Martin. That's good. No, that's bad.

Lee Martin in Hoosier Folklore, vol. 7 (1948, which you can see online at Hathi Trust). Here is a note from the editor

This past summer Lee Martin and his mother, Zelma Martin, ran through this dialogue after Lee had given us "The Little Old Lady Who Swallowed a Fly." He had learned it at school in Denver, Colorado.

This story is classified as ATU 2014. Chains Involving Contraditions or Extremes. You can also find Lady Who Swallowed a Fly here at this site.

THAT'S GOOD. NO, THAT'S BAD. 

A: Two pilots went up in an airplane. The plane had a good motor.
B: That's good.
A: No, that's bad. The motor didn't work.
B: Oh, that's bad.
A: No, that was good. They had a parachute.
B: Oh, that's good.
A: No, that was bad. It didn't open.
B: That's bad.
A: No, that was good. There was a haystack under them.
B: That's good.
A: No, that was bad. There was a pitchfork in the haystack.
B: That's bad.
A: No, that was good. They missed the pitchfork.
B: That's good.
A: No, that was bad. They missed the haystack.

(skydiving)