees very closely with the facts as they've come to our notice. For example, there was that note which arrived during dinner. Did you chance to observe what became of it?


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[Assistant] Yes, I did. A Garcia rolled it up and threw it into the fire. What do you say to that, Mr. Baines?"


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[Assistant] The country detective was a stout, puffy red man whose face was only redeemed from grossness by two extraordinarily bright eyes, almost hidden behind the heavy creases of cheek and brow. With a slow smile he drew a folded and discoloured scrap of paper from his pocket.


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[Assistant] I picked this out and burned from the back of it." Holmes smiled his appreciation.


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[Assistant] You must have examined the house very carefully to find a single pellet of paper.


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[Assistant] The note is written upon ordinary creme laid paper without watermark. It is a quarter sheet.


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[Assistant] It's been folded over three times and sealed with purple wax, put on hurriedly and pressed down with some flat oval object.


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[Assistant] It is a woman's writing done with a sharp pointed pen.


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[Assistant] But the address is either done with another pen, or by someone else. It is thicker and bolder, as you see." A very remarkable note, said Holmes, glancing it over.


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[Assistant] I must compliment you, Mr. Baines, upon your attention to detail in your examination of it.


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[Assistant] A few trifling points might perhaps be added.


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[Assistant] The oval seal is undoubtedly a plain sleeve link. What else is of such a shape?


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[Assistant] The scissors were bent nail-scissors, short as the two snips are. You can distinctly see the same slight curve in each. The country detective chuckled.


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[Assistant] But I see there was a little over," he said. I'm bound to say that I make nothing of the note except that there was something on hand, and that a woman, as usual, was at the bottom of it.


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[Assistant] Mr. Scott Eccles had fidgeted in his seat during this conversation.


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[Assistant] I'm glad you found the note, since it corroborates my story," said he.


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[Assistant] But I beg to point out that I have not yet heard what has happened to Mr. Garcia, nor what has become of his household.


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[Assistant] "'As to Garcia,' said Grigson, "'that is easily answered. He was found dead this morning upon Oxford Common, nearly a mile from his own.'


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[Assistant] His head had been smashed to pulp by heavy blows of a sandbag or some such instrument, which had crushed rather than wounded.


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[Assistant] It is a lonely corner and there is no house within a quarter of a mile of the spot.


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[Assistant] He'd apparently been struck down first from behind.


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[Assistant] But his assailant had gone on beating him long after he was dead.


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[Assistant] There are no footsteps nor any clue to the criminals. Robbed? No, there was no attempt at robbery. This is very painful.


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[Assistant] Very painful and terrible," said Mr. Scott Eccles in a querulous voice, but it is really uncommonly hard on me.


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[Assistant] The only document found in the pocket of the deceased was a letter from you saying that you would be with him on the night of his death.


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[Assistant] It was the envelope of this letter which gave us the dead man's name and address.


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[Assistant] It was after nine this morning when we reached his house and found neither you nor anyone else inside it.


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[Assistant] I wired to Mr. Gregson to run you down in London while he examined Wisteria Lodge. Then I came into town. Join Mr. Gregson, and here we are.


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[Assistant] I think now," said Gregson, rising, we had best put this matter into an official shape


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[Assistant] You'll come round with us to the station, Mr Scott Eccles, and let us have your statement in writing.


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[Assistant] Certainly I will come at once, but I retain your services, Mr. Holmes. I desire you to spare no expense and no pains to get to the truth." My friend turned to the country inspector.


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[Assistant] I suppose that you have no objection to my collaborating with you, Mr. Baines? Highly honoured, sir, I'm sure.


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[Assistant] You appear to have been very prompt and businesslike in all that you have done.


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[Assistant] Was there any clue, may I ask, as to the exact hour that the man met his death? He'd been there since one o'clock.


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[Assistant] But that is perfectly impossible, Mr. Baines," cried our client. His voice is unmistakable.


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[Assistant] I could swear to it that it was he who addressed me in my bedroom at that very hour.


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[Assistant] Remarkable, but by no means impossible, said Holmes, smiling. You have a clue? asked Gregson.


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[Assistant] On the face of it, the case is not a very complex one, though it certainly presents some novel and interesting features. A further knowledge of facts is necessary before I would venture to give a final and definite opinion.


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[Assistant] I am entirely at your service," said Sherlock Holmes, ringing the bell. You will show these gentlemen out, Mrs. Hudson, and kindly send the boy with this telegram. He is to pay a five-shelling reply.


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[Assistant] We sat for some time in silence after our visitors had left. Holmes smoked hard with his brows drawn down over his keen eyes, and his head thrust forward in the eager way characteristic of the man.


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[Assistant] Well Watson, he asked, turning suddenly upon me, what do you make of it?


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[Assistant] I can make nothing of this mystification of Scott Eccles, but the crime


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[Assistant] Well, taken with the disappearance of the man's companions, I should say that they were in some way concerned in the murder and fled from justice.


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[Assistant] That is certainly a possible point of view. On the face of it, you must admit, however, that it is very strange that his two servants should have been in a conspiracy against him and should have attacked him on the one night when he had a guest. They had him alone at their mercy every other night in the week. Then why did they fly? Quite so.