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Comment by mikkergp | Hacker News Reader

What is the ELI5 20 people trading things in a small town definition of a recession? I get the whole 2 quarters of economic decline definition, but I guess I ask because part of a recession is psychological right? It gets worse because people stop spending, creating a downward spiral. I guess the question is, if we just spend through it, will it last a shorter amount of time? I get the impression that that creates economic risk - i.e. if you're spending through it and lose your job or have a financial crisis, you might additionally lose your house or some other bad thing could happen.

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At the risk of butchering an old joke, my attempt at the ELI5 small town version of a recession is the following story, but the rich tourist never shows up....

From [0]:

It’s a slow day in some little town…….. The sun is hot….the streets are deserted. Times are tough, everybody is in debt, and everybody lives on credit.

On this particular day a rich tourist from back west is driving thru town. He stops at the motel and lays a $100 bill on the desk saying he wants to inspect the rooms upstairs in order to pick one to spend the night. As soon as the man walks upstairs, the owner grabs the bill and runs next door to pay his debt to the butcher. The butcher takes the $100 and runs down the street to retire his debt to the pig farmer. The pig farmer takes the $100 and heads off to pay his bill at the feed store.

The guy at the Farmer’s Co-op takes the $100 and runs to pay his debt to the local prostitute, who has also been facing hard times and has had to offer her services on credit. She, in a flash rushes to the motel and pays off her room bill with the motel owner. The motel proprietor now places the $100 back on the counter so the rich traveler will not suspect anything.

At that moment the traveler comes down the stairs, picks up the $100 bill, states that the rooms are not satisfactory, pockets the money & leaves.

NOW,… no one produced anything…and no one earned anything…however the whole town is out of debt and is looking to the future with much optimism.

[0] https://www.econlib.org/archives/2012/01/an_answer_to_a.html

but the $100 wasn't the motel's to spend yet; it was a conditional deposit and reclaimed quickly. had it gone elsewhere in the chain the actual owner of that money would have a case for theft.

This makes the joke so much more funnier.

David Graeber's Debt: the First 5,000 Years is really worth reading to understand the anthropology of debt.

It's common in societies to accumulate unpayable debts (that, over time, evolve into debts designed never to be paid) for ceremonial purposes. A society might foster interdependence by having everyone in debt to everyone (as described in the fable above) in small amounts. Over time, these amounts grow. Nothing really stops them. House prices and education costs are no longer limited by what people can pay, because borrowing in increasingly large amounts becomes licit (and necessary, due to inflated prices). This generates a spiral. People can't afford to pay off their coming-of-age debt? Yeah, it's designed that way. In other societies it has been marriage or funeral expenses or receiving one's first hunting tools--in ours, it is the last 4-8 years of schooling.

These ceremonial debts seem harmless, insofar as the penalties for nonpayment are rarely enforced--few people actually have their wages garnished over medical bills or student loans--but, of course, they're anything but. In practice, they reify the ruling class's self-asserted superiority by giving them a legal justification for bringing harm to those who "freely" took on these debts. For reasons unclear, although Graeber examines a few possibilities, there seems to be a psychological weight given to the notion of debt, so strong that debts even outlive governments and states.

That does have a resemblance to what happens during a recession, but I'll point out that clearing houses mitigate that specific problem with debt cycles. For a more realistic analogy than the one you mentioned, I'd check out Krugman's article about a recession in a babysitting co-op: https://slate.com/business/1998/08/baby-sitting-the-economy.... . It seems to be exactly what the GP was looking for

Thanks, I'd never seen the article and I will add it to my pool.

this story only makes sense because the town was in a state where all the debts cancelled out

the $100 bill appearing didn't do anything but help them realize that

if they sat down at a whiteboard and drew it out they could have figured it out.

if they didn't cancel out, the $100 bill would stop before it got back to the inn keeper and he'd be in trouble

If our savings over the pandemic are able to keep us afloat through a recession, isn't that exactly what we hoped those savings would do?

An attempt:

Adam sees a gold nugget on his property. He decides that rather than preserving plums like he normally does this time of year he will start a business mining gold. He takes out a loan from Bob at a high interest rate. He hires Charlie who previously worked as a tailor, and Dick who was unemployed.

Anticipating future riches Adam, Bob, Charlie and Dick all start spending more money. Evan the innkeeper has to cook more and fancier food for them. He works longer hours and builds up some savings, thinking that he will spend it on fine gold jewelry from Adam later.

The mining effort finds absolutely nothing. Adam has neither gold nor plums and defaults on his debt to Bob. He lays off Charlie and Dick. For Evan business goes back to normal, he has money but the jewelry he wanted to buy doesn't exist.

Eventually Adam starts preserving plums again and Charlie goes back to tailoring.

Until someone else comes up with a wild idea? I guess this is sort of what I had in mind, to make it at like state or industry sized scale, new idea comes along 20 companies try it. Spend a bunch of money hire people etc, feeding the economy. 16 companies fail. 1 company grows to 4x, 3 companies stay at 1x = 7x. 13 companies worth of value sort of has to dissolve into the economy before the next innovation/growth train comes along.

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