Bar Stool Economics

[floodcitybrass]

It's time to stir up the pot again...
I found this on the web and thought it would make for a delightful conversation on rockpage. Enjoy!

---------
Bar Stool Economics
Suppose that every day, ten men go out for beer and the bill for all ten
comes to $100. If they paid their bill the way we pay our taxes, it
would go something like this:

The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.

So, that's what they decided to do. The ten men drank in the bar every
day and seemed quite happy with the arrangement, until one day, the
owner threw them a curve. 'Since you are all such good customers, he
said, 'I'm going to reduce the cost of your daily beer by $20. Drinks
for the ten now cost just $80.

The group still wanted to pay their bill the way we pay our taxes so the
first four men were unaffected. They would still drink for free. But
what about the other six men - the paying customers? How could they
divide the $20 windfall so that everyone would get his 'fair share?'
They realized that $20 divided by six is $3.33. But if they subtracted
that from everybody's share, then the fifth man and the sixth man would
each end up being paid to drink his beer. So, the bar owner suggested
that it would be fair to reduce each man's bill by roughly the same
amount, and he proceeded to work out the amounts each should pay.

And so:

The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33%savings).
The seventh now paid $5 instead of $7 (28%savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before And the first four continued
to drink for free. But once outside the restaurant, the men began to
compare their savings.

'I only got a dollar out of the $20', declared the sixth man.
He pointed to the tenth man,' but he got $10!'

'Yeah, that's right', exclaimed the fifth man. 'I only saved a dollar,
too. It's unfair that he got ten times more than I!'
'That's true!!' shouted the seventh man. 'Why should he get $10 back
when I got only two? The wealthy get all the breaks!'

'Wait a minute,' yelled the first four men in unison. 'We didn't get
anything at all. The system exploits the poor!'

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn't show up for drinks, so the nine sat
down and had beers without him. But when it came time to pay the bill,
they discovered something important. They didn't have enough money
between all of them for even half of the bill!

And that, boys and girls, journalists and college professors, is how our
tax system works. The people who pay the highest taxes get the most
benefit from a tax reduction. Tax them too much, attack them for being
wealthy, and they just may not show up anymore. In fact, they might
start drinking overseas where the atmosphere is somewhat friendlier.

David R. Kamerschen, Ph.D.
Professor of Economics, University of Georgia

For those who understand, no explanation is needed.
For those who do not understand, no explanation is possible

[f.sciarrillo]

When you mention bar stool I just want to yell: "NORM!"

[whitedevilone]

BRAVO nice post.Now lets see if we can get some of these closet socialist
here on RP to put down their Obama signs for a brief moment to ponder.

[JackANSI]

That's why I believe in a flat percentage tax for everyone.

[hardhitter]

That's why I believe in a flat percentage tax for everyone.

Are you talking about something like this that got shot down in 2006 by congress? This bill didn't even make it to the floor!! WHY??

http://www.heritage.org/Research/Taxes/bg1866.cfm

Why not look at a flat tax on goods sold instead of income? This way everyone pays! The higher income in the US don't claim 40% of their income to the IRS now. But they sure do spend it. Look at what people drive, the houses they live in, then look at where they work or even if they work!!! How did they get that car,house and list goes on. I think a flat tax on goods sold is the way to go.

[Banned]

What the fuck ever! If some guy is sitting in a bar, drinking for nothin'...I'm with him. Then, after I saved a couple bucks drinking for free. I'll buy you one.

[songsmith]

The anecdote doesn't mention that the 10th man made 4500 times as much as the fifth man, and the fifth man did all the work.
Also, the tenth man wouldn't waste his time and money on the lower men. He'd go to the country club, and drink on the company expense account.
The first guy makes minimum wage, a round of drinks would mean not buying food this week.
The tenth man makes enough money off the first man to easily pay for everybody's beer, but he's too worried the ninth man will take his place on top, so he goes and buys ninety Chinese guys drinks at a much lower price.
I could go on?------->JMS

[Banned]

The anecdote doesn't mention that the 10th man made 4500 times as much as the fifth man, and the fifth man did all the work.
Also, the tenth man wouldn't waste his time and money on the lower men. He'd go to the country club, and drink on the company expense account.
The first guy makes minimum wage, a round of drinks would mean not buying food this week.
The tenth man makes enough money off the first man to easily pay for everybody's beer, but he's too worried the ninth man will take his place on top, so he goes and buys ninety Chinese guys drinks at a much lower price.
I could go on?------->JMS

Then the fifth man, who self proclaims himself a moderate leaning conservative, who has harbored hatred of anyone making more income than he, pulls out a gun and righteously kills the 10th man, just because he is a capitalist pig and deserved it anyway. He would then vote for a Socialist government, and then there are not rich men anymore, and he is happy. His taxes will go up so much he will actually be much poorer, but he will feel better because there are no more rich bastards around anymore. I could elaborate if necessary.

