The Stimulus Analogy
Thread started by
Eric Hair at 03.21.09 - 12:30 pm
Shortly after class, an economics student approaches his economics professor and says, "I don't understand this stimulus bill. Can you explain it to me?" The professor replied, "I don't have any time to explain it at my office, but if you come over to my house on Saturday and help me with my weekend project, I'll be glad to explain it to you." The student agreed.
At the agreed-upon time, the student showed up at the professor's house.The professor stated that the weekend project involved his backyard pool. They both went out back to the pool, and the professor handed thestudent a bucket. Demonstrating with his own bucket, the professor said, "First, go over to the deep end, and fill your bucket with as much water as you can." The student did as he was instructed. The professor then continued, "Follow me over to the shallow end, and then dump all the water from your bucket into it." The student was naturally confused, but did as he was told. The professor then explained they were going to do this many more times, and began walking back to the deep end of the pool. The confused student asked, "Excuse me, but why are we doing this?" The professor matter-of-factly stated that he was trying to make the shallow end much deeper. The student didn't think the economics professor was serious, but figured that he would find out the real story soon enough. However, after the 6th trip between the shallow end and the deep end, the student began to become worried that his economics professor had gone mad.
The student finally replied, "All we're doing is wastingvaluable time and effort on unproductive pursuits. Even worse, when this process is all over, everything will be at the same level it was before, so all you'll really have accomplished is the destruction of what could have been truly productive action!" The professor put down his bucket and replied with a smile,"Congratulations. You now understand the stimulus bill."
reply
Um....Ok.....so apparently nothing in the stimulus bill has any value to the economy? Colorful analogy but it's overly simplistic and wrong. But thx for sharing.
0gravity03.21.09 - 12:52 pm
reply
@ 0gravity
No problem.
Any analogy is gonna be overly simple, that's the point of an analogy; and like most analogies it's to be taken with some salt grains. I'm not an economist, but I'm not ignorant either. Some of it rings true to my understanding, and other qualities, as you point out, could stand to be poked. In other words, I didn't post this because I felt taken by passions of like-mindedness, and I didn't post it because I felt incensed; I posted it because we only ever read from authors that we agree with, we'd never be challenged, we'd never learn and we'd never grow.
(ps - not that you do that, I don't know you, just blanketing this thread)
Eric Hair03.21.09 - 2:39 pm
reply
that last sentence is missing an "if"
- because ** if ** we only ever read from authors that we agree with, we'd never be challenged, we'd never learn and we'd never grow. -
Eric Hair03.21.09 - 2:41 pm
reply
Macroeconomics is pretty simple and the pool joke analogy describes the stimulus package simply and perfectly. If you really think anything else is going on in the big picture then you aren't paying attention.
toweliesbong03.21.09 - 2:44 pm
reply
u will have 2 excuse eric hair
hes a nice guy
but he comes from that peculiar corner of wingnutistan
populated by folks who r rabidly pro free market
but who have little or no understanding of
economics
PC03.21.09 - 2:51 pm
reply
awww, thanks PC......you're a nice guy too
...folks who r rabidly pro free market
but who have little or no understanding of
economics
PC
03.21.09 - 5:51 pm
and even with my lack of knowledge I can understand and appreciate the beauty of a free market. the simplicity is amazing.
would you prefer an economic practice requiring a compilation of college degrees, old stuffy gentlemen in smoking jackets and books of policy piled floor to ceiling?
Eric Hair03.21.09 - 4:04 pm
reply
The major problems with a pure free market are abuse of power and position, and a volatile economy due to lack of regulation. The results of abuse of power and position, for instance monopolies such as
Ticketmaster, are hard to impossible to fix without government intervention, and volatile economies are very painful for the middle and lower class as we are witnessing right now.
toweliesbong03.21.09 - 4:10 pm
reply
there is no such thing as a free market there never has been ever in the history of markets and there never will be in the history of markets. a free market assumes that every participant is able to operate independant of restrictions and regulatory bodies and interference from government. however there never could be a free market because as soon as a "free" market is set up the participants of said free market will always work to corner the market to protect their interests thus immediately canceling out the free market by virtue of special alliances or power of wealth thus becoming the defacto "regulators" and certainly NOT in the interest of the public or in real competition.
Roadblock03.21.09 - 4:13 pm
reply
if by "a compilation of college degrees, old stuffy gentlemen in smoking jackets and books of policy piled floor to ceiling" u mean actual knowlege & understanding of how various economic actions affect the marketplace
& what motivates the individual economic actors
& how that marketplace affects ppls lives
based on thoughtful study of the effects
of similar actions in the past
then yup
but dont let me deter u
from ur faith based model
PC03.21.09 - 4:17 pm
reply
if you really think about it, it's not hard to figure out that free markets can't work without regulation. They will always collapse on themselves. It's common fucking sense. Read a book. Communist Manifesto would be a good start.
la duderina03.21.09 - 4:19 pm
reply
if you want real and vigorous competition there needs to be referees.
