Tuesday, November 30, 2010

Oldie but goodie....Capital Strike

You have likely seen this.

But I want to make sure you have ALL seen this...(Thanks to CG for the update)

Bar Stool Economics
Suppose every day, ten men go out for beer and the bill for all ten comes to $100 and 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." so 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 pay $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, ladies and gentlemen, 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.

For some reason, this little internet meme is usually attributed to Prof. David Kamerschen, at UGA. But he did NOT write it, and disavows either knowledge or opinion of the piece. So....there.


David said...

The proverbial 10th man.

Anonymous said...

Except the owner of the bar would never do this, because the cost of providing the beer has not gone down. Its gone up. And so by giving away more revenue he's putting himself in a deeper hole and driving down the road to bankruptcy.

Or maybe he does do this because there was a temporary surplus, but then later there was a big deficit so he had to raise the prices back to their old level. Only now the richest man cries bloody murder and pays off 4 of the poorest, dumbest men to cry with him because they're poor and dumb and convinced that somehow putting prices back to where they were just last week (and still much, much lower than they were long ago, when everyone STILL managed to get along just fine) will somehow upset the applecart. At the same time these 5 men piss and moan about ever growing bar tab even while continuing to hammer down brews and gobble down delicious fried bar snacks.

Also, beer tabs != public goods. Wars, infrastructure, etc are not the same as pints and wings shared among friends.

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.


Eric said...

There is more to the allegory that was left off. When the 9 realize there not enough money, in unison they say to the owner: "Put it on our son's tab," and continue drinking.