Saturday, February 26, 2022
If Country X sends soldiers and tanks into Country Y without an invitation, what should it be called?
Depending on what X and Y are, you can choose one of the words from the following set: {“invasion”, “liberation”, “misperception“, “immigration“, “aggression”, “civilization”}
In case you are thinking of examples, let me give you some -
If X is USA and Y is Iraq, choose liberation
If X is Russia and Y is Ukraine, choose invasion
If X is India and Y is Pakistan, choose aggression
Let me tell you a very interesting story today and with a great lesson too.
Once, a group of lawyers formed a small Babysitting co-op with around 100 families. The co-op gave 20 scrips to each of its members, where each scrip is worth 30 minutes of babysitting. 'Scrip' is a babysitting currency that holds a value only in the babysitting circle. As soon as a couple joins the co-op, they are given 40 scrips. They cannot buy new scrips in the future.
Once, out of the blue, a couple thought that the scrips were worth only 10 hours of babysitting. If they plan to go out for a movie it will cost them 5-6 hours and they will loose 12 scrips. If some day in the future they have an emergency, all the remaining scrips might get exhausted. So the couple thought of cancelling their movie plans and thought of saving some scrips. Reasonable plan?
The plan is so reasonable that almost everyone thought the same. Couples were afraid to spend their scrips and everyone went into the saving business. Now no one was going out and everyone was with their families on weekends. So who would babysit? How will someone earn scrips?
Everyone was frustrated since they all wanted to have an outing but couldn’t because they wanted to save at the same time. And thus the economy resulted in a babysitting recession. This is exactly what happens in the wider economy. The factories and the job seekers do not disappear suddenly. Industries want to employ more people, increase their profits but somehow cannot. Likewise the members of the babysitting co-op would have been in a booming babysitting economy, partying one week and babysitting the next week. Somehow this was not happening. The committee eventually got hold of the problem and passed a law making it compulsory for the couples to go out once in 6 months. However even this solution did not work. Eventually the lawyers had to come back to the economics. The solution of printing more money( here scrips).
All the members were given 10 hours of extra scrips while the members who chose to leave were asked to return 5 hours of scrips. This eventually resulted in couples spending scrips for babysitting. One week they were babysitting while the next week they were enjoying their weekend. And thus the recession was abated. But is printing money a good solution?
No it does not always work. Printing money will not get you out of the recession always. It doesn't create more roads, buildings or workers. Production depends on the underlying resources available. Eventually printing more money did solve the babysitting recession because there were parents who were willing to go out and parents who were ready to baby sit. However in the longer run the printing method resulted in problems. The babysitting story did not had a happy ending. The couples were reckless and no one was ready to babysit. Everyone wanted to go out since they had enough scrips.
Deciding how much money to print is exactly what the central banks do. The babysitting recession gives us two important lessons -
It shows that even a small economy with around 100 couples is difficult to manage. Leave apart the economy of 1.3 billion people.
It is remarkable how simple stories can tell us so much about how the economy works.
See you next Saturday, until then have a great weekend :)
Cheers!
Some things that you may find interesting-
Article: The Politicization of Unhappiness by Ronald W. Dworkin
Movie of the week: Goodwill Hunting
Song I am listening to: Always Remember Us This Way by Lady Gaga
Thought of the week: “I hear and I forget. I see and I remember. I do and I understand”
Here are the last three posts if you were too occupied to read them: