American Elephants


The Surprising Story of Bar Stool Economics by The Elephant's Child
November 12, 2008, 9:00 pm
Filed under: Humor, Politics | Tags: , ,


By David R. Kamerschen, Ph.D., Professor of Economics

(This came to me in an email, so it has probably been floating around the internet.  It is so good I couldn’t resist posting it, for I’m sure some of you have never seen it.)

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.

  • The fifth man, like the first four, now paid nothing. (100% savings)
  • The sixth man 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.


5 Comments so far
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Superb analogy.

If the rich people in America finally get fed up and move themselves and/or their money elsewhere, who is going to pay? I wonder.

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Comment by renaissanceguy

[…] whenever Congress votes to cut taxes?  The Elephant’s Child at American Elephants has posted a story that is a great analogy for helping confused people understand […]

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Pingback by Bar Stool Economics: Understanding Taxes in America « Significant Pursuit by Renaissance Guy

The story needs to be updated for Obamanomics, under which the men who paid nothing actually will get paid despite having contributed nothing to the bill.

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Comment by American Elephant

Great Posting. I had received this same thng in an email about a year ago, and posted it in another blogging network of mine. Some people got it, even some self-identified liberals. And yet, amazingly enough, others were just so steeped in liberal economic policy and focusing on the dollar amount benefit like the 9 other men, and just didn’t get it. Somedays people just leave me shaking my head in bewilderment. The death of common sense in some seems to have flourished.

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Comment by mike lovell

I love this story and placed it in a section of my blog called Political Parables (www.SickUpAndFed.com) You might want to be careful though about attributing the source to Dr. Kamerschen. He claims he did not write it. Check it out at Snopes.com. The original source is actually unknown.

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Comment by Demosthenes




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