Potty training, when you really think about it, is applied economics. Sure, I could make jokes about toxic assets and deposit banking, or diapers as a form of moral hazard, but what I'm talking about here is the creation of value, the function of currencies, and rational calculations of profit and loss. If the field of economics is to survive the ongoing market debacle, it will behoove the profession to get back to brass tacks, as it were, and ground such basic concepts of these in the behavior of real people, not computer models based on the herd behavior of androids and coded by physics PhD's.
This is why my son Spot and I offer you an empirical case study on the economics of potty training, based on data collected in my bathroom.
The Case: Potty Training and Sticker Inflation
incent toddler behavior as long as we can remember, probably since the dawn of adhesives. Like gold or precious stones, stickers have an intrinsic value to the toddler's eye. So the first step in potty training is to establish a standard of value between a certain amount of potty production, and a certain number of stickers. In our study, this standard was 1 : 1, or, 1 sticker to 1 poop or 1 pee-pee.
Prior to this step, poop has no value. Suddenly, it is worth one sticker, and if he pees, maybe two. The basis for exchange has been created, and through the miracle of economics, poop has become a commodity.
Problems only arise when Spot exits this closed system and spends the morning with Grandpa. Grandpa, despite our best efforts to persuade him otherwise, does not adhere to our standard of value. Instead of maintaining a 1:1 ratio of labor to remuneration, he demonstrates an utter lack of discipline and rewards Spot four, five, or six stickers for every session on the potty. The inexorable result is sticker inflation.
Grandpa displays all the characteristics of an inflationary central banker. Stickers flow like water. Instead of issuing them himself, Grandpa lets Spot take as many stickers as he wants. He keeps the sticker sheets on the coffee table where Spot can get at them, in effect letting the fox into the hen house. On any given morning, Spot would return with what looked like permanent tattoos on both arms. What we observe in Grandpa's case is clearly a case of hyperinflation, and as a result, the rate of exchange for poop fluctuates wildly between households.
We determined that Grandpa's hyperinflationary sticker regime, therefore, was undermining our own domestic potty training economy. A standard of value of 1 sticker to 1 poop or 1 pee-pee was no longer generating an incentive for Spot at home. He was listless and irritable. Grandpa's inflation was "bleeding over" into our system, poop was now worth far more at Grandpa's house than in ours, and Spot was not happy with the imbalance.
At first, though Grandpa recognized the problem, he failed to perceive the correct solution, and proposed that we abandon stickers as currency and replace them with something else, such as crayons. We argued in response that this would only result in the same inflationary spiral. The only solution, as he came to appreciate, was to resume control of sticker issuance, and to clamp down hard on the money supply. Ultimately this is what happened, and stability returned to the inter-household sticker-poop exchange rate.
Spot is now almost fully potty trained. The sticker regime, over a period of six to eight months -- despite the episode of Grandpa's hyperinflation -- helped to construct a successful regime of incentives for sitting on the potty.
The sticker economy has served its purpose, and has now been largely surpassed. Because he has advanced from potty training, the most basic stage of economic rationality, Spot now covers his entire body with stickers in no relation to his pooping labors, while having absorbed the following important economic lessons: that the origin of economic value is in poop, that poop can function like money, and that the value of poop must be closely managed so as to avoid destabilizing and demoralizing inflationary episodes.