Stimulus Bill Explanation

Fred Garvin's picture

Stimulus Bill Explanation

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 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 the student 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 wasting valuable 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."

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Submitted by movetotheleft on Fri, 03/13/2009 - 8:34am.

Upon closer observation, the student spots a leak in the swimming pool and sees the President trying to refill the pool and plug the leak at the same time. Unfortunately, there are many cracks that started 30 years ago, and it has become even worse over the last 8 years. We could let rainwater refill the pool over time (free market), but the pool is leaking and evaporating too fast (deflationary spiral.) The remaining water will freeze next winter because the pool pump is broken (liquidity trap, banks not making loans) and the pool cracks will further breach causing the even more water to leak out in the spring. A real economist knows there is never a constant volume of water in the pool. After all, the government just added half a trillion gallons. It should have been lots more, except someone was standing on the water hose screaming MORE TAX CUTS! Last year, the Fed added 2 trillion gallons in the deep end where all the wealthy bankers hang out and where the largest cracks are leaking the most water. The President wants to help the professor RENOVATE his pool by making the shallow end deeper and the deep end deeper. That way he lifts ALL boats. But the professor only believes in the free market, not government, thus clouding his judgment. He would call his insurance company and file a homeowners’ policy claim, except they are backed by AIG who are now owned by the government. Too bad, I guess the pool will drain leaving the shallow end high and dry while the deep end has just enough water for the privileged few. The student realizes the professor is a hack and drops his class. The student was last seen reading a book on Keynesian economics.

muddle's picture
Submitted by muddle on Thu, 03/05/2009 - 10:21am.

I’m fairly good at math, but something mysterious occurs when the numbers are flanked by dollar signs. The digits become obdurate and insubordinate, refusing to march in their designated columns. Ones refuse to carry over when adding. Nines rebuff their impoverished and borrowing neighbors to the right when subtracting. Remainders slip away behind my back while dividing.

For me, opening a new checking account is like giving a toy of many small parts to an irresponsible child. The pieces are all together on Christmas day, but give it a week and they have scattered to the winds, a diaspora never again to be reunited.

Economics is wizardry to me. And so, when the magicians face off over bailouts and stimuli, I dive behind the nearest rock lest I be caught in the crossfire of their hurled spells. I hear the arguments of the contestants and try to follow them through their twists and turns, but then realize that these are mysteries that were not intended for the minds of muggles.

But I do wish to venture a question.

Consider two analogies that have recently been urged to demonstrate the utter foolishness of the recent stimulus plan. One compares the national economy to home economics. A family is in deep debt and in danger of losing everything, including their home. How do they propose to recover? They run to the Best Buy and heat up the Visa on purchases of big screen televisions, computers and other gadgets. The moral: one cannot spend one’s way out of debt.

The other analogy is that of a pool. In an effort to deepen one end, water is drawn from the other, carried down and poured back in. The utter foolishness of the effort is apparent to all.

If these analogies are good ones, then the current plan is sheer idiocy. Are they?

There is a difference between the two as presented. If the dynamics of the “Best Buy” example were imported into a pool example, the problem would be a low water level with the attempted solution of draining water from the pool altogether. But the original pool example presents us with an essentially closed system. Nothing is coming in or going out. The foolishness is seen in the attempt at raising the level simply by moving the resources from one area to another. What is “spent” does not exit the system, but neither can it do anything to increase the volume of that closed system. This is almost as silly.

Here’s my question. Once we distinguish between closed and “open” systems, other possible analogies suggest themselves. First, in an attempt to stay as close as possible to the pool analogy, perhaps we should picture the pool of water not as one uninterrupted body of water, but as a system of channels and locks so that water might be contained in or released from the various sections. Perhaps, then, the aim is not so much to raise the overall level as it is to restore proper flowage throughout the system.

Or, if I can be heard at all from behind this rock, might I attempt an entirely different analogy? Perhaps we should think of a cargo ship that is listing and in danger of capsize because of a dangerous imbalance of the goods in the hold. Here, “spending” need not be seen as analogous to throwing cargo overboard (though, in actual shipping, sometimes this is prudent), but is more a matter of seeking to restore a balance as the load is more evenly distributed.

I ask the question and suggest the analogies with the greatest timidity. Now I’ll retire back to my hiding place and listen for any commentary from the wizards.


"Puddleglum" by Weatherwax (one of the Muddlings).

Jeeves to the Rescue

Submitted by Bonkers on Thu, 03/05/2009 - 2:55pm.

It just so happens that economics is an art and not a science as is philosophy. Has hardly anything to do with accurate math although lots of numbers are thrown around in discussing it.