[whitedevilone]

The anecdote doesn't mention that the 10th man made 4500 times as much as the fifth man, and the fifth man did all the work.
Also, the tenth man wouldn't waste his time and money on the lower men. He'd go to the country club, and drink on the company expense account.
The first guy makes minimum wage, a round of drinks would mean not buying food this week.
The tenth man makes enough money off the first man to easily pay for everybody's beer, but he's too worried the ninth man will take his place on top, so he goes and buys ninety Chinese guys drinks at a much lower price.
I could go on?------->JMS

Then the fifth man, who self proclaims himself a moderate leaning conservative, who has harbored hatred of anyone making more income than he, pulls out a gun and righteously kills the 10th man, just because he is a capitalist pig and deserved it anyway. He would then vote for a Socialist government, and then there are not rich men anymore, and he is happy. His taxes will go up so much he will actually be much poorer, but he will feel better because there are no more rich bastards around anymore. I could elaborate if necessary.

+1

[lonewolf]

That's why I believe in a flat percentage tax for everyone.

Do you mean like this one:

http://rockpage.net/phpbb2/viewtopic.ph ... 322#125322

[YankeeRose]

Most likely written by a
closet FASCIST. Gimme a frickin break! Any wealthy person with a Heart/Soul would also at that bunch of crap, as Songy is SO correct. Most of the extremely wealthy (CEOs, etc.) would never deign to rub elbows with the likes of us common folk.



"That's just the way it is
Some things will never change
That's just the way it is, aaah, but don't you believe them."

[bassist_25]

Tax them too much, attack them for being
wealthy, and they just may not show up anymore. In fact, they might
start drinking overseas where the atmosphere is somewhat friendlier.

I dig the analogy. Unfortunately, the conclusion doesn't take into account that the tenth man has to adhere to OSHA regulations at the place of work for men one and two, whereas men one and two in China don't have health regulations. Man ten has to adhere to a minimum wage law for man three, whereas man three in Indonesia gets paid enough to rent a straw hut; unfortunately, he can't afford to get running water in that hut. Man ten has to recognize a collective bargaining agreement for men four and five; men four and five in Taiwan don't have any employee rights. Men six and seven work full time, so man ten has to pay them benefits. Men six and seven in China haven't even heard of benefits. In fact, it may be boys or girls six and seven in China, not men six and seven. Man eight is extremely talented and a step above the rest, so man ten has to pay him an efficiency wage to make sure man eight is putting out the best product available. Man eight in India has more education than man eight in the U.S. and is willing to work for half the wage for U.S. man eight. Man nine is deployed in Iraq and is hoping that his USERRA rights are honored when he returns from war; man nine in Mexico doesn't have a war mongering regime in office.

I'm all for cutting taxes to stimulate economic growth, but this belief that dropping the tax rate a few percentage points is going to automatically bring production back to the U.S. is HIGHLY ignorant of the situation. We are in a global economy, for better or for worse, and as such, we have to look at the future of our economics in that light. The corporations have offshored for cheap labor and no regulations. I don't think saving a few bucks on their taxes is going to bring them back. But hey, I've been wrong about things before.

[Hawk]

First of all the analogy is dumb because that would never happen. However, to play along with the joke, I will attempt to make sense out of it for you.

What a joke. Let us deal in reality. The cost to run the country will not go down. Ever. [If undercoverjoe jumps in and says it would under Libertarian rule - well, again, let us deal with the real world, not fantasyland.]

So the cost of beer goes UP (like the REAL world).

The bar owner insists on the tenth man paying less. The bar owner cuts his bill by $10.00 The tenth man says, "Yes !, cut, how much I have to pay !"

Now after eight years they realize they owe the bar owner $4,160.00 ! Plus another $500 for inflation. They ran a deficit of $4,660.00 !

Now McCain and Obama come into the bar. They are asked, "How would you solve this problem?"

McCain - I think it is fundamentally sound the way it is.

Obama - I think we should reinstate $10 back to the tenth man. And the ninth man, we'll raise his by 3%.

WE have a deficit. It needs to be covered somehow.

[Banned]

Tax them too much, attack them for being
wealthy, and they just may not show up anymore. In fact, they might
start drinking overseas where the atmosphere is somewhat friendlier.

I dig the analogy. Unfortunately, the conclusion doesn't take into account that the tenth man has to adhere to OSHA regulations at the place of work for men one and two, whereas men one and two in China don't have health regulations. Man ten has to adhere to a minimum wage law for man three, whereas man three in Indonesia gets paid enough to rent a straw hut; unfortunately, he can't afford to get running water in that hut. Man ten has to recognize a collective bargaining agreement for men four and five; men four and five in Taiwan don't have any employee rights. Men six and seven work full time, so man ten has to pay them benefits. Men six and seven in China haven't even heard of benefits. In fact, it may be boys or girls six and seven in China, not men six and seven. Man eight is extremely talented and a step above the rest, so man ten has to pay him an efficiency wage to make sure man eight is putting out the best product available. Man eight in India has more education than man eight in the U.S. and is willing to work for half the wage for U.S. man eight. Man nine is deployed in Iraq and is hoping that his USERRA rights are honored when he returns from war; man nine in Mexico doesn't have a war mongering regime in office.

