2 The Undercover Economist Strikes Back: How to Run or Ruin an Economy Tim Harford

2 The babysitting recession
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Why am I not surprised?

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a group of parents who would babysit for each other,
Note:IL CASO

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LA STORIA

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Families who joined the co-op were issued with forty pieces of scrip
Note:FICHES

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each worth half an hour

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On reflection, we’d better not go out this weekend.
Note:QUANDO LE FICHE DIFETTANO... FAMIGLIA A CORTO

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everyone else was thinking it, too.
Note:E SE TUTTI PENSANO DI ESSERE A CORTO DI FICHE?

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everybody wanted to stay in and save up some scrip. And if nobody goes out, who’s going to get the chance to babysit and earn scrip?
Note:IL PROBLEMA... TROPPO RISPARMIO

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Nobody gets the chance to build up their reserves
Note:NESSUNO ACCUMULA A SUFFICIENZA X SPENDERE

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It was a self-perpetuating circle,

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The result was a babysitting recession
Note:ESITO... MANCANZA DI BABYSITTER

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The co-op was largely run by lawyers (we’re talking about Washington DC here), so they tried a legalistic approach
Note:SOLUZIONI? L APPROCCIO LEGALISTICO

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displaying the antisocial ways and morals that were destroying the co-op,’
Note:NON USCIRE LA SRA È ANTISOCIALE... STIMMATE

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The co-op introduced a rule making it mandatory to go out every six months.
Note:LEGGE: AOBBLIGATORIO USCIRE

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The solution was actually rather simple: print more money.
Note:TUTO FALLISCE... SI PASSA ALLA SOLUZIONE ECONOMICA... SI STAMPANO OLTRE FICHE

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each member received an extra ten hours

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miracle of miracles! – the recession abated.

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mere stories, if chosen well, can tell us quite a lot about how economies work.
Note:OTTIMA PARABOLA

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monetary policy
Note:SPIEGA BENE LA CURA

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You can print as much money as you like.
Note:FACILE USCIRE DALLA CRISI

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Print the money. Problem solved.

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named the leaf as legal tender.
Note:PEECHÈ ALLORA NON SOSTITUIRE LE FICHES CON LE FOGLIE

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Printing money doesn’t create more roads,
Note:STRANO. IN FONDO... QUEL CHE CONTA REALMENTE

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he neglects to mention how the story ends.
Note:TUTTO FACILE PER CHI NN CONOSCE IL FINALE

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‘After a while, it naturally followed there was too much scrip and more people wanted to go out than to sit.’
Note:DALLA PADELLA NELLA BRACE

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The end result was much the same: a babysitting recession,

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turned to crude legalistic tactics again.
Note:PROIBITO USCIRE PIÙ DI...

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you might point out that the Capitol Hill co-op was a rather simpler affair than a twenty-first-century economy
Note:SE SI INCARTA UN ECONOMIA COSÌ SEMPLICE...

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the lesson remains: in principle you can stimulate an economy by printing money. So we should understand why that might happen. And the fundamental reason is sticky prices.
Note:PREZZI RIGIDI... LA CAUSA DI TUTTO

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If prices adjusted with complete freedom in response to competitive forces, then the actual amount of currency in an economy simply would not matter.
Note:MONETARISMO: I PREZZI RIMEDIANO ALLA QUANTITÀ SBAGLIATA DI MONETA

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why didn’t people offer to sit for six hours in exchange for three hours’ worth of scrip?
Note:QUANDO NESSUNO VUOLE USCIRE PERCHÈ I PREZZI DELLE BABY NN SI ABBASSANO?

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players could agree to redenominate all the values in the game, so that £1 becomes worth £2,
Note:RINOMINARE IL VALORE NOMINALE

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Because prices do not, in fact, adjust smoothly, sometimes the central bank needs to print more money.
Note:PREZZI VISCOSI... STAMPARE FUNZIONA .... QUANDO I SALARI NN SI ABBASSANO

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But why do prices stick?
Note:CAUSE

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our sense of fairness tends to constrain what we do,
Note:PRIMA CAUSA

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much emotional impact.