Some try to blame a recession on "confidence" in the system. Usually however they are caused by "confidence men." (con jobs)

The Great Depression of the 30s was caused also by exuberant credit where one could buy 90% of their stock holdings on credit as long as the value of the stock traded for a designated amount.
This recession (maybe a depression) was also caused by credit but much more widespread. Whereas the 30s one was primarily on Wall Street, this one is in all banks, construction, and especially citizens owing more than their home is worth and also having second mortgages and extreme amounts on credit card debt.

How can one be "confident" if when he goes to the bank to get a loan now he is refused?

The bank's assets have shrunk up to 80% in many cases due to bad loans and they need the bailout just to replenish their capital (assets).
They ain't loanin!

Fact is muddle, capitalism does not work in the long run. If regulations are strict and enforced by knowledgeable people and honest bankers then it will have a longer run. (Conserves don't like this).
If it is not regulated strictly, it has to have a rich uncle recapitalize it every 50-75 years. Sometimes less time if the crooks are particularly smart. (insured hedge caustic asset bundles, for example). Notice how states like Georgia (Sonny) said they didn't want the bailout bill, but today say they don't know what they would do without it).

It is however considered by many an acceptable practice to perform this ritual every 50 years due to the millionaires made and the so-called "progress" accomplished.

We are going to have to do with less now for many years. There isn't enough money in the world to make right the asset losses.

We totally ignored them for the last eight years!

Submitted by baroombrawl on Thu, 03/05/2009 - 4:25pm.

You forgot that most colleghes and universities are subsidized by tax money in a great way. Particularily by donations made to endowments that pay no taxes!
You won't find many professors or school managers who don't want that money but yet they are mostly conservative profs!

Submitted by Nitpickers on Mon, 03/02/2009 - 11:07am.

I may have a better example of how to treat the "recovery."

Why don't we always allow our banks and insurance companies and car makers, and home developers and commercial developers and individuals, loan and sell everyone everything that they want regardless of whether they have a decent job or not and at low or no interest rates?
Then when the value of the collateral (deeds) becomes worthless, bundle them into great big bundles and sell them or insure them.
Then when the bundle buyers go broke, let us ooze billions every month or so into their bank account instead of letting them go broke?

They way you are keeping the government regulation out of business and allowing them to resolve their own created problems!

Be sure and let cars be sold by unscrupulous dealers and car companies at no down payment, cash back, six years to pay--and then extended to whatever, and to people with no job.

Allow everyone to have 15-20 credit cards with or without a job. Suck as much as you can out of some at 25% interest to pay for those who won't pay. That way everyone can have a fur coat and a Corvette.

It sure does work doesn't it? No regulation of business except a depression every 30-40 years in order to right the wrongs.

mapleleaf's picture
Submitted by mapleleaf on Mon, 03/02/2009 - 10:43am.

This explains it all!

The professor has a swimming pool. Obviously he has a home. He is one of the comfortable ones. Totally insensitive to the plight of the people without jobs, and barely hanging in there after losing their home or in grave fear of losing it.

People like Fred say they worry about what they’re going to leave their kids. It’s always “for the children,” isn’t it?

Ranting, raving, lunatic maniac, why don’t you get a life? The pool story is ridiculous. The stimulus has nothing to do with swimming pools. It has to do with preventing the economy from collapsing and people from starving to death.

It is obvious we’ll all be better off if we can get people working and earning wages again.

Fred Garvin's picture
Submitted by Fred Garvin on Mon, 03/02/2009 - 11:52am.

It isn't suprising that Mapleleaf completely misses the point of the story.

I'll explain the whole idea of the story to you in one sentence so that the idea is easier for you to grasp:

People that create wealth will continue to do what is necessary and continue to create wealth and the poor will continue to do the things that keep them poor regardless of how the government tries to redistribute wealth from the rich to the poor.

The United States of America
July 4, 1776 - Jan 20, 2009
Rest in Peace

mapleleaf's picture
Submitted by mapleleaf on Mon, 03/02/2009 - 1:56pm.

People that create wealth: you must mean Bernie Madoff.

Or the Wachovia CEO who ruined a very nice bank by buying up Golden West.

Or R. Allen Stanford, of Stanford Financial Group.

Or even Bob Nardelli who walked away from Home Depot with $200 million of its stockholders' money.

Who are these famous people that create wealth, Fred?

They create their own wealth on the back of the ordinary people who do all the heavy lifting for them. I have more admiration for any people who stock the shelves at Home Depot or check out the customers than I will ever have for Nardelli. These ordinary workers are the ones who created the wealth for Nardelli and those of the same ilk.

Dumb as dirt is what anyone is who would believe in people that create wealth, and especially who would believe in protecting them. Joe the Plumber is no intellectual giant, and we all know it.

