A Beer Allegory- Barstool economics

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skinfiddler

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(Achtung search Polizei- apologies if this has been posted somewhere. If so, my feeble skills did not turn it up.)

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 on 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 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, boys and girls, 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.




David R. Kamerschen, Ph.D.

Professor of Economics


University of Georgia
 

Judd

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I would like to hear Dr. Kamerschen's bar stool analogy for a fair solution.
 

Donasay

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Little did the bartender realize that giving a discount to the group of drinkers would eventually cause him to not have enough money to make capital improvements to the bar, and cause the bar to eventually fall into disrepair. So now the bartender has to go into debt to keep the bar open, but instead of him borrowing money, the "bar" borrows the money. Because the "bar" owes the money and not the bartender, the bartender could care less about what happens to the bar when he dies. Thus the bartender has screwed over his children who will inherit the bar, these children will in turn be forced to raise the price of beer or start serving 10oz beers so the bar won't go under. Once the children start charging more the 10th guy who now has to pay proportionally more by the same logic that previously had to pay proportionally less will leave, leaving the other drinkers unable to drink. Eventually due to bad credit, the bar won't be able to get any additional loans and will go out of business. The bar tenders children sit there in ruins continually cursing the long gone bar tender saying why did you give everyone that discount and then borrow all that money!
 

Donasay

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blacklab said:
Fair? Where does that exist?
Fair means different things to different people:

To some people it is fair for each individual to pay for what they use, and those unable to pay get no beer and are forced to languish in the gutter.

To some people it is considered fair that everyone drinking is employed by the bar, the bar doesn't pay them, but they all get to drink a little bit of beer for free. This way no-body is left out in the gutter.
 

rdwj

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Donasay said:
Little did the bartender realize that giving a discount to the group of drinkers would eventually cause him to not have enough money to make capital improvements to the bar, and cause the bar to eventually fall into disrepair. So now the bartender has to go into debt to keep the bar open, but instead of him borrowing money, the "bar" borrows the money. Because the "bar" owes the money and not the bartender, the bartender could care less about what happens to the bar when he dies. Thus the bartender has screwed over his children who will inherit the bar, these children will in turn be forced to raise the price of beer or start serving 10oz beers so the bar won't go under. Once the children start charging more the 10th guy who now has to pay proportionally more by the same logic that previously had to pay proportionally less will leave, leaving the other drinkers unable to drink. Eventually due to bad credit, the bar won't be able to get any additional loans and will go out of business. The bar tenders children sit there in ruins continually cursing the long gone bar tender saying why did you give everyone that discount and then borrow all that money!
Yes, they blamed the bartender, but didn't see the forset for the trees. Beer sales were plenty to keep the bar open and prosperous, but the 10 juke boxes, golden toilet seats, and the countless barmaids on the bar payrol made the revenues dry up. Instead of blaming the bartender, the kids should have stopped ALL the unnecessary spending instead of blaming the guy that was looking out for those that mattered most - the customers!
 

david_42

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"fair tax" What a lovely concept. Very Paul. Very undefined. Flat tax, consumption tax, VAT, eliminate deductions for dependents, mortgages? They all shift the tax burden to the poor and/or middle class.
 
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skinfiddler

skinfiddler

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david_42 said:
"fair tax" What a lovely concept. Very Paul. Very undefined. Flat tax, consumption tax, VAT, eliminate deductions for dependents, mortgages? They all shift the tax burden to the poor and/or middle class.
This has nothing to do with the "Fair Tax" but as to your comment, the poor don't pay taxes anyway.
 

Donasay

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rdwj said:
Yes, they blamed the bartender, but didn't see the forset for the trees. Beer sales were plenty to keep the bar open and prosperous, but the 10 juke boxes, golden toilet seats, and the countless barmaids on the bar payrol made the revenues dry up. Instead of blaming the bartender, the kids should have stopped ALL the unnecessary spending instead of blaming the guy that was looking out for those that mattered most - the customers!
Had the children had a say in the matter, they would have put a stop to the bartender’s spending and stopped him from promising his customers certain things, but unfortunately they were too young to be around the bar when the bartender decided to set the place up.

The bartender’s children were forced to put in the 10 jukeboxes, one for each of the 10 customers; you see the bartender started a tradition where after 50 years of being a loyal customer a person would get their own free jukebox. So now that the 10 customers are all starting to hit their 50 year mark at the same time, the bar has to put in the extra jukeboxes as the loyal customers feel they are entitled to enjoy their own free music. Oddly enough the new customers at the bar, those who have just started drinking do not expect to receive a jukebox from the bar after being a patron for 50 years. The smart ones have set up special accounts where they save their own money to buy ipods some time in the future.

Unfortunately the bar is also stuck with the golden toilet seats, an artifact of a bygone era where the bartender got suckered into believing that the toilet seats would protect the patrons from some over hyped disease that is transmitted through toilet seats. Unfortunately the golden toilet seats do not protect the patrons in the least and just serve as something for the bartender to point at when the patrons start to feel ill. Additionally the bartender’s best friend makes the golden toilet seats, so the bartender uses his position to send business to his friend. Every time someone gets sick the bartender somehow justified spending more money on upgrading the un-needed golden toilet seats to protect the customers. Not having the golden toilet seats would be a great way for the bar to save a lot of money, purchasing golden toilet seats took up about half of the bars operating budget. A lot of the younger patrons wish the bartender would see this as the bar in question, spends more money on golden toilet seats than all of the other bars in town combined, and is not at all safer than most of the other bars.

