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.
Note:cccccc

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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

2 Mia cognata impara la macroeconomia sulla sua pelle

Mia cognata impara la macroeconomia sulla sua pelle

Mia cognata ha scoperto il mondo della macroeconomia, ora lo capisce molto meglio di prima e saprebbe persino decriptare certi oscuri messaggi di Draghi che le giungono via TG.

Ma come ha fatto?

Semplice, ci si è trovata in mezzo.

Non c’è miglior pedagogia che “trovarsi in mezzo”.

Vale la pena di raccontare la sua piccola odissea.

***

Nel suo super-condominio ci sono molte coppie giovani (di avvocati) con figli, cosicché hanno deciso di organizzarsi al meglio per  un mutuo servizio di babysitting. Agli avvocati non piace spendere.

La soluzione è stata geniale: coniare una serie di fiche – ognuna del valore di “1 ora” – e poi distribuirle in egual misura a tutti i partecipanti all’impresa cooperativa.

Se mi serve la babysitter pago con le fiche anziché con i soldi. D’altronde, sarà mio interesse prestare servizio quando posso per non esaurire la mia scorta di fiche e restare a secco nel momento del bisogno.

Geniale, vero? D’altronde sono tutti avvocati laureati freschi di esame di stato.

Solo che, mia cognata, dopo aver contato e ricontato le fiche assegnatele ha notato la loro pochezza: sarebbe stata sufficiente un’ uscita di piacere per rimanere scoperti nel caso di un’ improvvisa uscita di bisogno.

Che fare? Ovvio: prima di uscire meglio accumulare altre fiche per non correre rischi.

Problema: come lei hanno ragionato tutti.

In breve tempo il supercondominio si è trasformato in uncarcere: non usciva più nessuno poiché nessuno voleva spendere fiche correndo il rischio di restare a secco.

Che fare?

Dapprima si è provato con lo stigma sociale: “boia chi non esce”.

Una versione condominiale del “bisogna spendere per far girare l’economia”.

Ma non funzionava: se sei tu il primo a non uscire il tuo “boia chi non esce” suona fesso.

Poi – ricordo che erano tutti avvocati – hanno provato con l’approccio legalistico: obbligatorio uscire una volta al mese.

La vita del supercondominio ha assunto toni farseschi: gente infreddolita che usciva per fare il “giro obbligatorio” dell’isolato con i vicini affacciati alle finestre che ridevano.

Poi si sono convertiti finalmente alla soluzione (pseudo) economica: coniare nuove fiche.

Con le nuove fiche tutto è andato a posto: grazie al gruzzolo integrato il timore delle uscite avventate è cessato e il sistema di babysitting ha cominciato a marciare.

E qui mia cognata ha ricevuto la prima grande lezione di economia: quando la gente non “spende” la soluzione è “stampare” moneta.

Ma questa, purtroppo, non è stata l’unica lezione. Il triste finale aveva in serbo ben altri insegnamenti.

Qualcuno, infatti, si è entusiasmato talmente che ha proposto di sostituire le fiche con le foglie secche del parco (eravamo in autunno inoltrato).

Tutti si sono fatti una risata, però l’idea di aumentare il monte-fiche non era affatto peregrina.

Detto, fatto.

Mia cognata ha ricevuto un ulteriore mucchietto di fiche.

A questo punto tutti volevano uscire… e mancavano le babysitter.

Si è ricaduti ben presto in piena recessione.

E gli avvocati cosa hanno fatto? E te pareva, non capendoci più niente hanno imposto il babysitting minimo obbligatorio.

Ah ah ah.

***

Perché il sistema degli avvocati è caduto dalla padella nella brace?

Risolvere una recessione “stampando” fiche puo’ funzionare ma  non è mai “la soluzione”. Loro ci hanno creduto e ci hanno lasciato le penne.

La soluzione – quella seria – è un altra: avere prezzi flessibilie affidarsi a loro.

Se c’è carenza di una risorsa il prezzo per quella risorsa cresce. Deve crescere! Altrimenti sono guai.

Se c’è abbondanza di una risorsa il prezzo diminuisce. Deve diminuire! altrimenti sono guai.

Se c’è abbondanza di babysitter il loro prezzo DEVE diminuire, altrimenti sono guai.

E invece gli avvocati cosa facevano? Guardavano la loro fiche con sopra scritto “vale 1h di babysitter” e ci credevano! Poi, dissennatamente, dicevano alla potenziale candidata: “se mi copri per 1h ti do questa fiche che vale 1 ora”.

