The feeling I get is that he might have written it after reading a short story, or maybe seeing a film. But this is the kind of question that doesn't call for speculation, but for somebody who could ask Michael Smith, or who has asked him.

There are a few interesting articles about Michael Smith on the net, and interviews, but none that I've come across that touch on this.

Nearest I found is where Michael says he was about 26 when he wrote it, and that he was a bit pissed off at first with Steve Goodman when he started singing it years later, but always getting the words wrong when he sang it, and blurring his images. But he forgave him, obviously.