That is basically the pro-gold standard/anti-Keynesian response to Krugman’s argument, and I’m impressed (albeit saddened) that you could come up with the major, current counterargument so quickly.
I think you understand the story perfectly, and now sympathize with one half of the economics community on the issue of monetary equilibrium.
Incidentally, what would be the market price for co-op credits if people knew in advance that the co-op could arbitrarily decide to flood the market with (face value 1⁄2 hour) credits? Or of US dollars if people knew in advance that the government could decide, at its whim, to redeem the dollars for less than 1⁄20 ounce of gold?
There’s a disturbing tendency of all the anti-gold standard arguments to assume away the harms of horribly defaulting on a promise made in the generation of a currency. It’s just like arguing that a business venture could increase its profitability if it could just repudiate all its loans without penalty. True, but irrelevant.
Why saddened? … I admit i don’t know economics at all :-(
Because of what it says about economics—that an outsider can reach the same conclusion, for the same reason, as (half of) the “experts”. Remember the “layshadow test”? If an academic field is such that a layperson can come in, spend a few hours, and produce output indistinguishable from people who have spent years “learning” the field, then that field is lost because the inferential distance is low, implying little knowledge accumulation.
That’s what seems to be going on here.
And what is the other side’s standard response to my (apparently well-known) question?
I just found out there’s a Wikipedia article about the debate. It doesn’t give the response to that critique, but as far as I know, the response is that it requires flexible prices throughout the economy and won’t work if prices are “sticky”.
Correction: Here’s another critique from there:
Mitchell criticizes this because, he asserts, the falling wages of babysitters only solves the problem if it reduces the desire of couples to save, which is not supported by any research.[9] The only effect of falling wages would be to increase the real value of nominal contracts. In other words, couples would have to spend more time babysitting before they acquired the amount necessary to leave the cooperative. Mitchell concludes that the problem is greater aggregate desire to save than can be funded by existing administrative debt, and that the solution is thus either to reduce (desire for) savings or, more likely increase spending by simply issuing more scrip.
Because of what it says about economics—that an outsider can reach the same conclusion, for the same reason, as (half of) the “experts”. Remember the “layshadow test”? If an academic field is such that a layperson can come in, spend a few hours, and produce output indistinguishable from people who have spent years “learning” the field, then that field is lost because the inferential distance is low, implying little knowledge accumulation.
I’m not sure that’s always true. For example, in my field, mathematics, there are a lot of results that are much easier to explain and learn then they were to discover.
I’m not sure that’s always true. For example, in my field, mathematics, there are a lot of results that are much easier to explain and learn then they were to discover.
With any NP problem, it’s much easier to verify the result than to come up with it. What you describe probably fits this pattern.
In economics, the problem is not that established results, or even open problems, are easy to explain. The problem is that credentialed experts keep arguing about toy problems that are easily explained to a layman, and are unable to produce any insight beyond what an intelligent layman would also be able to figure out quickly. What’s more, they can’t even reach consensus that the problem is intractable, each arrogantly claiming that his ideologically favored theory is correct, and his opponents disagree because they are delusional or dishonest charlatans. (The latter is usually expressed more diplomatically, though it’s actually quite common even for top-rank economists’ writing to drip with unconcealed scorn and contempt of the most arrogant sort.)
I haven’t finished a GED in Economics, but I would assume nobody would want to start doing that because, if you’re the only one doing it, you will perform twice as much babysitting as you get.
The analog in the real market would be downwards-sticky wages (that is, workers are very resistant to cuts in pay, even more so than layoffs; that’s why employers are more reluctant to cut wages of existing employees than to just get rid of them).
That’s not the analog; the analog would be the externality effect. An individual lowering (excessively high) prices imposes a loss on themselves but creates a positive externality on all other individuals; since the externality is never internalized, price adjustment is underprovided. If price adjustment is costly, the problem is even worse.
Wages are not thought to be sticky for this reason (real wages are not as obviously anticyclical as the argument would imply.).
