I received this from a friend a few weeks ago and have been giving it some thought:
It is the month of August, a resort town sits next to the shores of a lake. It is raining, and the little town looks totally deserted. It is tough times, everybody is in debt, and everybody lives on credit.
Suddenly, a rich tourist comes to town.
He enters the only hotel, lays a 100 dollar bill on the reception counter, and goes to inspect the rooms upstairs in order to pick one.
The hotel proprietor takes the 100 dollar bill and runs to pay his debt to the butcher.
The Butcher takes the 100 dollar bill, and runs to pay his debt to the pig raiser.
The pig raiser takes the 100 dollar bill, and runs to pay his debt to the supplier of his feed and fuel.
The supplier of feed and fuel takes the 100 dollar bill and runs to pay his debt to the town’s prostitute that in these hard times, gave her “services” on credit..
The hooker runs to the hotel, and pays off her debt with the 100 dollar bill to the hotel proprietor to pay for the rooms that she rented when she brought her clients there.
The hotel proprietor then lays the 100 dollar bill back on the counter so that the rich tourist will not suspect anything.
At that moment, the rich tourist comes down after inspecting the rooms, and takes his 100 dollar bill, after saying that he did not like any of the rooms, and leaves town.
No one earned anything. However, the whole town is now without debt, and looks to the future with a lot of optimism .
And that, ladies and gentlemen, is how the United States Government is doing business today.
Here’s what came to mind:
The rich tourist is actually the consultant hired by the city to help bring business to town. He was hired because he told a great story and gave hope to the townspeople that he could bring change. Each business in town had paid $10 into a pot to get the $100 demanded by the consultant. He promised to spend the money to stimulate business in town (plus pay his modest 50% fee). Now he has skipped town not having stimulated anything but his fee receipts. And the bad part is that most of the businesses in town had borrowed the $10 from distant relatives.
Moral of the story (my opinion):
Spending tax dollars that have not yet been collected in order to create economic activity is stupid. It is borrowing more money to solve problems spent by borrowing and spending beyond our means. It is a shell game in which the only parties in the transaction who will come out ahead are the government members who will continue life as usual while the taxpayers go deeper in debt.
3 comments
Comments feed for this article
July 8, 2009 at 7:03 pm
Health care -- how do we move forward
You may appreciate the posts at http://www.ilovebenefits.wordpress.com This blog covers the health care debate as well as the issues in the health care delivery system.
July 9, 2009 at 8:58 am
pmv
To take this in a slightly different direction… I think this is a great illustration of the benefits of spending money locally. If at some point one of those townspeople used the money to pay a debt to some foreign or non-local entity, then the loop is broken, and it will take another $100 to get it going again.
True, the benefits of borrowing $100 to pay off debt to your neighbor are tenuous. But if instead we are borrowing to stimulate the economy by buying things made overseas, the utility of that stimulus is dramatically reduced.
July 9, 2009 at 12:34 pm
ttoes
PMV,
Point well made. The benefits of buying local are manyfold – reduced transportation costs, lower energy use, fresher foods, more accountability when dealing with people who live/work near you, etc., etc.
My point, of course, is that we have gone out (mostly to foreigners) to borrow money to stimulate our economy. This may or may not be of some value and may or may not actually stimulate economic activity. The problem is that most of the funds get sucked up in administrative costs and delays and the impact of the funds is greatly reduced at the same time the cost of the funds borrowed is increased by the interest due. By the time the local prostitute gets back to the hotel to pay her debt, she will only have $50 and the process to get that far will have taken six months. In the meantime, the rich tourist will have had the Hotel owner tossed in jail for stealing his $100. This increases policing costs, jailing costs, etc., and in the end, the town has lost money and the people are further in debt, not having created any sustainable economic activity. It is a bad bargain by any measure.
Tom