Saturday, March 05, 2011

Weekend fun 13: Economics of stimulus package

This story went around in some email loops for sometime...

How a stimulus package works

It was a slow day in the small Texas town of CutnShoot , and streets are deserted. Times are tough; everybody is in debt and 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.

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.

The hotel proprietor 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 is now out of debt and looks to the future with a lot more optimism.

And that, ladies and gentlemen, is how a "stimulus package" works.

Should be fun. But I notice there is a disconnect somewhere which renders the "logic" or conclusion invalid, here's how.

The one on the Co-op guy, he owes $200, not just $100: $100 to the prostitute + $100 to the hotel room owner. If the prosti aggreed that she'll get $100 for her services but she will also pay the hotel room, then her net income is zero even if she produced a certain service.

Thus, the statement "no one produced anything" is wrong, the prosti did produce a service.

Uggh, it's supposed to be a weekend fun, so here's more.

A small plane crashed somewhere in the Pacific Ocean. Luckily there were 3 survivors: a physicist, an engineer, and an economist. They swam their way to a very small island with nothing to eat. Lucky for them several boxes of canned food were brought by the waves to the same island. Problem -- how to open the cans as they don't have any can opener or other sharp tools.

Physicist started rubbing stones hoping to produce fire, soften the can and open it with some sharp stones -- fail.

Engineer used some hard and pointed tree branches to open the can -- fail.

Economist's turn, the two guys looked upon him. Then he said, "Let us assume that the cans are open." :-)

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