Recently, I received the following e-mail with the headline: Subject: Economics 101 Not a joke!!!!!
Although it supposedly was written by a Ph.D economist, there's still a part of me that thinks it may be a joke... or the result of over-consumption of really bad beer. Here's the article. (My comments, before my real comments after this story, will be in italics, although that's probably not necessary.)
Bar Stool Economics
Suppose that every day, ten men go out for beer and the bill for all ten comes to $100.
Now you've got to ask what group of ten men would go out every single day — not night, mind you — for beer? I could understand if was in the evening for Jameson Irish Whiskey, but not beer. So I did some research, and I think I've come up with a representative sample. Check out pic at right.
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.
As you can tell from this candid photo secretly taken while they were enjoying their daily consumption of grain and malt. The message, I suppose, is "ain't the free market, aided by a dose of socialism, grand."
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.
Article comments
1 - Baronius
”why the hell am I wasting your time and mine on a rebuttal?”
I wish you hadn’t. This article is nowhere near up to your usual quality. I attempted to write a point-by-point response to it, but I couldn't make sense out of your second point, your third point contradicts your fifth point, and your fourth point amounts to "nuh-uh".
So let me make a point-by-point response to your first point. Kamerschen was making an analogy. That's why he writes about consumption instead of earnings. By casting the example in terms of consumption, he made his argument so simple that anyone should have been able to see his point.
2 - Mark Schannon
Baronius, oh well, perhaps a rush to publish?
However, an analogy only works to educate if it's relevant to the issue. His analogy is a joke. Because it doesn't create a real picture of taxation, it's of no value in helping people understand it.
As to the other issues, we'll just have to agree to disagree on trickle down economics. As to points 3 & 5, I probably should have explained 5 better, but I don't think they're contradictory.
Oh well...just trying to have fun...
In Jameson Veritas
3 - Dr Dreadful
According to Snopes, Kamerschen denies writing the allegory, and so does everyone else it's been attributed to. It appears to have originated as a letter to the editor of the Chicago Tribune.
Just thought you might like to know.
4 - Dr Dreadful
And Mark and Baronius, I think you'll both enjoy reading this deliciously cynical, though rather long, rebuttal of the beer-drinkers story.
5 - bliffle
The article DOES successfully illustrate why one is ill-advised to attempt analogic inference. For one thing, it's hard to prove that the analog fits. Better to just argue the merits of the original case.
Anyhow, analogies are all just debating tricks. No one attempts an analogy unless he knows it'll support his case.
6 - Dave Nalle
His analogy is a joke. Because it doesn't create a real picture of taxation
It's not supposed to create an accurate picture of taxation. It presents an accurate picture of the attitudes which allow a rapacious system of wealth redistribution to masquerade as taxation.
As for the supposition that the rich man in the analogy would never actually go away, in fact that is exactly what could happen. I point you to the example of pre-Thatcher Britain where many of the wealthiest people in the nation expatriated specifically because of excessive taxation, taking the bulk of the tax base out of the country with disastrous results.
Dave
7 - Mark Schannon
Doc, well, it's a good think i was careful in my intro to question whether the good Prof actually wrote it. Phew. I hate nasty lawsuits.
And you're right, your other link is verrry long, but also very funny.
Bliffle, I disagree about analogies. They can be very valuable tools, particularly in rephrasing an issue so one can examine it from other perspectives. The challenge, of course, is to make sure the analogy holds up, which this one doesn't.
And David, sir, you simply echo my point that excesses can occur, and I cite European countries, but that hasn't been an issue in the U.S. American countries are not shipping manufacturing & jobs overseas because of taxation but because of lower labor costs.
Point, set, match, and...of course...
In Jameson Veritas
8 - Fluidly Unsure
Funny, when I read about the wealthy "start drinking overseas where the atmosphere is somewhat friendlier" I thought of overseas tax shelters.
BTW: you are right about jobs going overseas because of labor costs. I mention that every time the issue of labor unions comes up.