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The simplest money model you can buy

by das monde Mon Nov 16th, 2009 at 05:47:25 AM EST

I intended to write this diary not long after the publication of famed Paul Krugman's article "How Did Economists Get It So Wrong?", and my review of Nial Ferguson's book "The Ascent of Money". But my schedule drifted away to excitements of job related projects. So here it is at last...

There is this passage in Krugman's article:

I like to explain the essence of Keynesian economics with a true story that also serves as a parable, a small-scale version of the messes that can afflict entire economies. Consider the travails of the Capitol Hill Baby-Sitting Co-op.

This co-op, whose problems were recounted in a 1977 article in The Journal of Money, Credit and Banking, was an association of about 150 young couples who agreed to help one another by baby-sitting for one another's children when parents wanted a night out. To ensure that every couple did its fair share of baby-sitting, the co-op introduced a form of scrip: coupons made out of heavy pieces of paper, each entitling the bearer to one half-hour of sitting time. Initially, members received 20 coupons on joining and were required to return the same amount on departing the group.

Unfortunately, it turned out that the co-op's members, on average, wanted to hold a reserve of more than 20 coupons, perhaps, in case they should want to go out several times in a row. As a result, relatively few people wanted to spend their scrip and go out, while many wanted to baby-sit so they could add to their hoard. But since baby-sitting opportunities arise only when someone goes out for the night, this meant that baby-sitting jobs were hard to find, which made members of the co-op even more reluctant to go out, making baby-sitting jobs even scarcer...

In short, the co-op fell into a recession.


Krugman is very fond of this example, as he recounts in a much earlier article:

Twenty years ago I read a story that changed my life. I think about that story often; it helps me to stay calm in the face of crisis, to remain hopeful in times of depression, and to resist the pull of fatalism and pessimism

[...]

If you think this is a silly story, a waste of your time, shame on you. What the Capitol Hill Baby-Sitting Co-op experienced was a real recession. Its story tells you more about what economic slumps are and why they happen than you will get from reading 500 pages of William Greider and a year's worth of Wall Street Journal editorials.

The original 1977 article of Joan and Richard Sweeney (who participated in the Coop) can be found here. They actually focus more on the later period of inflation rather than Krugman's favorite recession.

If the Coop story indeed illustrates the the essence of Keynesian economics, there is a good deal to commend. Money is usually defined by all those beautiful functions it presumably plays: as a medium of exchange, as measure of value, as an accounting unit, or wealth storage. Elementary economic theories just assume that money evaluates faithfully (or almost faithfully) the merits of all goods, services, producers and traders. What makes money so omnipotently good? Or does it fulfills these wonderful roles only most of the time, or "merely" to a large degree and only in normal circumstances?

It was indeed Keynes who observed that a great economic nightmare might come even if resources of nature and men's devices are just as fertile and productive as ever. The money medium can have a power and will of its own.

The Coop story is probably a well-accepted example for university undergraduate courses as an illustration of monetary economics. The simplest kind of economy without much distinction between labour and capital, with a single "natural" commodity as an exchange medium, was well described by Marx. He observed already that hoarding money may lead to a crisis. In other words, it is enough for money to play the roles of exchange medium, accounting unit and wealth storage, and recessions may occur.

Keynes added the distinctions between saving and investment, and between industrial and financial circulations of money. From here rational motivations for money hoarding become evident: market expectations and all other "sentiments".

But sure, if Keynesians think that they saw all the light about economic crises, they could be delusional. By now their preferred policy of issuing more money scrips to counter depressions of monetary thrift is banalized and vulgarized. Libertarians say that all coop problems can be solved by letting the relative value of baby sitting and coupons vary. Let the money play the value measurement role as well (or let the market decide as they say)! But does that really change a lot?

As Krugman himself suggests (in that much earlier article), the coop could allow borrowing of scripts. Then baby sitting scarcities or inflations could positively be influenced by the interest rate of the "central bank". But he admits that even then Japanese-type "liquidity traps" are possible. Ouch, those zero-rate dead ends are not just Japanese by now...

When it comes to introducing debt at interest, deepness of crises could be as unlimited as human foolishness. (Youtube)

By the way, debt accounts and other credit papers are exactly the most convenient media of exchange, accounting and value measuring units, or wealth storage logs that "physically" define the money. This was noted in my previous diary.

