[lbo-talk] Krugman's babysitting co-op model

tfast tfast at yorku.ca
Tue May 23 21:14:43 PDT 2006


Hope what follows is some help


> So my thoughts are:
>
> * Is this really a sufficiently large model to feature recessions? (Even
> granted this chops out nearly everything important about the economy we
> live under, like radically unequal distributions of wealth/capital, the
> dependence of livelihoods on it, etc.)

It is a narrow one good/service model. So yes it is excessively simplistic (or what an economist would no doubt call elegant) model. But yes it is not a bad description of a recession that is the result of too little money (script) and inflation that is the result of too much money (script). But you are quite right. In the real world lawyers hire babysitters at less than 10% of what they bill an hour. This way there is never a shortage of babysitters because the babysitters can not afford to go out so much.


>
> * Is there actually a point to money in this model? There's no barter
> between particularly different commodities; tallying babysitting hours
> on paper seems more than adequate. Money is too finite.

I do not know what you mean by "money is too finite." The issuance of scipt is little different from the issuance of fiat money (paper money). And in this model scipt can be and is used as a store of value. Meaning money is not simply a veil.
>
> * Why wouldn't the money's devaluation be (in principle) the same as
> injecting new money into the supply?
>
100$ devalued by 10% is 90$.


> * What would be the effect of me starting a private credit market, if
> anything?
>
Nothing. You would have to issue a lot of private credit before you could alter the money supply. And I might say if you already have such a good name (so that people will trust in the credit you issue) and enough capital of your own to make difference skip and just start remaking the world.
>
At the end of the day Krugman has simply given you a short course on New Keynesian macroeconomics.

Travis
>
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