Monthly Archives: December 2008

Gilligan’s Island Economics — Auto Bailout

On the Island

Suppose we look at the economics of Gilligan’s Island. Thurston Howell III is of course the banker — he brought a trunkful of cash with him on the three hour tour, and uses it to start a simple economy on the island, allowing everyone to work based on market norms rather than social norms.

The Skipper and Gilligan join together to start a company: SkipGan Huts. They build huts for the others and sell them for $100 each. The Skipper as President does all the design and surveying work and takes $80 per hut, while Gilligan does most of the actual assembly work and takes $20 per hut.

For a time they make a very nice living, but there’s a problem: after they’ve built a hut for themselves, for the Professor, for Ginger and Mary Ann, and for the Howells, the market for huts pretty much dries up. Sure, the Professor needs a lab hut, Ginger needs a closet addition for all those dresses, and the Howells are thinking about adding a second bedroom, but the handwriting is on the wall.

The Skipper goes to Mr. Howell and says, “This situation is bad for me, but it’s especially hard for Gilligan. I saved most of my money, but Gilligan didn’t make as much, and he couldn’t stay away from Mary Ann’s coconut cream pies. If we don’t do something, and soon, Gilligan will be out of work and won’t be able to eat at all. What do you suggest?”

Now Thurston Howell III, known as the Wolf of Wall Street, would know better, but he’s playing the part of a metaphor here, so he says, “I know: we’ll have the Island Reserve — that’s me, you know! — release some more money from the community trunk and use it to tide SkipGan over until you recover. Try to come up with a plan that will allow you to become profitable again.”

The Skipper knows that there just isn’t going to be any more money to be made in hut building, but Mr. Howell is basically offering to give him money, so why should he turn it down? The problem is that now SkipGan has money, but still no market. If they keep building huts, they’ll be producing something no one on the island wants or needs. The sooner Gilligan and the Skipper stop building huts and start doing something else — anything else — of value to the others, the better. If Gilligan has no marketable skills other than hut-building, he should starting learning something else. Mr. Howell should give Gilligan and the Skipper incentive to change careers instead of incentive to keep doing the same non-productive thing. Or he should just leave them alone — Gilligan has incentive enough (his love of coconut cream pies) to encourage him to change professions.

In Real Life

The situation with auto manufacturing is very similar — demand is down, so the government is giving the Big Three auto manufacturers loans to help them make more cars. This makes no sense. Nothing about giving them money (my tax money or my inflation money — more about that later) makes me more likely to buy their cars. When the government helped Chrysler in 1979, Chrysler survived not because they just needed some time but because the K-cars didn’t suck and they invented the modern minivan. If the big three can point to something like that now, fine, but they’d better be prepared to pay back the people as Chrysler did. If the government does anything, it should help the workers train for other jobs.