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The short anti-crisis strategy

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June 04, 2009 – Comments (6)

Short anti-crisis story

Translated poorly from the original Chilean Spanish, by TMFBent and improved by Judy Ragbrai

In a small city, in the heart of the rainy season, A torrential rain fell for several days.

The city appeared deserted. Everyone had debts and lived on credit. Luckily, a Russian, full of money, arrived and entered a small hotel. He asked for a room. He put a $100 dollar bill on the receptionist’s desk and asked to see the rooms.

The manager of the hotel grabbed the bill and left running to pay his debt to the butcher.

The butcher took the bill and ran to pay his debt to the hog farmer.

In turn, the hog farmer hurried to pay the feed supplier.

This guy grabbed the bill on the fly and ran to dissolve his debt with the prostitute…

Since it had been a while since he had paid her… since in this crisis, even she had worked on credit.

The prostitute grabbed the bill and took off for the little hotel, where she had been bringing her recent clients – where she had not paid the hotel.

At that moment, the Russian came down, having checked out the rooms, and he said that none had impressed him. He took the money and left the city.

No one had gained anything, but now the whole city was living debt free and looked to the future with confidence.

It works, right? Pure market logic.

   

6 Comments – Post Your Own

#1) On June 04, 2009 at 9:26 PM, TMFBent (99.80) wrote:

No one's going to point out where the story breaks down? (Other than the suspension of belief it would take to imagine prostitutes working on credit...)

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#2) On June 05, 2009 at 6:48 AM, saunafool (98.79) wrote:

Down in Louisiana, there are two fellas named Thibodeaux and Fonteneau.

One day, Thib buys a little pony and brings it home.

Fonteneau comes over and looks at the little pony and says, "oooh wee, that shore is a fine lookin little pony. How much you pay for him?"

Thib says, "hunerd dollar for that thare little pony."

Fonteneau starts feelin a little jealous and offers Thib $200 for the little pony and brings him home.

The next day, Thib starts missing the little pony and goes over to Fonteneau's house and offers $300 for the little pony.

And so it goes, day after day. $400, $500, $600, until Thib finally buys the pony back for $900.

He's so proud of the little pony at this point that he brings it into his front yard, combs the hair, puts a little ribbon in the mane. Prettiest pony you ever did see.

That morning, a city slicker come by driving a big old Cadillac with a trailer behind. Starts admirin the little pony and knocks on Thib's door and asks him how much he wants for the little pony.

Without hesitation, Thib says, "thousan dollar for that thare little pony."

City slicker is taken aback, but pays the thousand dollars and drives off with the little pony.

Later that day, Fonteneau come over, lookin for the little pony. He goes out to the barn, checks the front yard, checks the back yard. Can't find the pony anywhere.

Finally, he knocks on Thib's door and asks, "where's our little pony?" Thib says, "you ain't never gonna believe this, but a city slicker come by and paid $1000 for that little pony."

Fonteneau gets mad and says, "you old fool, you and me was makin a good livin."

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#3) On June 05, 2009 at 8:27 AM, TMFBent (99.80) wrote:

That's not funny, saunafool. Iceland ran its entire economy that way for a decade.

As for the story, what I found interesting about it is the way it teased the brain and made it seem logical, like the disappearing hundred had actually changed anything. That's because, in reading it, you mis-judge the personal balance sheets of each individual. You only think about the debt each discharges with that $100.

Step back, and you realize that the Russian's $100, which doesn't stay in the system, can't have changed anything. But it feels that way... until you do the balance sheet for each person in the chain.

Each one, what? Has ($100) debt, right? So, each person in the chain has a net worth of ($100) in the beginning, but at the end, each one is debt free, therefore this disappearing money fixed the situation? 

Bzzzt. At the end, each person is indeed debt free, but each was net debt free in the beginning, too. It's just that you don't pick up on that because of the way the story is told. However, the story makes clear that at the beginning, each one also has a $100 asset. Someone else owes each person $100, which balances against that debt to give everyone a net worth of zero, same as at the end.

If we restrict our examination of the personal balance sheets to just the transactions at hand, we see that the solution "works" but nothing has changed.

Before:

Hotelier: +100 from Hooker, -100 to Butcher

Butcher: +100 from Hotelier, -100 to Hog Farmer

Hog Farmer: +100 from Butcher, -100 to Feed Guy

Feed Guy: +100 from Butcher, -100 to Hooker

Hooker: +100 from Feedlot guy, -100 to Hotelier

After:

Hotelier: no assets, no debt

Butcher: no assets, no debt

Hog Farmer: no assets, no debt

Feed Guy: no assets, no debt

Hooker: no assets, no debt

Unless I miss the point entirely. But I think this is a fun story, and it does, in a way, illustrate the potential for sentiment to matter a lot, even though nothing else has changed.

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#4) On June 05, 2009 at 9:54 AM, saunafool (98.79) wrote:

Yours is a great story (and actually kind of believable).

The difference of course is that most Americans who are wildly in debt have no assets to balance against the debt. Crap they bought on the credit card is either gone (vacations, restaurants, entertainment) or worth $0.20 on the dollar (consumer stuff). Their houses and cars purchased on credit are worth probably at least 30% less than the debt owed. What do they have to balance these debts aside from future earnings?

Yet, I don't know why you pick on the fine Icelandic people with my story. I guarantee there ain't no Thibodeauxs in Iceland. Ragnar's perhaps, but no Thib's.

Anyway, let's see how Thib and Fonteneau made out.

Thib:

-100 +200

-300 +400

-500 +600

-700 +800

-900 +1000

+ $500 overall

Fonteneau

-200 +300

-400 +500

-600 +700

-800 +900

+ $400 overall

So, in fact, Fonteneau was correct. They were making a good living.

All financed by the city slicker, who paid way too much for the pony.

If we assume Thib buys the pony for $900 and then Fonteneau stops playing the game, Thib loses $500 and Fonteneau gains $400. It's a zero-sum game until the city slicker comes along (and then it's still zero-sum, but the city slicker doesn't live in the neighborhood so we don't care about him. Probably a tofu-eating, elitist, Eurosnob anyway.)

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#5) On June 05, 2009 at 10:13 AM, TMFBent (99.80) wrote:

Yup, it's zero sum without the city slicker, which is, again, the exact problem that Ragnar and Thorvaldur had. Them there city slickers stopped coming, though I'm pretty sure they were steak 'n' kidney pie-eating lager louts...

Sj

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#6) On June 16, 2009 at 8:29 AM, etihwttam (< 20) wrote:

Thanks for the stories and the brain teasers guys! Well worth the read.

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