Beerconomics

I stole this from a NSFW site, and so rather than link to that site I just cut and pasted it here.  It's an economics lesson that maybe some of you can relate to.  It was supposedly written by an economist from the University of Georgia.  I have no idea if the economist given credit for even exists, much less wrote it.  But regardless of it's origin it is a great analogy for our system and what the progressive tax system does to screw everyone.  ESPECIALLY the poor when the class warfare card is used.

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EXPLAINING OUR UNITED STATES TAXING SYSTEM WITH BEER

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 beers 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 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 $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 very 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 DO get the most benefit from a tax reduction. They also PAY more than the rest. 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!

BOO HOO!

There's an old saying, “There are three kinds of lies, lies, damn lies, and statistics.” With that in mind I just red the Yahoo News piece on how the gap between the rich and the poor is larger than ever. Well even though the article relies heavily on the that third type of lie let's assume that it is true. My question is; so what?

The reason for the difference between the rich and the poor income wise is habits. The rich have different habits when comes to money than the poor do. Dr. Stanley J. Thomas began studying the wealthy in 1979, and has written several books on how millionaires became and stay wealthy. The differences are both simple and profound. For instance:

• The wealthy don't actually use credit, they at least use cash, and are the ones extending credit. The poor take that credit and buy stuff they can't afford.
• The wealthy get up and go to work EVERYDAY. Or to paraphrase my uncle Lloyd, “They only work on days they eat.” And, they stay at that work until it is done or they are to exhausted to continue. Many of them will flat out state that's it's not a matter of how smart you work, or how lucky you are it's a matter of how hard and how much you work.
• The wealthy live within their means, their favorite brand of car is Ford, and they pay cash for them. The poor buy as much car as they can borrow for, and by the time they've paid it off it's worth the same $500 that the wealthy person's Ford is worth, but they paid retail plus plus plus.

And those are just the contrasts I can recall from having read The Millionaire Next Door several years ago. What is annoying to me is that our school system, and society, instead of teaching the kids to think like millionaires, is teaching them to despise the wealthy, and punish them. So instead of whining about the gap between the rich and the poor, why don't we study the rich, and start emulating them?

And, I do mean studying them formally. In the class room. Let's start teaching our children how to be wealthy. It's not like emulating someone's behavior is a radical idea. It's pretty much how everything is taught from basic math to sports. We show a kid how to do something, and then have the emulate us to do it themselves. So, let's teach them to emulate the rich, and watch them learn how to be rich.

After all they are the ones who have to care for us in our old age, and I'd rather be old and broke down in comfort, wouldn't you?

As to the gap they're talking about: Who knows what will happen to that gap? But, for darn sure emulating the rich won't result in more poor. And, isn't eradicating poverty a worthy goal?

BASIC ECONOMICS

For those of you who follow me on facebook this is a rerun. Sorry, but with Yahoo, and others FINALLY pointing out that the tax hike going into effect soon is going to effect more than just the 'rich' it seemed an appropriate lesson to re-post.

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BASIC ECONOMICS

I hate it when people talk about “tax the rich,” or “let the government pay for it.” It tells me just how much our educational system has let us down in the areas of logical thinking and basic economics.

Let's take, “Tax the rich,” first shall we? You see the rich don't pay taxes at all. Most rich people are business owners, and business owners do not pay taxes, they collect them and send them up the line. So you as the consumer pay the taxes, THROUGH the business. Let me say it more clearly – all taxes are paid by the end user of the product. Taking the evil oil companies for instance. They make an average profit margin of 9.7% as per CNNmoney.com. That will be a very important figure later.

There are 4 basic line items on a companies budget; cost of goods produced, cost of labor, taxes and regulatory costs, and profit. Every thing a company spends is represented on one of these lines. For accounting purposes they are often broken down into much smaller subdivisions, but that's usually for marketing and/or regulatory purposes.

So let's define our terms I'll bet you can figure most of them out;
Cost of goods produced (COG) – all materials that go into a the production of a given product
Costs of labor (Labor) – simple, costs for labor, and usually the most expensive of the 3 line items
Taxes and Regulatory costs (Taxes) – what the government costs you to do what you do legally
Profit (P) – this is the simplest and yet often most misunderstood cost. In accounting terms it is what is left over after the product is sold, but it is also often maligned as evil or bad. What most people who think of profit as bad don't realize is that often the business owner doesn't draw a salary, to the business owner the profit IS the salary, and if there is no profit his family doesn't eat. If we're talking a huge corporation we're talking the share holders who have to obtain their share of the profits in various ways either through dividends or through selling the stock. Either way the profit is not evil, it is the point of the exercise. With out profit you couldn't live in your house or drive your car or eat food you didn't raise or kill because no one would have been paid to provide these things for you.

So let's make the example of the wildly thought of evil oil companies. Right now gas in the Austin area is about $2.60/gallon. So, while I don't know the exact numbers I can make an educated guess to make my point.

0.85 = COG
1.00 = Labor
0.52 = Taxes (national average)
0.23 = Profit = (COG + Labor + Taxes)0.097
2.60 = Gallon of gas in your tank
39.00 = Filling your car assuming 15 gallon tank
2028.00 = Full tank once a week for a year

So, let's raise the taxes on this evil oil company and see what happens to the costs of filling you gallon can of gas for your car.

0.85 = COG
1.00 = Labor
0.53 = Taxes
0.24 = Profit = (COG + Labor + Taxes)0.097
2.61 = Gallon of gas in your tank
39.15 = Filling your car assuming 15 gallon tank
2035.80 = Full tank once a week for a year

Most of us can live with an extra 15 cents/week so, let's raise the taxes on this evil oil company by 325% and see what happens to the costs of filling your car.

0.50 = COG
1.00 = Labor
1.74 = Taxes
0.31 = Profit = (COG + Labor + Taxes)0.097
3.55 = Gallon of gas in your tank
53.25 = Filling your car assuming 15 gallon tank
2769.00 = Full tank once a week for a year

Now the real question you need to ask yourself before you scream about taxing the evil rich is – can I afford this little temper tantrum? You see the rich are simply going to roll that costs to you, raise their price and maintain their salary percentage. Either that or go out of business. So, you can have high a priced moral statement that costs them nothing and you everything, or cheap gas, and be happy for them that they get to make a living also.