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To me it seems the problem with the Babysitting coop was price fixing. The price of of an hour of babysitting was always 1. If the price of an hour of babysitti
by dmm 14y ago
To me it seems the problem with the Babysitting coop was price fixing. The price of of an hour of babysitting was always 1. If the price of an hour of babysitting was allowed to float you would not have the shortages.
- Jtsummers 14y agoSee the original Krugman article. It goes further into explaining efforts to try and rectify their economy, as well as a general discussion on the principles involved.
- crazygringo 14y agoWell, right. They added more coupons, which fixed the problem. But I don't see how that's significantly different from allowing the price of babysitting to float -- I know doubling the number of coupons isn't exactly the same as making them half as valuable, but it's similar. But since bitcoins simply adjust in value according to market demand, I, as well, don't understand how Krugman's story applies to bitcoin. If everyone thinks bitcoin's value will always go up, because it's deflationary, and everybody hoards -- well not everybody will, right? There must be other factors at hand, surely?
- rayiner 14y agoAllowing the price of baby sitting to float relative to what? It's babysitting all the way down. That's one of the great things about this hypothetical, is that it forces you to think of the underlying barter transactions instead of misleading yourself into treating the currency as having intrinsic value.
- dmm 14y agoThe price of an hour of babysitting on a random day in April is 1 unit. The price of an hour of babysitting on New Years eve is 5 units. On some nights the demand for babysitting is higher. On those nights the price is higher. Does that make sense?
- rayiner 14y agoHow does that fix the problem of people hoarding coupons by not going out, decreasing the underlying economic activity that creates the need for the coupons in the first place?
- dmm 14y agoIf nobody goes out then the price of babysitting approaches zero: everyone want to babysit, no one wants to go out. Once the price is 0.0001 units, why not go out? The benefit of staying in is minimal.
- Danieru 14y ago"I will babysit for you 2 hours if you babysit 1 hour for me today". For the coop this would work by paying extra 30 minute coupons. e.g: one hour of baby sitting on saturday might be paid with three 30 minute vouchers. Thus encouraging buyers to prioritize weekday outings. No idea if this would solve the liquidity though.
- dmarklein 14y agoIt happens all the time in real economies -- virtually every recession. Uncertainty leads to hoarding, which leads to a smaller supply of liquid money with velocity, which leads to deflation. Even in a world with zero hoarding, bitcoin will deflate indefinitely forever, because production will continue to grow while money supply remains constant.
- wwweston 14y agoFloat compared to what? The price of an hour of babysitting was always 1 because the only thing on the exchange is an hour of babysitting. I suppose you could argue some hours of babysitting are more valuable than others, and people could negotiate, say, 4 hours for 5 coupons or vice versa. It's not clear this either (a) wasn't already done on some ad hoc basis (I'd imagine if it was agreeable to both parties, it'd probably happen) or (b) would have provided a solution to the liquidity problem, though.
- unoti 14y agoFloat compared to supply and demand in a free market. Instead of issuing 1-hour coupons, they should have issued an arbitrary currency, say, Shillings. Then buyers can request babysitting paying at 1 shilling per hour, and sellers could say that they want 1.3 shillings per hour. The value of the currency needs to float with supply and demand. The whole argument in the article is a pathetic straw-man. The value of bitcoin floats with supply and demand. When the supply is fixed when bitcoins can no longer be mined, then the supply is based on how much is circulating vs being held.
- smithzvk 14y agoYes. This article gives this other little nugget. > If you have a $10 bill and I replace it with ten $1 bills, do you feel richer? If I exchange a $10 bill for ten $1 bill, I don't feel any more wealthy. However, if my $10 buys ten times as much stuff, then I would feel 10 times more wealthy.
- DasIch 14y agoThe value of bitcoins floats with supply and demand, that is correct. However the demand for any currency is tied to the supply/demand for the total number of goods that are sold/bought with that currency. As the value of these goods rises over time towards infinity demand for bitcoins will rise over time towards infinity. Supply of bitcoins on the other hand is inevitably slowing down and thereby the value of bitcoins will rise towards infinity. This makes it very cheap to "import" goods but prohibitively expensive to "export" any. It also provides a huge incentive not to spend or lend any money. Demand will fall, loans will be harder to get, innovation will come to a standstill and overall the economy will collapse. This is called deflation and this is why we have huge central banks full of well educated people carefully monitoring the economy to adjust inflation and deflation.
- ChuckMcM 14y agoThink about that in somewhat more pragmatic terms. Lets say Alice babysits for Bob for 1 coupon per hour. And hoards coupons. Over time as the supply of coupons becomes more precious she can charge larger and larger 'rates' for her services. Eventually she has all the coupons and nobody else can get any baby sitting. At which point we discover her maiden name is Bernanke! And she has set herself to be the central bank of babysitting coupons, which she will loan out but only at extortionate rates bwa ha ha ha! Basically if someone has all the currency then you can't really make a market with it. Even if the prices fluctuate. Long before the market shuts down it becomes very inefficient.
- trhtrsh 14y agoOnce Alice has all the coupons, nobody can get any babysitting because they have consumed babysitting without producing anything. Either they need to start babysitting for Alice, or find something else valuable to sell to Alice, or decline to babysit and leave Alice stuck with a pile of worthless coupons.
- ChuckMcM 14y agoYes and the whole co-op collapses which is sad. In order to prevent Alice from killing the co-op other members would have to figure out what she was doing and actively stop using her baby sitting services. What is sadder still, once she controlled the coupons, the only way for the co-op to restart and get back to baby-sitting goodness would be to create a new set of coupons and keep her out of it. One would hope she wasn't some sort of socio-path bent on destroying the co-op's ability to function.
- james1071 14y agoThere was only one good, so the price cannot float
- dmm 14y agoBabysitting on April 5th is a different good than babysitting on December 31st.
- gluczywo 14y agoIt's a good point. Coupons were a pegged currency (with fixed exchange rate to commodity or to other currency). The same wrong assumption that made Bretton Woods failed.