E’ chiaro che se c’è abbondanza di babysitter la persona razionale offre una fiche con scritto sopra “1h” per DUE ore di servizio.

Ma l’avvocato si attiene ottusamente al diritto: se c’è scritto “1h” quella fiche vale un’ora, punto e basta. E nel supercondominio tutto va a scatafascio.

Naturalmente, lo stesso dicasi nel caso opposto: quando c’è carenza di babysitter la persona razionale come minimo offre 2 fiche da 1h per un’ora sola di servizio.

In un mondo di persone razionali non c’è dunque mai bisogno di  cambiare la quantità di fiche a disposizione per risolvere i problemi: basta che cambino i prezzi.

Questa è la seconda lezione che si porta a casa mia cognata: nel mondo gli avvocati prevalgono sulle persone razionali.

***

I prezzi rigidi sono dunque la causa delle recessioni, sia nel supercondominio che nel mondo reale.

Ma perché i prezzi sono rigidi? Perché in recessione i salari non si abbassano riequilibrando il sistema?

Ci sono ditte che addirittura preferiscono fallire piuttosto che toccare gli stipendi!

Prima causa: su chi abbassa i salari piomba lo stigma sociale.

Ma è lo stesso soggetto deputato che si sente una merdaqualora abbassasse gli stipendi. E’ un po’ come se dentro di noi avessimo un senso di giustizia che ci induce in errore.

E’ lo stesso fenomeno per cui quando esce il nuovo IPhone ci sono code chilometriche. Non si potrebbe smaltirle alzando i prezzi? No, su Apple calerebbe lo stigma sociale degli avvocati ottusi ed impermeabili ad ogni legge economica. Quando Apple ci ha provato (ribassando i prezzi dopo un mese) i clienti della prima ora hanno inveito al punto che il povero Jobs ha dovuto tenerli buoni elargendo voucher per acquisti gratuiti.

Seconda causa: il costo del menù.

A volte i prezzi non si cambiano perché ci toccherebbe ristampare i menù.

Ridi, ridi ma è un problema serio. La Coca Cola ha tenuto per 70 anni il prezzo fermo a 50 centesimi perché aveva installato i distributori che prendevano solo quella monetina. Poi è persino arrivata a chiedere al presidente Eisenhower di coniare una nuova moneta per fare cifra tonda con il prezzo aumentato!

C’è poi un terzo problema di coordinamento: se sono l’ultimo a “diminuire” posso fare la mia piccola speculazione. Anzi, forse l’economia si riprende grazie alla diminuzione altrui e io nemmeno devo passarci!

Infine c’è un quarto problema, anche questo da “avvocati”, quello delle tasse occulte.

Ricordo che mio papà buonanima mi raccontava di un collega avvocato che aveva fatto irruzione nell’ufficio dei boss imprecando perché gli avevano tagliato lo stipendio. Cristo di qua, cristo di là… quasi ci scappava il morto. In lui era scattato quel senso di ingiustizia di cui ho parlato più sopra al primo punto.

Due anni dopo la stessa persona subiva un ulteriore taglio ma questa volta brindava in famiglia.

Perché una reazione tanto diversa?

Semplice, perché il taglio si realizzava sotto forma di aumento.

Aveva ottenuto un bell’ aumento… ma inferiore all’inflazione. A quanto pare l’inflazione è una tassa che gli avvocati pagano volentieri.

L’inflazione aveva salvato i boss da nuove fastidiose irruzioni.

I boss, che conoscono i loro polli, chiedono al governo più inflazione: è un modo per far fare il lavoro sporco ad altri.

E non hanno torto: il mondo è pieno di avvocati come l’iracondo di cui sopra.

***

Ecco allora la lezione vera che si porta a casa mia cognata: il sistema dei prezzi risolve da solo tutti i problemi macroeconomici. Purtroppo il mondo è pieno di avvocati, cosicché l’irrigidimento dei prezzi è frequente. In questi casi puo’ giovare agire sulla quantità di moneta stando bene attenti a non cadere dalla padella alla brace, come è capitato a lei nel supercondominio.