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It seems selfish and greedy.

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reluctance to cut wages is a matter of simple humanity. But it has negative consequences
Note:UMANITARISMO DELETERIO

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why don’t companies just whack the price up?
Note:IPAD E LE CODE PREVEDIBILI

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a sharp, temporary price hike would really annoy potential customers
Note:STIGMA SOCIALE

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This isn’t just a theory: in fact, Apple once tried something like this. When they launched the original iPhone, in 2007, they cut the price from $600 to $400 after two and a half months. What happened? Early adopters were infuriated,
Note:PSICOLOGIA DELLA CODA...LA STRATWGIA APPLE

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Steve Jobs quickly handed out $100 vouchers as compensation

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nobody wanted to risk social pariah status

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Number two is what economists call ‘menu costs’.
Note:SECONDA CAUSA

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That’s right: for seven decades, the price of a bottle of Coke never budged from five cents. In comparison, the price of coffee rose eightfold over the same time.
Note:ES COCA: PREZZO FISSO E TONDO X DECENNI

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Restaurants do not reprint their menus
Note:COSTO DI STAMA

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Coke was sold in vending machines that accepted only nickels.
Note:DISTRIBUTORI

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Coca-Cola wrote to his friend President Eisenhower in 1953 to suggest, in all seriousness, a 7.5 cent coin.
Note:RICHIESTA DI NUOVE MONETINE

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Coke also advertised heavily that a glass of Coke cost five cents.
Note:UNCA CONSOLAZIONE... PUBBLICIZZARE AL MASSIMO

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Daniel Levy, has also estimated that in the mid-1990s, it cost 52 cents to change the price of a single type of product in a supermarket.
Note:IL COSTO DEL CAMBIO PREZZO STIME

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The total cost of changing prices was over 20 per cent of profits.
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Imagine a world where two companies sell exactly the same product, and customers are completely aware of all price changes.
Note:VISCOSITÀ DEI PREZZI AL RIBASSO. PROBLEMI DI COORDINAMENTO. TERZO... POSSIBILITÀ DI SPECULARE

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the essence of how a small amount of price stickiness can balloon into a very slow price adjustment.
Note:BASTA UNA PICCOLA POSSIBILITÀ DI SPECULAZ X BLOCCARE L AGGIUSTAMENTO

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That’s reason number three for price stickiness: coordination problems.
Note:PROBLEMI DI COORDINAMENTO

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the same man received another pay cut. This time, no tantrums. In fact, he was perfectly content.   Why the change of attitude? Because the pay cut didn’t look like a pay cut: it looked like a pay rise. Specifically, the professor’s salary was increased by 3 per cent at a time when inflation was 6
Note:TAGLI DI SLARIO CHE FANNO INCAZZARE E TAGLI CHE CI RENDONO CONTENTI... INFLAZ TASSA OCCULTA TRASCURATA

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I MIRACOLI DELL INFLAZIONE

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what economists call ‘money illusion’.
Note:ILLUSIONE MONETARIA: UN TOCCASANA

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Psychological research demonstrates that nominal salaries influence our thinking even though real salaries are, logically speaking, all that should count.

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in the real world, all successful economies have a substantial government presence that creates still further possibilities for prices to stick: regulated prices, minimum wages, public-sector pay that becomes a political football.
Note:REGOLAMENTAZIONE

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If wages and prices quickly adjust downwards, the suffering that this fall in GDP will cause is going to be contained. But if firms hesitate to cut prices because of coordination problems and menu costs, their products are going to be overpriced. Sales will fall. They will need to reduce costs, but workers will be outraged at a cut in their nominal wages, so some will be sacked instead. Unemployment will be higher than it should be, meaning that demand for goods and services will be lower, and firms will need to reduce costs more, and on, and on. Sticky prices are a recipe for trouble. Indeed, the consequences can be as severe as the Great Depression.
RIEPILOGO