tiger1640 Loc: Michigan

The Plan

It's a slow day in the small town of Pumphandle and the streets are deserted. Times are tough, everybody is in debt, and everybody is living on credit.

A tourist visiting the area drives through town, stops at the motel, and lays a $100 bill on the desk saying he wants to inspect the rooms upstairs to pick one for the night.

As soon as he walks upstairs, the motel owner grabs the bill and runs next door to pay his debt to the butcher.

(Stay with this.....and pay attention)

The butcher takes the $100 and runs down the street to retire his debt to the pig farmer.


The pig farmer takes the $100 and heads off to pay his bill to his supplier, the Co-op.

The guy at the Co-op takes the $100 and runs to pay his debt to the local prostitute, who has also been facing hard
times and has had to offer her "services" on credit.
The hooker rushes to the hotel and pays off her room bill with the hotel owner.

(Almost done...keep reading)

The hotel owner then places the $100 back on the counter so the traveler will not suspect anything.

At that moment the traveler comes down the stairs, states that the rooms are not satisfactory, picks up the $100 bill and leaves.

No one produced anything. No one earned anything. However, the whole town now thinks that they are out of debt and there is a false atmosphere of optimism and glee.

And that, my friends, is how a "stimulus package" works!

pigpen

You know that too well. Are you a congressman?

tschmath Loc: Los Angeles

But now each person has $100 extra that will be able to buy something instead of paying down the person's debt. So that $100 could eventually produce several hundred dollars of purchases that would not otherwise have been made. And THATS how a stimulus package works.

Just another way of looking at the same situation. Kinda interesting, don't you think?

JimH Loc: Western South Jersey, USA

Well, no they don't really - if all these transactions were CASH transactions, the total amount of money in circulation is exactly the same as it was before the stranger arrived in town. Accounting entries have been changed, but there is no more or less money in circulation.

This illustrates the dichotomy between economists who say "Money Matters" and those who say "Money Doesn't Matter".

Adding more money to the pot only creates the ILLUSION of more wealth, since money itself is not wealth. Wealth is represented by goods and services, not the paper that is used to transfer ownership. Until more goods and services are produced, total overall wealth does not change.

DennisK Loc: Pickle City,Illinois

But Jim,if you had a constant source of money coming in (aka;a job) and you were able to use this $100 bill to pay off a debt,it would free up your future income to purchase other goods or services thereby overall helping the economy.So I say this stranger DID help the local economy....in this particularly strange scenario.

tiger1640 Loc: Michigan

OK, lets say this town had a total of $10,000 all together in their bank. When the tourist came to town, now there was $10,100 in this town. When the tourist leaves, there is only $10,000 in the bank. The towns money value neither increased or decreased. Although everyone was able to "pay off their debt".This would be something Bernie Maddoff would of done.

JimH Loc: Western South Jersey, USA

No-the stranger LEFT TOWN with his $100 back in his wallet. No increase in total money. Illusory improvement.

FDMHIGGINS

Marvelous!!

DennisK Loc: Pickle City,Illinois

If you were one of the parties involved and were able to pay off a debt for basically free,wouldn't you then have more money in your budget to spend?

dasboat Loc: Vernonia,Ore.(Vernowhere)

Agreed ! It sounds so great that it works out all around,but a theft had to take place for it all to come about.So it's a great analogy of government spending.

JimH Loc: Western South Jersey, USA

No, because the debt hasn't been 'paid off', it's only been transferred to someone else. It's a basic misunderstanding of how a monetary system works.

You have to discount thinking about 'jobs' or other income or anything else while you examine this particular scenario. In this particular scenario, no matter what the total monetary wealth of the town was before the stranger got there, it was EXACTLY THE SAME after he left. No one can possibly be any richer or any poorer, in real terms, because the amount of money (e.g., wealth) has not changed. One person's debt has simply been passed around from merchant to merchant.


This kind of thing is really complex under the covers, and it's pretty much impossible to relate it to real world economics, because the real world doesn't work that way.

Let's look at this same situation another way - pretend the exact same thing happened, except that when the stranger re-appeared, the hotel owner refused to give him his money back, saying that he charged $100 to view a room. If the stranger agreed, and walked away, who in the town has benefited, in REAL terms?

The butcher - no, because although he was paid the $100 owed him, he paid $100 to his creditors - so he's a zero sum. His assets went down by $100 (the amount the hotel owed him) and his liabilities also dropped by $100.

The same is true for all the other merchants, EXCEPT the hotel owner. His liabilities dropped by $100 (the amount he paid the butcher), but his assets increased by $100, overall (after going down by $100 thanks to the hooker paying him).

So if the hotel owner can be the only one with a real increase in worth, and only if he KEEPS the $100, if he does not keep the $100, there can be no one with a real increase in worth.

pigpen

Yes. Unfortunately our current goverment sees this the same as you do. That's why we are in the mess we are in.

Here is another way of looking at it:

The tourist (hard working middle class) puts the $100 on the table to inspect the rooms. The clerk (Federal Govt.) takes the money to pay the butcher (bailing out the State Govt.). The butcher (State Govt.) then pays the pig farmer (bailing out Govt. Union pensions). The pig farmer (Unions) pays off the guy at the co-op (paying dues to Union leaders). The co-op guy (Union leaders) now pays the money to the hooker (donating to campaign bundlers). The hooker (campaign bundlers) now pays the money BACK to the clerk (federal Govt.) for the room (in the form of Democratic Campaign donations). The clerk (Federal Govt.) quickly returns the money he STOLE from the tourist (middle class). The tourist (middle class), quite unhappy with the way the clerk (Federal Govt.) has run his bussiness and the disarray in which the house was kept, picks up his money and leaves!

You may call this a stimulus plan if you'd like.
I would prefer ponzi scheme, money laundering, Democratic politics, ect...........

One thing it is not, Capitalism!


The problem: 1 person (the tourist) must work hard to pay for the other 5 people (clerk, butcher, farmer, co-op, and hooker). And THATS how Socialism works!!!

Just another way of looking at the same situation. Kinda interesting, don't you think?

dasboat Loc: Vernonia,Ore.(Vernowhere)

The owner profited,did he not?

DennisK Loc: Pickle City,Illinois

Actually this whole thing sounds like how monetary system works.

JimH Loc: Western South Jersey, USA

Well, actually, that's how SOCIALISM works, but you have the right idea. Under communism, the STATE owns the means of production and all land, labor and capital, and the STATE determines not only what gets produced, but who gets what. Under socialism, the means of production can still be privately held, but the STATE determines what gets produced and who gets what part of the pie. The only substantive difference is the ownership of land, labor and capital.