Here is a thing that the basic Capitol Hill Baby-Sitting Co-op story tells us. Money itself is not wealth, it is just coupons or vouchers for wealth. The world is crazy about collecting wealth vouchers...

Display:
I would use a Babysitting Clearing Union approach for Baby Hours. A levy would be applied to positive and negative balances of Baby Hours so that a fund of a Baby Pool of Baby Hours is formed. A dividend of Baby Hour Units from the Pool is then distributed equally to all members.

The advantages of this approach are:

(a) Members with positive balances are incentivised to use Hours or lose them;

(b) Members with negative balances are motivated to reduce the balance by doing baby-sitting;

(c) A balance of Baby Hours in the pool is available to cover defaults ie if a member leaves with a negative balance.

Baby Hours are not money, but they are a form of currency or 'money's worth' (or 'wealth'). Such a levy on positive balances is the Gesellian approach which Keynes adopted for his Bancor/ International Clearing Union proposal at Bretton Woods.

Wherever a barter system incorporates credit (or time to pay) the result is a monetary system. The Swiss WIR is a good example of such a credit clearing system where goods and services are exchanged not FOR Swiss Francs as a fiat currency, but BY REFERENCE TO the Swiss Franc as a value standard or unit of measure..

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon Nov 16th, 2009 at 06:18:01 AM EST
I reckon that a Worgl type depreciating scrip-currency would be very effective in running a baby sitting Coop. This is a Gesellian approach as well, right?
by das monde on Mon Nov 16th, 2009 at 06:47:39 AM EST
[ Parent ]
Exactly. That was Gesell's thinking.

But it only deals with getting positive balances moving - it doesn't handle the problems that can occur on the debit side (which aren't mentioned in the example of course).

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon Nov 16th, 2009 at 06:52:57 AM EST
[ Parent ]
What is the penalty for default in the Baby Sitting Coop, and how does the Coop accumulate a stock of baby hours to face default?

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
by Migeru (migeru at eurotrib dot com) on Mon Nov 16th, 2009 at 06:56:10 AM EST
[ Parent ]
A levy on both positive and negative Baby Hour balances goes into the Pool.

To the extent that there are no default events, the Pool is available for distribution to members, which results in a distribution from those with above average use of the Baby Pool mutual member guarantee to those with below average use.

The key default event is that someone leaves the pool leaving a negative balance behind. The resulting loss would be met by the Pool, thereby reducing the distribution to members, and if the Pool is inadequate to cover the loss then the event would require an additional levy on member balances as well.

Also, if a member fails to perform -eg cops out at the last minute, then another member could fill in, and be credited - in addition to the usual Baby Hours - with additional bonus Baby Hours which would be debited to the other member's account as a penalty.

There would probably need to be limits on balances as well. A Baby Pool operator would manage the agreed Pool policies, and could be credited with Baby Hours in return, from the Pool.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon Nov 16th, 2009 at 08:20:30 AM EST
[ Parent ]
That doesn't really solve the default problem.

In a zero-sum LETS scheme, if a single member leaves the scheme, it has no real impact. Other members can still trade. Members may feel ripped off because they've donated services to someone who hasn't reciprocated, but unless the defaulter was offering something exceptionally useful - which is unlikely, if they had a negative balance - no one individual is significantly inconvenienced. The scheme only suffers as a whole if enough members leave to affect its collective viability - which isn't a default issue.

In your scheme, other members become less able to trade after a default. I don't think that counts as a win - for the obvious reason that limiting trade is inherently bad, and for the less obvious moral reason that remaining members are being punished for someone else's actions.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Nov 16th, 2009 at 08:58:27 AM EST
[ Parent ]
ThatBritGuy:
In your scheme, other members become less able to trade after a default.

The default affects the existing 'stock' of Baby Hours and means - if the Pool is inadequate - that those with positive balances have smaller balances, while those with negative balances now have greater negative balances. It affects the ability of members to create new Baby Hour credits after the default only insofar as a member's debit balance gets nearer his limit.

