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Barstool Economics - A Viral Conservative Fable

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There is a story by and anonymous author that is circulating among my conservative friends. It is one of many that poke fun at the notion that the rich should pay more of their income for the common good than the poor. It purports to illustrate the injustice of the progressive tax.

Barstool Economics

Suppose that every day, ten men go out for beer and the bill for all ten
comes to $100 and 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." So 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 who was now paying nothing,
along with the first four. "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 five 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.

The metaphor fails because it ignores basic elements of what makes our American version of capitalism work:

1.        The American capitalist ideal is not equal income nor equal wealth, nor is it "from each according to his ability, to each according to his need.'  The American Dream is equality of economic opportunity .  Income inequality, regardless of economic system produces opportunity inequality. (click here) The American ideal is to provide the foundation of opportunity: education and discretionary income at all levels. The wider the divide between rich and poor, the less such opportunity exists. 

2.        Our economic prosperity depends on complementary elements that form a system. Since we are a consumer economy, we need a large base of people with disposable discretionary income. We need them in bad times and good times. The consumer economy also requires an educated literate workforce. We also need a wage structure that elevates unskilled and stoop labor to more than a marginal survival subsistence living.  In other words the rich entrepreneur takes the financial risks and creates the jobs that produce the goods, the "poor" man (woman) sells his talent and time and buys what the economy produces and the system thrives. Things go wrong when the opportunity gap widens, and when the rich man shifts his risk to the poor man. (click here)

3.        A progressive tax structure helps ensure that those who have a finite number of hours to sell prosper, and those who leverage that labor to acquire wealth have the infrastructure and social system that protects and nurtures that wealth. It is a cycle, if properly balanced all prosper, with the incentive that some become rich because of their entrepreneurship.

The barroom economics fable isn't such a system. The characters are not part of an economic cycle; they are assigned their ability to pay as a given. It's not even a capitalist system (each gets all he wants to drink irrespective of ability to pay.)   Also, in today's America, the group would never actually pay the full tab, the daily deficit would increase the amount they owe the bar tender until he refuses to serve them. The arrival of the 20% discount just gives rise to a questioning of the fairness of income gap and results in a brawl.  Sounds more like the collapse of a fascist system to me.

So, my conservative friends, what's the point? We should cut the percent the rich guy pays, drink less and have the poor guys pay a bigger share of the tab? Did you notice that the "overseas" places that seem friendler to the rich guy all have less of an income gap, better and cheaper healthcare, longer life expectancy, and less infant mortality?  Exactly what IS your point, my conservative friends?

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Richmond Shreve is a retired business executive whose careers began in electronics (USN) and broadcasting in the 1960s. Over the years he has maintained a hobby interest in amateur radio, and the audio-visual arts while working in sales and (more...)

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