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A Bailout Fairy Tale
In this story, the princess doesn't awake with a kiss, the giant kills Jack, and the glass slipper doesn't fit.
Once upon a time there was a tropical island in the South Pacific in which the natives polished nice shiny marbles made out of the exotic pebbles that sometimes washed up on their shores. In the evenings the tribesfolk would gather around a bonfire and exchange tales and songs. Sometimes they would also exchange the pretty marbles among themselves.
One day a whaling ship was blown off course and anchored in the lagoon of the island. The captain decided to investigate the island civilization. It was discovered that the islanders were all enormously happy and satisfied with their lives, largely because they were so wealthy. “Every single one of us is richer than even the richest whaling captain in your lands,” they explained. “You see, each of these shining marbles is worth 100,000 gold nuggets in our economy. We trade them actively among ourselves. Any of us can convert a single marble into cash or real assets at that rate any time we want.”
Sure enough, the going rate for domestic trading in the shining marbles was 100,000 gold nuggets each! The marbles could be used to purchase huts, fields, canoes, harpoons, or anything else. “A paradise on earth,” observed the captain in his log.
Two years later, the same whaling ship with the same captain made a stop at the same island to take on provisions. But this time the atmosphere there was different. “We are all so depressed,” explained the tribesfolk. “Our entire economy has been collapsing for many months. The pretty shiny marbles that were worth 100,000 gold nuggets two years ago have been dropping in value. They are now trading in our local marble exchange for a mere 5000 nuggets each.”
Sure enough, the marbles could still be used to purchase mangos, huts, and wives, but at a far less favorable rate of conversion.
“I am a little confused,” said the whaling captain. “Help me to understand. The marbles are trading at a lower conversion value, but what has happened to the total number of marbles in the possession of the residents of the island?”
“Oh, that has not decreased,” answered the tribal witch doctor. “In fact we have a bit more of them than we had when you were last here, thanks to some new coral pebbles being washed up onto the beaches.”
“Ok, so what about the fields and the huts and the canoes?” asked the captain.
“They are all still intact. We have at least the same number of each sort of real asset as we had the last time you anchored here. We have even more marbles and gold nuggets than before.”
“But then you are not really any worse off than you were back then,” observed the captain.
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Steven Plaut is a professor at the Graduate School of the Business Administration at the University of Haifa
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14 Comments
1. SteveInNJ:I really enjoyed this piece!
Dec 19, 2008 - 5:25 am 2. Craig:“Now what will you do?” asked the whaling captain. “Simple,” replied the island chief. “We will increase the tax rates on our islanders so that we will have more resources to expand the rescue plan and so we will help the economy to an even greater extent.”
Hmmm….I think the name of that island is MANHATTAN.
Dec 19, 2008 - 7:40 am 3. Ten:One of the more perceptive pieces to appear at PJM. One hopes we’ll wake up before it’s too late.
One hopes.
Dec 19, 2008 - 8:36 am 4. John_In_Cleveland:I say redistribute the marbles to the people at a low interest rate of 2% and allow them to too refinance their huts, fields and canoes. That way the money will be repaid to the chiefs with a profit. Simply giving the canoe and hut mortgage companies the marbles to do as they please will continue to provide for larger huts and longer canoes for a select few and not the entire community.
The change has to help everyone. I am a canoe salesman.
Dec 19, 2008 - 8:58 am 5. KarlInOhio:The Island Reserve Board needs to smash a bunch of worthless seashells and distribute those shards declaring that they are worth one marble each. That should get the economy going again having that many “new marbles” in circulation.
Dec 19, 2008 - 12:31 pm 6. finding-people:I liked this story. It puts a lot of things into perspective.
Unfortunately, Obama is stoking up the printing presses and will nonetheless prepare to increase the role of government in our economy and hyperinflate the currency.
He is listening to his Neo-Keynsian bucket brigade and carefully following their recipe for firefighting. They are passing him buckets of gasoline and instructing him to throw it on the smoldering, smoking economy…
We are headed for a perfect storm and Obama is flinging wide the hatches and hoisting the sails…
Dec 19, 2008 - 12:50 pm 7. thegre8_1:I am sick of these G D bailouts. The UAW will not back down from their $130,000 salary and benefit packages and Obama and his group will be more amiable to the union. Spread the word stop buying GM and Chrysler cars and let them go under.
Dec 19, 2008 - 1:23 pm 8. AL:I have another fairy story.
When same whaling ship visited another Pacific Island, they discovered that islanders are in much disarray.
What happened?”, asked captain.
“Well, recently we discovered that we have much less marbles than anyone thought. So nobody want to trade precious marbles for goods, and people stopped working in the fields, gathering tropical fruits, fishing and building canoes and hats. We are starving.”
“So ask you chieftains to make more marbles, or borrow more marbles from other island! Marbles will again begin to trade for goods, and people will start working again.”, said captain.
“No can do”, said conservative and savvy islanders. “We will enslave future generations of islanders, and they will toil to death to return marbles to chieftains and other islanders. We better die.”
Dec 19, 2008 - 5:38 pm 9. Joanna:AL: I don’t get it.
Dec 19, 2008 - 8:23 pm 10. Rashputin:AL – you’re a wonderful example of why they check ID just to buy black spray paint these days. You’ll inhale anything as long as it eats up brain cells.
have a nice day
Dec 20, 2008 - 12:14 am 11. AL:Joanna:
Wealth of the nation is, in essence, productivity of workforce multiplied by employment.
Money, being it marbles, shiny metal coins, fancy paper, or digits in banker’s computers, is abstraction, useless on all means except as a tool to maintain high rate of employment, long-term productivity, and as the result steady wealth creation in the nation.
Whatever government does (printing money, issuing credits, making bailouts, going in debt, changing bank prime, changing banking assets/leverage ratio, etc.) is fine as long as it serves main purpose of money: creating wealth – GDP/person.
It takes tremendous wisdom to maintain right money supply (printed money multiplied by fraction-reserve credit creation and money velocity) to maintain sustainable growth of economy, without creation of credit oversupply bubbles.
Common sense of family finance management has nothing to do with macroeconomics of money and credit management of continental-scale economy.
Dec 20, 2008 - 3:31 am 12. Connie Horn:I’m happy to be old and on S.S. as we will be getting amazing increases!! Enjoy your new President I had nothing to do with him. I’m sorry for my grand-children.
Dec 22, 2008 - 5:25 pm 13. TB:Al’s failure to use articles properly is what makes his response so hard to swallow.
Dec 23, 2008 - 4:33 pm 14. LDS:A little simplistic on the view, but well written and thoroughly enjoyable to read. And, it’s a very good forecast of what Obama and the Dem. squad are going to do.
My favorite part of the whole mortgage crisis is how the Dems. are blaming the Republicans (and getting away with it with the help of their media buddies) when they were responsible for most of it. Unbelievable!
The US wouldn’t be in such sad straits if it weren’t for the Dot com crash (as soon as Billy left office), Enron (Billy again), 9/11 (oops—another Billy), two wars, Katrina, and a host of other forest fires and hurricanes, never mind this whole mortgage thing, which Bush tried to prevent with at least two attempts to increase regulation. GW has had the toughest and most costly presidency since WWII.
I say, if we want to pump up the US economy, we need to STOP funding the United Nations, and stop paying blood money to various Moslem countries. Crushing unions would be next. Has anyone heard about that 6 million dollar golf course the Auto Union’s been keeping?
Dec 28, 2008 - 11:16 pmhttp://www.foxnews.com/story/0,2933,472304,00.html