Monday, March 03, 2008

The Classic Example Of Barstool Economics

The Tampa Tribune
Published: February 18, 2008

Suppose that every day, 10 men go out for beer and the bill for all 10 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 10 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 percent savings).
The sixth now paid $2 instead of $3 (33 percent savings).
The seventh now pay $5 instead of $7 (28 percent savings).
The eighth now paid $9 instead of $12 (25 percent savings).
The ninth now paid $14 instead of $18 (22 percent savings).
The tenth now paid $49 instead of $59 (16 percent 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 10 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 those who understand, no explanation is needed. For those who do not understand, no explanation is possible.

2 comments:

ultraguy said...

Ayn Rand could have saved herself 1100+ pages of Atlas Shrugged with this post! And then think how many trees that would have saved if it never had been printed... and how much better off we'd be with all that carbon sequestered in forests!! ;-)

Halfwise said...

Well, as long as we can sequester carbon, we can be sure that we are addressing the most important thing.

Ooops, my sardonic side just got the better of me there.

It occurs to me that because there are 7 deadly sins, that there is probably a political strategy associated with each of them. You know, the politics of envy, the politics of anger, the politics of pride etc etc. I should mull that over. Even sloth and gluttony have their political advocates these days.