The members of the scheme all share the default costs caused by a rogue member. I wouldn't really characterise that as punishment, though. I would call it solidarity, or maybe a form of mutual insurance. Naturally it is necessary to set limits in relation to positive and negative balances.....that is a quasi - Monetary Authority policy question for the membership.

Those members who run relatively low or zero balances receive a dividend via the Pool from those other members who are using the mutual guarantee, and which is essentially a payment in respect of their share in the Baby Pool mutual guarantee.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon Nov 16th, 2009 at 10:42:48 AM EST
[ Parent ]
It still looks likes an accountant's solution, not a real world one.

The key question - does using money, scrip, or some other form of accounting make it easier or harder to find a baby sitter when you need one?

The original experiment proves that money is the problem, it does not solve the problem. Money is not a solution - and making the accounting more baroque in an attempt to compel participants to behave in the required way is not any more of a solution.

Notice what you're doing here - you're attempting to impose, or at least design, a system of exchange which forces a desired social result.

This is no different in principle to fiat banking, which uses financial engineering for political ends.

Note also that in other cultures with other rules the problem is already solved. And that in this culture a non-monetary solution - such as better communication between participants - is more likely to work than pseudo-finance.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Nov 16th, 2009 at 12:17:17 PM EST
[ Parent ]
It is an accounting solution because a monetary system is an accounting system. The Swiss WIR is a case in point, and there is nothing 'imposed' about that. Swiss SMEs have used that system as 'consenting adults' since 1934 when the banking system failed them.

The simple solutions I am proposing - and I submit they ARE an order of magnitude simpler than the smoke and mirrors of central banking, QE, CDS, CDOs and the like - are consensual as well. I confess that it genuinely surprises me that you consider a Clearing Union approach 'baroque' in comparison, although it is more complex than a gift economy, I grant you.

No one has to use partnership-based agreements, whether for risk sharing of mutual credit - as in the illustration above - or in revenue or production sharing agreements relating to productive assets.

ThatBritGuy:

This is no different in principle to fiat banking, which uses financial engineering for political ends.

There is all the difference in the world between this consensual model and the fiat banking which administratively confers value upon something which is its antithesis - a claim over value issued ex nihilo. The value in the above model is whatever the parties consensually agree - no more and no less.

In some cultures trust exists and does not have to be supplemented, and in due course I hope that we will transition to such a gift economy. It seems to me from your apparent antagonism to any sort of rules basis for exchange, that this is your hope as well.

I have seen such a transition occur (I am on the board of Letslink UK) in LETS groups where the participants ceased to keep score and simply continued exchanges among themelves without accounting for transactions. On the face of it these were 'failed' LETS groups, but the truth is that they were in fact a complete social success.

In the meantime, I see such consensual agreements as a route for the transition away from the toxic financial system which is essentially imposed upon us by the current banking and other monopolies.

ie we have to get 'there' from here, and if you have an alternative proposal to achieve this transition, then I genuinely look forward to hearing about it.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon Nov 16th, 2009 at 01:38:34 PM EST
[ Parent ]
ChrisCook:
I confess that it genuinely surprises me that you consider a Clearing Union approach 'baroque' in comparison, although it is more complex than a gift economy, I grant you.

In this example I'm finding it hard to imagine people checking their depreciating, loss-adjusted, baby-bank balances for suitable credits before picking up the phone.

Any scheme which needs a spreadsheet to decide whether or not someone can afford a babysitter is baroque, surely?

ChrisCook:

In some cultures trust exists and does not have to be supplemented, and in due course I hope that we will transition to such a gift economy. It seems to me from your apparent antagonism to any sort of rules basis for exchange, that this is your hope as well.

This is THE central issue here. In trust cultures, money is not necessary, and creates more problems than it solves.

In predatory cultures, money exists to facilitate predation - not to improve the common good, or increase trust and mutual benefit.

I'm not sure if we will transition to a gift economy, because for me, the existence of predation is the single most important political problem in all of history.

Given that finance has always been one of the primary tools of predation, second only to military force, I'm not yet convinced that any of your schemes address the problem honestly.

It's at this point you usually say that peer to peer finance routes around predators and makes them redundant. But I've yet to see any evidence of this happening, or any suggestions how this might put - for example - Goldman Sachs, Russian oligarchs, or oil speculators out of business.

