An Economist, a Conservative and a Rabbi Walk Into a Bar…

Something about my comings and goings online provide me with excellent posts, when actually sitting down to write the post itself is an absolute struggle… Oh well!  Either way I find myself in another “conversation” that generally consists of extremes.  To be fair, I think I noticed extremes from both popular political schools of thought, so at least it was even.  I really don’t know what drives people to be actively dismissing or actively labeling, but I will always hold constant that the action of either two, instantly discredits the content of the comment.  Basically, if you can’t take yourself or the situation seriously, how do you ever expect any else to take you seriously?
That being said, enjoy some more excerpts!  The Italicized block was the posting, following that is my response. Hope you’re wearing your reading glasses!  Thanks for reading, if you do.  I sincerely appreciate all open discussion, however lacking as reflected in the lack of popularity in my post.  Somehow I feel like inability to slander has something to do with that…

OUR TAX SYSTEM EXPLAINED IN BEER:

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 one day, the owner threw them a curve ball. “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 men would 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 a higher percentage.

They decided to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay.

And so the fifth man, like the first four, now paid nothing (100% saving).
The sixth now paid $2 instead of $3 (33% saving).
The seventh now paid $5 instead of $7 (28% saving).
The eighth now paid $9 instead of $12 (25% saving).
The ninth now paid $14 instead of $18 (22% saving).
The tenth now paid $49 instead of $59 (16% saving).

Each of the six was better off than before. And the first four continued to drink for free. But, once outside the bar, the men began to compare their savings.

“I only got a dollar out of the $20 saving,” 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 benefit than me!”.
“That’s true!” shouted the seventh man. “Why should he get $10 back, when I got only $2? The wealthy get all the breaks!”.
“Wait a minute,” yelled the first four men in unison, “we didn’t get anything at all. This new 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 their 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 government ministers, is how our tax system works. The people who already pay the highest taxes will naturally 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.

Interestingly worded is all. Having a solid background in economics, the theory is sound, but the assumptions are biased. As in economic theory, the devil is in the assumption. Assuming a consistent incentive, with the incentive being to enjoy the drink and the negative incentive of taxes. Also assumed, an over-simplified tax-code and a consistent sum of beer.

Variables not defined in this system: Operating costs.

Allow me an addendum to the theory.

As the bartender decided to continue to give price breaks to the whole, operating costs in general increased at the percentage to which he inclined to give.

Assuming 30% profit per drink, the 20% reduction in net revenue would account for 2% reduction in per drink profit. At least I’m fairly sure on that. At 28% profit per drink, every fifth beer would account for an overall reduction of 10% of profit, allowing all parties in this equation to have a beer, that equates to a 20% reduction in overall profit. Every night, this continues to be an overall reduction in profit of 20%

Notwithstanding, weather related occurrences, such as an extreme drought, cause operating costs to increase 5% Additionally, economic depression has driven up the delivery costs as the company tasked to transport the beer had to make the decision to lay off a driver, or increase delivery costs to account for an overall decrease in demand for beer. This has also added an additionally 5% in operating cost. Due to factors outside of ownership control, operating cost has increased 10% , and they are unable to pass the increase in cost to the consumers who retain previous demand for the product. Overall net profit now stands at 19%

Factor in the tenth drinker who had decided to leave to have beers offshore, or rather, who could afford to decide to have beers offshore (as the theory of mobile labor really only applies to the labor that can afford to be mobile, and the idea of immobile capital being help constant ceteris paribus, allowing the consumer the ability to seek locations with more favorable rates for consumption), and you now have nine drinkers, higher operating costs, and an overall reduction in profit as these nine drinkers can no longer afford to pay the tab, as the sum of beer must stay consistent. Of note, at this point not one person, the owner or the consumers, thought it logical to just drink less beer.

The owner is now forced with options, close shop as profit no longer exists, appeal to the tenth man by offering partial ownership in the bar, appeal to the nine men who have the ability to return to splitting the tab nine ways, or foot the bill and accept a loss of profit.

Unlike the previous story, in the real world, the tenth man was appealed to. The owner said, I’ll allow you to continue to purchase beer overseas AND offer you ownership in the bar to help me offset the cost. The tenth man, remembering how the others beat him up, decided that he was no longer going to offer beer to those who couldn’t afford it, never mind the negative social incentive to do so. The tenth man decided to offer the cost nine ways equally. For those of you at home keeping tab, that’s 11.1%

Consumers 1-4 decided that they would rather enjoy food, so they stopped purchasing beer., as they could only assume less than one to 10% of the cost of beer. Consumers 5-9 were able to continue drinking beer, but only at static cost, any movement in the economy, that wasn’t in the best interest of the consumer, immediately shifted consumer 5 out as consumer 5 was able to consume 12% of the cost. During lean times, consumers 6-9 were the only ones left in the bar. As the current owner, and the tenth consumer, were now only realizing 33.3% of the cost was being covered, They decided that they had to close shop, as the business was no longer viable.

