Sunday, June 27, 2010

Money, Broken

Last Friday I saw The Money Fix and heard about Valley Time Trade-- a "time bank" in Northampton. You can pay a small yearly membership fee, spend a little bit of time being interviewed and trained to use some facilitating software, and then can sell and buy "time dollars" by working for, or hiring, other time bank members.

They seem like incredibly nice, earnest, caring, enthusiastic people. So it makes me sad to say it, but I think their project is doomed.

Maybe I'm just a big cynical meanie who doesn't see that the Time Bank will foster mutual respect, increase community interaction and connect people with unmet needs to people with untapped resources.

But I think I'm a realist who has looked hard at how economics really works, and I think there are two really fundamental lessons of economics:
  1. Incentives Matter
  2. Productivity Matters
Valley Time Trade ignores both of those lessons.

On incentives: Valley Time Trade is a "mutual credit system." Everybody starts out with a zero balance, and if I do work for you I get credit and you get a debit that you're supposed to work off at some point in the future, for me or somebody else. The Time Trading Adminstrators keep track of everything, and talk to people to try to get them from either hoarding credits or running up huge debits.

I think that will work really well on a small scale, but will eventually fail. People leaving the system (moving to another state, perhaps) have a natural incentive to leave with a zero or negative balance. Peer pressure and a sense of social obligation will keep that from happening when everybody in the system knows and trusts each other, but eventually that trust will break down. This is the same reason communes and other utopian organizations typically fail after a few years.

On productivity: Time Trade systems assume that any hour of work is the same as any other hour of work. One of their goals is to: "Promote equality, recognizing that all services are necessary to society and equally valuable."

Bullshit. They don't really believe that. I certainly don't believe that soldiers providing me the "service" of keeping me safe from terrorism by bombing the crap out of some foreign country is necessary or valuable.

And they don't really believe that an hour's worth of open heart surgery is as necessary and valuable as an hour's worth of lawn mowing by a ten-year-old kid.

Some people are more productive than others because they're smarter or stronger or have invested a lot of time and effort to learn how to do something. Money is society's way of telling you whether or not you're doing something useful.

Take away that price signal and you'll eventually end up with people doing as little as possible to get by. North Korea is one of the poorest countries on earth because people there are not rewarded for extra effort.

Again, peer pressure and the warm fuzzies from doing nice things for your neighbors will keep Valley Time Trade going for a few years. But eventually there will be a few assholes who exploit it by getting the most valuable services that they can but giving just enough to get by. Which will make the people giving those valuable services a little bit resentful, so maybe they decide to stop giving those valuable, in-demand services and give something else, instead.

The average commune lasts about 10 years. I bet the average Time Bank will last about half that.

1 comment:

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