Circus Analogy of Economics

Several Austrian economists including guys like Peter Schiff have used what is now called the circus analogy. It goes something like this.

A big traveling circus comes to a small town. All the circus people go have regular breakfast, lunch, and dinner at one of the town’s restaurants.

The owner of the restaurant is ecstatic. He get mountains of new businesses from the vast amount of circus folk eating at his restaurant. The problem is, he’s a moron. He assumes that all this new business is permanent and will never go away. He completely misinterprets the situation.

So expands his facility, adding on several wings to the restaurant. He adds three huge outdoor eating patios for customers. He hires triple the amount of people he had before.

Everyone is happy. Everyone is making money. Everyone is eating his good food. Life is good.

Then the circus finally completes their stay at the small town. They pack up and leave. All the new business for the restaurant leaves with them.

The restaurant owner is distraught. Sadly, plans to sell off his patios. He has to sublease his new additions. He has to lay off tons of people. It’s bad, but it’s necessary. He just can’t afford all this infrastructure without the circus there.

However, before he does all this stuff, the government steps in. Local politicians with weird names like “Bush” and “Obama”, scream “We can’t allow this! People can’t lose their jobs! People can’t lose their businesses! We must DO SOMETHING!”

So the government taxes all the citizens of the town, manipulates its currency (by printing more money, buying more bonds, etc) reducing the value of everyone’s dollars (and raising prices), then shovels that “stimulus” money to the restaurant owner.

The owner is ecstatic once again. Now he gets a bunch of free money for doing nothing. Much of it he uses to buy a new sports car, a new boat, and a diamond ring for his trophy wife. He also uses some of it to keep his staff workers. They have nothing to do, so they just sit around the huge, empty restaurant all day while getting paid to do nothing.

The government then says to the people, “See? We have prevented a recession in our town by bailing out this poor restaurant! Aren’t we great?”

Some of the citizens applaud the government and give thanks to Bush and Obama for “saving them” from a depression. However most the other citizens just see taxes get higher, costs get higher, and a bunch of people over at the restaurant getting a bunch of free money for doing nothing.

The incompetent restaurant owner continues to get rich from government money, his employees continue to do meaningless work no one wants or needs. Meanwhile other businesses need more help, like the hardware store and the mechanic shop, but they can’t hire anyone because they’re all over at the restaurant getting paid to do nothing.

And prices keep going up, and taxes keep going up…

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