A thief walks into a store

Here is a question from Quora I have slightly changed which I leave for you to work out for yourself:

A thief walks into a store and steals $350. The thief then buys $350 worth of goods at the store. In the end, did the store lose any money and if so, how much?

To help you along, let me add in this quote from John Stuart Mill’s 1844 Essay, “Of the Influence of Production on Consumption”.

“The man who steals money out of a shop, provided he expends it all again at the same shop, is a benefactor to the tradesman whom he robs, and that the same operation, repeated sufficiently often, would make the tradesman’s fortune.”

I need hardly add that Mill thought he was being fantastically ironic. But there is then this, the third iteration.

A government who taxes you to the hilt but then spends the money it took from you on whatever the government chooses to buy, provides a benefit to you and everyone else since it adds to the level of demand and therefore helps maintain full employment.

This is modern economic theory and practice to the back teeth. In looking at this third iteration, bear in mind the money spent on school halls, pink batts and the NBN, along with all of the other stimulus spending, following the GFC.

[My thanks to Tony for bringing this Quora question to my attention.]

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27 Responses to A thief walks into a store

  1. stackja

    Taxpayers who get a tax refund have stolen money from the government. And so preventing the government helping other taxpayers.

  2. vagabond

    Taxpayers who get a refund have at some point paid more tax than they needed to and the refund is settlement for that. They have effectively given the government a coerced interest free loan, sometimes for a year or more.

  3. Bones

    The key is does the government spending add to the capital stock of the country; in valuer’s terminology, does the building, road, school etc add value.

    A new bridge over a river on a major road adds to the national capital stock however two new school halls built at school sites which already have a hall each add very little to the national capital stock and in purely commercial terms; the valuer’s, add little value.

    Few people are aware that the rationale for the school halls programme was that the money could be spent very quickly as schools do not need council permission to build. Hard to believe, but there it is.

    (It’s so, so easy to spend other people’s money).

    It was alleged to me that one builder who had won a lot of school building contracts, still had 25% of the contracts he had won to build, three years after the GFC.

    In truth, the addition to capital stock was most likely to the capital stock; investments, of the builders.

  4. Old Irrelevant me

    $700 less mark up I expect. I say he’s stolen turn over as well as money. Someone else would have bought that merchandise so he’s doubled up.

  5. Neenee

    The Bail Out
    It is a slow day in a little Greek Village. The rain is beating down and the streets are deserted. Times are tough, everybody is in debt, and everybody lives on credit.
    On this particular day a rich German tourist is driving through the village, stops at the local hotel and lays a €100 note on the desk, telling the hotel owner he wants to inspect the rooms upstairs in order to pick one to spend the night.
    The owner gives him some keys and, as soon as the visitor has walked upstairs, the hotelier grabs the €100 note and runs next door to pay his debt to the butcher.
    The butcher takes the €100 note and runs down the street to repay his debt to the pig farmer.
    The pig farmer takes the €100 note and heads off to pay his bill at the supplier of feed and fuel.
    The guy at the Farmers’ Co-op takes the €100 note and runs to pay his drinks bill at the taverna.
    The publican slips the money along to the local prostitute drinking at the bar, who has also been facing hard times and has had to offer him “services” on credit.
    The hooker then rushes to the hotel and pays off her room bill to the hotel owner with the €100 note.
    The hotel proprietor then places the €100 note back on the counter so the rich traveller will not suspect anything. At that moment the traveller comes down the stairs, picks up the €100 note, states that the rooms are not satisfactory, takes the money, and leaves town.
    No one produced anything. No one earned anything. However, the whole village is now out of debt and looking to the future with a lot more optimism. And that, Ladies and Gentlemen, is how a bailout package works.

    (I can’t recall from where this was copied- could have been here).

  6. Bruce of Newcastle

    The storekeeper has to pay GST to Canberra so he’s $31.82 out of pocket.
    Maybe our pollies could pass legislation to charge burglars GST.

  7. Gab

    The storekeeper is now $700 out of pocket.

  8. egg_

    The storekeeper is now $700 out of pocket.

    Each $350 “purchase” is depleting the stock for no change in takings.

  9. Macspee

    Neenee, the hotel keeper loses because he gives back the money, having given the room away to the hooker.

  10. Tim Neilson

    Neenee
    #2997234, posted on April 25, 2019 at 4:51 pm

    Everyone ends up debt free. Nice fable.

    Presumably the original author could explain how Rudd and Goose Swansteen’s “bailout package” resulted in the government going from a net surplus to hundreds of billions of dollars of indebtedness.

    Or Obama’s stimulus doubling the US government’s net indebtedness in 8 years.

    No doubt it’s the fault of those evil conservatives.

  11. Leo G

    Tradesman must be selling delinquent Fannie Mae mortgage loans.

  12. Neenee:
    “The Bailout'”
    OK. I am an economic Neanderthal. I understand one cannot live outside ones means. I know that modern economic theory says we can live forever on fractional reserve banking, without any problems.
    But the bailout stumps me, even though I know it can’t be right because everyone got paid.
    There has to be a logical fallacy somewhat akin to the broken window being repaired.
    Can someone explain to me just where it all goes to shit?

  13. Ben

    The original shopkeeper is out of pocket the worth of the goods, since he has the same cash balance but is short some goods.