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

2 The babysitting recession - The Undercover Economist Strikes Back: How to Run or Ruin an Economy by Tim Harford - #lamonetanonconta #iprezzirigidispieganotutto #sensodigiustizia #costodelmenu #cooridarelabenza #miracolidellinflazione

2 The babysitting recessionRead more at location 461

Note: 2@@@@@@@@@@ Edit

Why am I not surprised?Read more at location 472

Add a note

a group of parents who would babysit for each other,Read more at location 475

Note: IL CASO Edit

a quasi-currency or ‘scrip’ was used. Families who joined the co-op were issued with forty pieces of scripRead more at location 478

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each worth half an hour of babysitting, or fifteen minutes at specified peak times.Read more at location 479

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You look at your forty pieces of scrip, and you think: ‘Hmm. That’s only ten hours of prime-time babysitting. That’s not much.Read more at location 484

Note: RIFLESSIONE Edit

On reflection, we’d better not go out this weekend. Instead, let’s first put in a couple of evenings of babysitting to build up our reserves of scrip.’Read more at location 487

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Perfectly reasonable.Read more at location 489

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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?Read more at location 493

Note: IL PROBLEMA Edit

It was a self-perpetuating circle,Read more at location 495

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The result was a babysitting recessionRead more at location 497

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The co-op was largely run by lawyers (we’re talking about Washington DC here), so they tried a legalistic approachRead more at location 505

Note: AVVOCATI Edit

The co-op introduced a rule making it mandatory to go out every six months.Read more at location 509

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Is this my inspirational story, then? Did the rule work?Read more at location 512

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the co-op committee abandoned the ineffective legalistic tactics and switched to economics, and that did work. The solution was actually rather simple: print more money.Read more at location 513

Note: SOLUZIONE: STAMPARE Edit

Of course the recession ended. If you can print money you can fix most economic problems, can’t you? It’s so easy it’s cheating.Read more at location 524

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Print the money. Problem solved.Read more at location 532

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In his fictional economy, Fintlewoodlewix, they named the leaf as legal tender. That’s a lot of money creation but it didn’t do them any good.Read more at location 534

Note: LE FOGLIE COME MONETA Edit

A pretty good starting point for understanding how an economy works is that production depends on the underlying resources available – labour, machinery, infrastructure. Printing money doesn’t create more roads, factories or workers.Read more at location 535

Note: COSA CONTA REALMENTE Edit

But in the babysitting co-op, printing money did solve the problem.Read more at location 538

Note: LA STAMPANTE SERVE X CAMBIARE PREZZI RIGIDI Edit

think about that story often; it helps me to stay calm in the face of crisis, to remain hopeful in times of depression, and to resist the pull of fatalism and pessimism.’Read more at location 546

Note: KRUGMAN Edit

this parable is a little bit messier than Professor Krugman’s most recent retelling suggests. In his book, End This Depression Now!, he neglects to mention how the story ends.Read more at location 555

Note: COLPO DI SCENA Edit

‘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 much the same: a babysitting recession,Read more at location 560

Note: IL PROBLEMA OPPOSTO Edit

turned to crude legalistic tactics again. As the Sweeneys drily commented in 1977, ‘a truth squad is envisaged to find out why individuals aren’t sitting enough’.Read more at location 563

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We can reasonably expect that monetary authorities in the real world, staffed by experienced and educated technocrats, would do a far better job.Read more at location 570

Note: I TECNOCRATI Edit

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.Read more at location 576

Note: PREZZI RIGIDI Edit

If prices adjusted with complete freedom in response to competitive forces, then the actual amount of currency in an economy simply would not matter.Read more at location 579

Note: MONETARISMO: I PREZZI COMPENSANO LA MONETA Edit

Since people were desperate to babysit and accumulate scrip, and nobody wanted to go out, why didn’t people offer to sit for six hours in exchange for three hours’ worth of scrip? The basic problem, after all, wasn’t really that people didn’t have enough scrip – it was that the scrip they had didn’t pay for enoughRead more at location 580

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players could agree to redenominate all the values in the game, so that £1 becomes worth £2,Read more at location 591

Add a note

Because prices do not, in fact, adjust smoothly, sometimes the central bank needs to print more money.Read more at location 595

Note: PREZZI VISCOSI Edit

But why do prices stick? Four main reasons.Read more at location 597

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The owner of the shop reduces the employee’s wages to $14.2    What a jerk. You’re not the only person who thinks so. Daniel Kahneman, a psychologist who later won the Nobel prize in economics, co-wrote an article about how our sense of fairness tends to constrain what we do, and in particular how prices and wages might move.Read more at location 601

Note: SENSO DI GIUSTIZIA E PREZZI RIGIDI Edit

That emotional reaction is strong enough to change the way the economy works.Read more at location 611

