Kathy's right, this decade-old Krugman piece is brilliant. Read it.
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Babysitternomics
21 Jun 2008 03:04 pm
Comments (11)
In the future, all baby-sitting will be done with robots. Hence, a perpetual Bush boom!
While inflation might be the right way to get Japan out of its funk, what about the situation we are in?
I thought printing more money in the face of an economic downturn was a major no-no.
Matt, have you ever taken a macroeconomics class?
I thought printing more money in the face of an economic downturn was a major no-no.
You thought wrong. That's why the Fed always lowers interest rates when the economy slows down, it's effectively the same as printing more money.
All I know is Krugman was brilliant in his analysis of the Dem Primary and the candidates' policies.
(Andruw ducks flying objects)
Well, my completely off-topic babysitter economics story is that I noticed at the age of 15 that I could make $1.75/hour doing the girl job of babysitting or $10/hour doing the boy job of mowing lawns and that led to a lifetime of working in much better paying boy-jobs. Coincidently, the very, very, um, "lively" children that were my last babysitting charges were the children of a freshman congressman named Henry Waxman.
Actually, I don't think this article is a very good explanation of monetary stuff, because it doesn't include sticky prices. Monetary expansions/contractions mainly have an effect because it's hard for stores to change their prices (or for people to change their information about prices) - not because we ever actually run out of money.
The Krugman article is awful. It assumes the very crux of the matter without discussing it. Keynesian monetary macroeconomics all turns on the stickiness of prices and the nature of that stickiness. (Note that Keynes himself leaned toward fiscal stimulus instead.)
By simply assuming that one ticket is always worth exactly one hour of babysitting, Krugman passes by the essential theoretical and policy argument. Of course, Krugman knows all the facts of the discussion well so I can only conclude that his elision is deliberate dishonesty. Worst of all is that he deploys great talent and intelligence to misinform readers who often believe they have learned something while they've been duped.
Sometimes I think Krugman belongs in the same category with Bill Kristol. Then I remember that at least Kristol isn't abusing any noticeable talent to deceive us.
Keynes from my limited understanding was more a pragmatist than anything else (and not immune to some self dealing). Knowing how things are working at one point in the cycle is no guarantee you will know how things work at all points in the cycle. I don't think Keynes was unaware of this danger. Most on the ground economists understand system gaming, cheating, and information advantages far better than ivory tower economists do.
Let me second what Brian Watkins said.
In the real world, money is not fixed in price. The amount of stuff you can buy with a dollar can go up, and it can down. Both of these possibilities are partly in your control. If you see a price you think is "too high", you don't pay it. Maybe the you can negotiate and knock it down.
In the babysitting coop, though, for whatever reason (lack of imagination?) the participants seem to have rigorously abjured any idea of offering deals involving money (real money, not the tickets), or subdividing tickets (which would make them into money). In short, the tickets were not like real money, which is always divisible. When you can divide money up, you can negotiate prices. When you can't, if the unit size is too large, you can't negotiate price. Which is a big problem.
In the real world, it is possible, although unfair, to get out of a "liquidity trap" by printing money. (What's unfair about it is that new money is not evenly shared by existing money-holders; instead it is given to politically powerful parties. Insiders. Note that Krugman careful elides any mention of who got the new, free baby-sitting tickets.)
However in the real world, there's an easier solution: just wait, and let the market work. This is how surpluses and shortages are usually dealt with.
So, Krugman's little parable doesn't show what he thinks it does. What it shows is that in very primitive "markets" -- markets which are reduced to bartering because they lack any money -- problems can happen. Well, duh. This is why money was invented!
Comments closed July 05, 2008.
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Heads in the Sand
I know this is off topic, but I missed the big Ask Matt post for this weekend. My question to you is: Say Obama is President and he gets his National Infrastructure Fund running and he calls on you to head the Public Transportation section; what would be some of your dream projects/reforms?
Posted by BIG Z | June 21, 2008 4:03 PM