I'm not surprised that LETS schemes create trust cultures - I'd certainly hope they would, and they'd be resilient enough to deal with the odd individual who acts with bad faith.

But there's a difference between that level of interchange, and what's usually called business, where predatory bad faith, attempted dominance of markets, customers and competitors, and assymetrical power relationships are all key features, not aberrations.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Nov 16th, 2009 at 10:07:07 PM EST
[ Parent ]
ThatBritGuy:

In this example I'm finding it hard to imagine people checking their depreciating, loss-adjusted, baby-bank balances for suitable credits before picking up the phone.

Any scheme which needs a spreadsheet to decide whether or not someone can afford a babysitter is baroque, surely?

The scheme in the example has just the same issue does it not? A balance is a balance. Every system other than a gift economy needs a spreadsheet. What has changed is the rules that apply to balances, and (possibly) the behaviour that follows the change in the rules.

At the moment the rules/protocols that comprise the legal and financial structure or enterprise model we use are such that sociopathic behaviour - 'profit maximisation', limited liability, fixed returns and compounding interest - which is hard-wired into the system. Most people are brainwashed by the dominant narrative and simply internalise any discomfort they may have, even if they think about it at all.

I believe that the collaborative model I observe emerging is doing so because, like any emergent phenomenon,'it works'. In a partnership-based model it is in people's interests to co-operate rather than to compete etc etc.

I am sure rafts of academic studies have been done on this, but for my own part I am happier co-operating and being open than to do otherwise, and so the solutions I identify 'go with the grain' for me at least.

It is my thesis that Ethical is in fact Optimal, and that we will find that those who do not use a collaborative enterprise model will be at a disadvantage to those who do. There's only one way of proving that this is the case, and that's by testing the thesis in practice, which is what I am doing. It seems to me that a great many other people are testing alternatives too, now that the conventional model is breaking down :-)

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Tue Nov 17th, 2009 at 05:08:17 AM EST
[ Parent ]
The conventional model is an emergent phenomenon.
by Colman (colman at eurotrib.com) on Tue Nov 17th, 2009 at 05:44:41 AM EST
[ Parent ]
Correct.

And the conventional model is fucked.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Tue Nov 17th, 2009 at 08:51:32 AM EST
[ Parent ]
But 'it works'?
by Colman (colman at eurotrib.com) on Tue Nov 17th, 2009 at 09:35:37 AM EST
[ Parent ]
Really?

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Tue Nov 17th, 2009 at 10:11:58 AM EST
[ Parent ]
like any emergent phenomenon,'it works'
by Colman (colman at eurotrib.com) on Tue Nov 17th, 2009 at 10:19:11 AM EST
[ Parent ]
It doesn't do what you want it to, but it's still there...

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
by Migeru (migeru at eurotrib dot com) on Tue Nov 17th, 2009 at 10:28:57 AM EST
[ Parent ]
Emergence is a dynamic process: as is decomposition.

The reason collaborative models are emerging IMHO is that the conventional model - which is 'emerged' rather than 'emergent' - has ceased to work.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Tue Nov 17th, 2009 at 10:33:22 AM EST
[ Parent ]
ChrisCook:
The scheme in the example has just the same issue does it not? A balance is a balance. Every system other than a gift economy needs a spreadsheet. What has changed is the rules that apply to balances, and (possibly) the behaviour that follows the change in the rules.

It depends on who has to have the spreedsheet. By issuing physical tokens with a staable value, the users has a very easy way of estimating their holdings. Someone (the cashier/the bank) probably has a spreedsheet to avoid counterfeiting. (And that informational disbalance allows financial tricks and thus theft.)

But a system that demands a spreedsheet per user for the user to understand the value of his or her assets is probably to complex for baby-sitting. The value of time spent understanding the system does not appear proportional to what is won. The idea that everyone can hold perfect information is another of those ideas that give a cover for tricks. Information costs time to acquire and if it does not appear to give an equal amount of time back it will not be acquired.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Tue Nov 17th, 2009 at 08:26:20 AM EST
[ Parent ]
A swedish kind of death:
But a system that demands a spreedsheet per user for the user to understand the value of his or her assets is probably to complex for baby-sitting. The value of time spent understanding the system does not appear proportional to what is won.