    The publican story is a bit different.This seems to me to be an example of people using credit, and this creates more services and products than can be paid for by the available cash.

  14. Rob MW

    A thief walks into a store and steals $350. The thief then buys $350 worth of goods at the store. In the end, did the store lose any money and if so, how much?

    Yes & $1,750.00

    The store keeper pockets the stolen $350.00 then claims $700.00 insurance on the stolen money & goods then claims a further $700.00 tax deduction as unreconcilable stolen goods. Added to the pocketed $350.00 that makes the storekeeper about $1,750.00 in front less the wholesale cost of the shelf items.

  15. Mother Lode

    Nenes,

    All those people in that example had 100 Euros of debt AND 100 Euros of credit. Their nett position is zero.

    After the German tourist they are still nett zero. They are debt free, and they are also credit free.

    Nothing has happened.

    The bailout packages did not work this way.

    And the far more substantial stimulus packages were not about debt. They were about governments imagining they could jump-start the economy by borrowing money in the name of ordinary people, blow it on stuff that is not worth what they spend (remembering we must also deduct bureaucratic churn) and leave the country with more debt than assets – a nett deterioration.

    They do it because they still make the same error as your story: pushing money around makes us richer.

    Thing is government with its greed, improvidence, and inane meddling with excessive regulation creates the ‘need’ for stimulus packages.

    They juggle chainsaws to pay for finger reattachment surgery – and with each iteration there is another finger joint they can’t find.

  16. Rob MW

    Opps….. should be “No & $1,750.00 in front”

  17. Colonel Crispin Berka

    I dunno where you lot are getting $700 from. Read the question. The thief steals “$350” from the shop and “spends” the money back into the shop. They didn’t steal stock initially, it was cash.

    The answer might depend on accounting rules, like do you value inventory at cost price or at anticipated market price?

    Either way, at the end, the cash on hand is unchanged, but the value of the shop’s inventory has decreased by the Cost Of Goods (Sold), and the value of the thief’s inventory has gone up by the sticker price amount, since presumably they could resell it for that amount the same as the tradesman was trying to do.
    Since the cost of goods is less than the retail sticker price, the money stolen from the tradesman is less than $350. That’s without making any extra assumptions about parallel universes in which the goods “would have been” sold legit to someone else. If you imaging the goods would have been sold to someone else, then it would have covered a portion of shop overheads too, so the amount lost is then basically all of the sticker price except for the profit margin.
    If instead you mark-to-market, the money stolen is exactly $350.

    I guess it makes the point that if the shop is the entire private sector, we aren’t better off for having the government buy society’s services with money they stole because we forego the difference between our own cost of production and the market rate.
    Makes you wonder about the cost of government services, and is there such a thing as government profit.

    The analogy is a bit simplistic though, since
    * in practice people don’t buy things they already have, so the thief should be bringing new goods into the shop which they don’t have in stock already, and
    * there is a whole town of shops and some shops vote for the thief to spend more money in their shop than the thief stole from them, and in other shops he steals $1000 and supplies a pack of gum in return.

  18. JR

    Two brokers are enjoying a stroll through the park. They happen upon a fresh dog stool and one offers the other $20k to eat it, and the other obliges.

    Shortly, they come upon a further mound, and the other repeats the initial offer with success.

    One then remarks to the other ‘what fools we are. We’ve both eaten dog filth and neither are any the richer for it!,

    ‘Don’t be a fool!’ Scowls his companion, ‘We’ve just written $40k worth if business.’

  19. Siltststone

    Colonel Crispin Berka
    #2997415, posted on April 25, 2019 at 8:06 pm
    If instead you mark-to-market, the money stolen is exactly $350.

    Correct Colonel

  20. Siltstone

    Colonel Crispin Berka
    #2997415, posted on April 25, 2019 at 8:06 pm
    If instead you mark-to-market, the money stolen is exactly $350.

    Correct Colonel

  21. At the least the store owner is out for the cost of the sales.

  22. So no one can point out where the logical fallacy lies?

  23. Mother Lode

    So no one can point out where the logical fallacy lies?

    All those people in that example had 100 Euros of debt AND 100 Euros of credit. Their nett position is zero.

    After the German tourist they are still nett zero. They are debt free, and they are also credit free.

    Nothing has happened.

    It ignores the credit that each person had. It talks off each person getting rid of their debt (a liability) but does not take into account that they have also surrendered an asset (the money owed them).

    Before nett zero – after nett zero.

  24. Neenee

    It ignores the credit that each person had. It talks off each person getting rid of their debt (a liability) but does not take into account that they have also surrendered an asset (the money owed them).

    As stated up-front: “Times are tough, everybody is in debt, and everybody lives on credit.”

    But it shows how the provision of credit stimulates economic activity.

  25. Mother Lode

    Neenee,

    You think the movement of money resulting in no creation of wealth is economic activity?

    As I say, they are in the same position as before.

    They could have used their credit to pay off their debts without the German coming in.

    And a cursory survey of governments’ interventions should make it obvious that it doesn’t work. Politicians sole motivation is to be seen to be doing something, anything, so they aren’t accused of doing nothing in the papers. Throw money today and deal with the economic mess later. Ideally after they have left office.

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