Thursday, 19 November 2009

The Washington D.C. baby sitting economy: it suffered a recession and solved it !

In the early 1970s a group of parents with young children in Washington formed a babysitting club. Parents wanting to go out for the evening would get one or other spouse from another family to come and baby sit.

But few people do anything for free in this world, so this club created its own currency, baby sitting tokens. Parents would give one token for each hour’s babysitting to the baby sitter.

But this mini economy ran into a problem: it had a recession! It suffered from relatively high unemployment. What happened was that most couples wanted to keep a stock of tokens to give them the flexibility to go out several times a week without having to baby sit for anyone else.

This lead to a reluctance to baby sit for anyone else because that would mean parting with tokens. And this in turn meant that those wanting to baby sit couldn’t find any customers: they suffered involuntary unemployment.

The solution they came up with was to give their economy some stimulus. They printed and distributed more babysitting tokens (i.e. money). And that solved the problem. Those wanting to baby sit found it much easier to find customers. And those wanting to keep tokens in reserve were happy as well.

Paul Krugman in describing this said “This story tells you more about what economic slumps are and why they happen than you will get from reading 500 pages of William Greider and a year's worth of Wall Street Journal editorials.” (Greider is a former assistant managing editor at the Washington Post).

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