In today’s column on “Money, Wealth, and Models,” Paul Krugman lashes out “the Austrianish horde” for being critical of his view “that you can create real wealth by printing more pieces of paper.” He is addressing Hans Hoppe’s critique of Krugman that as a society you cannot turn pieces of paper into wealth, but not by name. Krugman defends himself by resorting once again to the model of a babysitter coop that failed.
According to Krugman:
“all you need to do is think in terms of some kind of model, not necessarily of the mathematical kind. The whole point of the true story of the baby-sitting coop, which brings it down to a human scale, is that it’s quite possible for economies to get into a snarl that can be solved by printing more money, or having the government spend more.”
I have diagnosed Krugman’s views not as a theory or model but a phobia here including the babysitter coop model. The authors of the original short paper on the failure of the babysitter coop clearly wrote the paper “for fun” and explicitly warned against trying to apply it in the real world. My research found that:
The babysitter model appears in a four-page comment where the co-authors place their tongues firmly in their cheeks. There have been no citations to the four-page paper since it was published in 1977, as indexed by the Institute for Scientific Information, the most comprehensive source of citations, which reviews over 7,000 sources for citations. You could say that the article was largely written and read “just for fun,” and at the end of the article the authors are careful to issue a clear message of caution for the reader to not read too much into the paper, and an explicit cautionary statement to guard against the type of recommendations that Paul Krugman is so famous for making.
Shawn Ritenour also has a critique of Krugman’s use of the babysitter coop model here.
