To me it seems the problem with the Babysitting coop was price fixing. The price of of an hour of babysitting was always 1. If the price of an hour of babysitting was allowed to float you would not have the shortages.
I suppose you could argue some hours of babysitting are more valuable than others, and people could negotiate, say, 4 hours for 5 coupons or vice versa. It's not clear this either (a) wasn't already done on some ad hoc basis (I'd imagine if it was agreeable to both parties, it'd probably happen) or (b) would have provided a solution to the liquidity problem, though.
The whole argument in the article is a pathetic straw-man. The value of bitcoin floats with supply and demand. When the supply is fixed when bitcoins can no longer be mined, then the supply is based on how much is circulating vs being held.
> If you have a $10 bill and I replace it with ten $1 bills, do you feel richer?
If I exchange a $10 bill for ten $1 bill, I don't feel any more wealthy. However, if my $10 buys ten times as much stuff, then I would feel 10 times more wealthy.
This makes it very cheap to "import" goods but prohibitively expensive to "export" any. It also provides a huge incentive not to spend or lend any money. Demand will fall, loans will be harder to get, innovation will come to a standstill and overall the economy will collapse.
This is called deflation and this is why we have huge central banks full of well educated people carefully monitoring the economy to adjust inflation and deflation.
How is gold different?
But I don't see how that's significantly different from allowing the price of babysitting to float -- I know doubling the number of coupons isn't exactly the same as making them half as valuable, but it's similar.
But since bitcoins simply adjust in value according to market demand, I, as well, don't understand how Krugman's story applies to bitcoin. If everyone thinks bitcoin's value will always go up, because it's deflationary, and everybody hoards -- well not everybody will, right? There must be other factors at hand, surely?
That's one of the great things about this hypothetical, is that it forces you to think of the underlying barter transactions instead of misleading yourself into treating the currency as having intrinsic value.
The price of an hour of babysitting on New Years eve is 5 units.
On some nights the demand for babysitting is higher. On those nights the price is higher.
Does that make sense?
Once the price is 0.0001 units, why not go out? The benefit of staying in is minimal.
For the coop this would work by paying extra 30 minute coupons. e.g: one hour of baby sitting on saturday might be paid with three 30 minute vouchers. Thus encouraging buyers to prioritize weekday outings.
No idea if this would solve the liquidity though.
Even in a world with zero hoarding, bitcoin will deflate indefinitely forever, because production will continue to grow while money supply remains constant.
At which point we discover her maiden name is Bernanke! And she has set herself to be the central bank of babysitting coupons, which she will loan out but only at extortionate rates bwa ha ha ha!
Basically if someone has all the currency then you can't really make a market with it. Even if the prices fluctuate. Long before the market shuts down it becomes very inefficient.