That's not what is proposed. A user would see an available balance on his mobile rather than on a piece of paper.

That's it.

He doesn't need to see how the sausage is made: but he could have more confidence that the sausage is edible.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Tue Nov 17th, 2009 at 08:51:02 AM EST
[ Parent ]
No  but what's proposed is a system where people 'can't afford' a baby sitter, even though there may be other people sitting at home doing nothing, who would be willing if asked.

What does the system add that (say) a simple needs/can/will online message board doesn't?

It's not security, because people can still default or abuse the system. It's not increased accessibility, because that can be done in other ways. It's not maximal resource utilisation, as above.

What's the benefit?

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue Nov 17th, 2009 at 12:04:13 PM EST
[ Parent ]
ThatBritGuy:
No  but what's proposed is a system where people 'can't afford' a baby sitter, even though there may be other people sitting at home doing nothing, who would be willing if asked.

I'm not sure where you get that from?

Any member can get a baby sitter from the group any time simply by finding someone willing to baby sit and then issuing a Baby Hour credit to them afterwards. If the Baby Sit service user has a credit balance it's reduced by x Baby Hours or, if not, their balance goes x Baby Hours further into debit. This is fine, provided they are within their 'guarantee limit' - ie they haven't piled up an excessive debit balance by not doing at least some baby sitting.

ThatBritGuy:

What does the system add that (say) a simple needs/can/will online message board doesn't?

It's not security, because people can still default or abuse the system.

The system does indeed add security because the system 'Pool' of Baby Hours shares the costs of defaults - eg when a member leaves with a big debit balance - across the members collectively. I set out elsewhere on the thread how that works. People being people, defaults will happen, but I think that the system proposed above is superior to the conventional one in sharing the risk without unnecessary rentier profits.

If people abuse the system then after a while they'll find no counter-parties willing to baby sit for them, or have them to baby sit as the case may be. Someone I know who runs commercial barter systems told me how one of his members complained he couldn't find any counterparties willing to deal with him. My colleague pointed out to him that this may have had something to do with the way he fulfilled transactions, because no-one else had the same problem.  

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Tue Nov 17th, 2009 at 12:35:02 PM EST
[ Parent ]
ChrisCook:
This is fine, provided they are within their 'guarantee limit' - ie they haven't piled up an excessive debit balance by not doing at least some baby sitting.

That's where I'm getting that from.

The obvious - to me, anyway - flaw in your system is that when someone defaults, everyone else's balances shrinks, potentially pushing them into a situation where they can't afford to 'pay' for a baby sitter.

ChrisCook:

If people abuse the system then after a while they'll find no counter-parties willing to baby sit for them, or have them to baby sit as the case may be.

So why not just create an hours balance on the message board? It doesn't need a spreadsheet, just some basic adding up. Even monthly accounts for paper scrip would do - as long as you tell people not to hoard it.

People can see who's freeloading, and act accordingly, in one of those rare economic situations where there's a chance they may actually behave like rational actors.

Of course, some people may still choose to baby sit for freeloaders, perhaps because they're bored, they enjoy it, it's no real hassle if the freeloaders are willing to drop off and pick up, or for some other social reason.

That's impossible with your system - at least beyond a certain point.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue Nov 17th, 2009 at 01:08:09 PM EST
[ Parent ]
ThatBritGuy:
The obvious - to me, anyway - flaw in your system is that when someone defaults, everyone else's balances shrinks,

Not so.

The balance in the "Pool" (owned in Common) should absorb any loss. What this means is that there may then be a reduced Baby Hour dividend (referred to upthread) to members for a while as the Pool rebuilds.

ThatBritGuy:

So why not just create an hours balance on the message board? It doesn't need a spreadsheet, just some basic adding up. Even monthly accounts for paper scrip would do - as long as you tell people not to hoard it.

Such a registry and transparency is exactly what I advocate for the oil market and of course, also in this case.

ThatBritGuy:

Of course, some people may still choose to baby sit for freeloaders, perhaps because they're bored, they enjoy it, it's no real hassle if the freeloaders are willing to drop off and pick up, or for some other social reason.

That's impossible with your system - at least beyond a certain point.

That is not the case. There is no reason why there should not be 'over the counter' dealings between members which are not settled in Baby Hours within the system: it's a matter of choice.

