Tim Harford: What Prison Camps Can Teach You About the Economy
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Economist TIm Harford explain the micro-economies of prison camps and babysitting coops. Even in these simple systems, problems manifest that have macroeconomic analogs. Harford's latest book is The Undercover Economist Strikes Back: http://goo.gl/p7p2yv Don't miss new Big Think videos! Subscribe by clicking here: http://goo.gl/CPTsV5 Transcript: When we're thinking about how economies work, the tricky thing is that they're systems and you look at any particular corner of the system and you're gonna miss the big picture. But the big picture's complicated, really complicated. So what I wanted to try to do was to find examples of simple economic systems -- systems that were simple enough you could see all the moving parts working and you could understand how recessions worked. And there were a couple of examples that I found. One is not so famous. It's an example of a recession in a prison camp and the other is a lot more famous because Paul Krugman's talked about it. And that's a babysitting co-op recession. Now these aren't hypothetical examples. These aren't kind of, you know, textbook imaginary things. These recessions actually happened. And in the case of the babysitting co-op recession it was Capitol Hill, Washington DC, the late 1970s. It was written up in a learned journal. And what happened was parents who joined this babysitting circle -- there were about 400 of them. They were trying to keep track of who was looking after who's kids. And it's difficult to keep all that straight on a spreadsheet. And remember this is the seventies so you don't have Microsoft Excel. So they had these little tokens and they'd pass these tokens around. And if you looked after somebody's children then you would be given a token. And then when you wanted someone to look after your children you'd give them a token. So they had this currency and that's great. Except what happened was when people who joined the babysitting co-op they were given these tokens and they didn't have quite enough, not enough babysitting could be bought with what they had. So they thought to themselves, why don't I go and babysit for somebody else a few times and then I'll have a good stack of these tokens. And then once I have a good stack of these tokens then I'll start going out myself and hiring babysitters. The trouble is everybody in the babysitting co-op was doing exactly this. And if everybody in the babysitting co-op was doing exactly this then no one's able to get a job babysitting because everyone's just trying to work for everyone else. Now there are a number of possible solutions to this. One is that people would just agree, hey, this token that we've got that's worth an hour's babysitting. Let's say it's worth two hours babysitting. Let's say you could buy twice as much babysitting with this token. And that could potentially solve the problem. But that's not what people did. People, I think, felt uncomfortable renegotiating the contract. So a second thing you could do, and they tried this, was to legislate how often people had to go out. So they came up with this rule that people had to go out at least twice a year. Now I don't have a really hectic social life. You know, I've got three children. I'm an economist, you know. I don't go out that much but, you know, even I think that going out twice a year is not that much. And if that's your baseline that's gonna kick start the babysitting economy you have a problem. In the end the babysitting recession committee, or the babysitting committee solved the problem by simply issuing more of this currency. They printed more of these little tokens, they handed more out, they handed more out to people when they arrived, they took fewer away from people when they left the babysitting co-op. And that worked beautifully. That kick started the whole thing. And this massive long lasting recession suddenly evaporated which is great. Then they printed too many. They had a hyperinflation problem and the economy crashed again. But that just goes to show it's not easy to run an economy... Directed/Produced by Jonathan Fowler, Elizabeth Rodd and Dillon Fitton
Comments
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what a perfect video, cheers man
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LETS FIX THAT
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Enjoyed this, very interesting. Might try to look up that camp in google sometime and read up on it.
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the baby sitting co-op shows how much power you have when you control the central bank. now is that really a power we should trust an incompetent government with
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Wow. Really awesome talk. I wish my economy teacher would speak as interestingly
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"and then there was hyperinflation but let's not talk about that" :D
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Why wouldn't a "stimulus" have helped the war camp?
Or Why wouldn't a "stimulus" work in babysitting? -
my comment was removed...I'm unsubsribing because it's totally unacceptable behaviour
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Tim on Big Think, that's rad. :D
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The banking crisis was not an economic shock from outside the economic system. It was a shock created by the economic system. The bankers were just "working the system". If we want a stable or ultra stable economic system, the system scientists, not the economists, need to design a new one. After all the economy is a man made construct. So construct a new one.
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Extortion. Did I win?
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The answer to your question is that the American Economy is not like the babysitting co-op, nor is it like the prison camp. The American economy is now a manipulated, micromanaged, socialistic nightmare.
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Loved this talk. Great and simple examples to learn.
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The temptation to compare the token story with money printing is big and tricky. First, it's impossible to distribute the printed money evenly among all people (or proportionally to one's money possession). Second, money's purchasing power is not fixed. As a result, all those who do not get the fresh printed money see their purchasing power decrease.
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This video is total B.S. The trouble is """"((1% of the people has 90% of the money))"""",I only watched cause of the guys name Ha Ha.
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Two words ...
King
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Great question. But I think he answered it a little in his explanation..prison economy.
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This guy is a very good economical philosophy story teller :)
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The question is what's the solution. If the problem is external shocks then my knee jerk reaction would be to help isolate myself from those forces. Just make sure that essentials are being produced locally. Though I suppose this stands in stark contrast to free market economists idea of what's best to do which is... What? Nothing?
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Ok so is it better to invest in Gold & Silver, Digital Currency or continue with Fiat?
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