Bar Stool Economics -- pretty funny

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 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 important. They didn't have enough money between all of them for even half of the bill!
And that, ladies and gentlemen, 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

For those who understand, no explanation is needed..
For those who do not understand, no explanation is possible.

Working HARD to balance the budget

I just got this on eMail -- my comments at the end in red.

MAKES MORE SENSE WITH THE ZEROS GONE. . . .

Ok, folks! You math wizards! Do the math!
Having worked with other people’s money my whole life, even I have had difficulty relating to the recent fiasco when trillions of dollars are being discussed. This is the best analysis I have seen, which most people should be able to understand and hopefully recognize the seriousness of the problem. What banker would loan more money to the Jones family?

Federal Budget 101

The U.S. Congress sets a federal budget every year in the trillions of dollars. Few people know how much money that is so we created a breakdown of federal spending in simple terms. Let’s put the 2011
federal budget into perspective:

• U.S. income: $2,170,000,000,000
• Federal budget: $3,820,000,000,000
• New debt: $ 1,650,000,000,000
• National debt: $14,271,000,000,000
• Recent budget cut: $ 38,500,000,000 (about 1 percent of the budget)

It helps to think about these numbers in terms that we can relate to. Let’s remove eight zeros from each of these numbers and pretend this is the household budget for the fictitious Jones family.

• Total annual income for the Jones family: $21,700
• Amount of money the Jones family spent: $38,200
• Amount of new debt added to the credit card: $16,500
• Outstanding balance on the credit card: $142,710
• Amount cut from the budget: $385

So in effect last month Congress, or in this example the Jones family, sat down at the kitchen table and agreed to cut $385 from its annual budget. What family would cut $385 of spending in order to solve $16,500 in deficit spending?
It is a start, although hardly a solution.
Now after years of this, the Jones family has $142,710 of debt on its credit card (which is the equivalent of the national debt). You would think the Jones family would recognize and address this situation, but it does not. Neither does Congress. The root of the debt problem is that the voters typically do not send people to Congress to save money. They are sent there to bring home the bacon to their own home state.
To effect budget change, we need to change the job description and give Congress new marching orders. 

It is awfully hard (but not impossible) to reverse course and tell the government to stop borrowing money from our children and spending it now. In effect, what we have is a reverse mortgage on the country. The problem is that the voters have become addicted to the money. Moreover, the American voters are still in the denial stage, and do not want to face the possibility of going into rehab."

It is really a joke what our government elected officials are "doing" to solve this problem.  Come on! We owe $142,710, only make $21,700 per year and decide to cancel HBO & Cinemax!  We are giving our kids a terrible mess that may never be cleaned up!

Why is Congress "Special"???!!!

This is from an eMail that is being passed around -- I can't agree more that we need to put a stop to this ridiculous behavior.

"This is an idea that we should address.

For too long we have been too complacent about the workings of Congress. Many citizens had no idea that members of Congress could retire with the same pay after only one term, that they specifically exempted themselves from many of the laws they have passed (such as being exempt from any fear of prosecution for sexual harassment) while ordinary citizens must live under those laws. The latest is to exempt themselves from the Healthcare Reform... in all of its forms. Somehow, that doesn't seem logical. We do not have an elite that is above the law. I truly don't care if they are Democrat, Republican, Independent or whatever. The self-serving must stop.
 
Proposed 28th Amendment to the United States Constitution: "Congress shall make no law that applies to the citizens of the United States that does not apply equally to the Senators and/or Representatives; and, Congress shall make no law that applies to the Senators and/or Representatives that does not apply equally to the citizens of the United States ."
"

2012 Presidential Campaign

It is really amazing how BAD most of the candidates are and the sitting President.  The Republican Candidates seem to be suffering from the same thing that Obama has which is that they can't lead and can't make tough decisions.  They all say whatever the crowd wants to hear.  Bachman actually said that if she is elected President, gas prices will be below $2.  Doesn't that sound like High School when Sally is running against Joe and Sally promises everyone a cupcake if she wins and Joe says that there will be NO MORE HOMEWORK under his watch as President.