Most of the waitresses spend their time hanging around doing nothing, and get paid a decent salary to do so, unfortunately years under the old bartender have allowed them to become an entrenched bureaucracy. Any attempt to get rid of the majority of them and make those who are left pick up their workload would be disastrous; causing an almost immediate work stoppage, nothing at all would get done. Additionally, If the waitresses didn’t have their jobs, they would just sit down at the end of the bar next on the cheap side of the guys who pay nothing, consume beer and increase the overall burden on the rich guy who pays the majority of the tab.
 

z987k

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I love these analogies. The OP is a republican view, and the Donasay posts are funny.

I think there's a problem with the first one.

I think this is closer to how it works:

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 man (the poorest) would pay nothing.

The second would pay $5.

The third would pay $8.

The fourth through the eighth would pay $10 each.

The Ninth man would pay $15

The tenth man (the richest) would pay $22.
And therefor while the richest man is paying the most.... the middle together is actually paying significantly more.
 

Donasay

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z987k said:
I love these analogies. The OP is a republican view, and the Donasay posts are funny.

I think there's a problem with the first one.

I think this is closer to how it works:



And therefor while the richest man is paying the most.... the middle together is actually paying significantly more.
The allegory actually works the way it is written, the reason they are able to make such a striking point is that each person represents 10 percent of the U.S. population. Thus the last guy represents all those people who are in the upper middle class making 100k + as well as the supermillionaires making 200 mil a year. One thing most people do not realize is that 90% of the U.S population makes less than 100k a year. A more realistic way to look at it is to break it out into 100 people. It would work then out that those in spots 40 (making less than 50k a year) to 97 (making about 300k a year) paid more together in aggregate than the top 3, but with only 10 people at a bar you can't have part of someone's left side paying one thing and their right side paying something less. This is one way that people can massage data to make a point, the way you group certain people together makes a big difference in the analysis and the implications of the analysis. The average income in this country is just over 50k meaning that half of the people make less (150 million people) and half of the people make more (150 million people). If you look at the standard deviation, the data is slightly skewed as it is theoretically impossible to make less than zero money, but some people with no jobs and access to easy credit still manage to do just that.
 

z987k

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Yeah, I just grabbed numbers out of mid air, but my point was the entire middle class (lower, middle and upper) pay way more than that top guy. The original situation didn't seem to show this well.
 
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skinfiddler

skinfiddler

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z987k said:
Yeah, I just grabbed numbers out of mid air, but my point was the entire middle class (lower, middle and upper) pay way more than that top guy. The original situation didn't seem to show this well.
In 2005 the top 5% of wage earners paid 59.67% of the federal tax bill. In 2005 the bottom 50% paid 3.07%

Yeah, I'd say they're really getting hosed.:D
 

RadicalEd

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Of course, the top 1% make something like 25% of the nation's total income, too, if I recall correctly. Those multi-billionaires tend to skew the system a bit :p. So perhaps they don't need that money so badly? I mean, what's a few hundred thousand when you're already making millions? How rich can you live?
 

Donasay

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See it all comes down to how you define the "Middle Class" if you do it by the artificial poverty line it ranges from 30k to 80k in which case the numbers change drastically, if you define it based on percentages of the population everyone in the top 10% makes roughly about 100k or more, but some people live in places where you need to make 100k to support a family and be considered middle class based on how members of your community look at you.

So I would like to ask people how much money they think someone needs to make to be considered right in the middle of the middle class and how far up you think the middle class extends? Is a doctor making 200k a year considered middle class? Is the guy making 25k considered middle class? How do you justify calling someone middle class and others not? It is a very tricky situation for policy makers and to say things like "the ritch get screwed" or "the middle class gets screwed" depends entierly on how you define these groups.

For example people put out all types of numbers, but every time someone quotes numbers look at where they group the people who make about 100k, if you consider them rich you are correct when you say "the rich get screwed" if you consider them middle class you are correct when you say "the middle class gets screwed."

In the end they are the people who pay the most in taxes, and make up most of the tax revenue, are those who pay payroll taxes. Anyone making between 100 and 300k is usually doing so by working, not through their investments. Taxes on investments are exceptionally low when compared to payroll taxes. This is why it is possible for someone who makes 300k by working for a living to pay more in taxes than someone who makes a couple million a year living off of investments.
 

bigjohnmilford

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Wow, this thread is giving me a headache. At the end of it all who cares. You're going to pay your taxes your going to go to work and when it's all said and done you're going to die. Don't sweat the small stuff and enjoy what you can while you can.
 

Orfy

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Yep, as long as you can make beer then you ain't doing bad.

Doesn't stop us moaning though.
You want to try living here.
Most expenses/costs have gone up by around 30% but the goverment are claiming inflation at <3% and say wage increases need to be below inflation.
 
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