Kindergarten Economics:

Little Johnny lived on a fairly busy street. On the first day of summer, Johnny decided to open a lemonade stand outside his house. The only problem was that Johnny didn’t have the $5.00 to purchase the lemonade mix and cups. Steven, an older friend of Johnny from down the street said, “I’ll lend you the $5.00, but at the end of the week I want $7.50 back”. Johnny was confident that he could sell at least $10.00 worth of lemonade so he accepted the deal.

At the end of the week, Johnny had made $15.00! He paid Steven the promised $7.50 and spent another $5.00 on more lemonade and cups. All in all Johnny made $2.50 profit!

Johnny then thought about selling cookies along with his lemonade, but the cookies would cost him another $5.00. He went back to his friend Steven and ask him for another loan. Steven recognized that Johnny had the potential to make a good amount of money over the summer and he wanted a way to make some too. He made Johnny a different offer. This time, Steven said he’d give Johnny the $5.00 but rather than paying him back $7.50, Steven wanted $0.10 of every dollar Johnny made at his stand. Johnny thought this would be a good deal so he agreed. Now at the end of every week, Johnny would count his earnings and give Steven 10%.

After awhile, Johnny noticed that a lot of people walked across the corner down the street via a route that bypassed his lemonade stand. He didn’t want to give up his profitable stand by his house so he talked to sally who lived on that corner. He offered Sally $0.10 an hour to sell his lemonade and cookies outside her house.

A few days later, some kids from other streets came to Johnny and asked if they could sell his lemonade and cookies outside their houses for $0.10 per hour too. Johnny asked Steven for another $10.00 in order to purchase more lemonade and cookies in exchange for $0.20 of every profit dollar. By the end of the month, Johnny had 6 lemonade stands all doing a robust business. The kids running the stands were making money, Steven was making money, the grocery store was selling more lemonade and cookies than they had in years, and the local candy store was doing a great business with all the new kindergarten customers with money they made selling lemonade for Johnny.

One day, Sally’s mom came to Johnny and told him that she didn’t want Sally to have all that money because she didn’t trust that Sally would save any of it. Sally’s mom told Johnny that rather than giving Sally the whole $0.10 per hour, he was to give her only half and give her the other half. It wasn’t long before the other parents told Johnny to do the same thing. Suddenly all the kids working for Johnny only had half of the spending money they became accustom too. The went to Johnny as a group and demanded that he started giving them a full 10 cents again. Johnny was afraid that the parents would forbid them from working so he agreed. In order to cover this increase though, Johnny had to raise the price of his lemonade and cookies. Fortunately, most of his customer’s were still willing to pay the extra amount.

As the summer got hotter, a lot of the parents began to worry about their kids sitting at the tables in the hot sun. They went to Johnny and told him that he needed to install umbrellas at each table to protect them. Johnny was forced to spend all the profit he had made so far for the umbrellas. While installing the umbrella at Sally’s table, Sally’s mom came out to talk with Johnny

It seems that there was a young boy in the neighborhood that had to stay home all summer long to watch his younger brother while his mom worked. She felt really sorry for this boy and felt that it was unfair that Johnny was able to make a lot of money in the neighborhood but this boy could not. He told Johnny that in order to be fair, Johnny had to give this boy free lemonade and cookies every day otherwise she wouldn’t let Sally work for him. It didn’t take but a few days before other mothers came to Johnny with names of other ‘less fortunate’ children in the neighborhood that Johnny would have to give lemonade and cookies to or else their kids would not be allowed to work for Johnny. These free items cost Johnny so much that once again he had to raise the price for his lemonade and cookies. This time, about 10% of his regular customer’s stopped buying from him.

Just as the summer was half over, Freddie’s mother came to Johnny to say she was concerned about how Freddie would feel after the summer was over and he wasn’t able to keep making money. In order to keep Freddie from becoming depressed in the fall, Freddie’s mother told Johnny that he had to give her 1 cent per hour on top of what he paid Freddie so that she could give Freddie some extra spending money during the months that the lemonade stands were closed. Johnny knew by this time that the other parents would insist that their children received the same benefit in order to keep things fair. He also knew that they would make him give even more free cookies to those children who’s mom’s had to work all the time so they would have snacks during the winter months.