What is wrong with this picture is that main stream media (MSM) panders to these clowns and has gone out of their way to ignore the one candidate willing to say the tough things and willing to make the touch decisions -- sorta like real leadership.  Listen to this clip from Jon Stewart show that highlights what a complete joke MSM is making of Ron Paul and how they are completely ignoring his candidacy.  If this wasn't so ridiculous and so scary, the following clip would be scary:

http://www.thedailyshow.com/watch/mon-august-15-2011/indecision-2012---corn-polled-edition---ron-paul---the-top-tier

It is clear by this clip and the total lack of coverage that MSM is actually afraid of Ron Paul.  It's easy to see why because he is the only person right now willing to even try to lead.  The rest want to follow whatever special interests are paying their bills!

When will the transfer of money to banks end!

This is a great series of blogs about what has happened over the past 3 years with the banking system and federal reserve.  To put it simply, imagine that you had a friend who would loan you huge amounts of money at zero interest and then agree to borrow the money back from you at 3% interest?  It wouldn't take a genious to make a bunch of money, would it.

http://www.nakedcapitalism.com/2011/06/guest-post-congressional-research-service-confirms-big-banks-borrowed-cash-for-next-to-nothing-then-lent-it-back-to-the-federal-government-at-much-higher-rates.html?utm_medium=referral&utm_source=pulsenews

What has happened in the past 3 years is really deplorable.  The thing that everyone needs to realize is that this is NOT a Republican or Democrat issue.  Unfortunately, the whole system is messed up and Ds & Rs are guilty of not doing what needs to be done to preserve and protect the American way of life.  As a lifelong capitalist, I can say that the things that have been done are so anticapatilist that it is ridiculous.

The Case for Christ

Karen and I went to hear Lee Strobel tonight at church.  We remembered hearing Lee speak in 89 --91 at Willow Creek in Barrington when we lived in Chicago.  He gave a great talk tonight about his journey from being an outspoken Atheist to an outspoken Christian.  He started his talk tonight by saying that Christianity really boils down to one question:

Did Jesus die for our sins and rise from the dead?

This can be summarized by the word Execution.  Did an execution of Jesus take place?  Atheists and Christians agree that there was a man named Jesus and that he was indeed killed on a cross.  There is also clear evidence and agreement from both sides of the argument that he was dead.  He wasn’t put in the tomb alive and somehow recovered.  He died which brings us to the fundamental tenet of Christianity that Jesus died for our sins and on the 3^rd day rose again.

Early accounts of his rise from the dead.  It has been shown over time that legends take at least two generations to be formed.  In other words, if it is going to become known that I am 6’5” tall and I once was the strongest man on earth, it would take at least two generations for this legend to be created and be accepted as fact.  If someone in my generation or my kids generation or my grandkids generation made this up, there would be people alive that would be able to say that I was never 6’5” tall and would stop the legend from continuing.  Jesus’ death and resurrection was talked about immediately after his death by people who were alive when Jesus was alive and still alive after he rose.  In fact, early churches adopted a creed from the Apostle Paul.

Remember that the Apostle Paul was a devout Jew and a heavy persecutor of the Church.  The creed that he wrote in 1 Cor. 15:3-4 is
“For I delivered to you as of first importance what I also received, that Christ died for our sins according to the Scriptures, and that He was buried, and that He was raised on the third day according to the Scriptures,”

The reason that this creed is important is that the early Christian churches recited this and believed this to be true.  It is said that this creed was passed to the Christian churches as early as 2-5 years after Jesus’ death.  Again, think in terms of giant Tim.  Is it possible that a legend about how big and strong I was could start as early as 2-5years after my death and NOT be true. 

Empty Tomb  The undisputed reality is that the tomb was empty.  One thing that proves it was empty is that the guards immediately tried to blame someone for taking the body of Jesus.  If the tomb was NOT empty, they would have nothing to defend.

Eye Witnesses.  There are many eye witness accounts of Jesus’ resurrection that are recorded and talked about almost immediately after his death, resurrection, and eventual ascension to heaven.  In fact, it is documented that over 515 individuals witnessed Jesus alive after his crucifixion. 

It is amazing that there is so much evidence supporting the life, death, and resurrection of Jesus. 

