Monday, June 8, 2009

Stimulus and Lemonade

Suppose I run a lemonade stand. I run it by myself and don’t make a profit due to bad times. My parents decide to help me out by stimulating my business by buying lemonade for the whole neighborhood for a week. Since they don’t have any money to give, they have to borrow it from the bank. They also require that I pay them 25% in taxes for the lemonades sales. Since that order is too much for me to handle by myself, I hire a couple of other kids to help deliver the lemonade. Business is great and neighborhood child unemployment shrinks to zero. I make a profit and have employees. Then the week is over and my parents stimulus order has been spent. Since real demand for my lemonade was never there, I have to fire my employees. The reality that my lemonade business was no good didn’t change just because my parents gave me a stimulus. Additionally, since my parents order was the only one I received, the 25% I pay in taxes is the same as if they just gave 75% of their money away with no return. Their stimulus did nothing more than increase the family debt and recycles unemployment and business closing.

2 comments:

Kansas Bob said...

And what if your parents now owned your stand and decided to replace you with one of your siblings.. do you think they would give you a parting bonus?

jrchaard said...

Man, I wish I had taken it all the way. Very good point bob.