Bar Stool Econ 101
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  1. #1
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    Bar Stool Econ 101

    I'm sure some of you have seen this, as I have a few years ago but if everything was explained in a setting involving beer the world would be a better place.


    <DIV style="FONT-SIZE: 12pt; MARGIN: 0in 0in 0pt; FONT-FAMILY: 'Times New Roman'">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. He said, "Since you are all such good customers, I'm going to reduce the daily cost of your beer by $20. Drinks for the ten of you now will only 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 $50 instead of $59 (15% 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 $9!" "Yeah, that's right,' exclaimed the fifth man. "I only saved a dollar, too. It's unfair that he got nine times more than I!" "That's true!!" shouted the seventh man. "Why should he get $9 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. 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 among 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 any more. 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,


    "It is the nature of man to rise to greatness if greatness is expected of him."
    John Steinbeck

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    Re: Bar Stool Econ 101

    I just heard that the DNC has condemned the bartender for not doing enough for the ones drinking free beer - It's not enough that poor folks get a free ride in the US; evidently, they need to see the wealthy punished more....



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    Re: Bar Stool Econ 101

    Actually, the DNC is condemning the bartender because of the $20 price break. Instead, the bartender should have raised the price of the beer to $120, had the rich guy pay the entire new sum, and then give free peanuts and pretzels to the guys already paying nothing for the beer...


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    Re: Bar Stool Econ 101

    Quote Originally Posted by Phaedrus View Post
    I just heard that the DNC has condemned the bartender for not doing enough for the ones drinking free beer - It's not enough that poor folks get a free ride in the US; evidently, they need to see the wealthy punished more....
    Yeah, it must be great to be poor.

    Shouldn't this be in the Politics cave?



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    Re: Bar Stool Econ 101

    I could have saved thousands of dollars on my education if someone would have taught me this before I arrived in Ames.



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    Re: Bar Stool Econ 101

    Politics aside, its kinda funny

    I just wish I didn't need assistance from a professional to figure out my beer tab...


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    Re: Bar Stool Econ 101

    This is very funny, and very sad at the same time. I guess the truth hurts! Now where is my free peanuts and beer?


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    Re: Bar Stool Econ 101

    Quote Originally Posted by brianhos View Post
    This is very funny, and very sad at the same time. I guess the truth hurts! Now where is my free peanuts and beer?
    You make too much money - those are political freebies for the "middle class"


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    Re: Bar Stool Econ 101

    I have seen this explained other ways as well. And I think there is alot of truth to it.



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    Re: Bar Stool Econ 101

    I heard they were going to pay "beer rebates" to incent the group to buy more. But when the program was announced that only those who actually paid for the beer would get the rebates there was an uproar because it was unfair to the other five. So to be "fair" to everyone all 10 would get the "rebate".


    Last edited by hort4cy; 02-06-2008 at 11:41 AM.

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    Re: Bar Stool Econ 101

    Quote Originally Posted by hort4cy View Post
    I heard they were going to pay "beer rebates" to incent the group to buy more. But when the program was announced that only those you actually paid for the beer would get the rebates there was an uproar because it was unfair to the other five. So to be "fair" to everyone all 10 would get the "rebate".
    Yeah but the people paying the most for the beer will not get anything but a larger bill.


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    Re: Bar Stool Econ 101

    What happens if one of the beer drinking men isn't legally old enough to drink ?

    Does he still get his 'rebate' ?



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    Re: Bar Stool Econ 101

    What about the people that sneak into the bar, shouldn't they be entitled to a free round on the rich guy?



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    Re: Bar Stool Econ 101

    Funny I work for a very, very wealthy man. He sent this to me, but in truth the rich man on the end finds a way to form a corporation in order to right off the expense of the beer so that he never pays taxes on it.


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    Re: Bar Stool Econ 101

    I agree that this is funny but it isn't really accurate at all. To say that the poorest amongst us don't pay any taxes is completely erroneous. In fact, even though they pay a less total, they pay a higher percentage of their income. We pay taxes on more then just our income. The poor still have to pay sales tax, retail tax, gas tax, property tax, et cetera just as the rich do.


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