Thursday, January 30, 2014

A New Even Messier Ending to Paul Krugman's Babysitting Co-Op Theory of Economics

By Robert Wenzel

I have discussed several times the misinterpretation by Paul Krugman of the babysitting co-op story, a story which is, according to him, at the foundation of his understanding of how economies work,


 Now Krugman on Mises Monetary Mental Disorder

The Krugman Economic View Built on a House of Babysitting Coupons

In Review: Paul Krugman's New Book

But, it turns out there is even more damaging news about his co-op story. Tim Harford in his new book, The Under Cover Economist Strikes Back, hunted down the original telling of the story, which ends differently than the way Krugman leaves off the story and shows what a sneak Krugman is. I'll let Harford tell the story:

Ahem.Well, it's time for that twist in the tale I promised you. Unfortunately, this parable is a little bit messier than Professor Krugman's most recent telling suggests. In his book End This Depression Now! he neglects to mention how the story ends. Alas, the ending is not a happy one. The co-op botched their monetary reform.They lurched from a situation where the scrip was too small and shrinking, to a situation where the stock of script was just perfect--but growing. As the Sweeneys put it in their original article, "After a while, it naturally followed there was too much scrip and more people wanted to go out than to sit." 
When once nobody had been willing to go out, now nobody was willing to stay in. The end result was the same: a babysitting recession, in which fewer evenings of babysitting were exchanged than co-op members would have wanted. Burned by their botched experiment with printing more scrip, the co-op committee refused to countenance further monetary approaches to the problem, and turned to crude legalistic tactics. As the Sweeneys dryly commented in 1977, "A truth squad is envisaged to find out why indivividuals aren't sitting enough."

I point out in my earlier posts that the babysitting coupons aren't money, but, there is another lesson here in Harford's expanded telling of the story, centrally planned coupon printing goes on to lead to more interventions.

In others, what occurred in the babysitting coupon adventure is what Ludwig von Mises warned about with regard to all interventions, when he wrote: "It is indeed one of the principal drawbacks of every kind of interventionism that it is so difficult to reverse the process." One intervention begets another. The co-op goes from a botched centrally planned coupon printing scheme to resorting to legalistic tactics, i.e., more interventionism. Curiously, Krugman, the sneak, leaves this part of the story out, so it becomes difficult to understand how great a mess the coupon printing escapade was from start to finish.

Robert Wenzel is Editor & Publisher of EconomicPolicyJournal.comand Target Liberty. He also writes EPJ Daily Alert and is author of The Fed Flunks: My Speech at the New York Federal Reserve Bankand most recently Foundations of Private Property Society Theory: Anarchism for the Civilized Person Follow him on twitter:@wenzeleconomics and on LinkedIn. His youtube series is here: Robert Wenzel Talks Economics. More about Wenzel here.


  1. So people like Krugman and their disciples like Jerry Wolfgang rely on faulty information and outright lies when making their "points." Who could've seen that coming?

  2. Herr Professor Doktor Krugman is as pathologically deceptive as his hero Obushma. So much brain power accompanied by so little integrity. What a shame. This is one reason why the intelligentsia is so dangerous. Buckley was right, the country would be better off if it were run by the first 100 hundred people picked from the phone book rather than Ivy League egg heads like Krugman