Babysitting may be done gratis or maybe in exchange for something else entirely in both cases without troubling the system at all. Or even both inside and outside the system eg by settlement in Baby Hours plus a couple of beers....

There is no exclusivity to the system: it's a complementary currency. You appear to be assuming restrictions which may be customary in a conventional system but which are not the case here.

Btw thanks for keeping going on this TBG - there is no better way of testing a model than addressing the issues raised.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Tue Nov 17th, 2009 at 02:22:26 PM EST
[ Parent ]
If someone is leaving the pool "indebted" (with no realistic possibility to sit out), he/she will be asked to compensate in some way. The Capitol Hill Baby-Sitting Co-op participants were lawyers and other high fruits of Washington, you know.

The scrip/coupon system is an attractive alternative to direct accounting because of no need of checking balances and spreadsheets. So "baroqueness" is a factor in the co-op design. How is your system an improvement on simple bookkeeping?

Isn't it harder to imagine a baby-sitting recession or inflation in a simple bookkeeping system? It is funny then how introduction of "mediator" paper coupons changes behavior of participants.

As any administrative instrument, introduction and control of "wonderful" measures could be managed to do some good for a baby-sitting society, and could be managed to make things more horrible than necessary :-]

by das monde on Tue Nov 17th, 2009 at 02:19:11 AM EST
[ Parent ]
das monde:
The scrip/coupon system is an attractive alternative to direct accounting because of no need of checking balances and spreadsheets. So "baroqueness" is a factor in the co-op design. How is your system an improvement on simple bookkeeping?

Book-keeping is book-keeping: you currently either use cash (scrip) or banks. I agree that scrip is attractive in its simplicity, but it is open to counterfeiting etc. and still has to be issued (how and by whom?) and accounted for. Once it's out there its out there. It does nothing to stop the free-rider problem of people issuing scrip, building up debit balances, and doing no babysitting themselves.

Key problems for the lack of scalability of LETS schemes are firstly the absence of a framework of trust. LETS schemes only work with people who know each other, and indeed they are a great way of enabling people to get to know each other and to build trust. Experience is that around 60 members is probably optimal and 150 members is probably the maximum before a LETS scheme either fragments or implodes.

The second problem is that LETS administration - which covers not just accounting but also communication of 'needs and wants', social events etc - is paper based and burdensome. It often relies upon goodwill - which eventually runs out - or upon systems allocating LETS credits to the managers, which typically builds up unsustainably large balances for them which then silt up the system.

That is why there are numerous fragmented initiatives to automate administration and communication - but all of them rely upon volunteers to develop. If automated - and it is simply a matter of the application of an algorithm to balances - the system I advocate would work just as well as any other.

The outcome would essentially be electronic scrip sitting in your mobile phone, and such systems already exist. I could imagine a Babysitting scheme where participants maintain balances on their mobiles periodically updated (the periodic levy and dividend) by Admin through a tweet-style broadcast.

Members could send out 'request for bids' also via tweets when they need a baby sitter......indeed, it's probably already been done many times. They would then transfer Baby Hours bilaterally by text when they come home.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Tue Nov 17th, 2009 at 05:46:53 AM EST
[ Parent ]
Ah, you had already covered my point upthreads. An automatic system then.

It does make the bookkeeping and reading your assets easy enough (as long as you can remember the password and the server does not break down). It moves the risk of counterfeiting from user or cashier to the hacker or the system administrator, but with reasonable precautions (like using open source) should work as well or better from the users perspective.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Tue Nov 17th, 2009 at 08:32:00 AM EST
[ Parent ]
I think that with a small closed community as in the example then password and security are not a huge issue, and could be minimimal in view of the major amount of trust already built in.

No third party is going to hack in in search of Baby Hours which they would have no use for.

It's a bit different for dollars....errr...wait......?

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Tue Nov 17th, 2009 at 08:59:56 AM EST
[ Parent ]
Isn't it harder to imagine a baby-sitting recession or inflation in a simple bookkeeping system? It is funny then how introduction of "mediator" paper coupons changes behavior of participants.

It seems obvious that changing from a bookkeeping noticeboard to something that "looks like money" would change behaviour. In fact, it seems so obvious that it should have already been studied...