Now Johnny faced a real problem. All of these extra costs to keep the parents happy had cut into his profits to the point that he was barely making any spending money himself. If he raised the prices again, he risked loosing more customers than the extra charges would bring in. His investor, Steven, was already getting angry that the profits were down which meant he got less and less each week too. Johnny was not able to sleep very well at night because of all these problems. Then one day he sold all of his lemonade and didn’t have enough money to buy more. He went to the store manager and explained the situation. The store manager was concerned too because he was making a lot more money selling the lemonade to Johnny. He agreed to give Johnny some lemonade ‘on credit’, with the understanding that Johnny would pay him back in full by the end of the week.

Johnny figured out that there was more profit in the cookies than the lemonade, so he started to offer a free lemonade refill to everyone who bought two or more cookies. This was a smart move as Johnny started to sell more cookies which meant more profits. At the end of the week he was able to pay the store manager back and still have enough money left to purchase the lemonade and cookies he needed for the next week. Johnny slept well that night for the first time in weeks.

The next Monday however, more problems started. A city official stopped by Johnny’s stand and told him that a number of neighbors were complaining about the signs Johnny had posted to promote his business. He put these signs up on other streets so people who don’t normally walk down his street would know that they could buy his cookies and lemonade. The city official told him that these signs had to be removed or they would fine him $100.00. He really had no choice so he removed the signs and sure enough, there were fewer customers that week and ever week thereafter.

As the summer started drawing to and end, Johnny started to count up all the profits and expenses from his lemonade stand. Even though he worked nearly 60 hours a week every week of the summer, he managed to make a $25.00 profit. As he was thinking of what he’d do with his money, his father came into the room and reminded him that every business was required to pay a fee to the city so the city could provide trash pickup, fire services, police protection, and street repairs. Johnny understood the necessity for these services so he gave his father $5.00 to send to the city.

The next spring, Johnny noticed a new kid on the block who was starting a lawn mowing service. Johnny felt sorry for the boy knowing what he was in for. But Johnny was smarter now. He learned how the ‘system’ worked. Right after school, Johnny went down to city hall. He asked to speak to the man who told him to remove his signs the summer before. The big man told Johnny to take a seat and tell him what was on his mind.

Johnny explained that he was interested in starting a different business this summer, he wanted to mow lawns around his neighborhood. The only problem was that someone else was doing the same thing. Johnny went on to explain that he would only be able to make money if he charged less that the other kid. That boy would probably then lower his fee too and before you knew it, neither boy would be mowing lawns because there wouldn’t be any profit in it. This would cause ‘residential blight’ because most of the dad’s were too tired after work to mow their own lawns and it could be dangerous for those older people to push a mower around in the heat of summer.

The city official seemed to understand the crisis but wasn’t really sure how to solve the problem. That is when Johnny gave the man the perfect solution. If Johnny didn’t go into the lawn mowing business, then the other boy wouldn’t need to lower his price and there would be no price war to begin with! Of course it wouldn’t be fare to Johnny to not be able to earn an income this summer so he proposed that the city put a $3.00 per lawn tax on all lawn mowing services. Then the city could give Johnny $2.00 per lawn to not mow anything thereby not causing a price war that would end up with no lawn mowers in town. The city would make $1.00 per lawn as a fee for administering the lawn tax. The voters would be happy because there would be a lawn mowing service in town, the new boy would be happy because he wouldn’t have competition and could pass the $3.00 tax on to his customer, the city would be happy because they would get extra revenues without having to do a lot of work, and Johnny would be fairly compensated for not starting a business that would prevent the certain ‘urban blight crisis’.

So Johnny ended up making a nice sum of money that year. The town grocer had to fire one of the working moms though, because there wasn't the extra income from selling so much lemonade; the kids in the neighborhood didn't have that extra spending money so the candy store closed down; the poor children who had to stay home and watch their younger siblings didn't get a single snack that summer; and the adults who used to look forward to a refreshing lemonade and cookie after work, had to go without.

But the good news is that everyone of the kindergartener's in this story learned the cruel facts of life. Hopefully, when they get old enough to lead, they'll remember that they lost everything that second summer because some people thought it was wise to "tax the rich" and redistribute the wealth to the poor by force.