Correction of Schiff’s Critique of Krugman

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I have a slight correction of Schiff’s otherwise excellent critique of Krugman’s support of inflation. The former quite properly lambastes the latter on his claim that printing more money can solve pretty much any problem. However, he too quickly dismisses Krugman’s baby-sitting co-op as utterly without merit. Schiff hints at the problem, price controls, but does not carry through on this, and thus does not see that the Krugman scheme could have worked, and did not have to be entirely jettisoned. Schiff put his finger on the matter when he said that baby-sitting on a Friday or Saturday night is naturally more expensive than during the week, on, say, a Tuesday or Wednesday, and far less valuable than on special nights, such as New Year’s Eve. What the Krugmanite parents should have done is to allow market rates of exchange between these very different services. For example, possibly, the rate of exchange (to be determined by the “bartering and trucking” of the participants) could have been one hour of New Year’s Eve baby-sitting equals 5 hours of weekend baby-sitting, equals 10 hours of such services on weekdays. At this rate of exchange, if transitivity held, one hour at year’s end would be the equivalent of 10 ordinary hours, and weekend baby-watching would be twice as expensive as during the week. So, no need to throw out the baby (sitting) with the bathwater (inflating chits or IOUs for baby-sitting, an idea that could only be thought up by a Keynesian). On the other hand, to make this work, I am assuming good will on the part of all participants—unwillingness to take from the collectivity of parents many more hours at any given time than you donate. Maybe these people just plain old enjoyed doing things this way. On the other, other hand, we already have a way of cooperating with everyone else for baby-sitting services, and much, much more. It is called “money.” (I don’t expect that Krugman knows anything about this subject; he thinks we can inflate our way into prosperity; he ought to read any good introductory text on the subject.) In this vein, an hour of New Year’s Eve baby-sitting might go for $50, weekends for $10, and weekdays for $5. In that way, the baby sitting co-op could have cooperated with millions of people, not just themselves. (I thank Bill Barnett for having improved an original draft of mine on this subject.)

9:30 pm on December 14, 2011