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Nov 18th, 2009 at 06:12:59 PM EST
[ Parent ]
But money neutrality is an axiom of neoclassical economics so...

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
by Migeru (migeru at eurotrib dot com) on Wed Nov 18th, 2009 at 06:18:31 PM EST
[ Parent ]
So neoclassical economics is a crock of shit.

But we knew that already, didn't we?

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Nov 18th, 2009 at 08:07:33 PM EST
[ Parent ]
But it only deals with getting positive balances moving - it doesn't handle the problems that can occur on the debit side (which aren't mentioned in the example of course).

If participants are obliged to return 20 coupons at departure, falling below those 20 coupons is effectually a negative balance.

If the coupons are depreciating at some rate, you can go into the negative balance just by doing nothing. You can go deeper into "debt", but there is a floor. Wouldn't that be useful and somehow fair "debt" system?

by das monde on Wed Nov 18th, 2009 at 04:49:02 AM EST
[ Parent ]
Modern conservatives engage in one of man's oldest exercises in moral philosophy: the search for a superior moral justification for selfishness. Galbraith

That's the ultimate alchemy indeed.

It is interesting that Krugman is not far from that pursuit; from the "much earlier" article:

Above all, the story of the co-op tells you that economic slumps are not punishments for our sins, pains that we are fated to suffer. The Capitol Hill co-op did not get into trouble because its members were bad, inefficient baby sitters; its troubles did not reveal the fundamental flaws of "Capitol Hill values" or "crony baby-sittingism." It had a technical problem -- too many people chasing too little scrip -- which could be, and was, solved with a little clear thinking.

Presumably, all technical problems can be ideally solved, and we never have to worry about morality. That must be the most important human need that a theory could satisfy, a relief from moral considerations..

by das monde on Wed Nov 18th, 2009 at 04:56:51 AM EST
[ Parent ]
... story was a great description of bastard Keynesian economics, after Paul Samuelson had stripped out the primary advance in the General Theory - the role of intrinsic uncertainty in determining the level of employment of resources in a monetary production economy.

Since that is what we see in Krugman's Baby-Sitting Co-op example - an explanation that a recession can happen if people behave in a certain way, with only speculation as to why it might be individually sensible of people to behave in that way even though a recession results.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Nov 16th, 2009 at 11:08:40 AM EST
An old article but still worthy of a read:

The Economic Organisation of a P.O.W. Camp by R. A Radford.

Opening paragraph:

Although a P.O.W. camp provides a living example of a simple economy which might be used as an alternative to the Robinson Crusoe economy beloved by the textbooks, and its simplicity renders the demonstration of certain economic hypotheses both amusing and instructive, it is suggested that the principal significance is sociological.


She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
by ATinNM on Mon Nov 16th, 2009 at 02:26:28 PM EST
... example of the power of conventional habits of thought - economists who are institutionalized to act as if monetary economies are natural phenomena study POW's raised in monetary economies recreating the institutions in which they were raised ...

... and bizarrely conclude that it proves that the evolution from barter to a monetary economy is a natural phenomenon.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Tue Nov 17th, 2009 at 02:13:00 PM EST
[ Parent ]
European Tribune - The simplest money model you can buy
It was indeed Keynes who observed that a great economic nightmare might come even if resources of nature and men's devices are just as fertile and productive as ever. The money medium can have a power and will of its own.

And when resources of nature grows less fertile from over-use having a wacky money system does not help. Which should be relevant today.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Tue Nov 17th, 2009 at 08:37:10 AM EST
that this model can be solved rather simply by saying that each departing couple has to pay (or receive) compensation at a pre-agreed rate - likely equal to the price of a standard baby-sitting session per token in deficit (surplus) it has when it leaves.

That gives a stable value to the tokens and allows people to worry less about being below 20 temporarily (and even lets them choose on occasion to pay rather than use a token, or vice versa).

What am I missing?

