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.
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.
Luckily, they were outside to do their dirty work so as to not offend the bartender, who after all, was simply trying to promote more drinking. What ingrates! Really, I mean, they really must have been goofballs to whack the goose who was laying golden ales… I mean eggs.
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.
End of Screed
I was asked if I could come up with a different way of looking at this rather dull story. I mean, the characters are two-dimensional, the tension is poorly built, and the dialogue is pedestrian. But that's not why I, a renowned student of economic confusion and duplicity, was consulted. Someone obviously wondered if the good professor was right.
My first reaction was cool, considered, and rational: Are you out of your fucking mind? Where did this drivel come from? Why did I read it? And why the hell am I wasting your time and mine on a rebuttal? Well, I've nothing better to do.
So… let us consider Professor Kamerschen's attempt to convince us to be careful about imposing taxes on that most burdened of classes in America, the wealthy. Quite simply, this is garbage economic reasoning, the typical conservative whine to save the unfortunate wealthy who will refuse to work unless their taxes are lowered.
Let us examine the flaws in his argument, even though he claims that there cannot be flaws, and that those who challenge him lack understanding. That may be true, but I've never let that stop me in the past.
First of all, the analogy is simplistic and flawed. Let's face it, with 300 million or so people in the U.S, it would take one humongous bar to fit all of us in, so the kind of interaction described couldn’t take place. But more importantly, the analogy is a story of consumption rather than income. In the analogy, it’s perfectly reasonable for the rich guy to leave when they beat him up, but that says nothing about the real world. The tax structure in the U.S. isn't about consumption — it’s about income. People don't sit around a table sharing wealth — the government kindly does that for us — so the analogy doesn’t even apply to the real world. The poor and the rich rarely cross paths, except when the former clean the houses, pools, cars, and clothes of the latter.
Second, there is an underlying conservative message there which should be addressed. Yes, there’s always howling about how tax cuts give more money to the rich on a percentage basis, it’s all political pandering. Everyone understands how it works. A few minutes of fame for a member of Congress or an activist group on MSNBC does not a threat to the wealthy make.
Third, a graduated income tax has been a part of the American system for 70 years or more, and in the past, the wealthy paid a much higher percentage of their incomes as taxes yet still seemed to continue working and accumulating more wealth. The idea that if you tax me too much, I’ll quit working or investing in my business is downright stupid. Even at higher tax rates, the rich make a helluva lot more money than the rest of us and if they stopped investing or working, they would simply cut off their income … duh! Yeah, I'm not going to buy a new house because my taxes are too high.
It was clear back in the horrible Clinton years, when taxes were higher on the wealthy, that many people gave up their symbols of wealth. Notice how these society dames have searched the racks of Target to at least create the illusion of wealth.
Fourth, the Republicrats for years have said that if you lower tax rates on the rich, the resulting increase in wealth would trickle down to the rest. That’s the heart of Reaganomics, and it’s resulted in the greatest disparity of wealth the in the U.S. we've ever seen.
Finally, yes, there is a point of diminishing returns as many European countries have discovered, but Obama’s plan to simply restore tax rates to the Clinton era doesn’t even come close to that. Further, it looks like he’s planning to hold off on that for a year or two while the economy recovers — if it recovers.
I can’t believe this guy is an economics professor. Well, I guess I can given what I know about economics and economists.
As for me, being a former member of the privileged class by virture of reading privileged-class magazines, I'm not at all worried about higher taxes. I've already got my new car picked out. It's modest but sends the right signal: Taxes be damned. I've got mine and only a complete meltdown of the world financial system can take it away!
And, as many of you already know, my truth comes from a higher source.
In Jameson Veritas
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