Modern Economics (An Internet Tale)

There’s an interesting e-mail going around the internet this week called “Smoke and Mirrors”. It’s supposed to be a slam on President Obama’s economic policies, I guess, but it’s fascinating nonetheless.

The little story is set in a small resort town in August. It’s tough times, everybody is in debt, and everybody lives on credit. A rich tourist happens upon the town, and stops at the only hotel.

He lays a $100 bill on the reception counter, and tells the innkeeper he wants to go upstairs and thoroughly inspect all the rooms. If he likes one of them, he’ll stay a few days.

As soon as the tourist goes upstairs, the innkeeper takes the $100 bill and runs across the street to pay his debt to the butcher, who’d been carrying him through the hard times.

The butcher sees the rancher get out of his pickup truck across the street. He takes the $100 bill and gives it to the rancher, to pay his meat bill.
The rancher takes the $100 bill and goes a couple doors down the street to pay his debt to the supplier of feed and fuel, who’d given him credit in the tough times.

The supplier of feed and fuel takes the $100 bill, slips out the back door, crosses the street, and knocks on the door of the town prostitute. He pays her the debt he owes her for rendering her services “on credit” during these tough times.

The town prostitute quickly walks to the hotel, and uses the $100 bill to pay the innkeeper for the rooms she rented on credit during the tough times, when she brought her clients there.

The innkeeper then lays the $100 bill back on the counter, so the rich tourist won’t suspect anything when he completes his inspection of all the rooms.

A few moments later, the rich tourist comes down the stairs, says he doesn’t really like any of the rooms, takes the $100 bill, gets back in his car and drives out of town.

Everybody’s paid off, and the town now looks to the future with optimism.

The story, of course, is based on a number of very shaky assumptions, such as the innkeeper knowing he could “cover” the missing $100 bill, if the rich tourist decided not to stay there. There’s no way the innkeeper could have predicted the chain of events that would end with the $100 bill back on the counter, and in such short time.

But it’s a fascinating story that gets you thinking about how money and credit work. Most of it’s imaginary…like the stock market.