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.


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.