Crazy Solutions to our problems

Tell me if this is a Republican or Democrat view.  I'm not sure, but I know we need to get serious about fixing our problems.  Here's what I think we should do:

1.       Raise taxes by creating more tiers above $500K and $1mil and $100 mil.

2.       Treat Capital Gains and Dividends and Interest the same as income.  Too many very rich people don't pay what they could because of investment income being treated differently.

3.       Cut Defense by A LOT!!

4.       Cut Welfare by A LOT – make people work.  We have welfare generations.  Get crazy and penalize people on welfare when they have more kids rather than award them.  How – make it simple.  If you are on welfare and have another kid, your welfare payment goes down.  But, if you give up your baby at adoption and have drug tests that prove you were off drugs and alcohol during the pregnancy, give the woman a bonus.  (yes, fanatical, but we need to do crazy things)

5.       Cut Social Security – no increases for 5 years.  No ifs, ands or buts.  Make it "means tested" so that people who don't need social security don't get it.

6.       Cut Medicare by a lot – why do people with a bunch of money get medicare when they get a certain age.

7.       Let private markets dictate pay for public employees – they are paid too much.  Disallow unions for government works.  They are not fair.  Here's why.  If I am in the UAW and work at Ford, my union leadership has to fight hard for my pay and benefits, but they also know that if they push too hard they could ultimately make Ford non-competitive forcing them out of business.  As such, we have seen private sector unions offer concessions in recent years.  On the flip side, government works have no customer that can choose.  Therefore, they don't need to worry about their employer going out of business and only negotiate to get more without any thought or conseration to what the customer wants. 

8.       Invest a lot in roads and all infrastructure.

9.       Invest in charter schools.

10.   Find a way to reward people who move economic classes.  I don’t know what this means or how to do it, but people that can grow up in a terrible environment and turn out ok should be cheered for and rewarded.  Instead, we reward welfare moms!

11.   Cut more and more government funded social programs, but allow more than a 1 to 1 deduction for charity contributions.  Here’s the reality.  Locally run charities that aren’t saddled with all of these government rules make better use of the money that they have because they know that next year, Joe or Sue may give their money elsewhere.  If we can further encourage people to give to local charities, much of the government can disappear and resources will go where they are needed and where people want them to go.  A lot of giving is done because of the deduction, but make it 1.5 x and we'll see giving go up.  The tax revenue lost can be replaced by the cuts made to the programs. 

I'll write more on some of these at a later time.

Budget Deficit -- Raise Revenue or Cut Services

It really is crazy that both parties are being so ridiculous with their so-called proposals to solve the debt crisis.  Obama and the Democrats think we can keep spending and just tax the top 1 or 2% more.  Equally bad is that Ryan and the Republicans think we can cut spending without touching defense, social security, or medicare and they don't want to raise revenue.

Come on!

We have to raise taxes and cut spending. 

Here's a good video of David Stockman.

http://www.bloomberg.com/video/69402400/

Cheap Stuff or Good Jobs

I'm back! And it's my cousin's fault.  He keeps sending me stuff from the Huffington Post which is a very liberal (even by journalistic standards) news source.  In any case, I love getting the information because it is important to view and understand the different perspectives of our economic strengths and weaknesses.   Take a look at the following article that talks about how our monetary policy has increased the fortunes of the Chinese while killing American jobs:

http://www.huffingtonpost.com/dylan-ratigan/the-fed-works-for-chinese_b_811777.html

Monetary policy is interesting and complex.  There are certainly two opposing forces that are impossible to ignore.  One is the need and desire to keep “things” affordable to all Americans and the other is to create and maintain high paying jobs for all Americans.  Unfortunately, it has been difficult to do both.  In our history, we have seen where the force to create and maintain high paying jobs has crushed industries and almost crushed industries – think Auto unions and Teacher unions and Government unions.  And now, we have seen where the push to keep things inexpensive has crushed jobs.  A pair of pants or a shirt costs the same amount now as it did 20-30 years ago.  That’s only possible because of the outsourcing of jobs.  Which evil is worse?  I really don't know.

What do you think?  Should we be protecting our jobs at the expense of a standard of living and global competitiveness or should we be letting the free market do its job?   Not so fast though.  I'm a big believer in the idea of a free market ONLY if we are indeed being treated fairly by our competitors globally.  Are we?