Roadblock03.21.09 - 4:20 pm
reply
again, like I said................................people, fuck...LoL
I posted it because if we only ever read from authors that we agree with, we'd never be challenged, we'd never learn and we'd never grow.
...plus I'd never get to hear from all you folks I loooooooove
Eric Hair03.21.09 - 4:24 pm
reply
RB's near sports analogy is really good, I've never heard that....
Eric Hair03.21.09 - 4:25 pm
reply
"if you want real and vigorous competition there needs to be referees. "
exactly, it's human nature to cheat to get ahead. that's no problem when you're playing kickball in the second grade but when you're dealing with the lives of 100 of millions of people, IT IS a problem.
toweliesbong03.21.09 - 4:26 pm
reply
I think it's really funny how all those companies who received millions of dollars in the bail out also owe hundreds of million dollars in back taxes to the federal government
that's free market capitalism for ya!
la duderina03.21.09 - 4:28 pm
reply
well....more to the point, cheating is the easy way (usualy) and you never get big, buff man-boobs by doing ass-in-the-air pushups.
that's bro'vice
Eric Hair03.21.09 - 4:28 pm
reply
I posted it because if we only ever read from authors that we agree with, we'd never be challenged, we'd never learn and we'd never grow.
Reading Ayn Rand and Milton Friedman sent me sprinting to the left, thanks.
la duderina03.21.09 - 4:29 pm
reply
that's free market capitalism for ya!
there's actually nothing free about any of those bundles. the strings attached to some of those 'bailouts' were/are heinous. what's even worse, as in the case of Wells Fargo, is that some companies that didn't want the bailout money were forced to take it........
oh, were you being sarcastic? i can't remember the post.....
Eric Hair03.21.09 - 4:32 pm
reply
Reading Ayn Rand and Milton Friedman sent me sprinting to the left, thanks.
are you telling us you're into running AND cycling??
Eric Hair03.21.09 - 4:33 pm
reply
i found milton friedman 2 be pretty inneresting
but my god u r so right about rand
can u believe alan greenspan
used 2 blow loads up in that
actually ya i can believe it
PC03.21.09 - 4:34 pm
reply
are you guys confusing the various bailouts and the stimulus again? The stimulus package does a whole lot more than just stir the pool. It causes spending to occur that will partially make up for the productivity shortfall brought on by shrinking property 'wealth' and fear of a shrinking economy. Economic output directly correlates to jobs. If the economy is operating at $2 trillion dollars under capacity, that equates to millions of jobs. With high unemployment, the economy shrinks even further as consumer spending dries up, etc, until you eventually get into a pretty nasty vicious cycle which will eventually lead to full on deflation, at which point businesses are actually incentivized to NOT spend money. The stimulus is intended to fund productivity that would not otherwise get funded - keeping americans employed and hopefully preventing our descent into a nasty deflationary spiral.
Given that the stimulus is being funded via debt rather than a tax increase on some fraction of the population, the analogy to the pool is really not all that accurate. In this case, we are borrowing a little air from the balloon that represents the economy of the future in order to prime the air compressor that will eventually inflate it. Without the borrowing of those dollars, the economy will shrink farther and will stay small for longer, resulting in a larger economic shortfall over the long term than if we just borrow the money up front.
The argument above is the basis of Keynesian theory, anyway. You might disagree, but it'd be nice to see some support of your position rather than just an inaccurate analogy.
ideasculptor03.21.09 - 4:35 pm
reply
in this country, the sports teams (money interests) hate the referees (the government) that dare call a foul on their million dollar star studded teams.
but the fans (consumers) appreciate the fair competition
Roadblock03.21.09 - 4:36 pm
reply
stirring a pool of water keeps the mosquitos out...
Roadblock03.21.09 - 4:37 pm
reply
Here is a good book to start with:
http://www.conservativenannystate.org/cns.html
It challenges many assumptions we have about the "free market" and the way that the Democrats and Republicans run things:
In a free market, individuals can make any exchanges they choose. They can sell the things they grow, the things their make, their labor, their ideas, or anything else that finds a willing buyer. Copyrights and patents give their holders government-enforced monopolies that restrict free exchange. The government will not allow someone to sell their copy of Windows (at least not without Bill Gate’s permission) because it has given Microsoft a monopoly on the sale of this product, through copyright protection. Similarly, the government will arrest anyone who produces a drug on which Merck or Eli Lilly holds a patent. It is only because of the government’s enforcement of these monopolies that Microsoft is a hugely profitable company and Bill Gates is an incredibly rich person. The same situation applies to patent protection in the pharmaceutical industry, and copyright protection in the entertainment industry. Vast segments of the economy are dependent on government-enforced monopolies for their profitability and survival.
gregb03.21.09 - 4:39 pm
reply
"In this case, we are borrowing a little air from the balloon that represents the economy of the future in order to prime the air compressor that will eventually inflate it."
