Cashless Improvisation

As the old cliche has it, cash is king. But what happens when there's not enough of it to go around? What do people do when jobs are scarce or the mechanisms that are designed to keep liquidity flowing no longer function as intended? People improvise, of course. And that is just what some are apparently doing now, if the following Associated Press report, "Bartering Makes a Comeback for Those Short on Cash," is anything to go by.

Tired of her pink bathroom countertops but short on cash for a remodel, Rachel Alemany decided to get the work done the old-fashioned way: through bartering.

Alemany has experience putting down flooring, so she and her husband traded flooring work with a neighbor who has tiling experience.

"It was that easy," said Alemany, a special education teacher from Pittsfield, Mass. She got the idea from her mother-in-law, who exchanged renovations for room and board, and she might try it again: "I have other rooms in my house that need work."

Bartering - the trading of goods or services without using cash - is making a comeback in a troubled economy. It can be as simple as trading baby-sitting with another family, or as complex as an exchange with strangers facilitated by one of the several Web sites that have sprung up to connect barterers.

Bartering ads on Craigslist have increased about 100 percent since last year, said Susan MacTavish Best, a spokeswoman for the online classified advertising service. Traffic is also up at local organizations like the Midwest Barter Exchange, a Kalamazoo, Mich.-based outfit that acts as a go-between for about 1,000 business clients.

"Before, we were out beating the bushes trying to get people to join, and now they're calling us," said Lance Dorsey, a customer service representative for the exchange.

Boise beautician Heather Wood has traded haircuts and pedicures for years of daycare, kids' clothes, a paint job for her car, an oil change, a set of professional portraits for her family and dental cleaning.

"It's fun, and it builds a whole different kind of a relationship," said Wood, who has five children. "They're getting what they want and I'm getting what I want. I would much rather do that than make cash most of the time."

These days, making cash isn't always an option, so many have decided it is worth the effort to trade, say, an outgrown kid's bike for a neighbor's lawnmower, or a massage for some gardening supplies.

"I'm finding it a little bit difficult to sell anything right now," said Jeremy Kildow of Nampa, who chose bartering when he decided to get rid of a $1,000 camera, a kayak, a stainless steel kitchen range and other items.

Kildow put his stuff on the Boise-area Craigslist site under "barter" and suggested horses, pack mules, a four-wheel-drive truck, a computer or a flat-screen TV in exchange. So far, he's had an offer of a truck, some computers, and a wedding ring.

Bartering can be less expensive than buying because there are few overhead costs for rent or staff. However, not all costs are eliminated. The IRS considers barter dollars as identical to real currency for tax reporting, and barterers must obtain a special form, the 1099-B.

But bartering can also be more fun than laying down cash.

"The human element and the relationship between buyers and sellers becomes more important when we get involved in bartering transactions," said Gary Forman, president of a company called Dollar Stretcher that publishes methods for saving money. "I'm not sure we don't have some longing for that."

The quirky, independent aspect of bartering is what Vermont resident Matthew Stewart likes. He got his Honda motorcycle in a trade with a stranger through Craigslist. Stewart gave up a wood-burning cook stove he'd acquired but didn't need.

"If somebody wants something that you've got, there's probably a good chance they've got something you want that they don't want," said Stewart. "With bartering you end up with something interesting."

Some things are easier to barter than others. While carpenters, massage therapists and hair stylists have a set price for their work and can easily trade it locally, other professionals, such as physicians who work in hospitals, can be constrained by the institutions that employ them.

Nevertheless, Forman estimates that 60 percent of the companies on the New York Stock Exchange participate in some kind of bartering.

Of course, there are no signs that bartering will ever catch up with cash. Professor Andrew Whinston at the University of Texas at Austin, who has written about bartering, said the Internet has made bartering easier, just as eBay has made it easier to sell things that used to sit in the attic for years.

He doesn't see bartering as something that will "take over the world," but said nobody knows for sure what's going to happen next with the markets that rely on credit and currency.

"Maybe if the economy goes totally down the drain, we'll all be bartering," said Whinston. "I'll be selling copies of my articles in academic journals for a meal at a restaurant."

Comments

[the weakonomist]

I've done this before with personal finance advice. For 30-60 minutes of my time discussing your investments, I'll ask you to pack me a lunch, bake some brownies, or even drive me to work.

It's a great trade-off, and I get to do what I love - help people with money.

I hope this continues beyond the recession.

[D. T.]

Keep detailed records, so that your tax payment is accurate. With an isolated, cashless transaction it is your duty to declare, as there is no other record of that transaction. Sales, income and every other applicable tax is due even though no cash is exchanged. Democrats might ignore this advice, because Democrats cheat on taxes at a 2 to 1 ratio compared to Republicans. Fortunatly, the IRS "runs" on statistics, according to an agent I know, being a registerd Democrat is one of the flags used to call an audit. Upon learning this, My hope for justice in this world increased.