Ignorance of Banking Attacks Planet Money, Yet Again
I tripped across yet another indication that Planet Money fails to properly understand banking, this time in Episode 525 on a Babysitting Economy. The problem?
These lawyers in DC, it seems, formed a loose babysitting cooperative, using printed IOUs for babysitting services that would circulate among them. New members would get 20 hours a year for joining; they could redeem them by babysitting themselves. Ah, but then the market was distorted. People hoarded their "money;" coordinators printed extras (described as "Quantitative Easing"). The cooperative fell apart.
Here's the thing: these promises for babysitting were never money. Money is credit issued temporarily by a bank. One takes out a loan and spends it, then spends the term of the loan agreement making regular payments back to the bank. The issued credit is temporary. Money extinguishes itself.
These babysitting chits? They lasted forever. Something that lasts forever is best hoarded, since the things that they buy might fall in value.
For these chits to have been more like money, yes, new members should have gotten hours for joining. Those hours, though, should have rotted. They should have lost value as they aged. This would have fitted with Silvio Gessel's observation:
Only money that goes out of date like a newspaper, rots like potatoes, rusts like iron, evaporates like ether, is capable of standing the test as an instrument for the exchange off potatoes, newspapers, iron, and ether. For such money is not preferred to goods either by the purchaser or the seller. We then part with our goods for money only because we need the money as a means of exchange, not because we expect an advantage from possession of the money.
So we must make money worse as a commodity if we wish to make it better as a medium of exchange.
How much value is a matter for the co-op to decide; perhaps they could have lost an hour a month, or 15 minutes every week. That last would make it very much like the Stamp Scrip from my Rottin' Money post. To make it really more like banking, members could have gotten a few hours as a "loan" for joinging, but been forced to present receipts for babysitting they did over a period of time lest their coupons decrease in value. This would be the best of both worlds, since the demurrage could be thwarted by participation, the very thing the cooperative was founded to encourage.
According to the Planet Money piece, Paul Krugman is fond of citing this failed cooperative. No wonder, of course, when one considers the distance between Krugman and understanding of the role of debt. Sadly, though, PM's "favorite economist" is also not schooled in the details relevant in finance. Otherwise, he would not have made such a blatant mistake regarding the babysitting currency.
Ah, but expecting a team of reporters to investigate the field on which they report? I guess that is just too much to ask.
Addendum, 4-4-2014: I meant to refer above to Krugman's ignorance of banking by citing this article on the topic, but failed to do so on the first go-round. My bad. It is a far better explanation of Krugman's ignorance than the other citation.
These lawyers in DC, it seems, formed a loose babysitting cooperative, using printed IOUs for babysitting services that would circulate among them. New members would get 20 hours a year for joining; they could redeem them by babysitting themselves. Ah, but then the market was distorted. People hoarded their "money;" coordinators printed extras (described as "Quantitative Easing"). The cooperative fell apart.
Here's the thing: these promises for babysitting were never money. Money is credit issued temporarily by a bank. One takes out a loan and spends it, then spends the term of the loan agreement making regular payments back to the bank. The issued credit is temporary. Money extinguishes itself.
These babysitting chits? They lasted forever. Something that lasts forever is best hoarded, since the things that they buy might fall in value.
For these chits to have been more like money, yes, new members should have gotten hours for joining. Those hours, though, should have rotted. They should have lost value as they aged. This would have fitted with Silvio Gessel's observation:
Only money that goes out of date like a newspaper, rots like potatoes, rusts like iron, evaporates like ether, is capable of standing the test as an instrument for the exchange off potatoes, newspapers, iron, and ether. For such money is not preferred to goods either by the purchaser or the seller. We then part with our goods for money only because we need the money as a means of exchange, not because we expect an advantage from possession of the money.
So we must make money worse as a commodity if we wish to make it better as a medium of exchange.
How much value is a matter for the co-op to decide; perhaps they could have lost an hour a month, or 15 minutes every week. That last would make it very much like the Stamp Scrip from my Rottin' Money post. To make it really more like banking, members could have gotten a few hours as a "loan" for joinging, but been forced to present receipts for babysitting they did over a period of time lest their coupons decrease in value. This would be the best of both worlds, since the demurrage could be thwarted by participation, the very thing the cooperative was founded to encourage.
According to the Planet Money piece, Paul Krugman is fond of citing this failed cooperative. No wonder, of course, when one considers the distance between Krugman and understanding of the role of debt. Sadly, though, PM's "favorite economist" is also not schooled in the details relevant in finance. Otherwise, he would not have made such a blatant mistake regarding the babysitting currency.
Ah, but expecting a team of reporters to investigate the field on which they report? I guess that is just too much to ask.
Addendum, 4-4-2014: I meant to refer above to Krugman's ignorance of banking by citing this article on the topic, but failed to do so on the first go-round. My bad. It is a far better explanation of Krugman's ignorance than the other citation.