This is the actual reality, or a close approximation to it. Attempting to teach college age children, elementary economics consistently misses the point. As is a dissertation on tax code, reduced to a comparison of beer drinkers, even if it is by a well respected economist. While I agree that the overall tax code is a joke, and that increasing rates on those who provide the most is bad math, the concluding assumptions of the story, and where I see this going are entirely different. Basically, by asking those who already pay a higher burden to increase that burden, at which point do they ask for what they are paying for. Basically, it’s not the rate of the tax, but the overall burden of it.

People need to wise up. This is going on now with things like Citizens United, or overall Koch influenced candidates. Hell, even the sitting president owes his office to the dollars supporting it. Look at the rapid increase in overall election spending, including overall media buys, and its fairly plain to see. Joe, before you say it, this is also going in the blog…haha. But it is an issue that’s larger than the current sitting parties, and cute stories about oversimplified tax codes. Sorry for the economic theory, it’s assumed that I am a huge dork. hahaha

Inability to understand economic reasoning has brought both parties to the insane proposals with which we face ourselves today. Commenting on fiscal and monetary policy, without actually understanding fiscal or monetary policy is like calling for Galileos excommunication from the church, without actually understanding the laws of physics.

It’s like stating half of the country doesn’t pay any income taxes, actively dismissing payroll tax. That’s complete disregard for fiscal policy. Roughly 18 percent of the population doesn’t pay income or payroll tax, because they either don’t have a job, or aren’t able to find one. You can’t protect social security, then complain that someone doesn’t pay taxes on it. You can’t ask for your servicemen to sacrifice everything, then complain that they don’t pay taxes on their pension. The people you are actively defending, are the people that you actively attack.

I have no political bias, I just seek to inform. I pay attention to too many political feeds to not want to reach out and inform both sides of the electorate. It is startling how little of substance is pushed by both sides of the argument. Point in case, independent thought, filled with scientific background, was just actively dismissed, because it was either too long for someone to read, or did not fit into their preferred narrative. There was nothing esoteric about it, I studied under free market economists, and they are more than just professors. They give up their free time to educate.

Not all who make money are crooks, just like not all people who receive subsidy suckle on a teet. It just so happens that some rich people are crooks, and some people who receive subsidy suckle on a teet. Broad, sweeping generalizations about the economy, or the drivers of the economy, are ruining this country, and its economic system. You won’t hear me bad mouth any of you, because in the end, what good does that bring? Its this active dismissal of people who may actually be able to enhance the conversation that is second only to the sweeping generalizations. Read my original post in full, you’ll see that I am against the current progressive tax code, but I imagine that, like this post, you won’t take the time to make it there. Still, I love this haha

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One response to “An Economist, a Conservative and a Rabbi Walk Into a Bar…

  1. Inability to understand economic reasoning has brought both parties to the insane proposals with which we face ourselves today. Commenting on fiscal and monetary policy, without actually understanding fiscal or monetary policy is like calling for Galileos excommunication from the church, without actually understanding the laws of physics.

    It’s like stating half of the country doesn’t pay any income taxes, actively dismissing payroll tax. That’s complete disregard for fiscal policy. Roughly 18 percent of the population doesn’t pay income or payroll tax, because they either don’t have a job, or aren’t able to find one. You can’t protect social security, then complain that someone doesn’t pay taxes on it. You can’t ask for your servicemen to sacrifice everything, then complain that they don’t pay taxes on their pension. The people you are actively defending, are the people that you actively attack.

    I have no political bias, I just seek to inform. I pay attention to too many political feeds to not want to reach out and inform both sides of the electorate. It is startling how little of substance is pushed by both sides of the argument. Point in case, independent thought, filled with scientific background, was just actively dismissed, because it was either too long for someone to read, or did not fit into their preferred narrative. There was nothing esoteric about it, I studied under free market economists, and they are more than just professors. They give up their free time to educate.

    Not all who make money are crooks, just like not all people who receive subsidy suckle on a teet. It just so happens that some rich people are crooks, and some people who receive subsidy suckle on a teet. Broad, sweeping generalizations about the economy, or the drivers of the economy, are ruining this country, and its economic system. You won’t hear me bad mouth any of you, because in the end, what good does that bring? Its this active dismissal of people who may actually be able to enhance the conversation that is second only to the sweeping generalizations. Read my original post in full, you’ll see that I am against the current progressive tax code, but I imagine that, like this post, you won’t take the time to make it there. Still, I love this haha

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