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Tue Nov 17th, 2009 at 02:05:48 PM EST
The problem in the example is not departing couples but couples remaining in the system but hoarding their coupons.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Tue Nov 17th, 2009 at 02:14:12 PM EST
[ Parent ]
But I understand they were hoarding so as to have at hand the 20 coupons they'd need to give back if they wanted to exit the system.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Tue Nov 17th, 2009 at 04:17:59 PM EST
[ Parent ]
perhaps, in case they should want to go out several times in a row

If you expect to be out four hours but its five, that's ten coupons. So two times in a row could clean out 20 coupons.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Tue Nov 17th, 2009 at 04:21:50 PM EST
[ Parent ]
What is the sense of the current bailout, in Krugman's "clear thinking" terms? People are "hoarding" money because they have to pay off their debts, or that it became scarce just as in the baby sitting co-op. But the money goes only to the financial stratosphere, with hardly anything "trickling" to the people wanting to do something. If money hoarding is the problem, what is the role of those 0.1-1.0% banking or "investing" professionals of money stockpiling? How much money do they keep and let it out?

Here is an excerpt from Steve Keen's blog:

In explaining his recovery program in April, President Obama noted that:

"there are a lot of Americans who understandably think that government money would be better spent going directly to families and businesses instead of banks - `where's our bailout?,' they ask".

He justified giving the money to the lenders, rather than to the debtors, on the basis of "the multiplier effect" from bank lending:

the truth is that a dollar of capital in a bank can actually result in eight or ten dollars of loans to families and businesses, a multiplier effect that can ultimately lead to a faster pace of economic growth. (page 3 of the speech)

This argument comes straight out of the neoclassical economics textbook. Fortunately, due to the clear manner in which Obama enunciates it, the flaw in this textbook argument is vividly apparent in his speech.

This "multiplier effect" will only work if American families and businesses are willing to take on yet more debt: "a dollar of capital in a bank can actually result in eight or ten dollars of loans".

So the only way the roughly US$1 trillion of money that the Federal Reserve has injected into the banks will result in additional spending is if American families and businesses take out another US$8-10 trillion in loans.

by das monde on Wed Nov 18th, 2009 at 11:19:10 PM EST
In one way, Obama is not totally off the mark. In our current system credit is needed or you get businesses crashing from not being able to loan for investment, being unable to get temporary credit to solve liquidity problems etc. Even if the business has good solvency. And families might be unable to move because they can not borrow for housing, even if moving means getting a job that could pay for that loan.

He is however way off when if he thinks that flooding the banks with money will solve the problems. They will just repeat their schemes and come asking for more. See Hoover for examples of how not to do it.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Thu Nov 19th, 2009 at 05:58:45 AM EST
[ Parent ]
That is being unkind to Hoover. He didn't actually engage in massive bank bailouts. His fault was not that he failed to liquidate the big banks, but that he failed to follow up the shortfall of private expenditure with public works.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Nov 19th, 2009 at 06:17:04 AM EST
[ Parent ]
I agree that he did not bailout, and that my critique was unfair as it was formulated.

But I remain under the impression that he failed to regulate banking, and liquidate bad banks, thus setting the stage for Roosevelt's Emergency Banking Act:

The Emergency Banking Act (the official title of which was the Emergency Banking Relief Act) was an act of the United States Congress spearheaded by President Franklin D. Roosevelt during the Great Depression. It was passed on March 9, 1933. The act allowed a plan that would close down insolvent banks and reorganize and reopen those banks strong enough to survive. In summary, the provisions of the act were as follows


Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Thu Nov 19th, 2009 at 11:10:16 AM EST
[ Parent ]
Oh, yes.

But failure to do enough that is good is not quite the same thing as determination to do much that is bad.

Now, his determination to keep the budget balanced at all cost, on the other hand...

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Nov 19th, 2009 at 03:54:40 PM EST
[ Parent ]
A few new good businesses still have good solvency even with the downturn perspectives, a few families out there getting a promotion job. But on a massive scale, businesses have poor perspectives (for survival under debt and recession), families are loosing their jobs and homes. The debt to the GDP level is already highest ever. Banks wouldn't give out 10 trillion in loan even if they wished. Or eventually that would be another bad trillions in loans.

What is remarkable about economic theories is not only that they assume generally idealistic roles of money in the "business cycle", but that they keep mum about significance of debt. Apart from Minsky's Financial Instability Hypothesis, debt problems are never central in Keynesian or monetarist theories.

by das monde on Thu Nov 19th, 2009 at 08:06:31 PM EST
[ Parent ]


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