Update: This post does not even begin to do the talk justice. Steve has graciously made the slides available here.
Last night, I drove to San Francisco to hear world-renowned economist Steve Waldman present a talk on fiat money.
I arrived in one of those parking lots where you hand a guy your keys and the attendant parks the car somewhere. By lending me a parking spot, the lot owner created an asset (the future parking fee) and a liability (custody of my car). This increases the money supply.
Several hours later, I returned. By then it was raining pretty hard; the attendant was playing with his phone and didn’t want to leave the booth. He gave me my keys and told me to fetch the car myself without bothering to collect payment.
The parking lot economy is predicated on attendants taking people’s cars in exchange for future money. The collected fees are transferred to the property owner as a form of tax, minus the employee’s basic income of minimum wage.
Poor management policy discourages the parking lot attendants from productivity. There is no incentive for the employee to increase output once he has the currency needed to meet the tax obligation he thinks will be enforced. And an inability to impose and enforce tax liabilities limits the amount of resources the parking lot owner can command.
Last night, my $10 fiat money had less value to the attendant than the desire to remain dry. The ability to sit on one’s ass is the bubble that never pops.