That's the problem right there, unless there is huge change. There is not going to be an economy of the future. We are in the middle of the death spiral and we need to plan like it. THERE IS NO GUARANTEE about the future. That is why we are so fucked up right now.
AIG: "Guaranteeing sub-prime mortgages is a no-brainer, it's pure profit because the default rate on these mortgages is so low"
It's why there are budget crunches in most city and state governments. Everyone is expecting the future to be only moderately bad. We've leveraged ourselves so far in the past 2 decades and digging a bigger hole isn't a solution.
toweliesbong03.21.09 - 4:44 pm
reply
it's just the ebb and flow of commerce and livelyhood. people will suffer, then they will dust themselves off, sort through some trash cans, steal some shit from others, find a hustle and get back to business.
Roadblock03.21.09 - 4:46 pm
reply
Right the bailout=/stimulus
The bailout was and will be horrible. We have, and continue to reward people who basically stole money.
The stimulus could be horrible as well, depending on where the money is spent. An expansion of the freeway system vs an attempt to update our infrastructure for the new century.
gregb03.21.09 - 4:54 pm
reply
I think the analogy would be better with a more viscous liquid than water. Also, if you scale the analogy; removing water from the ocean and pouring it most everywhere on earth, it seems more useful. This happens on it's own though, which is the real beauty.
Also if you want competition you don't need referees you just have some sort of common ground.
vor03.21.09 - 5:00 pm
reply
someone will have to judge what "common ground" is and someone will have to judge when an entity is violating the common judgement of what is common ground
Roadblock03.21.09 - 5:07 pm
reply
Not if it's literally common ground, and lot something made up.
vor03.21.09 - 5:15 pm
reply
correction:
... and NOT something made up.
vor03.21.09 - 5:18 pm
reply
deciding what "literally is common ground" is something that would have to be agreed upon by all parties involved. thus you would need a contract between all parties involved and you would need lawyers to interpret each party's view of the definition of common ground and you would need judges to decide when a party has violated common ground and you would need a system of punishment for those parties who dont abide by the definition of what common ground is.... in other words we need GOVERNMENT.
Roadblock03.21.09 - 5:27 pm
reply
and we've all been taught by the money interests over our lifetime that government is a bad word. it's "us vs the government." government is simply a contract between a group of interested people. it's simply a way for people to get along as a collective nation of millions and billions.... we need it and we need to all be involved to keep each other playing fair.
Roadblock03.21.09 - 5:33 pm
reply
Probably helps to give some examples of competition:
The competition between web browsers common ground is their users. Some browsers may not be competing because their users are completely separate, while others are competing for the same user. For example Chromium and Mozilla are competing for users that want very responsive JavaScript applications.
vor03.21.09 - 5:41 pm
reply
regardless of the competition or the circumstances surrounding the competition or even if there is perceived not to be a competitive space for people to operate in.... there is still differing views on what exactly "common ground is" you could have the definition all sewn up solid in writing between all parties invovled when suddenly a whole other party decides that they need to be invovled! then how do you decide IF that party has a right to be involved and how to integrate that party and indeed if that party is defining common ground the same way as all the other parties involved or not involved. when any more than 2 people exist in a space together it starts to get complicated! imagine trying to make it work with millions and billions of people.... that's why we need a strong contract between us all and impartial referees to judge so as to avoid killing each other!
Roadblock03.21.09 - 6:25 pm
reply
you've lost me
vor03.22.09 - 1:17 am
reply
See, in your example of competition, you assume a lot of things.
You assume that there is such a thing as the internet, which was created by the government.
You assume that there is copyright protection, provided by the government, to assure that the two browsers don't steal each other's code and become one browser that does both things.
You assume that people have free time to spend on the internet, comparing two browsers, something provided to many people by the 40 hour work week law imposed by government.
etc etc
gregb03.22.09 - 10:49 am
reply
"You assume that there is such a thing as the internet, which was created by the government."
It was initially funded by the military, but after they realized it had no military use they stopped all funding. It's first major use was by scientists across THE WORLD, not a government. Considering we are communicating over the internet I think it's fair to say it exists ;)
"You assume that there is copyright protection, provided by the government, to assure that the two browsers don't steal each other's code and become one browser that does both things."
Actually both of these browsers are free software, free like freedom, Chromium is based on WebKit, Mozilla's browsers are based on Gecko/Mozilla. The Mozilla/Firefox is licensed with the Mozilla and Gnu General Public License, and Gnu Lesser General Public License, which does use the legal system to prevent some actions, such as proprietary versions of the browser from being made.
"You assume that people have free time to spend on the internet, comparing two browsers, something provided to many people by the 40 hour work week law imposed by government."
Huh?
vor03.22.09 - 2:26 pm
reply
The point is, the world is waaaaay too complicated to make simple analogies such as the one presented by my comrade Mr. Eric Hair.
Roadblock03.22.09 - 3:50 pm
reply
Yellowstone Caldera blowing up will do that quite well.
bentstrider03.22.09 - 7:40 pm
reply
-->
Ridazz Roulette!
End the Fed.