Monetary Theory and the Great Capitol Hill Baby-Sitting Co-op Crisis.


  • Cooperative, co-op = a system for job rotation.



The point:

  • Over time the supply for ↓ babysitting coupons decreased.
  • There wasn't a sufficient amount of babysitting coupons in circulation for their isolated market.



Outcome:

Couples who thought that their reserves of babysitting coupons have become insufficient were eager to babysit but reluctant to go out.
It became difficult to find babysitting jobs which made couples even more reluctant to use/spend their reserves. Except for special occasions which increased the shortage of babysitting opportunities.

  • In short the babysitting co-op went into an economic downturn ( konjunkturnedgångSwedish ).



Conclusion:

How did this recession emerge? ( lågkonjunkturSwedish ) The problem didn't have anything to do with the co-op's capability to produce, but rather it was just a shortage of effective demand:

  • Too little consumption of real goods ( babysitting time ) because people instead tried to accumulate cash
    ( babysitting coupons ).

The lesson to be learned here for the real world is that your vulnerability to the economic cycle
( konjunkturcykelnSwedish ) don't have much to do with, or even have anything to do with your basic economic strength and weakness:

  • Bad things can occur even in good economies.


How does one handle such a recession? The problem is basically technical and easy to solve. The co-op's officers first treated the problem as if it was a structural problem. In other words through some sort of basic and fundamental reform process, the co-op's officers forced the couples to behave in a certain way in the supply and demand market.


In the end the economists got what they wanted but not without having to face a difficult to convince board of directors. Since a majority of the co-op's officers consisted of congressmen and lawyers. What the economists wanted was to increase the supply of babysitting coupons.
The result was magical: with big reserves of coupons the couples got more willing to go out, resulting in more abundant opportunities to babysit. Which made the couples even more willing to go out. The co-op's GDP ( BNPSwedish ) measured in amount of babysat children - skyrocketed.


The reason for this wasn't because that the couples had become better babysitters or that the co-op had undergone some sort of basic and fundamental reform process. It was simply because the monetary lock had been corrected.


Economic downturns could in other words be fought simply by printing money and could sometimes
( usually ) be cured surprisingly easy.
However printing too much money would lead to inflation, which would unfold a different kind of bad events.



Extra stuff