I'm all for cutting taxes to stimulate economic growth, but this belief that dropping the tax rate a few percentage points is going to automatically bring production back to the U.S. is HIGHLY ignorant of the situation. We are in a global economy, for better or for worse, and as such, we have to look at the future of our economics in that light. The corporations have offshored for cheap labor and no regulations. I don't think saving a few bucks on their taxes is going to bring them back. But hey, I've been wrong about things before.

Paul, we are in a global economy. So having the second highest corporate income tax rates is just suicide. Just stupid. Just class envy politics.

I am not voting for McSame, but his idea to cut capital gains taxes and corporate income tax rates, would have a huge effect on our economy. Even a small percentage advantage would help keep some businesses and therefore jobs here. Nobama's plan to increase taxes will also have a huge impact, the wrong kind I fear.

[Hawk]

First of all the analogy is dumb because that would never happen. However, to play along with the joke, I will attempt to make sense out of it for you.

What a joke. Let us deal in reality. The cost to run the country will not go down. Ever. [If undercoverjoe jumps in and says it would under Libertarian rule - well, again, let us deal with the real world, not fantasyland.]

So the cost of beer goes UP (like the REAL world).

The bar owner insists on the tenth man paying less. The bar owner cuts his bill by $10.00 The tenth man says, "Yes !, cut, how much I have to pay !"

Now after eight years they realize they owe the bar owner $4,160.00 ! Plus another $500 for inflation. They ran a deficit of $4,660.00 !

Now McCain and Obama come into the bar. They are asked, "How would you solve this problem?"

McCain - I think it is fundamentally sound the way it is.

Obama - I think we should reinstate $10 back to the tenth man. And the ninth man, we'll raise his by 3%.

WE have a deficit. It needs to be covered somehow.

floodcitybrass,

Would you mind going back to that site where you found the story and post my rebuttal ?

Obviously, the economics professor only teaches. Those who can - do. Those who can't - teach.

[bassist_25]

Those who can - do. Those who can't - teach.

Totally disagree.

Paul, we are in a global economy. So having the second highest corporate income tax rates is just suicide. Just stupid. Just class envy politics.

I am not voting for McSame, but his idea to cut capital gains taxes and corporate income tax rates, would have a huge effect on our economy. Even a small percentage advantage would help keep some businesses and therefore jobs here. Nobama's plan to increase taxes will also have a huge impact, the wrong kind I fear.

Again, I'm all for tax breaks to help small businesses survive. As musicians, we survive due to small businesses (that's what clubs are). Still, the large corporation issue goes far deeper than tax laws.

[Hawk]

Those who can - do. Those who can't - teach.

Totally disagree.

Paul, we are in a global economy. So having the second highest corporate income tax rates is just suicide. Just stupid. Just class envy politics.

I am not voting for McSame, but his idea to cut capital gains taxes and corporate income tax rates, would have a huge effect on our economy. Even a small percentage advantage would help keep some businesses and therefore jobs here. Nobama's plan to increase taxes will also have a huge impact, the wrong kind I fear.

Again, I'm all for tax breaks to help small businesses survive. As musicians, we survive due to small businesses (that's what clubs are). Still, the large corporation issue goes far deeper than tax laws.

"Those who can't - teach." Paul, that's an old line I heard years ago. It was mearly meant as a tongue in cheek bust of the guy who wrote the silly analogy.

[bassist_25]

I can dig it, Bill. It's just that there are some people out there who truly believe that teachers, professors, and other types of instructors are just people who failed in the real world.

[floodcitybrass]

floodcitybrass,

Would you mind going back to that site where you found the story and post my rebuttal ?

No, do it yourself.

Obviously, the economics professor only teaches. Those who can - do. Those who can't - teach.

Off topic: I teach computer science so obviously I do not agree with your silly cliches. The cool thing is I never bring politics into the classroom. I hate when my fellow professors do that. I think its unethical.

Enjoy the election guys. I can't wait till it's over. I couldn't resist posting that thing though.

[Hawk]

You never said where you found it.

And I respect teachers. Just not the fool who wrote the silly analogy.

[JackANSI]

I can dig it, Bill. It's just that there are some people out there who truly believe that teachers, professors, and other types of instructors are just people who failed in the real world.

They only fail when they think that because they are teachers, they can stop learning. Which I believe is happening far too often now days...

[lonewolf]

I am laughing my ass off at all the people who think that raising tax rates on the 10th man is going to result in him paying more taxes.

Investing behavior WILL change and total revenues from the 10th man will drop, not increase.

At all levels, the government still needs the 10th man's money, though. Instead of paying more tax revenues, the 10th man will loan the government money at very high, tax-free interest rates.

Guess who will be stuck holding the interest bag?