Some of my ideas for a new form of Government ( Archived) (88)

Bar Stool Economics
(by David R. Kamerschen, Ph.D.
Professor of Economics, University of Georgia)


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

I don't see how it's possible for "everyone to work for the government" and "encourage free enterprise and private ownership of business" at the same time.

Sharp observation. The Soviet Union tried to control everything right down to who did what and how they did it. This was doomed to fail because they took away the decision making power from leaders of industry, and ran everything by bureaucrats in the Kremlin leaving the experts with nothing to do but watch the appointees from Moscow run everything into the ground.
Who knows better how to bake a loaf of bread, a baker or a politician? Who knows better how to manufacture a car, General Motors or Joe Biden?
My idea is to keep corporations intact except the profits go to the Gov and the Gov administars payroll. People can still strive to move up the ladder and even switch co's freely. Corp CEO's etc wont be making 100's of millions of dollars for doing a crappy job though. An example is Bob Nardelli resigning from Home Depot after doing a really lousy job with $210 million golden parachute. In my system he would have been given an orange apron and be put in the lumber dept selling 2X4's. Or Bank of America execs getting multi million dollar bonuses for nearly going bankrupt.
It would be more of a partnership between corporations & the Gov.

OK, but what motivates people to be productive if the profits go to the government? I've yet to see a Bureau of Motor Vehicles clerk or supervisor that was a ball of fire.

There are creative ways to divest of money before turning room temperature that don't involve going off shore.