A follow-up: I think the main sign of poor economics discourse in Krugman’s article is that he didn’t even think it necessary to pre-empt your obvious counterpoint, thereby making his argument woefully incomplete. It would have been a lot more productive if he had added, “It wouldn’t do any good to sell babysitting services below the coupon face value, because ____. This corresponds to ____ in the broader economy, which is bad because …”
Would there be any economic difference between (1) the couples all deciding to babysit for half a coupon and (2) doubling the number of coupons each couple has? The two choices seem functionally equivalent to me but I might be missing something.
I don’t completely understand that story. Why didn’t they start babysitting for half a coupon?
That is basically the pro-gold standard/anti-Keynesian response to Krugman’s argument, and I’m impressed (albeit saddened) that you could come up with the major, current counterargument so quickly.
I think you understand the story perfectly, and now sympathize with one half of the economics community on the issue of monetary equilibrium.
Incidentally, what would be the market price for co-op credits if people knew in advance that the co-op could arbitrarily decide to flood the market with (face value 1⁄2 hour) credits? Or of US dollars if people knew in advance that the government could decide, at its whim, to redeem the dollars for less than 1⁄20 ounce of gold?
There’s a disturbing tendency of all the anti-gold standard arguments to assume away the harms of horribly defaulting on a promise made in the generation of a currency. It’s just like arguing that a business venture could increase its profitability if it could just repudiate all its loans without penalty. True, but irrelevant.
Why saddened? And what is the other side’s standard response to my (apparently well-known) question? I admit I don’t know economics at all :-(
Because of what it says about economics—that an outsider can reach the same conclusion, for the same reason, as (half of) the “experts”. Remember the “layshadow test”? If an academic field is such that a layperson can come in, spend a few hours, and produce output indistinguishable from people who have spent years “learning” the field, then that field is lost because the inferential distance is low, implying little knowledge accumulation.
That’s what seems to be going on here.
I just found out there’s a Wikipedia article about the debate. It doesn’t give the response to that critique, but as far as I know, the response is that it requires flexible prices throughout the economy and won’t work if prices are “sticky”.
Correction: Here’s another critique from there:
I’m not sure that’s always true. For example, in my field, mathematics, there are a lot of results that are much easier to explain and learn then they were to discover.
With any NP problem, it’s much easier to verify the result than to come up with it. What you describe probably fits this pattern.
In economics, the problem is not that established results, or even open problems, are easy to explain. The problem is that credentialed experts keep arguing about toy problems that are easily explained to a layman, and are unable to produce any insight beyond what an intelligent layman would also be able to figure out quickly. What’s more, they can’t even reach consensus that the problem is intractable, each arrogantly claiming that his ideologically favored theory is correct, and his opponents disagree because they are delusional or dishonest charlatans. (The latter is usually expressed more diplomatically, though it’s actually quite common even for top-rank economists’ writing to drip with unconcealed scorn and contempt of the most arrogant sort.)
I also wonder how come they didn’t start trading coupons for cash. (Or maybe they did but won’t tell?)
I haven’t finished a GED in Economics, but I would assume nobody would want to start doing that because, if you’re the only one doing it, you will perform twice as much babysitting as you get.
The analog in the real market would be downwards-sticky wages (that is, workers are very resistant to cuts in pay, even more so than layoffs; that’s why employers are more reluctant to cut wages of existing employees than to just get rid of them).
That’s not the analog; the analog would be the externality effect. An individual lowering (excessively high) prices imposes a loss on themselves but creates a positive externality on all other individuals; since the externality is never internalized, price adjustment is underprovided. If price adjustment is costly, the problem is even worse.
Wages are not thought to be sticky for this reason (real wages are not as obviously anticyclical as the argument would imply.).
A follow-up: I think the main sign of poor economics discourse in Krugman’s article is that he didn’t even think it necessary to pre-empt your obvious counterpoint, thereby making his argument woefully incomplete. It would have been a lot more productive if he had added, “It wouldn’t do any good to sell babysitting services below the coupon face value, because ____. This corresponds to ____ in the broader economy, which is bad because …”
Also, I agree with Vladimir M.
Would there be any economic difference between (1) the couples all deciding to babysit for half a coupon and (2) doubling the number of coupons each couple has? The two choices seem functionally equivalent to me but I might be missing something.