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She feels constrained by fear of awkwardness, by her own sense of decency, or by the prospect of disruption, strike or sabotage. This kind of reluctance to cut wages is a matter of simple humanity. But it has negative consequencesRead more at location 612

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supply and demand won’t match up in the labour market: there will be people who want to work (say, for $15 an hour) who can’t get jobs because employers don’t dare cut wages.Read more at location 619

Note: DISOCCUPAZIONE Edit

When the first batch hits the shelves, people queue around the block for them. But this is a puzzle – given high demand and limited supply, why don’t companies just whack the price up?Read more at location 626

Note: IPAD Edit

In the light of Daniel Kahneman’s research, the argument against this plan is obvious: a sharp, temporary price hike would really annoy potential customers in a way that a long queue simply doesn’t.Read more at location 631

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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,Read more at location 633

Note: PSICOLOGIA DELLA CODA Edit

It became such a public relations nightmare for Apple, Steve Jobs quickly handed out $100 vouchers as compensation for those who had paid the higher prices.Read more at location 635

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So your point is that nobody wanted to risk social pariah status by being the first member of the co-op to say, ‘I demand six hours of babysitting in return for three hours of scrip.’ Precisely.Read more at location 637

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Number two is what economists call ‘menu costs’.Read more at location 640

Note: IL COSTO DEI MENÙ Edit

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.Read more at location 642

Add a note

Restaurants do not reprint their menusRead more at location 645

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Coke was sold in vending machines that accepted only nickels. If you wanted to increase the price to six cents, you’d have had to refit every machineRead more at location 648

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The company grew desperate: the boss of Coca-Cola wrote to his friend President Eisenhower in 1953 to suggest, in all seriousness, a 7.5 cent coin.Read more at location 651

Note: CIFRA TONDA Edit

Coke also advertised heavily that a glass of Coke cost five cents.Read more at location 654

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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.Read more at location 661

Note: IL COSTO DEL CAMBIO PREZZO Edit

The total cost of changing prices was over 20 per cent of profits.Read more at location 664

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Imagine a world where two companies sell exactly the same product, and customers are completely aware of all price changes.Read more at location 674

Note: VISCOSITÀ DEI PREZZI AL RIBASSO. PROBLEMI DI COORDINAMENTO. Edit

Whichever firm has the cheapest price will get all the sales. Now imagine that Shell and Exxon can change prices only after their monthly board meetings. Shell hold theirs on the first of each month, and Exxon on the fifteenth of each month. Prices are extremely sticky,Read more at location 676

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If either of them cuts the price by another penny, they would be making zero margin and thus zero profits. If either of them raises the price, they would lose all customers and, again, make zero profits.Read more at location 679

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One day – let’s say it’s 22 February – the underlying cost of fuel falls sharply to 49p a litre.Read more at location 682

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For a few days, both companies are going to make a killing, because they can’t cut their prices. They make 51p a litre – 51 times as much profit as before! – but of course on 1 March, Shell will be able to change its prices. What happens?Read more at location 684

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The logical move for Shell, then, is to cut prices by a single penny, to 99p. All Exxon’s customers would then buy fuel from Shell,Read more at location 689

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On 15 March, Exxon has its chance to respond, and we’ll assume again that Exxon isn’t trying to collude, but just wants to compete aggressively to make money. With the same reasoning, Exxon cuts prices to 98pRead more at location 691

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On 1 April, Shell cuts prices to 97p a litre. The process continues. How long before prices fall to their equilibrium level, just above cost? More than two years,Read more at location 693

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That’s reason number three for price stickiness: coordination problems.Read more at location 700

Note: PROBLEMI DI COORDINAMENTO Edit

There’s a fourth and final reason for price stickiness. To illustrate it, let me tell you a true story: one day a professor received notification that his salary was being cut. Incandescent with fury, he stormed into the department head’s office and threatened to quit. He was, with some effort, pacified. A few years later, 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 per cent.Read more at location 701

Note: I MIRACOLI DELL INFLAZIONE Edit

what economists call ‘money illusion’.Read more at location 710

Note: ILLUSIONE MONETARIA: UN TOCCASANA Edit

Psychological research demonstrates that nominal salaries influence our thinking even though real salaries are, logically speaking, all that should count.Read more at location 714

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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.Read more at location 723

Note: REGOLAMENTAZIONE Edit

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.Read more at location 725

Note: RIEPILOGO