Econ101 – Barstool Economics / and Obama wants more from #10
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. ‘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 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.
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.
hahahah… that explains taxation and tax rebate succinctly! I understand it better now. Thanks alot Lily!
hahahah…those who believe have been fooled.
Haven’t you heard that the only sure thing in life are taxes and death.
The tenth man had got to show up.
Unless he gives up his citizenship.
But of course if that happens, the bar owner will serve them portions for 9 people and the whole payment system will have to be restructured.
Quite likely, the bar owner agrees to accept part payment and the balance as debts to be paid in the futire or by future generations.
This is what happens in the US….and explains the overconsumption habit and the credit card crisis.
Roger
Hi Lily,
Haha, if the rich man thinks he can go to another country to avoid taxes, well, he really has no where to go, as the other green pastures will tax him more….. where high taxes gets exploited by in many ways. Cheers.
haha. echo jacqueline. now i understand it better. :)
Roger – you very “chim”.
Celia – absolutely right. Singapore has one of the lowest tax in the world. The “rich man” has to pay higher tax elsewhere…
Andrew and I enjoyed the “barstool economics” for what it is. Simple and straightforward analogy. Also good for a laugh. Andrew – Just common sense right? If u are the tenth man paying the “most”, and yet you get beaten up by the other nine men, u wouldn’t want to turn up at the bar again, right? hahhahah.
The barstool economics attempt to emulate the income tax system of the USA (or most of the 1st world countries for that matter). The innuendo have been succintly analogized to payment for beer. The beer can be replaced. For those who understand, no further explanation is needed.
May I know who is paying for the $1 since the following equation does not add up to $80 ?
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).
Alamak.. u forgot the last part, yah? it says: for those who do not understand no explanation is possible!
Hahaha……..this is cute.
The 10th man disappears and that left nine.
The 9th man refuses to pay the most and he disappear.
The 8th realizes he now has to pay the most and disappear.
The 7th follows the 8th and disappear.
The 6th can’t afford to pay the most and disappear.
That left 5 who paid nothing.
Hahahah.
We missed the title “Barstool Economics” and the author’s title “Ph.D” (some people say its Permanent Head Damage).
Finally, we ended with quotes from the last 2 sentences:
For those who understand, no explanation is needed.
For those who do not understand, no explanation is possible.
Very cheem hoh.
Great beer talk.
Here’s my contribution of last 2 sentences:
A little and it sobers you up.
Too much and it knocks you out.
Cheers, Kan Pei, Yam Seng.
Roger
THANKS Lily for that short but sharp lesson on econ.
Indeed politics of envy can be dangerous. This is what is always happening in some neighbouring countries. They kill the goose (or geese) that lay the golden eggs and henceforth everybody eats grass, if any.
Roger #9 – sounds like you are talking about Iceland.
Beer + Ice = Yum Seng
YES…we have to pay tax everywhere. But the difference is whether you get beaten up in addition to paying tax.
I think we can associate better with the scenario if we assume the 10th man is a non-citizen, who runs a big business there and the rest are local workers.
Dear All
Along with Lily’s Barstool Economics, here is an attempt at understanding Wall Street being simplified:
WALL STREET
If you have difficulty understanding the current world financial situation, the following should help…
Once upon a time in a village in Timbaktu, a man announced to the villagers that he would buy monkeys for $10.
The villagers seeing there were many monkeys around, went out to the forest and started catching them.
The man bought thousands of monkeys from the villagers at $10, but, as the supply started to diminished, the villagers stopped their efforts.
The man further announced that he would now buy each monkey at $20. This renewed the efforts of the villagers and they started catching monkeys again.
Soon the supply diminished even further and people started going back to their farms.
The offer rate increased to $25 and the supply of monkeys became so little that it was an effort to even see a monkey, let alone catch it!
The man now announced that he would buy monkeys at $50! However, since he had to go to the city on some business, his assistant would now act as the buyer, on his behalf.
In the absence of the man, the assistant told the villagers:
“Look at all these monkeys in the big cage that the man has collected. I will sell them to you at $35 and when he returns from the city, you can sell them back to him for $50.”
The villagers squeezed together their savings and bought all the monkeys.
Then they never saw the man or his assistant again, only monkeys everywhere!
Welcome to
WALL STREET…
Kind regards.
Thank you Kia Chew, but you told only 99% of the story. In the omitted 1%, it was Lemon Brothers, among other banks, which financed the man’s monkey purchase. To feed and keep the monkeys alive while caged, digbeeass financed the purchase of bananas and peanuts.
Haha, not to forget the party came from Freddy and Manny.
Haha….. good contributions.
Last Halloween, anyone dressed up as Lemon Brothers? Very scary leh.