Fred Garvin's picture
Submitted by Fred Garvin on Mon, 03/02/2009 - 2:20pm.

There wouldn't be a shelf to stock without Nardelli.

It's a chicken or the egg type of thing. You have to have someone create an idea, work hard, make investments, and take risks to create a company before you can have shelves to stock.

That's what's wrong with barry's plan, he thinks it works the other way around. (just like you appear to).

You named a few crooks in the marketplace. I can name a lot more crooks in the democrat party right now, including Carrion, barry's newest choice for "urban czar", whatever the heck that's supposed to be.

The United States of America
July 4, 1776 - Jan 20, 2009
Rest in Peace

sniffles5's picture
Submitted by sniffles5 on Mon, 03/02/2009 - 11:16am.

It amazes me that these neo-Hooverites continue to cling to the fiction that any problems in America can be fixed with either a tax cut for the rich or a stern lecture to the poor.

S. Lindsey's picture
Submitted by S. Lindsey on Mon, 03/02/2009 - 11:23am.

Let's tax all the businesses until they start laying people off.. Let's tax all products until they are too expensive to buy.. and yes let's tax the EVIL rich.. You know the ones that actually EMPLOY people..
I have never worked for a poor person.. Have you?
I will not lower my standards.. So UP YOURS.. Evil

S. Lindsey's picture
Submitted by S. Lindsey on Mon, 03/02/2009 - 9:46am.

Did everyone see the protesters on TV this weekend.. No not the "Whiner class" or the "What's in it for me" crowd... But Conservatives and free thinkers.. protesting the bailouts and the coming taxes...
AMERICA IS WAKING UP.. Stand up and be counted folks..
Tax Cuts yeah right:
New Carbon tax coming will raise the cost of Gas up $1.27 a gallon Gas will be going over $3.00 a gallon.. Electricity is going up 68%
TO those of us that have to drive for a living.. Sucks to be us I guess..

I will not lower my standards.. So UP YOURS.. Evil

Submitted by treehuggingtroll on Mon, 03/02/2009 - 9:32am.

I certainly don't know what the solution to our recession is, and I know doing nothing is probably a bad idea, but your little story about sums up how I feel about the stimulus packages. (haven't we had about three or four by now...if you count the car industry, the banks, aig, freddie and fannie?)

Cyclist's picture
Submitted by Cyclist on Sun, 03/01/2009 - 10:21pm.

from the Guv to supplement its balance sheet in order to prepare for a 4th quarter loss of $60B. According to Reuters, this loss equates to a hemorrhage of $460,000 PER MINUTE!
Caution - The Surgeon General has determined that constant blogging is an addiction that can cause a sedentary life style.

meanoldconservatives's picture
Submitted by meanoldconservatives on Mon, 03/02/2009 - 9:52am.

WASHINGTON -- President Barack Obama will break a campaign pledge and sign a budget bill laden with millions in lawmakers' pet projects, administration officials said.

Administration budget chief Peter Orszag and White House chief of staff Rahm Emanuel both downplayed the $410 billion spending bill and signaled Obama would hold his nose and sign it. Orszag said: "We want to just move on. Let's get this bill done, get it into law and move forward.

Said Emanuel: "That's last year's business."

The House last week passed the measure that would keep the government running through Sept. 30, when the federal budget year ends. Taxpayers for Common Sense, a watchdog group, identified almost 8,600 specially sponsored projects totaling $7.7 billion; Democrats say the number is $3.8 billion.

Either way, it is far more than Obama promised as a candidate.

Obama's top hands assigned responsibility to their predecessors and President George W. Bush.

What a shocker. Somehow "W" is at fault for all this pork they added.

Then old Rahm gives you some insight into what they think about energy costs....

"Officials faced a tough haul, even as Orszag and others said the proposal would raise taxes on wealthy Americans and increase energy costs.

Emanuel said energy costs are too low, anyway."

Hope that makes you feel better too.


Cyclist's picture
Submitted by Cyclist on Mon, 03/02/2009 - 4:27pm.

Hope that makes you feel better too.

No it doesn't.

BTW, the market has lost 50% of its value from its high of 14146.
Caution - The Surgeon General has determined that constant blogging is an addiction that can cause a sedentary life style.

Submitted by treehuggingtroll on Mon, 03/02/2009 - 9:36am.

I wish AIG would hemorrhage a few minutes worth (oh, I'd say about 30 to 40 outta cover it)of their losses into our school coffers.

Don't blink, you might miss another bailout.

Submitted by mysteryman on Sun, 03/01/2009 - 9:53pm.

In this classic movie the computer Hal 9000 ask...."What are you doing Dave...... Nothing Hal..... My point exactally, we are doing nothing, just as this example shows....PEACE

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